FDEF - First Defiance Financial Corp. Announces 2019 First Quarter Earnings

First Defiance Financial Corp. (NASDAQ: FDEF) announced today that earnings for the first quarter of 2019 were $11.5 million, or $0.57 per diluted common share compared to $11.7 million or $0.57 per diluted common share for the first quarter of 2018. The year-to-year comparison is impacted by the prior year’s results, including a significant loan recovery and a credit loan loss provision of $1.1 million, which had an after tax benefit of $865,000, or $0.04 per diluted share. The first quarter 2019 included a provision for loan losses expense of $212,000, which had an after tax cost of $168,000, or $0.01 per diluted share.

“Strong deposit gathering, net interest margin expansion and improved asset quality metrics highlight the start to 2019,” said Donald P. Hileman, Chief Executive Officer of First Defiance Financial Corp. “These trends continue to support our positive outlook for 2019.”

Net interest income up compared to first quarter 2018

Net interest income of $28.3 million in the first quarter of 2019 was up from $25.7 million in the first quarter of 2018. The increase over the prior year’s first quarter was attributable to organic growth and net interest margin expansion. Net interest margin was 4.03% for the first quarter of 2019, up from 4.02% in the fourth quarter of 2018, and up from 3.95% in the first quarter of 2018. Yield on interest earning assets increased to 4.82% in the first quarter of 2019, up 39 basis points from 4.43% in the first quarter of 2018. The cost of interest-bearing liabilities increased 41 basis points in the first quarter of 2019 to 1.06% from 0.65% in the first quarter of 2018. While the net interest spread declined 2 basis points to 3.76% from 3.78%, the strong mix of non-interest bearing deposits reduced the increase in overall funding costs, which led to year-over-year net interest margin improvement.

“Our net interest margin improved both quarter over quarter and year over year,” said Hileman. “While loan growth was seasonally down compared to last quarter, our growth strategies are succeeding with loans up 8.1% year over year. This growth in combination with margin expansion led to a 10.1% increase in net interest income from the prior year.”

Non-interest income up from first quarter 2018

First Defiance’s non-interest income in the first quarter of 2019 was $10.8 million compared with $10.7 million in the first quarter of 2018. Results for the first quarter included a $559,000 increase in deferred compensation plan assets compared to a $37,000 decrease for the same period in 2018 primarily due to stock market performance. Excluding the deferred compensation plan impact, non-interest income declined $486,000, as improved mortgage banking performance was more than offset by declines in other business lines.

Mortgage banking income increased to $1.8 million in the first quarter of 2019 from $1.7 million in the first quarter of 2018. Gains from the sale of mortgage loans increased to $1.3 million in the first quarter of 2019 from $1.1 million in the first quarter of 2018. Mortgage loan servicing revenue remained flat at $0.9 million in the first quarters of 2019 and 2018. First Defiance had a negative change in the valuation adjustment in mortgage servicing assets of $113,000 in the first quarter of 2019 compared with a positive adjustment of $37,000 in the first quarter of 2018.

For the first quarter 2019, service fees and other charges were $3.0 million, down from $3.1 million in the first quarter of 2018; and commissions from the sale of insurance products were $4.1 million, down from $4.3 million in the first quarter of 2018. The first quarter typically includes contingent revenues, bonuses paid by insurance carriers when the Company achieves certain loss ratios or growth targets. In the first quarter of 2019, First Defiance’s insurance subsidiary, First Insurance Group, earned $0.9 million of contingent income, compared to $1.0 million during the first quarter of 2018. Trust income was $523,000 in the first quarter of 2019, up from $503,000 in the fourth quarter of 2018, but down from $552,000 in the first quarter of 2018. Other non-interest income for the first quarter was $846,000, up from $377,000 in 2018 primarily due to the increase in deferred compensation assets described above.

“We are very pleased with the performance of mortgage banking this quarter,” said Hileman. “Non-interest income remains an important element to our earnings growth goals and we continue to seek ways to improve these revenue streams.”

Non-interest expenses up from first quarter 2018

Total non-interest expense was $24.9 million in the first quarter of 2019, up from $23.3 million in the first quarter of 2018. Compensation and benefits increased to $14.1 million in the first quarter of 2019, compared to $13.2 million in the first quarter of 2018. The increase in compensation and benefits from a year ago is mainly due to additions to staff to support growth strategies, merit increases, and higher medical benefit costs. Data processing cost was $2.3 million in the first quarter of 2019, up from $2.1 million in the first quarter of 2018. Other non-interest expense of $5.1 million in the first quarter of 2019 increased from $4.6 million in the first quarter of 2018. The increase in other non-interest expenses from a year ago is primarily due to a $559,000 increase in deferred compensation liabilities compared to a $130,000 increase for the same period in 2018. Additionally, other non-interest expenses for the first quarter 2019 included OREO write-downs of $264,000 compared to $544,000 for the first quarter of 2018.

Credit quality

Non-performing loans totaled $17.6 million at March 31, 2019, a decrease from $19.0 million at December 31, 2018, and a decrease from $27.9 million at March 31, 2018. In addition, First Defiance had $0.9 million of OREO at March 31, 2019, compared to $1.4 million at March 31, 2018. Accruing troubled debt restructured loans were $11.9 million at March 31, 2019, compared with $13.7 million at March 31, 2018.

The first quarter 2019 results include net charge-offs of $379,000 and a provision expense for loan losses of $212,000 compared with net recoveries of $1.7 million and a credit provision of $1.1 million for the same period in 2018. The allowance for loan loss as a percentage of total loans was 1.10% at March 31, 2019, compared with 1.16% at March 31, 2018.

“Asset quality metrics continued to strengthen this quarter as expected,” said Hileman. “Non-accrual loans declined 7.2% from last quarter and 36.8% from last year while loan delinquencies improved to 0.72% of balances from 1.18% a year ago. We remain focused on further enhancements to asset quality.”

Total assets at $3.22 billion

Total assets at March 31, 2019, were $3.22 billion compared to $3.18 billion at December 31, 2018, and $3.02 billion at March 31, 2018.

Net loans receivable (excluding loans held for sale) were $2.52 billion at March 31, 2019, compared to $2.51 billion at December 31, 2018, and $2.33 billion at March 31, 2018. At March 31, 2019, net loans receivable grew $189.7 million, or 8.1% from a year ago.

Also, at March 31, 2019, goodwill and other intangible assets totaled $102.7 million compared to $103.0 million at December 31, 2018, and $103.9 million at March 31, 2018.

Total deposits at March 31, 2019, were $2.69 billion compared with $2.62 billion at December 31, 2018, and $2.49 billion at March 31, 2018. At March 31, 2019, total deposits grew $194.0 million, or 7.8% from a year ago.

Total stockholders’ equity was $395.8 million at March 31, 2019, compared to $399.6 million at December 31, 2018, and $379.2 million at March 31, 2018. The reduction in stockholders’ equity from year-end 2018 was due to the company’s repurchase of 515,000 shares of its common stock for $15.1 million during the first quarter of 2019. At March 31, 2019, 9,000 shares of common stock remained available for repurchase under its existing authorization.

Dividend to be paid May 24

The Board of Directors declared a quarterly cash dividend of $0.19 per common share payable May 24, 2019, to shareholders of record at the close of business on May 17, 2019. The dividend represents an annual dividend of 2.63 percent based on the First Defiance common stock closing price on April 18, 2019. First Defiance has approximately 19,714,190 common shares outstanding.

CFO succession

Kevin T. Thompson, Executive Vice President and CFO of First Defiance Financial Corp. and First Federal Bank, announced that he will retire from the company effective April 30, 2019. Mr. Thompson has served as CFO since January 2014 and Executive Vice President since August 2013. Paul D. Nungester will succeed Mr. Thompson as CFO. Mr. Nungester has served as Executive Vice President and Director of Finance and Accounting since July 2018.

Conference call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, April 23, 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/fdef190423.html. The replay of the conference call will be available at www.fdef.com until April 23, 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 March 31, 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.