Premier Financial Corp.

William J. Small - Chairman, President & Chief Executive Officer Donald P.

Hileman - Senior Vice President & Chief Financial Officer Carol Merry - Investor Relations

Eileen Rooney - KBW

Thank you Amy. Good morning and thank you for joining us for today’s second quarter 2009 conference call.

This call is also being webcast and the audio replay will be available at the First Defiance website at www.fdef.com. Providing commentary this morning will be Bill Small, Chairman, President and CEO of First Defiance, and Don Hileman, Senior 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 certain statements made during the conference call that are not historical, including statements made during the Q-&-A period, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are based on information and assumptions available to management at this time, and they are subject to change. Actual results may differ materially.

First Defiance assumes no obligation to update such forward-looking statements, to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. For a complete discussion of the risks and uncertainties that may cause future events to differ from the results discussed in these forward-looking statements, please refer to the Earnings Release and materials filed with the SEC, including the company’s most recent Form 10-K and 8-K filings.

Now, I’ll turn the call over to Mr. Small for his comments.

Good morning and thank you for joining us to review the 2009 second quarter results. Last night we issued our 2009 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 2009.

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 this morning to assist and answering questions is [Jim Rovers], President and CEO of First Federal Bank.

Given the economic environment, we are pleased with our second quarter results. Net income increased compared to last year’s second quarter.

The second quarter 2009 net income on a GAAP basis was $2.9 million or $0.29 per diluted common share, compared to $2.7 million and $0.34 per diluted share in the 2008 second quarter. The significant difference in the per share income is primarily due to the preferred dividend being paid, and the preferred shares issued for the US Treasury’s capital purchase program.

For the six months period ended June 30, 2009 First Defiance earned $6.3 million or $0.65 per diluted common share, compared to $6.15 million or $0.80 per diluted common share for the six month period ended June 30, 2008. Excluding the after tax cost of $1 million of acquisition related charges for the 2008 results First Defiance earned $6.81 million or $0.88 per diluted share for the first half of 2008.

The 2009 second quarter results, while still not back to a normal run rate, had a number of significant indicators, but the core operation is running strong. Another record setting quarter of mortgage production was supported by solid growth and commercial loans and deposits.

Deposit growth was not as strong during the second quarter as it was in the first quarter, but it was positive. The deposit mix improved during the second quarter with 10% growth in non-interest bearing deposits and a reduction in certificates of deposit over the previous quarter which is all part of our strategy.

Non-interest income was up for the quarter versus second quarter 2008 and the May quarter. Mortgage income was the primary driver of this increase, both because of record mortgage loan production and also the recapture of $1.5 million in mortgage servicing rights impairment as mortgage interest rates were rising off of their first quarter loss.

This impairment recovery corresponds with the rising mortgage rates and resulted in a higher evaluation of the servicing rights. The quarter was not without its challenges, however.

Asset quality had a significant negative impact during the second quarter as we booked $4 million in provision expense, representing a significant increase over the length quarter and the 2008 second quarter. Don will give you more detail on the provision and allowance coverage in his remarks.

The FDIC special assessment of five basis points was also booked entirely in this quarter and totaled $900,000. This special assessment was levied against all FDIC insured institutions, and our expectation is that we will see a similar sized assessment in the fourth quarter of this year.

We also recognized additional other than temporary impairment on certain collateralized debt obligations in our portfolio during the second quarter. Asset quality is our primary focus right now.

We continue to make it our priority to identify any weaknesses as early as possible and to monitor and analyze each credit to assure proper levels of reserves. The provision expense in the second quarter was a combination of weakening in some credits and adjustments to several previously recognized provident loans or additional reserves were added for falling collateral values.

We have increased the allowance for loan losses to total loans from 1.3% at June 30, 2008 to 1.6% at June 30, 2009. This compares to our peer group median of 1.37% as of March 31, 2009.

As I mentioned earlier, non-interest income was strong this quarter, primarily due to the mortgage business. We originated $198 million in mortgage loans during the quarter to continue as a leading mortgage originator throughout our market.

Other non-interest income categories were relatively flat in comparison to the length linked quarter and second quarter of 2008. The increase in non-interest expense was driven primarily by the increase in FDIC expenses both from the special assessment and higher regular premium rates.

Collection and oil expenses were also major expense factor in the quarter. I will now ask Donald Hileman to give you additional financial details for the quarter before I wrap up with an overview and a look at what we see developing in the months ahead.

Don.

Thank you Bill, and good morning everyone. Challenging operating environment continued in the second quarter, and we anticipate overall weak economic activity throughout the remainder of the year in our market area.

We continue to see double digit unemployment on all of the primary counties in our market area, and anticipate higher rates over the course of the year in selected areas, but we do no have a direct concentration in a lot of related commercial lending, we do have retail customers whose liability depends on the automotive and related industries. We remain cautiously optimistic based on the initial announcements of plan closing and the facilities in our market will remain open.

As we review of our financial performance credit quality remains a key driver, but we had additional significant items that contributed to the flat year-over-year second quarter core income. I will begin with a discussion of the credit quality.

We saw another quarter in which we had a high level provision for loan losses. As Bill noted, our provision expense totaled $4 million up from $2.7 million in the first quarter as we increased our allowance for loan losses to $25.8 million after recording $3.8 million of net charge offs in the quarter.

Annualized net charge offs were 96 basis points of total loans for the second quarter of 2009, up from 0.41% in the first quarter and up from 22.1% in the second quarter of 2008. Of the total net charge offs, 63% or $2.4 million were related to two credit relationships.

Of the commercial real estate total charge-offs of $2.1 million 1.7 or 80% related to those relationships and 800,000 or 83% of the total commercial charge-offs of 950,000 related to those credit relationships. We are constantly analyzing our loan portfolio and had made decisions to reallocate resources to work with past due client.

To determine the course of action and we hope will mitigate potential losses and client relationships. We have been actively working with residential borrowers to determine qualification for loan modifications.

We calculated our allowance for loan losses by analyzing all loans on our watch list and making judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. Based on those judgments, we’ll record a specific amount of loan losses against each we analyze.

The provision for loan loss is the adjustment we make to the allowance for loan losses necessary for the allowance to be adequate. Based on the losses we estimate to be in the portfolio.

In our review we have determined it as appropriate to use a more current trend of activity as a guide for determining our reserve adequacy. We believe this is consistent with the operating environment we foresee for the remainder of the year.

At June 30, our allowance for loan losses represented 1.6% of total loans outstanding, a decrease of two basis points over the last quarter and 64% of our non-performing loans. Non-performing assets ended the quarter at $48.9 million or 2.42% of assets, up from $44.5 million last quarter, which was 2.21% of total assets.

Total non-performing loans increased $3.7 million or 10% during the quarter. The non-accrual loans increased $6 million and restructured loans decreased $2.3 million, primarily due to charge-off of a large credit that close their doors.

Restructured loans are considered non-performing because of changes in the original terms granted to borrowers. These loans are still accruing.

This is a way we can work with our borrowers who have the ability to repay to mitigate loss potential. The delinquency rate for loans 90 days past due or on non-accrual, increased to 2.21% this quarter from 1.86% in the first quarter of 2009.

The increase in the level of 90 days past due from the last quarter was due to an increase in commercial real estate 90 days past due of 7.2 million, with all other loan categories declining from last quarter. The total delinquency rate increased to 3.36% at March 31, to 3.81% at the end of June 2009.

The composition of the 90 day past due non-accrual totals at the end of the second quarter breaks down into certain sectors with the comparison to linked quarter, with commercial real estate at 3.34 %, up from 2.41%; one to four family residential at 2.33%, down from 2.56%; commercial at 0.64% down from 1.14%; home equity 0.41%, down from 0.43%; construction 0.13% down from 0.25% and consumer 0.10% down from 0.15%. While the non-performing loan amounts have increased primarily in commercial real estate, we believe that our portfolio is well-positioned with a diversified portfolio.

Loan averaged small size, very little presence in problematic segments such as big box retailers and large office buildings and credits are generally underwritten on a cash flow basis and require a meaningful equity and personal guarantees. Mortgage banking was again very strong in the second quarter, continuing the momentum of the first quarter.

The gain on sale of income of $2.9 million in the second quarter of 2009, compared with one million in the second quarter of 2008 and $2.8 million in the first quarter of 2009. We also reported a positive evaluation of adjustment to mortgage servicing rates of 1.5 million in the second quarter, compared with a positive adjustment of 167,000 in the second quarter of 2008.

At June 30, First Defiance had $1.16 billion in loan service for others. The mortgage servicing rate associated with those loans had a fair value of $8.9 million or 77 basis points of outstanding loan balances service.

Total impairment reserves which are available for recapture in future periods totaled 1.1 million at the end of the quarter. While we are pleased with the mortgage loan activity in the first half of the year, we have seen signs of slowing refinance activity, with a slight increase in purchase activity.

The economic environment continues to have stress on our investments in Trust Preferred Collateralized Debt Obligations or CDOs, and required additional other than temporary impairment write-downs in the second quarter. The CDOs were made up of pooled investments, the Trust Preferred Securities primarily by commercial banks and through us.

As the issuing institutions experience financial difficulties, they can defer payments and in many cases we have seen the institutions default on their issue, which is a negative impact on the collateral supporting those pooled investments. The OTTI charge recognized in the second quarter of 2009 totaled $874,000.

The other than temporary charge in the quarter related to four Trust Preferred CDO investments that have a remaining book value of 2.3 million. First Defiance is one other CDO that is considering impaired with a book value of 243,000, in which we took a first quarter charge.

The rest of the trust preferred CDO investments in the portfolio have a book value of $3.8 million and market value is of $1.4 million at June 30, 2009. The decline in the value of those investments is primarily due to the overall lack of liquidity in the CDO market.

These investments continue to pay principal and interest payment in accordance with the contractual terms of the securities. Management has not been the impairment in value of those CDOs to be other than temporary and therefore has not recognized reduction in the value of those investments and earnings.

The other than temporary charge was partially offset by $125,000 gain from the sale of securities. Turning to the operating results, our net interest income of $16.1 million for the quarter was flat on a linked quarter basis and basically flat with $16.2 million in the second quarter of 2008.

For the quarter our margin was 3.61, which was a 30 basis point decline from the second quarter of 2008 and a 10 basis point decline from the first quarter of 2009. Falling interest rates continue to impact us on both the asset and liability side.

We continue to look for opportunities to reprice deposits in line with market rates, which remains challenging and we feel that we hit a floor on some products and we still have some opportunities on current accounts. The margin was impacted by high levels of overnight funds invested in an average of 16 basis points.

Fee income continues to be strong, but declined slightly to $3.3 million in the second quarter of 2009 from $3.4 million last year. Insurance revenue was $1.3 million in the second quarter of 2009, up slightly from the second quarter of 2008.

Overall non interest expense increased to $16.1 million in this quarter, compared with $15.5 million in the second quarter of 2008 and $15 million on a linked quarter basis. The second quarter compensation and benefits expense was up, due primarily to higher medical costs.

FDIC insurance expense increased to $1.5 million in the second quarter of 2009 from $431 million in the same period of 2008. As a result of the FDIC rate increases, higher insured deposit balances and a five basis points special assessment of 900,000.

We believe there is a high probability of another special assessment in the fourth quarter of this year. Other non-interest expense decreased to $3 million in the second quarter from $3.5 million in the second quarter of 2008.

Increases in expenses of $574,000 for credit, collection and OREO $280,000 related to deferred compensations valuation, which was offset by reductions of $256,000 in marketing and $767,000 in fraud losses. The second quarter of 2008 includes a $752,000 of expense associated with losses related to a former investment advisor.

The sublimacy growth with total assets growing $95.3 million from June 2008 to $2.02 billion in growing $12.9 million only quarter basis. Total deposits grew $126.5 million from June of 2008 and $12.9 million on a linked quarter basis, reflecting growth in core deposits and increased customer deposit relationships.

Low balances increased $24.6 million on a quarter basis, while cash and equivalents decreased $22.8 million. We are pleased with the growth of new activity during the quarter.

We had been able to develop strongly relationships with commercial clients. We believe that the controlled growth is reflective of the environment and we are well positioned for future growth.

That completes my overview for the quarter and I will turn the call back to Bill.

Thank you Don. As we move into the second half of 2009, we are continuing to address the challenges that faced all of us.

The overall economic climate throughout our market area is among the largest of these challenges. Unemployment numbers run higher in this region compared to national numbers and we may see this continue for several months as employment recover usually lags overall economic improvement.

We are certainly encouraged by the fact that at this time, none of the automotive facilities scheduled for closure, are in or near our market area. As Don mentioned, First Federal Bank has a very small direct credit exposure to the automotive industry, but we know that many of our customers have some dependence on it.

We are encouraged by the fact that many of these plants are returning to production and we have heard reports from suppliers that new orders are being received and there are plans for some to begin adding staff soon to meet these production needs. We have increased our credit monitoring, our asset review functions and micro loan reporting requirements.

We continually review credit concentrations by industry and have placed lower limits on lending within certain types of loan categories. We currently only have two industry classifications that have over a 5% concentration in our entire portfolio of over 1.6 billion in total loans.

Within this portfolio, our largest concentration is in the category of lessers of non-residential buildings, with a balance of just over $231 million. A total of $2.5 million or just over 1% of that is over 90 days past due.

All commercial construction and land development comes total less than $100 million, down from over $123 million a year ago, with 4.15% over a 30 days past due. In our entire commercial loan portfolio, our top 10 loan categories by NAICS code totals $666 million with a total delinquency rate of 3.75% over 30 days past due.

This is a difficult environment to forecast in as conditions are constantly changing. As we anticipated, loan growth did pick up during the second quarter and we expect this to continue through the second half of the year.

Mortgage home production has already subsided as the refinancing bench appears to be over. We have seen increases in purchase applications in the past six weeks, and we are recently approved as an FHA lender.

That should produce additional purchase mortgage opportunities for us. Pricing discipline on both sides of the balance sheet and non-interest bearing deposit growth will be very important as we work to maintain our net interest margin.

The residual effect of all of the stresses on the economy during past 12 to 18 months has created an extremely challenging banking environment, but it can also be a time of great opportunity for banks like ours. We remain well-capitalized with a proven operating strategy.

We will prudently manage our capital and as we move forward through the second half of 2009, we will work diligently on the factors within our control to continue to grow profitably. Those factors beyond our control, we will monitor and be prepared to respond to.

We thank you for joining us this morning, and now we will be happy to take your questions.

Just a question on the outlook for the margin. It sounds like you are doing a couple of things on the deposit side and reducing some of the higher cost deposit categories.

I’m just wondering what the opportunities are to increase asset yields.

We think there are opportunities there to get better pricing on the loan side. We are seeing fairly strong long demand on our markets, part of that due to the fact that several of the regional banks in our area are getting out of certain types lending, irregardless of the quality of their credits.

So, we are able to some degree pick and choose what loan relationships we want to work and we are very insistent on that, that those be complete relationships with non-interest bearing deposits. As a matter of fact in our board meeting last night, there is a report in that package that shows, historical loans that have worked best, as of the report did no have non-interest bearing deposit accounts and I’ve got to tour here to research that report and report back, because we do monitor that, because those deposits are very important to us in terms of improving the profitability of that loan relationship and our subsequent margin.

Okay, and I noticed, it looks like you guys are building a little bit of liquidity on the balance sheet, your average interest bearing deposits and your securities portfolio increased, but the interest bearing deposits really increased quite a bit. I’m just wondering if there is an opportunity to maybe move some of that into higher yielding securities or is that not something you’re interested in doing right now.

Eileen, this is Don. We were trying to balance that mix here.

We did have an opportunity to grow the securities portfolio during the quarter, but as Jim said, we are still seeing pretty good loan demand and we are balancing the impact of funding those loans versus the securities portfolio and the effect on the yield. So we still do think there’s opportunities for movement into more higher yielding assets there, but it’ll be a plan between the two and we want to overly weigh the securities portfolio.

Then just one unrelated question; just wondering when your last regulatory exam was.

They are here right now. We have OTS and currently we expect they will probably wrap up end of next week as far as their field visits and then at a period of time, while we wait for the written report, but they are onsite right now.

All right. If there are no further questions we thank you for joining us today, and this will conclude our conference.