First Defiance Financial's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Some of these increases are the result of credits finally working their way through the cycle and also to changes in our treatment of credits based on guidance from our new regulator. The increases involve credits that had been previously identified as having weaknesses but we have adjusted our procedures and the treatment of some of these credits based on the guidance.

Loan balances dropped during the first three months of 2012 in virtually all loan categories after two consecutive quarters of growth. Soft loan demand, strong liquidity position on the part of borrowers, and a very competitive lending environment, all contributed to the decrease in loans.

Loan balances have been effected by the higher level of charge offs last several quarters also. One significant characteristic that was very notable that quarter was a decline in outstanding balances on farm lines of credit. Many of our agricultural customers have had several consecutive strong performance years that puts them in a position to utilize cash for input expenses this year and as a result they have or dramatically reduced draws on their operating lines. This is obviously a positive for all but it has had a negative impact on loan balances.

The one strong area for loan production during the first quarter was in residential real estate loans. Mortgage production continued, in fact increased its strong performance that goes back to the middle of last year. First quarter 2012 mortgage production more than doubled the 2011 first-quarter and the month of March 2012 production alone nearly exceeded the entire first quarter 2011 level. This is not only the result of outstanding work by our loan originators but a tremendous and efficient effort fire underwriters and processors to keep up with our originators.

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