First Defiance Financial Corp. Announces 2019 Second Quarter Earnings

• Diluted earnings per share of $0.61 for 2019 second quarter, up 13% from $0.54 in the 2018 second quarter
• Net income of $12.2 million for 2019 second quarter, up 10% from $11.1 million in the 2018 second quarter
• Return on average assets of 1.52% for the 2019 second quarter, compared to 1.48% in the 2018 second quarter
• Net interest margin of 4.03% for the 2019 second quarter, up from 3.95% in the 2018 second quarter
• Loan growth of $75.3 million during 2019 second quarter
• Non-performing assets of $15.3 million as of 2019 second quarter, compared to $20.1 million as of 2018 second quarter

First Defiance Financial Corp. FDEF announced today its unaudited financial results for the three and six-month periods ended June 30, 2019. Net income for the second quarter ended June 30, 2019, totaled $12.2 million, or $0.61 per diluted common share compared to $11.1 million or $0.54 per diluted common share for the quarter ended June 30, 2018. Net income for the six months ended June 30, 2019, totaled $23.7 million, or $1.19 per diluted common share compared to $22.8 million or $1.12 per diluted common share for the six months ended June 30, 2018.

"Solid loan growth, net interest margin expansion, and continued asset quality improvement from a year ago are all highlights within our quarterly results," said Donald P. Hileman, President and Chief Executive Officer of First Defiance Financial Corp. "Our return on average assets increased to 1.52% in the second quarter from 1.48% last year while total assets grew 7.8% over prior year. Our performance encourages our very positive outlook for the rest of the year."

Net Interest Income up from Second Quarter of 2018

Net interest income of $29.0 million in the second quarter of 2019 was up from $26.5 million in the second quarter of 2018. The increase was primarily due to the growth in earning assets supplemented by expansion in the net interest margin versus the second quarter of last year. Net interest margin was 4.03% for the second of 2019, and up from 3.95% in the second quarter of 2018. Yield on interest earning assets increased by 38 basis points, to 4.89% in the second quarter of 2019 from 4.51% in the second quarter of 2018. The cost of interest-bearing liabilities increased by 40 basis points in the second quarter of 2019 to 1.14% from 0.74% in the second quarter of 2018.

"Successes in the implementation of our growth strategies were evident this quarter with annualized loan growth of 11.8%," said Hileman. "Further, our net interest margin remains strong at 4.03%, consistent with prior quarter and up 8 basis points from prior year. Loan growth and margin expansion combined to increase net interest income 9.2% over the second quarter last year."

Non-Interest Income up from Second Quarter of 2018

First Defiance's non-interest income for the second quarter of 2019 was $10.5 million compared with $10.2 million in the second quarter of 2018. Results for the second quarter of 2019 included $93,000 of BOLI income death benefit whereas the second quarter of 2018 included $168,000 of BOLI income death benefit.

Mortgage banking income was $2.1 million in the second quarter of 2019, up from $2.0 million in the second quarter of 2018. Mortgage originations totaled $85.5 million in the second quarter of 2019, up seasonally from the first quarter of 2019 and up from $80.5 million in the same quarter of last year. Gains from the sale of mortgage loans increased in the second quarter of 2019 to $1.8 million from $1.4 million in the second quarter of 2018. Mortgage loan servicing revenue was $943,000 in the second quarter of 2019, up slightly from $933,000 in the second quarter of 2018. First Defiance had a negative change in the valuation adjustment in mortgage servicing assets of $190,000 in the second quarter of 2019 compared with a positive adjustment of $47,000 in the second quarter of 2018. In addition, gains on the sale of non-mortgages, which include SBA and FSA loans, totaled $21,000 in the second quarter of 2019 compared to $43,000 in the second quarter of 2018.

For the second quarter of 2019, commissions from the sale of insurance products were $3.6 million, up from $3.5 million in the second quarter of 2018. Service fees and other charges were $3.3 million in the second quarter of 2019, consistent with $3.3 million in the second quarter of 2018. Trust income was $476,000 in the second quarter of 2019, down from $522,000 in the second quarter of 2018. Income from BOLI was $528,000 in the second quarter of 2019, down from $566,000 in the second quarter of 2018 primarily due to the decrease in death benefits described above. Other non-interest income was $407,000 in the second quarter of 2019, up from $281,000 in the second quarter of 2018.

"All of our non-interest income business lines are continuing to positively contribute to our earnings," said Hileman. "Insurance commissions and mortgage banking had good growth compared to the second quarter of last year, which more than offset the results from other lines. Total non-interest income, excluding BOLI death benefits, increased 3.5% over the second quarter of 2018."

Non-Interest Expenses up from Second Quarter of 2018

Total non-interest expense was $24.2 million in the second quarter of 2019, an increase from $22.7 million in the second quarter of 2018. Compensation and benefits increased to $14.4 million in the second quarter of 2019, compared to $12.9 million in the second 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. Occupancy, FDIC premiums, financial institution taxes, data processing and intangibles amortization increased to $5.7 million in the second quarter of 2019, up from $5.2 million in the second quarter of 2018. Other non-interest expenses of $4.2 million in the second quarter of 2019 was down from $4.6 million in the second quarter of 2018.

Credit Quality

Non-performing loans totaled $15.3 million at June 30, 2019, a decrease from $18.3 million at June 30, 2018. In addition, First Defiance had no real estate owned at June 30, 2019, compared to $1.8 million at June 30, 2018. Accruing troubled debt restructured loans were $10.3 million at June 30, 2019, compared with $15.8 million at June 30, 2018.

The second quarter 2019 results include net recoveries of $488,000 and a provision expense for loan losses of $282,000 compared with net charge-offs of $369,000 and a provision expense of $423,000 for the same period in 2018. The allowance for loan loss as a percentage of total loans was 1.10% at June 30, 2019, compared with 1.10% at March 31, 2019, and 1.15% at June 30, 2018.

"We are very pleased with the decrease in our non-performing assets and improvements in our asset quality ratios this quarter," said Hileman. "Non-performing assets at June 30, 2019, declined 24% from last year and now represents only 0.47% of assets. However, we seek further improvements in asset quality throughout the remainder of the year."

Year-To-Date Results

For the six-month period ended June 30, 2019, net income totaled $23.7 million, or $1.19 per diluted common share, compared to $22.8 million, or $1.12 per diluted common share for the six months ended June 30, 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 $672,000, which had an after tax benefit of $531,000, or $0.03 per diluted share. The first half 2019 included a provision for loan losses expense of $494,000, which had an after tax cost of $390,000, or $0.02 per diluted share.

Net interest income was $57.3 million for the first six months of 2019 compared with $52.2 million in the first six months of 2018. Average interest-earning assets increased to $2.89 billion in the first six months of 2019 compared to $2.69 billion in the first six months of 2018. Net interest margin for the first six months of 2019 was 4.03%, up eight basis points from the 3.95% margin reported in the six-month period ended June 30, 2018.

Non-interest income for the first six months of 2019 was $21.3 million compared to $20.9 million during the same period of 2018. Service fees and other charges were $6.3 million for the first six months of 2019, down from $6.4 million during the same period of 2018. Mortgage banking income was $4.0 million for the first six months of 2019, up from $3.8 million during the same period of 2018. Insurance commissions were $7.7 million for the first six months of 2019 compared with $7.8 million for the same period of 2018.

Non-interest expense was $49.1 million for the first six months of 2019, up from $45.9 million for the same period of 2018. Compensation and benefits expense was $28.5 million for the first six months of 2019 compared with $26.1 million during the same period of 2018. Expenses also included increases in occupancy of $448,000 and data processing of $376,000.

Total Assets at $3.28 Billion

Total assets at June 30, 2019, were $3.28 billion compared to $3.18 billion at December 31, 2018, and $3.04 billion at June 30, 2018. Net loans receivable (excluding loans held for sale) were $2.60 billion at June 30, 2019, compared to $2.51 billion at December 31, 2018, and $2.36 billion at June 30, 2018. Also, at June 30, 2019, goodwill and other intangible assets totaled $102.4 million compared to $103.0 million at December 31, 2018, and $103.6 million at June 30, 2018. Total deposits at June 30, 2019, were $2.68 billion compared with $2.62 billion at December 31, 2018, and $2.49 billion at June 30, 2018. Total stockholders' equity was $407.2 million at June 30, 2019, compared to $399.6 million at December 31, 2018, and $386.9 million at June 30, 2018. During the quarter ended March 31, 2019, the company completed the repurchase of 515,000 shares of its common stock for $15.1 million. 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 June 30, 2019.

Dividend to be Paid August 23

The Board of Directors declared a quarterly cash dividend of $0.19 per common share payable August 23, 2019, to shareholders of record at the close of business on August 16, 2019. The dividend represents an annual dividend of 2.79 percent based on the First Defiance common stock closing price on July 19, 2019. First Defiance has approximately 19,727,628 common shares outstanding.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. ET on Tuesday, July 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/fdef190722.html. The replay of the conference call Webcast will be available at www.fdef.com until 9:00 a.m. ET on July 22, 2020.

First Defiance Financial Corp.

First Defiance Financial Corp. 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 June 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.