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First Defiance Financial Corp. CEO Discusses Q4 2010 Results - Earnings Call Transcript

Beyond our normal business activities during the year, the company successfully converted its core operating systems in the fourth quarter with no significant service interruptions with client impact. The core conversion project consumed significant resources in both capital and staff terms. The reach of this project was extensive, and it took many months to unfold. I am proud of the conversion team and their efforts as they consistently placed client needs first and work to mitigate any negative effects.

From an overall performance viewpoint, net income was flat with the linked quarter but was up significantly over fourth quarter of 2009. Full-year results for 2010 were also up over 2009 results. Net interest margin performance throughout the year, increased mortgage production in the second half of 2010 as well as improved performance in both our wealth management and insurance business, all helped to offset the credit related expenses and the costs related to the core conversion.

Asset quality performance in the fourth quarter was again considerably weaker than our historic standards. Our provision expense in the fourth quarter 2010 was down significantly from the 2009 fourth quarter, the total provision for 2010 was at the same level as 2009. In light of the continued environment of high unemployment as well as the overall uncertainty of the commercial real estate market, we believe it is prudent to maintain reserves at this level.

This decision drove the provision expense throughout the year, bringing our ratio of allowance of loan loss to total loans up to 2.7%. With a sizeable increase in charge-offs during the fourth quarter as we were more aggressive in writing down collateral values and disposing of OREO. We did have a slight improvement in the fourth quarter over the linked quarter in our level of non-performing assets. We continue to devote significant resources to the monitoring and early recognition of any weaknesses in the portfolio, or we are not seeing new specific home [ph] problems to arise in the portfolio.

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