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First Defiance Financial Corp. (



Q4 2010 Earnings Call Transcript

January 25, 2011 11:00 am ET


Mary Beth Weisenburger

Bill Small – CEO

Don Hileman – EVP and CFO

Jim Rohrs – CEO of First Federal Bank.


John Barber – KBW

Brad Matt [ph]

Ross Habermen – Haberman Management Crop



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Good morning and welcome to the First Defiance fourth quarter and full year 2010 conference call. All participants will be in listen-only mode. (Operator instructions) Please note this event is being recorded. I would now like to turn the conference over to Mary Beth Weisenburger with First Defiance Financial Corp. Please go ahead.

Mary Beth Weisenburger

Thank you. Good morning everyone and thank you for joining us for today’s fourth quarter and full year 2010 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 would 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 forecast 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.

Bill Small

Thank you Mary Beth. Good morning and thank you for joining us for the First Defiance Financial Corp conference call to review the 2010 fourth quarter and year-end results. Last night, we issued our 2010 earnings release and this morning we would like to discuss that release and give you a look forward into 2011.

At the conclusion of our presentation, we will answer any questions you might have. Joining me on the call this morning to give more detail on the financial performance for the fourth quarter and the year is CFO; Don Hileman, also with us this morning to answer questions is Jim Rohrs; President and CEO of First Federal Bank.

Fourth quarter 2010 net income on a GAAP basis was $2.3 million or $0.22 per diluted common share, compared to $555,000 and $0.01 per diluted common share in the 2009 fourth quarter. For the year-ended December 31, 2010, First Defiance earned $8.1 million or $0.75 per diluted common share, compared to $7.2 million or $0.63 per diluted common share for 2009.

As 2010 came to an end we continued to face many challenges in the banking industry. We are still dealing with the historically low, high unemployment levels and a housing sector that is not found its footing. From [ph] economic indicators of pointing to a sustainable recovery, the job role continues to lag and foreclosures on homes remain high.

Throughout the year a high provision expense and additional expenses associated with collections and other real estate owned relating to these issues, had a negative impact on earnings. However even in this environment, we have confidence in our core operation and our fundamental operating metrics were again very solid. I am pleased to report that despite the continuing challenges in this operating environment, the company remained profitable for the quarter and the full year 2010.

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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