First Defiance Financial Corp. (FDEF) Q2 2010 Earnings Call July 20, 2010 11:00 am ET Executives Bill Small - President, Chairman & CEO Don Hileman - EVP & CFO Jim Rohrs - President & CEO, First Federal Bank Analysts John Barber - KBW Christopher Marinac - FIG Partners Presentation Operator
Previous Statements by FDEF
» First Defiance Financial Corp. Q1 2010 Earnings Call Transcript
» First Defiance Financial Corp. Q4 2009 Earnings Call Transcript
» First Defiance Financial Q3 2009 Earnings Call Transcript
Last night, we issued our 2010 second quarter earnings release, and this morning we would like to discuss performance during the quarter and what we see ahead of us for the balance of 2010. We will also offer some comments regarding recent regulatory activity in Washington and its impact on First Defiance. 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 quarter is our CFO, Don Hileman, and also with us morning to assist in answering questions is Jim Rohrs, President and CEO of First Federal Bank. Second quarter 2010 net income on a GAAP basis was $2.1 million or $0.19 per diluted common share, compared to $2.9 million or $0.29 per diluted share in the 2009 second quarter. For the six-month period ended June 30, 2010, First Defiance earned $3.6 million or $0.31 per diluted common share, compared to $6.3 million or $0.65 per diluted common share for the six-month period ended June 30, 2009. Significant net interest margin improvement was a positive in the second quarter. Net earnings were again challenged by provision expense, as well as mortgage servicing rights impairment. The 2010 second quarter results are still not back to a normal run rate, it showed a number of significant indicators that the core operation is running strong. Net interest income was up $1.4 million over second quarter 2009 and almost $500,000 over the linked quarter on lower overall loan balances. We were also pleased to see non-interest expense drop over $1 million year-over-year even while operating at higher OREO and collection expenses during this same period as we stayed focused on cost control. The deposit mix continued its favorable trend as period end balances and non-interest bearing deposits were up and CD balances were down compared to the linked quarter and the second quarter 2009. The quarter was not without its challenges however. Asset quality had a significant negative impact, began during the second quarter as we booked $5.4 million in provision expense. Don will give you more detail on the provision and allowance coverage in his remarks.
The lower interest rates during that period resulted in a mortgage servicing rights impairment charge of over $500,000. We also recognized additional other than temporary impairment of certain collateralized debt obligations in our portfolio during the second quarter. Asset quality remains our primary focus. We continue to make it our priority to identify any weaknesses and performance or collateral as early as possible and to monitor and analyze each credit to assure proper levels of reserves.Charge-offs for the quarter were up significantly as we had anticipated due to a number of credits migrating through the workout process for final disposition. The provision expense in the second quarter was significantly driven by adjustments to several previously recognized problem loans or additional reserves were added for deteriorating collateral values and the reassessment of some loan guarantees. We have increased the allowance for loan losses to total loans from 1.6% at June 30, 2009 to 2.47% as of June 30, 2010. We are encouraged by the positive direction of several of our credit quality metrics in the first half of 2010 and are cautiously optimistic that this trend will continue. The improvement in the net interest margin was obviously a highlight of the quarter. We were very pleased to see the efforts of a disciplined pricing strategy payoff in the margin performance. Maintaining that discipline is going to be very important, as it appears, we are going to remain in a low interest rate environment for several more quarters. Non-interest income results for second quarter 2010 were significantly lower than June 30 th 2009 result, primarily due to the much lower mortgage loan production. Read the rest of this transcript for free on seekingalpha.com