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First Defiance Financial's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Charge-offs while down from the last two quarters remained considerably above historic levels. Under current regulatory interpretation, any loan deem collateral dependent must be charged down to current market value regardless of whether the loan is paying current or not. In the past we would establish a specific valuation allowance for these credits as part of the reserve.

The increase was not related to any credits, were not previously on our watch-list. Provision expense was also up over both the link quarter and the second quarter 2011 level. Some of the increase in provision however relates to the loan growth this quarter.

On the positive side, related to credit, we saw reductions of classified loans restructure debt, non-accrual loans and 30 to 89 day delinquencies compared to the link quarter. We are encouraged by these indicators and remain confident in our credit administration as we continue to face the challenges of the stalled economy.

As we continue our diligent focus on loan quality, the strong increase in loan growth in the second quarter was certainly welcomed. The slow loan environment that we’ve all been experiencing over the past several years has made loan growth a challenge. So, this return to growth after the first quarter decline was certainly welcome.

The uncertainty amongst many businesses as to the overall economic environment has made many of them cautious regarding new capital investments. Our loan growth this quarter does reflect some increase in new demand. However, much of the growth came from opportunities to bring on new relationships through the diligent effort of our Call Program. We will continue to look for these opportunities while maintaining our strong underwriting practices and pricing discipline.

The deposit side of the balance sheet saw some additional growth which came primarily from our non-interest bearing deposits, as interest bearing deposits remain relatively flat. Non-interest deposits were up over 14% compared to the period ending June 30, 2011, and 6% over the link quarter on an average balance basis. The low rate environment has pushed many depositors to park funds in liquid accounts as a way an opportunity for higher returns.

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