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

  • Earnings per diluted share of $0.63 for 2019 fourth quarter, up from $0.59 per share in the 2018 fourth quarter
  • Net income of $12.5 million for 2019 fourth quarter, compared to $12.1 million in the 2018 fourth quarter
  • Loan growth of $112 million during the 2019 fourth quarter
  • Deposit growth of $110 million during the 2019 fourth quarter
  • Non-performing loans of $13.5 million for 2019 fourth quarter, compared to $19.0 million for the 2018 fourth quarter

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