First Defiance Financial Corporation (



Q1 2011 Earnings Call Transcript

April 26, 2011 11:00 am ET


Mary Beth Weisenburger – SVP, IR

William Small – Chairman, President and CEO

Don Hileman – EVP and CFO

Jim Rohrs – President and CEO, First Federal Bank


John Barber – KBW

Don Verges – Verges Capital



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» First Defiance Financial Corp. Q1 2010 Earnings Call Transcript

Good morning and welcome to the First Defiance Financial Corp’s 2011 First Quarter Earnings Conference Call and webcast. All participants will be in 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 Ms. Mary Beth Weisenburger, Senior Vice President. Please go ahead ma’am.

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Mary Beth Weisenburger

Thank you. Good morning everyone and thank you for joining us for today’s first 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 Small, President

Thank you, Mary Beth. Good morning and thank you for joining us for the First Defiance Financial Corp. conference call to review the 2011 first quarter. Last night, we issued our earnings release reporting the first quarter 2011 results and this morning we would like to discuss that release, and look forward into the balance of 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 first quarter is, CFO, Don Hileman. Also with us this morning to answer up questions is Jim Rohrs, President and CEO of First Federal Bank.

First quarter 2011 net income on a GAAP basis was $2.7 million or $0.25 per diluted common share. This compares to net income of $1.5 million and $0.12 per diluted common share in the 2010 first quarter. The 2011 first quarter earning results are an encouraging start to the year.

These improved results are a direct reflection of better asset quality performance during the quarter and the bank’s ability to maintain its net interest margin. The primary driver on asset quality was a significantly lower provision expense in the first quarter of 2011 compared to last year’s first quarter. This helped to offset reduction of non-interest income and an increase in non-interest expense.

Credit quality has been the most significant factor impacting earnings over the past couple of years and while we are still seeing a degree of stress on certain credits, overall, we saw marked improvement in the maturity of the loan portfolio. Reduction in classified loans and other real estate-owned, along with stabilizing values contributed to the lower provisions.

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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