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First Defiance Financial's CEO Discusses Q1 2011 Results - Earnings Call Transcript

The stabilization of property values resulted in fewer and less severe write-downs of previously identified problem assets. We are also encouraged by the reduction in non-performing assets for the second consecutive quarter, lower delinquencies, and reduction in troubled debt restructure.

Net charge-offs were also a factor in the improved earnings as they were down compared to both the linked quarter and the first quarter 2010. We anticipate the level of charge-offs s will be choppy over the next several quarters as more of the problem assets work through this system. However we are confident that we’ve adequately reserved for these assets.

Loan balances dropped again during the first three months of 2011 in virtually all loan categories, both normal amortization and pay downs and lines of credit contributed to the reduction as loan demand remains soft through most of the quarter. We did start to see a pickup in borrowing requests in the latter part of the quarter and several significant commitments on the commercial side are waiting to be closed and funded.

Residential mortgage funding is well off the pace till the last half of 2010, but it is at more normal historic levels. One positive on the residential side is we are seeing a significantly higher percentage of purchases, rather than the refinancing loans that were more prevalent in 2010.

Even with the drop in loan balances, net interest income for the quarter was up slightly over the first quarter 2010 results. Net interest margin was also up four basis points over the first quarter 2010 and flat with the linked quarter. Pricing discipline on both loans and deposits along with the change in the deposit mix were positive contributors to the margin performance.

Non-interest-bearing deposit average balances were up 20%, compared to March 31, 2010. Non-interest income was down in the first quarter of 2011 as lower mortgage income and reduced fee income caused by recent regulatory changes and changes in consumers’ management of their checking accounts were not offset by increases in insurance and wealth management revenue.

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