First Defiance Financial Corp.'s CEO Discusses Q3 2011 Results - Earnings Call Transcript

First Defiance Financial Corp. ( FDEF)

Q3 2011 Earnings Call

October 25, 2011 11:00 am ET


Bill Small - President, Chairman and CEO

Don Hileman - EVP, CFO


Bruce Baughman - Franklin

John Barber - Keefe Bruyette & Woods

Howard Henick - ScurlyDog Capital



Good day and welcome to the First Defiance Financial Corporation’s Third Quarter 2011 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 [Terra Via]. Ms. Via, the floor is yours, ma'am.

Unidentified Company Representative

Thank you, good morning everyone, and thank you for joining us for today’s third 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.

Bill Small

Thank you, [Terra]. Good morning and thank you for joining us to review the 2011 third quarter results. Last night, we issued our earnings release for the third quarter and this morning we would like to discuss our financial performance during the period and what we see ahead of us for the balance of the year.

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 CFO, Don Hileman. Also with us this morning to assist in answering questions is Jim Rohrs, President and CEO of First Federal Bank of MidWest.

Third quarter 2011 net income on a GAAP basis was $4.5 million or $0.36 per diluted common share compared to $2.3 million and $0.22 per diluted common share in the 2010 third quarter. For the nine-month period ended September 30th, 2011, First Defiance earned $11.5 million or $1.06 per diluted common share compared to $5.8 million or $0.53 per diluted common share for the nine-month period ended September 30th 2010.

Lower provision expense, increased non-interest income and reduced non-interest expense, this all contributed to the earnings improvement this quarter compared to third quarter 2010.

The solid 2011 third quarter results were attained as the economy continues to show volatility. At the end of the second quarter this year, we were feeling more optimistic that we were continuing on the path of slow but steady economic improvement. As I told our employees at that time had finally felt like we were playing offense again after having the defense on the field for the last three years.

However, within a month, we were facing that debt-ceiling crisis in Washington, followed shortly by the downgrade of U.S. Securities by Standard & Poor’s. These events on top of a still fragile housing market and elevated unemployment have again shaken the confidence of the American public. I do feel like we still have the offense on the field that is more of the grinded out at three yards and a cloud of dust rather than a wide opened attack. Even in its environment, we were encouraged by the core performance this quarter as we climbed back toward a more normalized run rate.

Credit quality and the ongoing steps of moving credit-suited process continues to play a major role on our financial performance. The increases in non-performings in the higher level of net charge-offs, both involve previously identified credits. That changes involving those credits during the period necessitated further action. We remained confident that we have done a good job of identifying and reserving for credit issues and this is reflected in the 40% drop in provision expense in the quarter year-over-year.

Loans over 30 day past due improved over the linked-quarter and the year-ago period, indicating improvement in the early term of the credit cycle. Another positive factor related to credit quality this quarter is significant improvement in credit and collection cost over last year. A portion of this is attributed to our ability to continue to reduce our other real estate-owned as we’ve owe a debt balance by over 20% to the linked quarter. Dan will be giving you more detail on all of this in his analysis.

As credit quality issues continue to be dealt with and moves through the system, we see the credit metrics reflecting these moves. The significant increase in net charge offs this quarter was mostly driven by dealing with previously identified problem credits. These credits have been properly reserved for prior to this period and that is the main driver and the slight decline in the allowance for loan loss at September 30 th 2011.

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