First Defiance Financial Corp. Reports Record Full Year Earnings of $2.48 Per Share For 2019

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that net income for the fiscal year ended December 31, 2019, totaled $49.4 million, or ­$2.48 per diluted common share, compared to $46.2 million, or $2.26 per diluted common share, for the year ended December 31, 2018. For the fourth quarter of 2019, First Defiance earned $12.5 million, or ­$0.63 ­per diluted common share, compared to $12.1 million, or $0.59 per diluted common share for the fourth quarter of 2018. The fourth quarter of 2018 results included an increase of $806,000 pre-tax ($636,000 after-tax), or $0.03 per diluted share, from an immaterial accounting correction related to the company’s deferred compensation plan. The year-over-year comparisons are impacted by merger-related costs in the current year’s results, which had an after-tax cost of $1.1 million, or $0.05 per diluted share, for the full year and $697,000, or $0.03 per diluted share, for the fourth quarter.

“With fourth quarter earnings per share up 12% over last year, excluding merger costs, we are proud to announce record earnings performance for our seventh consecutive year,” said Donald P. Hileman, President and Chief Executive Officer of First Defiance. “Our balance sheet and earnings growth, along with continued asset quality improvement, allowed us to finish the year strong. We are pleased with our position as we start 2020 and prepared to close our strategic merger with United Community Financial Corp.”

Net interest income up compared to fourth quarter 2018

Net interest income of $29.5 million in the fourth quarter of 2019 was up from $28.5 million in the fourth 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 fourth quarter last year. The net interest margin was 3.80% for the fourth quarter, down from 3.88% for the third quarter of 2019 and 4.02% in the fourth quarter of 2018. Yield on interest earning assets decreased by six basis points, to 4.67% in the fourth quarter of 2019 from 4.73% in the fourth quarter of 2018. The cost of interest-bearing liabilities increased by 20 basis points in the fourth quarter of 2019 to 1.15% from 0.95% in the fourth quarter of 2018.

“Our solid loan and core deposit growth helped generate an increase in net interest income despite margin compression,” said Hileman. “Annualized growth rates of 17% for loans and 16% for deposits in the fourth quarter provided the momentum we like to see as we begin a new year.”

Non-interest income up from fourth quarter 2018

First Defiance’s non-interest income for the fourth quarter of 2019 was $11.8 million compared to $8.4 million in the fourth quarter of 2018. Results for the fourth quarter of 2019 included a $324,000 increase in deferred compensation plan assets compared to a $690,000 decrease for the same period in 2018 due to stock market performance.

Mortgage banking income was $2.7 million in the fourth quarter of 2019, up from $1.4 million in the fourth quarter of 2018 due to higher volumes. Mortgage originations totaled $106.5 million in the fourth quarter of 2019 compared to $60.9 million in the same quarter last year. As a result of the higher volumes, gains from the sale of mortgage loans increased in the fourth quarter of 2019 to $2.0 million from $758,000 in the fourth quarter of 2018. Mortgage loan servicing revenue was $978,000 in the fourth quarter of 2019, consistent with $978,000 in the fourth quarter of 2018. First Defiance had a positive change in the valuation adjustment in mortgage servicing assets of $223,000 in the fourth quarter of 2019 compared to a positive adjustment of $41,000 in the fourth quarter of 2018.

For the fourth quarter of 2019, service fees and other charges were $3.7 million, up from $3.3 million in the fourth quarter of 2018; and commissions from the sale of insurance products were $3.1 million, consistent with $3.1 million in the fourth quarter of 2018. Trust income was $746,000 in the fourth quarter of 2019, up from $503,000 in the fourth quarter of 2018. The fourth quarter of 2019 included gains of $13,000 from the sale of securities compared to gains of $97,000 in the fourth quarter of 2018.

Other non-interest income for the fourth quarter of 2019 was a positive $1.1 million compared to a negative $494,000 for the fourth quarter of 2018, primarily due to the change in deferred compensation plan assets described above. Excluding the impact of this item, other non-interest income for fourth quarter 2019 would be $767,000 compared to $196,000 in the fourth quarter of 2018.

Non-interest expenses up from fourth quarter 2018

Non-interest expense totaled $24.8 million in the fourth quarter of 2019 compared to $21.2 million in the fourth quarter of 2018. The comparison includes a one-time $806,000 reduction in expenses from the accounting correction to the company’s deferred compensation plan in the fourth quarter of 2018. Additionally, the fourth quarter of 2019 included a $321,000 increase in deferred compensation plan expense compared to a $1.3 million decrease in the fourth quarter of 2018 due to stock market performance in the relative periods.

Compensation and benefits in the fourth quarter of 2019 was $14.6 million, an increase of $1.1 million compared to the fourth quarter of 2018. Occupancy expense was $2.3 million in the fourth quarter of 2019, down $113,000 from the fourth quarter of 2018. Data processing cost was $1.8 million in the fourth quarter of 2019, down $443,000 from the fourth quarter of 2018. In addition, acquisition-related costs totaled $882,000 in the fourth quarter of 2019 compared to none in the prior year.

Other non-interest expense was $4.2 million in the fourth quarter of 2019 compared to $2.0 million (or $2.8 million excluding the benefit from the deferred compensation accounting correction) in the fourth quarter of 2018. Additionally, results for the fourth quarter of 2018 included a $1,052,000 decrease in deferred compensation plan liabilities compared to a $321,000 increase for the same period in 2019 due to stock market performance. Excluding the impact of these items, other non-interest expense for fourth quarter 2019 would be $3.9 million compared to $3.9 million in the fourth quarter of 2018.

Credit quality

Non-performing loans totaled $13.5 million at December 31, 2019, a decrease from $19.0 million at December 31, 2018. In addition, real estate owned totaled $100,000 at December 31, 2019, down from $1.2 million at December 31, 2018. Accruing troubled debt restructured loans were $8.4 million at December 31, 2019, a decrease from $11.6 million at December 31, 2018.

The fourth quarter of 2019 results include net charge-offs of $91,000 and a provision for loan losses of $1.1 million compared with net recoveries of $220,000 and a provision of $472,000 for the same period in 2018. The allowance for loan loss as a percentage of total loans was 1.12% at December 31, 2019, compared with 1.13% at September 30, 2019, and 1.12% at December 31, 2018.

“Our non-performing assets to total assets at year-end improved significantly from the prior year to 0.39%, and net recoveries were $7,000 in 2019,” said Hileman. “A heightened, strategic focus in asset quality played a significant role in this achievement. A continuation of these efforts in 2020 is anticipated to lead to additional reductions in our non-performing assets.”

Annual results

Net income for the full year ended on December 31, 2019, totaled $49.4 million, or $2.48 per diluted common share, compared to $46.2 million, or $2.26 per diluted common share for 2018. The year 2018 included a benefit of $806,000 from an accounting correction, which had an after-tax impact of $636,000 or $0.03 per diluted share. The year 2019 included acquisition-related expenses, which had an after-tax impact of $1.1 million or $0.05 per diluted share.

Net interest income for 2019 totaled $115.6 million, compared with $108.3 million for 2018. Average interest-earning assets increased to $2.97 billion for 2019, compared to $2.74 billion in 2018. Net interest margin for 2019 was 3.93%, down five basis points from the 3.98% margin for 2018. The provision for loan losses for 2019 was $2.9 million, compared to $1.2 million for 2018.

Non-interest income for the year 2019 was $45.0 million, compared to $39.2 million in 2018. Service fees and other charges were $14.0 million for 2019, up from $13.1 million in 2018. Mortgage banking income increased to $9.5 million for 2019 from $7.1 million in 2018. Gains on the sale of non-mortgage loans were $226,000 for 2019, compared to $317,000 in 2018. Insurance commissions were $14.1 million for 2019, consistent with $14.1 million in 2018. Non-interest income for 2019 included $24,000 of net securities gains compared to $173,000 of net securities gains for 2018.

Non-interest expense increased to $97.1 million in 2019 from $89.4 million in 2018. Included in non-interest expense for 2019 were acquisition-related expenses of $1.4 million. Compensation and benefits expense was ­$57.2 million for 2019 compared to $52.6 million for 2018. Expenses also included decreases in data processing expense of $500,000 and FDIC insurance premiums of $537,000, partly offset by an increase in occupancy expense of $386,000. Other non-interest expense was $17.6 million in 2019 compared to $15.2 million (or $16.0 million excluding the benefit from the deferred compensation accounting correction) in 2018.

Total assets at $3.47 billion

Total assets at December 31, 2019, were $3.47 billion compared to $3.18 billion at December 31, 2018. Net loans receivable (excluding loans held for sale) were $2.75 billion at December 31, 2019, compared to $2.51 billion at December 31, 2018. Also, at December 31, 2019, goodwill and other intangible assets totaled $103.8 million compared to $103.0 million at December 31, 2018.

Total deposits at December 31, 2019, were $2.87 billion compared with $2.62 billion at December 31, 2018. Total stockholders’ equity was $426.2 million at December 31, 2019, compared to $399.6 million at December 31, 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 December 31, 2019.

Dividend to be paid February 21

The Board of Directors declared a quarterly cash dividend of $0.22 per common share payable February 21, 2020, to shareholders of record at the close of business on February 14, 2020. The dividend represents an annual dividend of 2.82% based on the First Defiance common stock closing price on January 17, 2020. First Defiance has approximately 19,730,000 common shares outstanding.

Conference call

First Defiance will host a conference call at 11:00 a.m. ET on Tuesday, January 21, 2020, to discuss the earnings results and business trends. The conference call may be accessed by calling 1-877-444-1726. A live webcast may also be accessed at https://services.choruscall.com/links/fdef200121.html.

The replay of the conference call webcast will be available at www.fdef.com until 9:00 a.m. ET on Wednesday, January 20, 2021.

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 December 31, 2019 consolidated financial statements as part of its Annual Report on Form 10-K to be filed with the SEC. Accordingly, subsequent events could occur that may cause First Defiance to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

Consolidated Balance Sheets (Unaudited)
First Defiance Financial Corp.
		December 31,				December 31,
(in thousands)		2019				2018
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions		$	46,254			$	55,962
Interest-bearing deposits			85,000				43,000
			131,254				98,962
Securities
Available-for sale, carried at fair value			283,448				294,076
Held-to-maturity, carried at amortized cost			-				526
			283,448				294,602
Loans			2,777,564				2,540,039
Allowance for loan losses			(31,243	)			(28,331	)
Loans, net			2,746,321				2,511,708
Loans held for sale			18,008				6,613
Mortgage servicing rights			10,267				10,119
Accrued interest receivable			10,244				9,641
Federal Home Loan Bank stock			11,915				14,217
Bank Owned Life Insurance			75,544				67,660
Office properties and equipment			39,563				40,670
Real estate and other assets held for sale			100				1,205
Goodwill			100,069				98,569
Core deposit and other intangibles			3,772				4,391
Other assets			38,487				23,365
Total Assets		$	3,468,992			$	3,181,722
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits		$	630,359			$	607,198
Interest-bearing deposits			2,239,966				2,013,684
Total deposits			2,870,325				2,620,882
Advances from Federal Home Loan Bank			85,063				85,189
Notes payable and other interest-bearing liabilities			2,999				5,741
Subordinated debentures			36,083				36,083
Advance payments by borrowers for tax and insurance			5,491				3,652
Deferred taxes			1,326				264
Other liabilities			41,538				30,322
Total Liabilities			3,042,825				2,782,133
Stockholders’ Equity
Preferred stock			-				-
Common stock, net			127				127
Additional paid-in-capital			161,955				161,593
Accumulated other comprehensive income (loss)			4,595				(2,148	)
Retained earnings			329,934				295,588
Treasury stock, at cost			(70,444	)			(55,571	)
Total stockholders’ equity			426,167				399,589
Total Liabilities and Stockholders’ Equity		$	3,468,992			$	3,181,722

Consolidated Statements of Income (Unaudited)
First Defiance Financial Corp.
		Three Months Ended							Twelve Months Ended
		December 31,							December 31,
(in thousands, except per share amounts)		2019			2018				2019			2018
Interest Income:
Loans		$	33,695		$	30,841			$	130,853		$	114,398
Investment securities			1,889			2,167				8,183			8,134
Interest-bearing deposits			537			325				1,395			1,270
FHLB stock dividends			120			217				653			915
Total interest income			36,241			33,550				141,084			124,717
Interest Expense:
Deposits			5,999			4,389				22,613			13,897
FHLB advances and other			431			318				1,443			1,261
Subordinated debentures			311			347				1,354			1,281
Notes Payable			2			4				25			23
Total interest expense			6,743			5,058				25,435			16,462
Net interest income			29,498			28,492				115,649			108,255
Provision for loan losses			1,084			472				2,905			1,176
Net interest income after provision for loan losses			28,414			28,020				112,744			107,079
Non-interest Income:
Service fees and other charges			3,693			3,338				14,028			13,100
Mortgage banking income			2,683			1,445				9,483			7,077
Gain on sale of non-mortgage loans			11			17				226			317
Gain on sale of securities			13			97				24			173
Insurance commissions			3,123			3,061				14,118			14,085
Trust income			746			503				2,255			2,091
Income from Bank Owned Life Insurance			456			402				2,158			1,767
Other non-interest income			1,091			(494	)			2,664			598
Total Non-interest Income			11,816			8,369				44,956			39,208
Non-interest Expense:
Compensation and benefits			14,631			13,550				57,175			52,566
Occupancy			2,277			2,390				9,027			8,641
FDIC insurance premium			208			204				484			1,021
Financial institutions tax			526			525				2,193			2,118
Data processing			1,763			2,206				8,055			8,555
One time acquisition related charges			882			-				1,422			-
Amortization of intangibles			281			314				1,120			1,312
Other non-interest expense			4,192			2,021				17,587			15,199
Total Non-interest Expense			24,760			21,210				97,063			89,412
Income before income taxes			15,470			15,179				60,637			56,875
Income taxes			2,953			3,082				11,267			10,626
Net Income		$	12,517		$	12,097			$	49,370		$	46,249
Earnings per common share:
Basic		$	0.63		$	0.60			$	2.49		$	2.27
Diluted		$	0.63		$	0.59			$	2.48		$	2.26
Average Shares Outstanding:
Basic			19,792			20,313				19,844			20,358
Diluted			19,895			20,404				19,931			20,449

Financial Summary and Comparison (Unaudited)
First Defiance Financial Corp.
		Three Months Ended											Twelve Months Ended
		December 31,											December 31,
(dollars in thousands, except per share data)		2019				2018				% change			2019				2018				% change
Summary of Operations
Tax-equivalent interest income (2)		$	36,473			$	33,808			7.9	%		$	142,051			$	125,721			13.0	%
Interest expense			6,743				5,058			33.3				25,435				16,462			54.5
Tax-equivalent net interest income (2)			29,730				28,750			3.4				116,616				109,259			6.7
Provision for loan losses			1,084				472			129.7				2,905				1,176			147.0
Tax-equivalent NII after provision for loan loss (2)			28,646				28,278			1.3				113,711				108,083			5.2
Investment securities gains			13				97			(86.6	)			24				173			(86.1	)
Non-interest income (excluding securities gains/losses)			11,803				8,272			42.7				44,932				39,035			15.1
Non-interest expense			24,760				21,210			16.7				97,063				89,412			8.6
Income taxes			2,953				3,082			(4.2	)			11,267				10,626			6.0
Net Income			12,517				12,097			3.5				49,370				46,249			6.7
Tax equivalent adjustment (2)			232				258			(10.1	)			967				1,004			(3.7	)
At Period End
Assets			3,468,992				3,181,722			9.0
Earning assets			3,175,935				2,898,471			9.6
Loans			2,777,564				2,540,039			9.4
Allowance for loan losses			31,243				28,331			10.3
Deposits			2,870,325				2,620,882			9.5
Stockholders’ equity			426,167				399,589			6.7
Average Balances
Assets			3,425,097				3,138,202			9.1				3,283,780				3,048,525			7.7
Earning assets			3,107,224				2,831,866			9.7				2,969,662				2,741,215			8.3
Loans			2,688,519				2,474,221			8.7				2,597,864				2,382,941			9.0
Deposits and interest-bearing liabilities			2,954,049				2,705,736			9.2				2,830,244				2,626,004			7.8
Deposits			2,830,043				2,594,635			9.1				2,717,224				2,507,553			8.4
Stockholders’ equity			420,352				392,701			7.0				406,286				384,305			5.7
Stockholders’ equity / assets			12.27	%			12.51	%		(1.9	)			12.37	%			12.61	%		(1.9	)
Per Common Share Data
Net Income
Basic		$	0.63			$	0.60			5.0			$	2.49			$	2.27			9.7
Diluted			0.63				0.59			6.8				2.48				2.26			9.7
Dividends			0.22				0.17			29.4				0.79				0.64			23.4
Market Value:
High		$	32.39			$	31.09			4.2			$	32.39			$	31.09			4.2
Low			27.77				22.78			21.9				24.12				22.78			5.9
Close			31.32				24.51			27.8				31.32				24.51			27.8
Common Book Value			21.60				19.81			9.0				21.60				19.81			9.0
Tangible Common Book Value (1)			16.34				14.71			11.1				16.34				14.71			11.1
Shares outstanding, end of period (000)			19,730				20,171			(2.2	)			19,730				20,171			(2.2	)
Performance Ratios (annualized)
Tax-equivalent net interest margin (2)			3.80	%			4.02	%		(5.4	)			3.93	%			3.98	%		(1.2	)
Return on average assets			1.45	%			1.53	%		(5.2	)			1.50	%			1.52	%		(0.9	)
Return on average equity			11.81	%			12.22	%		(3.3	)			12.15	%			12.03	%		1.0
Efficiency ratio (3)			59.62	%			57.29	%		4.1				60.08	%			60.29	%		(0.3	)
Effective tax rate			19.09	%			20.30	%		(6.0	)			18.58	%			18.68	%		(0.5	)
Dividend payout ratio (basic)			34.92	%			28.33	%		23.2				31.73	%			28.19	%		12.5

(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								Twelve Months Ended
		December 31,								December 31,
(dollars in thousands)		2019				2018				2019				2018
Gain from sale of mortgage loans		$	2,035			$	758			$	7,706			$	4,502
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue			978				978				3,820				3,784
Amortization of mortgage servicing rights			(553	)			(332	)			(1,809	)			(1,341	)
Mortgage servicing rights valuation adjustments			223				41				(234	)			132
			648				687				1,777				2,575
Total revenue from sale and servicing of mortgage loans		$	2,683			$	1,445			$	9,483			$	7,077

Yield Analysis
First Defiance Financial Corp.
		Three Months Ended December 31,
		(dollars in thousands)
		2019												2018
		Average						Yield						Average						Yield
		Balance			Interest(1)			Rate(2)						Balance			Interest(1)			Rate(2)
Interest-earning assets:
Loans receivable		$	2,688,519		$	33,716		4.98	%					$	2,474,221		$	30,867		4.95	%
Securities			287,172			2,100		2.96	%		(3)				289,233			2,399		3.22	%		(3)
Interest Bearing Deposits			119,618			537		1.78	%						54,195			325		2.38	%
FHLB stock			11,915			120		4.00	%						14,217			217		6.06	%
Total interest-earning assets			3,107,224			36,473		4.67	%						2,831,866			33,808		4.73	%
Non-interest-earning assets			317,873												306,336
Total assets		$	3,425,097											$	3,138,202
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	2,205,673		$	5,999		1.08	%					$	2,002,541		$	4,389		0.87	%
FHLB advances and other			85,291			431		2.00	%						69,782			318		1.81	%
Subordinated debentures			36,083			311		3.42	%						36,083			347		3.82	%
Notes payable			2,632			2		0.30	%						5,236			4		0.30	%
Total interest-bearing liabilities			2,329,679			6,743		1.15	%						2,113,642			5,058		0.95	%
Non-interest bearing deposits			624,370			-		-							592,094			-		-
Total including non-interest-bearing demand deposits			2,954,049			6,743		0.91	%						2,705,736			5,058		0.74	%
Other non-interest-bearing liabilities			50,696												39,765
Total liabilities			3,004,745												2,745,501
Stockholders' equity			420,352												392,701
Total liabilities and stockholders' equity		$	3,425,097											$	3,138,202
Net interest income; interest rate spread					$	29,730		3.52	%								$	28,750		3.78	%
Net interest margin (4)								3.80	%											4.02	%
Average interest-earning assets to average interest bearing liabilities								133	%											134	%
		Twelve Months Ended December 31,
		2019												2018
		Average						Yield						Average						Yield
		Balance			Interest(1)			Rate						Balance			Interest(1)			Rate
Interest-earning assets:
Loans receivable		$	2,597,864		$	130,943		5.04	%					$	2,382,941		$	114,500		4.80	%
Securities			294,027			9,060		3.08	%		(3)				279,867			9,036		3.23	%		(3)
Interest Bearing Deposits			65,424			1,395		2.13	%						63,261			1,270		2.01	%
FHLB stock			12,347			653		5.29	%						15,146			915		6.04	%
Total interest-earning assets			2,969,662			142,051		4.78	%						2,741,215			125,721		4.59	%
Non-interest-earning assets			314,118												307,310
Total assets		$	3,283,780											$	3,048,525
Deposits and Interest-bearing liabilities:
Interest bearing deposits		$	2,122,439		$	22,613		1.07	%					$	1,945,114		$	13,897		0.71	%
FHLB advances and other			73,013			1,443		1.98	%						73,421			1,261		1.72	%
Subordinated debentures			36,083			1,354		3.75	%						36,083			1,281		3.55	%
Notes payable			3,924			25		0.64	%						8,947			23		0.26	%
Total interest-bearing liabilities			2,235,459			25,435		1.14	%						2,063,565			16,462		0.80	%
Non-interest bearing deposits			594,785			-		-							562,439			-		-
Total including non-interest-bearing demand deposits			2,830,244			25,435		0.90	%						2,626,004			16,462		0.63	%
Other non-interest-bearing liabilities			47,250												38,216
Total liabilities			2,877,494												2,664,220
Stockholders' equity			406,286												384,305
Total liabilities and stockholders' equity		$	3,283,780											$	3,048,525
Net interest income; interest rate spread					$	116,616		3.64	%								$	109,259		3.79	%
Net interest margin (4)								3.93	%											3.98	%
Average interest-earning assets to average interest bearing liabilities								133	%											133	%

(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)		4th Qtr 2019				3rd Qtr 2019				2nd Qtr 2019				1st Qtr 2019				4th Qtr 2018
Summary of Operations
Tax-equivalent interest income (1)		$	36,473			$	35,922			$	35,490			$	34,166			$	33,808
Interest expense			6,743				6,791				6,252				5,649				5,058
Tax-equivalent net interest income (1)			29,730				29,131				29,238				28,517				28,750
Provision for loan losses			1,084				1,327				282				212				472
Tax-equivalent NII after provision for loan losses (1)			28,646				27,804				28,956				28,305				28,278
Investment securities gains, net of impairment			13				11				-				-				97
Non-interest income (excluding securities gains/losses)			11,803				11,831				10,486				10,813				8,272
Non-interest expense			24,760				23,203				24,235				24,866				21,210
Income taxes			2,953				3,033				2,759				2,523				3,082
Net income			12,517				13,171				12,199				11,482				12,097
Tax equivalent adjustment (1)			232				239				249				247				258
At Period End
Total assets		$	3,468,992			$	3,350,724			$	3,277,552			$	3,221,249			$	3,181,722
Earning assets			3,175,935				3,045,659				2,980,243				2,934,860				2,898,471
Loans			2,777,564				2,665,300				2,624,219				2,548,968				2,540,039
Allowance for loan losses			31,243				30,250				28,934				28,164				28,331
Deposits			2,870,325				2,760,615				2,680,637				2,685,792				2,620,882
Stockholders’ equity			426,167				418,046				407,216				395,789				399,589
Stockholders’ equity / assets			12.29	%			12.48	%			12.42	%			12.29	%			12.56	%
Goodwill			100,069				100,069				98,569				98,569				98,569
Average Balances
Total assets		$	3,425,097			$	3,303,013			$	3,223,997			$	3,183,012			$	3,138,202
Earning assets			3,107,224				2,985,498				2,914,587				2,871,340				2,831,866
Loans			2,688,519				2,624,314				2,561,341				2,517,283				2,474,221
Deposits and interest-bearing liabilities			2,954,049				2,843,079				2,781,216				2,742,626				2,705,736
Deposits			2,830,043				2,718,632				2,678,060				2,642,158				2,594,635
Stockholders’ equity			420,352				411,041				398,612				395,138				392,701
Stockholders’ equity / assets			12.27	%			12.44	%			12.36	%			12.41	%			12.51	%
Per Common Share Data
Net Income:
Basic		$	0.63			$	0.67			$	0.62			$	0.57			$	0.60
Diluted			0.63				0.66				0.61				0.57				0.59
Dividends			0.22				0.19				0.19				0.19				0.17
Market Value:
High		$	32.39			$	29.44			$	30.44			$	31.30			$	31.09
Low			27.77				25.50				26.59				24.12				22.78
Close			31.32				28.97				28.57				28.74				24.51
Common Book Value			21.60				21.19				20.65				20.08				19.81
Shares outstanding, end of period (in thousands)			19,730				19,729				19,723				19,713				20,171
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)			3.80	%			3.88	%			4.03	%			4.03	%			4.02	%
Return on average assets			1.45	%			1.58	%			1.52	%			1.46	%			1.53	%
Return on average equity			11.81	%			12.71	%			12.28	%			11.78	%			12.22	%
Efficiency ratio (2)			59.62	%			56.65	%			61.01	%			63.22	%			57.29	%
Effective tax rate			19.09	%			18.72	%			18.44	%			18.01	%			20.30	%
Common dividend payout ratio (basic)			34.92	%			28.36	%			30.65	%			33.33	%			28.33	%

(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)		4th Qtr 2019				3rd Qtr 2019				2nd Qtr 2019				1st Qtr 2019				4th Qtr 2018
Loan Portfolio Composition
One to four family residential real estate		$	324,773			$	330,369			$	322,123			$	321,644			$	322,686
Construction			305,305				308,061				335,847				304,241				265,772
Commercial real estate			1,506,026				1,430,919				1,411,463				1,394,500				1,404,810
Commercial			578,071				537,806				530,528				509,627				509,577
Consumer finance			37,649				36,644				35,350				34,262				34,405
Home equity and improvement			122,864				123,871				125,860				124,450				128,152
Total loans			2,874,688				2,767,670				2,761,171				2,688,724				2,665,402
Less:
Undisbursed loan funds			94,865				100,260				134,794				137,742				123,293
Deferred loan origination fees			2,259				2,110				2,158				2,014				2,070
Allowance for loan loss			31,243				30,250				28,934				28,164				28,331
Net Loans		$	2,746,321			$	2,635,050			$	2,595,285			$	2,520,804			$	2,511,708
Allowance for loan loss activity
Beginning allowance		$	30,250			$	28,934			$	28,164			$	28,331			$	27,639
Provision for loan losses			1,084				1,327				282				212				472
Credit loss charge-offs:
One to four family residential real estate			258				74				11				172				31
Commercial real estate			-				-				15				-				30
Commercial			436				25				13				187				15
Consumer finance			34				80				33				142				105
Home equity and improvement			136				12				64				33				75
Total charge-offs			864				191				136				534				256
Total recoveries			773				180				624				155				476
Net charge-offs (recoveries)			91				11				(488	)			379				(220	)
Ending allowance		$	31,243			$	30,250			$	28,934			$	28,164			$	28,331
Credit Quality
Total non-performing loans (1)		$	13,459			$	14,677			$	15,334			$	17,645			$	19,016
Real estate owned (REO)			100				-				-				941				1,205
Total non-performing assets (2)		$	13,559			$	14,677			$	15,334			$	18,586			$	20,221
Net charge-offs (recoveries)			91				11				(488	)			379				(220	)
Restructured loans, accruing (3)			8,427				10,334				10,308				11,908				11,573
Allowance for loan losses / loans			1.12	%			1.13	%			1.10	%			1.10	%			1.12	%
Allowance for loan losses / non-performing assets			230.42	%			206.10	%			188.69	%			151.53	%			140.11	%
Allowance for loan losses / non-performing loans			232.13	%			206.10	%			188.69	%			159.61	%			148.99	%
Non-performing assets / loans plus REO			0.49	%			0.55	%			0.58	%			0.73	%			0.80	%
Non-performing assets / total assets			0.39	%			0.44	%			0.47	%			0.58	%			0.64	%
Net charge-offs / average loans (annualized)			0.01	%			0.00	%			-0.08	%			0.06	%			-0.04	%
Deposit Balances
Non-interest-bearing demand deposits		$	630,359			$	604,129			$	584,735			$	586,033			$	607,198
Interest-bearing demand deposits and money market			1,198,012				1,124,208				1,088,694				1,107,511				1,040,471
Savings deposits			303,166				294,594				304,051				300,244				292,829
Retail time deposits less than $250,000			631,253				634,737				610,345				601,012				591,822
Retail time deposits greater than $250,000			107,535				102,947				92,812				90,992				88,562
Total deposits		$	2,870,325			$	2,760,615			$	2,680,637			$	2,685,792			$	2,620,882

(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
December 31, 2019
One to four family residential real estate		$	324,773		$	321,058		$	1,298		$	2,417
Construction			305,305			305,305			-			-
Commercial real estate			1,506,026			1,497,845			546			7,635
Commercial			578,071			574,593			519			2,959
Consumer finance			37,649			37,444			205			-
Home equity and improvement			122,864			121,211			1,205			448
Total loans		$	2,874,688		$	2,857,456		$	3,773		$	13,459
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

 

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