First Defiance Financial CFO explains Q3 results
First Defiance Financial (Nasdaq: FDEF) CFO John Wahl said the reversal of previously recorded interest income on loans, provisions expenses, poor asset quality and flood damage at the financial services provider’s Findlay, Ohio, and Ottawa, Ohio, facilities weighed down third-quarter earnings. Wahl made the comments during a midday conference call.
“Our expectation is that we’ll continue to experience downward pressure on our margin for at least the balance of the year,” Wahl said.
The damage was caused by the worst flooding in a century of Ohio's Blanchard River and was not covered by insurance. The flood incurred an after-tax expense of $0.16 million, or $0.02 per share.
During the third-quarter ended Sept. 30, Wahl said the Defiance, Ohio-based company’s interest income was negatively impacted by an increase in the balance of loans that were delinquent by more than 90 days. The company reversed $0.33 million of interest on delinquent loans, compared to $0.09 million a year earlier, the chief financial officer said.
Net interest was also affected by deposit costs increasing faster than loan yields, he said. During the third quarter, Wahl said the total cost of interest-bearing deposits increased by six basis points, while the yields on earning assets declined by six basis points.
“We’ve attempted to counter that by dropping our money market savings rate,” Wahl said. “Our expectation is that we’ll continue to experience downward pressure on our margin for at least the balance of the year.”
Another factor contributing to lower earnings was provision expense and other asset-quality issues, he said. The company’s provision for loan losses for the 2007 third quarter was $0.67 million, compared to $0.37 million in the third quarter of 2006, he said.
In positive news, the company expanded into Indiana by opening a banking center in Ft. Wayne.
The company, which Small said has never been involved in subprime lending, said First Defiance has been negatively affected by the high foreclosure rates in the Midwest.
“Our area is not immune to this problem,” he said. “We have never been involved in subprime lending and although our residential foreclosures have increased, our experienced collections staff has done an excellent job mitigating losses.”
After Monday’s closing, First Defiance reported third-quarter net income of $3.13 million, or $0.44 per share, below analyst expectations of $0.51 per share and compared with $3.82 million, or $0.53 per share, a year earlier. The firm’s assets remained relatively stable at $1.58 billion, compared with $1.53 billion during the same period of 2006.
The company’s net interest income totaled $12 million, down from $12.2 million a year earlier. First Defiance’s total interest expense during the third quarter increased to $13 million, from $11.9 million during the same period of 2006. Total non-interest expense grew to $12.3 million, from $11.1 million in the third quarter of 2006. Non-performing assets increased to $11.9 million, from $9.8 million in the prior-year quarter.
In midday trading, FDEF shares are down 0.25%, or $0.06, at $24.23. Over the last 52 weeks, shares have ranged from $23.25 to $30.70.
