First Defiance Financial Corp. (



Q2 2011 Earnings Call

July 26, 2011 11:00 am ET


William J. Small – President, Chairman and Chief Executive Officer

Donald P. Hileman – Executive Vice President and Chief Financial Officer

James L. Rohrs – President and Chief Executive Officer – First Federal Bank


John Barber – KBW

Bruce C. Baughman – Franklin Templeton



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» First Defiance Financial Corp. Q2 2010 Earnings Call Transcript

Good morning and welcome to the First Defiance Financial Corp’s Second Quarter Earnings Conference Call and webcast. All participants will be in a listen-only mode. (Operator instructions) After today’s presentation there will be an opportunity to ask questions. (Operator instructions)

Please note this event is being recorded. I would now like to turn the conference over to [Terra Via]. Ms. Via, please go ahead.

Unidentified Company Representative

Thank you, good morning everyone, and thank you for joining us for today’s second quarter 2011 conference call. This call is also being webcast and the audio replay will be available at the First Defiance website at

Providing commentary this morning will be Bill Small, Chairman, President and CEO of First Defiance, and Don Hileman, Executive Vice President and Chief Financial Officer. Following their prepared comments on the Company’s strategy and performance they will be available to take your questions.

Before we begin, I’d like to remind you that during the conference call today, including during the question-and-answer period, you may hear forward-looking statements related to future financial results and business operations for First Defiance Financial Corp. Actual results may differ materially from current management forecasts and projections as a result of factors over which the Company has no control.

Information on these risk factors and additional information on forward-looking statements are included in the news release and in the Company’s reports on file with the Securities and Exchange Commission.

And now I’ll turn the call over to Mr. Small for his comments.

William J. Small

Thank you, [Terra]. Good morning and thank you for joining us for the First Defiance Financial Corp. conference call to review the 2011 second quarter. Last night, we issued our earnings release reporting the second quarter and first half 2011 results, this morning we would like to discuss that release, and look forward into the second half of the year.

Joining me on the call this morning to give more detail on the financial performance to the second quarter, Executive Vice President, CFO, Don Hileman. Also with us this morning to answer questions is Jim Rohrs, President and CEO of First Federal Bank. We will answer any questions you might have with the conclusion of our presentation.

Second quarter 2011 net income on a GAAP basis was $4.8 million or $0.43 per diluted common share. This compares to net income of $2.1 million and $0.19 per diluted common share in the 2010 second quarter. Net income for the first six months of 2011 is $7.4 million or $0.70 per diluted common share versus $3.6 million and $0.31 per diluted common share for the six months ending June 30, 2010.

The second quarter 2011 performance showed very encouraging progress during a period that still needs a lot of questions about overall economic stability. Again, this quarter as in the past, the lower provision expense was a primary factor in the positive earnings impact.

We also saw an increase in non-interest income over the second quarter of 2010 and the linked quarter at the same time keeping non-interest expense in line. This credit quality issues continue to be dealt with and move to the system, we have been able to benefit from our prudent approach to asset quality management as reflected in our improved performance, while we’re still seeing a degree of stress on certain credits, overall, we saw marked improvement in the majority of the loan portfolio and we feel we have identified and are addressing the remaining issues.

The reduction in non-performing assets, other real estate owned and net charge-offs are all indications of this. But we did not get the reduction in classified assets we had anticipated during the quarter, it was not result of identifying new credit issues that slower progress than we had hoped for on previously identified credits.

As I’ve said in the past, we are going to continue to take a conservative approach to the grading of our credits.

The improvement in overall credit quality has brought most of our key credit metrics below the levels they were at the beginning of 2009, we are focused on driving them lower. As loan quality continued its improvement through the quarter loan balances remained a challenge. The slow on environment have showed some signs revival earlier in the spring has pulled back slightly. This slowness along with the decreases in loan balances resulting from working out problem loans and normal amortization resulted in a reduction in the loan portfolio for the fourth consecutive quarter.

Late in the second quarter we did see some improvement in this trend and we hope we can keep this momentum going. The deposit side of the balance sheet continues to perform well for us as we’ve been able to continue reducing our cost to deposits and build our non-interest bearing deposits.

Non-interest deposits were up over $35 million or almost 19% over the period ending June 30, 2010. As a result this along with additional rate reduction on interest bearing accounts has helped us hold on margin in a relatively narrow range by offsetting over yields on the asset side, although, this has bound to come under pressure eventually.

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