Premier Financial Corp (OHIO) (PFC) 2017 Q2 法說會逐字稿

Good morning, and welcome to the First Defiance Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Tera Murphy with First Defiance Financial Corporation.

Please go ahead.

Thank you.

Good morning everyone, and thank you for joining us for today's 2017 Second Quarter Earnings Conference Call.

This call is also being Webcast and the audio replay will be available at the First Defiance website at fdef.com.

Providing commentary this morning will be Don Hileman, President and CEO of First Defiance; and Kevin Thompson, 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 forecast 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 on the call over to Mr. Hileman for his comments.

Thank you.

And good morning, and welcome to the First Defiance Financial Corp's Second Quarter Conference Call.

Last night we issued our 2017 second quarter earnings release, and now I'd like to discuss the second quarter results and give you an outlook for the remainder of '17.

Joining me on the call this morning to give more detail on the financial performance for the quarter is our CFO, Kevin Thompson.

At the conclusion of our remarks, we will answer any questions you might have.

Overall, we continue to be pleased with a sustainable momentum towards our strategic goals.

The second quarter represented the first full quarter of combined results from the Commercial Bancshares' transaction and also include the operating results of Corporate One Benefits, a full-service employee benefits consulting organization acquired in April.

Net income for the second quarter of '17 on a GAAP basis was $8.3 million or $0.82 per diluted common share, compared with $7.3 million and $0.80 per diluted common share in the second quarter of '16.

Our second quarter financial results clearly reflect the expected operating performance enhancements from our recent acquisitions as revenues were up 24.3% over the second quarter last year.

The efficiency ratio improved to 59% from 61.5% and pretax preprovisions earning improved by 33.33% over the same period last year.

While higher charge-offs for credit losses partially offset these improvements in the second quarter, we expect the benefits from our mergers to continue elevating our ongoing performance.

Our overall core performance this quarter helped drive a solid return on average assets of 1.15%.

We experienced year-over-year in linked-quarter annualized quarter loan -- net loan growth of 24% and 2.8% respectively.

Second quarter loan growth was impacted by a large payoff in the $20 million range related to an apartment project.

We continue to focus on our ability to grow our loan portfolio with a balanced approach.

The lending environment is very competitive with rate and structure pressures relating to terms and conditions and the uncertain economic environment.

We continue to be disciplined in our pricing approach and purposely pass on lending relationships that would force us what we consider overly aggressive pricing in term concessions.

We do not see any material movement in local market rates either leading up to the Fed hike or subsequently to it.

With contributions from across our entire footprint and a solid pipeline at the end of the second quarter up from the first quarter-end, we are optimistic we're on track to achieve our annual growth goal in the upper single digits.

Loan originations for the quarter were the highest since the fourth quarter of '15, and loan yields was about 20 basis points higher in aggregate than the first quarter.

This coupled with stronger confidence from segments of our clients concerning economic stability and the economic environment leaves us to believe we have positioned ourselves for continued disciplined loan growth during the remainder of '17.

We are also very pleased with our margin improvement this quarter over the second quarter of '16, and in -- on a linked-quarter basis.

The growth in both our net interest income and our core noninterest income revenues on a quarterly basis is a result of contributions from our core business strategies.

Kevin will provide more color on the detail in a few minutes.

We saw a slight increase in mortgage banking revenues year-over-year despite a decrease on a linked-quarter basis.

Total noninterest expense decreased from the first quarter of '17, primarily due to merger and conversion-related costs in the first quarter.

The efficiency ratio of 59% in the second quarter reflected some of the benefit of the first quarter CSB acquisition in the overall expense control.

The credit quality metrics showed moderate regression in this quarter from the second quarter of 2016, in nonlinked-quarter basis.

Nonperforming assets increased to 1.38% from 0.94% in the second quarter of '16.

Nonperforming loans increased to approximately $14 million, approximately 85% of the nonperforming loans continue to make payments.

We also had a slight increase in restructuring loans this quarter.

A level of 30-day (inaudible) delinquencies were 0.26% of loans for the second quarter of '17 compared with 0.3% at the second quarter of '16 and 0.19% in March of '17.

While we are disappointed in the uptick in nonperforming loans and the associated charge-offs, we do not believe it indicates an overall trend but more relates to a couple of specific credits believed to be contained.

We expect to work hard to see stable-to-improving asset quality trends across the board in the near term.

In regards to our capital management plans, we are also pleased to announce a 2017 second quarter dividend of $0.25 per share representing a 14% increase over prior year and an annual dividend yield of approximately 1.9%.

I will now ask Kevin Thompson to provide additional financial details for the quarter before I conclude.

Thank you.

Thank you, Don, and good morning to everybody.

As Don stated, net income for the second quarter was $8.3 million or $0.82 per diluted share and these results reflect the first full quarter of operating results inclusive of both our Commercial Savings Bank or CSB merger and our Corporate One Benefits agency or Corporate One merger.

The quarter also included a $0.02 per diluted share impact from merger and conversion expenses primarily for the Corporate One acquisition, which was essentially offset by securities gains of $0.02 per diluted share.

The quarterly results compared to prior year second quarter results of $7.3 million or $0.80 per diluted share.

As Don also indicated, while disappointed in the higher nonperforming assets and credit costs this quarter, we are much more satisfied by our performance in all other areas of our financial results.

Even with our higher credit costs, our return on assets for the quarter was a very respectable 1.15%.

Now turning to the details and starting with the balance sheet.

Second quarter total loan growth was $16.4 million, which was net of a large $20 million payoff right before the end of the quarter.

Average loan balances grew $212 million on a linked-quarter basis, mostly due to the full-quarter impact of our CSB merger.

On the other hand, total deposits reflected a decrease of $47 million from March 31 to June 30.

The decline resulted from a run-up in deposits of nearly $70 million right at the end of the first quarter and those deposits exited the bank by the end of the second quarter.

The growth in average deposits of $237 million on a linked-quarter basis, was again, mostly due to the full-quarter impact from the CSB merger.

Compared to June 30 a year ago, organic growth excluding the CSB merger shows loans have grown about a $107 million or 5.9% and deposits up about $98 million or 5.1%.

We would expect to maintain these growth rates at a minimum as well as our strong earning asset mix, low-cost deposit funding and profitable margin going forward, which leads us to the income statement.

Our net interest income was $24.6 million for the second quarter of 2017, up from $21.6 million in the linked-quarter, and up $5.2 million or 27% from the $19.4 million in the second quarter last year.

The increase over the prior year includes the addition of CSB for the full quarter as well as some benefit from recovered interest and prepayment penalties collected which totaled $307,000 in the second quarter 2017 versus only $119,000 in the same period last year.

All in, our margin this quarter was 3.89%, up 9 basis points from last quarter, and up 18 basis points from 3.71% in the second quarter last year.

On a linked-quarter basis, our yield on earning assets was up 11 basis points as our loan portfolio yield rose to 4.55%, boosted about 5 to 6 basis points by the recovered interest and prepayment fees.

Our cost of interest-bearing liabilities was up 2 basis points on a linked-quarter basis impacted by both rate and mix.

As we grow our balance sheet, we are very pleased with the strength and stability of our margin and our interest rate risk position which remains basically neutral and well-balanced for our expectation of continued action by the Fed.

Total noninterest income was $10.1 million in the second quarter of 2017, down from $10.5 million in the linked-quarter, which included a $1.5 million enhancement gain on a [bully] purchase as well as seasonal contingent insurance commissions, but it was up from $8.6 million in the second quarter of 2016.

The second quarter 2017 did include $267,000 of securities gains while the second quarter last year included $227,000 of securities gains, excluding the securities gains quarterly noninterest income up year-over-year about $1.5 million or 18.3%.

Other than gains on the sale of non-mortgage loans, we had increases in all categories of fee income which were predominantly due to the contributions from the CSB and Corporate One mergers.

Regarding mortgage banking, revenues for the second quarter were 20 -- second quarter of 2017 were $1.8 million, up only $92,000 from the linked-quarter and up $66,000 from the second quarter of 2016.

The second quarter mortgage banking originations were $64.2 million, compared to $48.9 million last quarter and $75.9 million in the second quarter 2016.

Gain on sale income was $1.3 million in the second quarter, compared to $1.1 million on a linked-quarter basis and $1.4 million in the second quarter last year.

In addition, the second quarter included a positive valuation adjustment to mortgage servicing rights of $16,000 compared to a positive adjustment of $33,000 last quarter and a negative adjustment of $104,000 in the second quarter of 2016.

At June 30, 2017, First Defiance had $1.3 billion in loan service for others and the mortgage servicing rights associated with those loans had a fair value of $9.7 million or 72 basis points of the outstanding loan balance were serviced.

Total impairment reserves which were available for recapture in future periods, totaled $474,000 at quarter-end.

As for noninterest expense, second quarter expenses totaled $20.6 million, down from $23.1 million in the linked-quarter, which included $3.6 million of merger and conversion expenses, but up from $17.3 million in the second quarter of 2016.

While the second quarter 2017 did include about $310,000 of acquisition costs for CSB and Corporate One, the bulk of the increase was attributable to the additional operating costs from those mergers.

We were very pleased to see the improvement in our efficiency ratio of this quarter.

Cost synergies were the key driver in the CSB merger and our efficiency ratio of 58.96% in the second quarter of 2017 versus 61.51% in the second quarter last year reflects this benefit.

Regarding asset quality, provision expense in the second quarter of 2017 totaled $2.1 million, compared to a provision of $55,000 last quarter and $53,000 in the second quarter last year.

Provision expense increased, or the increase resulted from the downgrade of 2 larger credits in the quarter and net charge-offs recorded totaling just under $2 million or 35 basis points annualized.

This compared to net loan charge-offs of 4 basis points last quarter and net recoveries of 5 basis points in the second quarter a year ago.

Our allowance for loan loss at June 30, 2017, was $25.9 million, up $166,000 versus March 31, and basically even with a year ago.

Allowance to loan ratio at June 30, 2017, remained at 1.15%, the same as last quarter, but down from 1.39% last year.

The decline in the ratio from last year was primarily due to the addition of the acquired CSB loans which were discounted and recorded at fair value with no allowance.

The CSB acquired loans are currently carried at a discount of $5 million or 1.7% of balances.

As for the asset quality numbers, with the 2 large downgrades totaling $13.6 million, nonperforming loans increased this quarter to $30.4 million from $15.1 million on a linked-quarter basis, and from $16.4 million at June 30, 2016.

Our OREO balance remained low this quarter at $672,000, compared to $705,000 last quarter and $1.1 million in the second quarter last year.

Overall, nonperforming assets ended the quarter at $31 million or 1.07% of total assets, up from $17.5 million or 0.73% of total assets at June 30, 2016.

Our troubled debt restructured loans this quarter were $10.5 million, up from $9.8 million last quarter and $9.6 million a year ago.

As a result of the increase in NPAs at quarter-end, the allowance coverage of nonperforming assets was 84%, compared to 148% at June 30 a year ago.

While the numbers are impacted by the 2 downgrades on which the losses were taken, we are confident that the quality of the remainder of the portfolio continues to reflect strengthened asset quality from a year ago.

Looking at our capital position, total period and stockholders' equity finished the quarter at $361.4 million, up from $293 million at June 30, 2016, reflecting the acquisition of Commercial Bancshares and thus our capital position remains strong with quarter and shareholders' equity and assets of 12.51%, up from 11.79% last year.

The bank's total risk base capital ratio was approximately 12.3% at June 30, 2017.

Our healthy capital position continues to support our growth and shareholder value enhancement strategies.

So in summary, our balance sheet remains solid, the acquisitions of CSB and Corporate One are delivering the expected benefits, our core operating profitability is strong.

We believe the credit events this quarter are uncharacteristic of our asset quality and thus our outlook remains clearly positive.

That completes my financial review, and I'll turn the call back over to Don.

Thank you, Kevin.

The 2 of our goals being a consistently high-performing community bank, we recognize it involves more than numbers on the balance sheet.

It takes balancing high performance with strong values.

Earlier this year, we introduced our new mission, vision and value statements that evolved from employee and customer feedback.

Our mission statement now states as a high-performing community bank, our engaged and valued employees provide smart solutions to our clients and communities.

This key statement explains what we do and why we are here, which, above all else, is to provide our clients and community with solutions that fit their needs and add value to their lives and goals.

By delivering these smart solutions, we help achieve our vision of remaining a high-performing community organization.

With our new mission, vision and value statements, we believe we have reenergized our teams, and now more than ever, have a synergy when working to accomplish our goals.

As a result, we have made significant progress on our initiatives to retain and interact top talent, grow our customer base, build an environment that fosters innovative solutions for internal process enhance client experience.

Our steady performance, clients-focused values and our engaged employees blend together to deliver exceptional results to our shareholders.

First Defiance leverages these principles to keep us moving forward as we look to expand our branch and the existing network through mergers and acquisitions and the deeper relationships within our footprints, especially in our metro markets.

We continue to pursue organic growth in Fort Wayne, Indiana, and Toledo in Columbus, Ohio, and we are seeing increased activity in these areas.

We still have confidence that a high single-digit growth rate is achievable for the remainder of the year despite the previously noted competitive lending environment.

Loan growth and an overall -- and an increase in loan yields will be fueled by our model of building relationships and relationship pricing, not just performing transactions.

While we did see an improvement in the metro market of loan growth rate this quarter, we understand we'll be challenged to grow loans by maintaining yield management where the asset yields continue to outpace liability costs year-over-year.

However, we believe our delivery and service model was effective in contributing to a solid margin growth performance.

Growth in our insurance and wealth management revenues will continue to be a focal point in our overall strategic plan.

This is evidenced by our recent insurance acquisition of Corporate One Benefits and its contribution of revenue growth this quarter.

We believe these revenue sources help in our ability to grow noninterest revenues in an environment with added pressures on NSF fees and other deposit-related fees.

We're also pleased with a steady increase in wealth management and trust revenues.

Our teams have made significant progress in enhancing our client experience.

Within the next quarter, we look forward to adding convenience to the way our clients bank with us by offering People Pay, a digital payment solution.

These smart ATMs at selected locations and improved online mortgage experience, and for First Insurance Group, a new app that allows clients to handle notable aspects of their insurance relationship.

These advancements give our customers additional flexibility and add value as they look to bank beyond our branch stores.

To continue this progression, we have dedicated resources working to expand operational capabilities and enhance the organization's overall efficiency, stability and productivity.

We are introducing new data management software that will allow us to deepen our understanding of our customers' banking relationships and behaviors to deliver more personalized banking solutions.

As the banking behaviors of our clients change, we will focus on adapting our service and sales models for a mere convenience -- for more convenience.

Better client banking experience for all our customers.

These strategic initiatives lead our focus and commitment to improving our results relative to our peer group.

We're very pleased by our recent financial performance and look to both financial performance-driven and people-focused as we have looked to obtain our goal of being a consistently high-performing community bank.

We remain strongly committed to our customers and shareholders and we appreciate the confidence you've placed in us in order to make First Defiance a company known for providing smart solutions to our customers and communities.

Thank you for your interest in First Defiance and we thank you for joining us this morning.

We will now be glad to take your questions.

(Operator Instructions) The first question comes from Matthew Ferguson of Sandler O'Neill & Partners.

Just wondering -- looking for a little bit more color here on the 2 large credits that moved on to nonaccrual.

Can you give us a little color about the -- as to the loan type?

Whether or not they are paying as agreed?

Where they're marked?

And then I guess just lastly, any additional credit outstanding to these borrowers?

The credit that we took, the large charge-off was in the C&I portfolio.

We have entered into a forbearance agreement with that particular borrower and they will be continuing to make payments on that particular credit.

So we think we've got it appropriately marked with the charge-offs that we took this quarter on that.

And the other is in the commercial real estate portfolio and we believe that's a timing issue on that credit, Matt.

Okay.

So it sounds like you're clearly positioning these as one-off events and it sounds like we should expect remediation.

i.e., lower level of nonperforming loans in the not too distant future?

Is that a reasonable expectation?

That's our expectation and we want to work to that.

Now these 2 credits, they're not going to cure themselves next quarter, but we do not anticipate an increased higher level of nonperformings going forward.

And we looked at the similar circumstances, we looked at some larger credits and deep dived to get ourselves comfortable but this isn't a trend that these are, like you said, categorized more as a one-off and that's what we really believe at this point.

Okay.

Were they -- just out of curiosity, were they ag credits or small manufacturers?

Or which industry were they?

They were not ag.

One is in healthcare facilities and the other is more of a small operating unit that provides services to -- in utilities industry.

Okay, okay.

Right.

I guess -- and can you just zoom out -- one of your themes coming at the credit cycle was the commitment to managing proactively.

And with that approach, we sense that you've got a pretty good pulse on the credit market and so forth.

As you think through your portfolio, are there any areas where you're paying more attention just in light of what we've seen?

In auto, for example, or some incremental softening in ag?

How are you feeling about those 2 books and any other pressure points?

Well clearly, our spending a little bit more focused on ag.

We have seen some early indications of some stress, especially with the smaller ag credits.

And we're looking at the most recent wet Midwest year we've had and that impact on our clients.

We don't see any material losses in that portfolio at this point of time, but we are -- it's been a little bit more attention to the ag portfolio.

Related to the other general questions about other concentrations, I think we will continue to focus on some of the markets, the potential overbuilding of multifamily and how that relates to our portfolio and where we stand with that, we feel comfortable at this point.

But I think that will be some possibly constraining of growth opportunities in that in certain markets as we go forward.

The auto industry, we're not very correlated with that.

As far as our direct relationships, we have several very indirect auto relationships that are providing a small part in the overall process.

But generally, we're not very dependent on how the auto industry goes other than from the employment standpoint.

But don't really see any other sectors that we're overly concerned with now individually for us.

Right.

Okay.

I guess last from me and then I'll hop out.

But average loan growth was strong, end of period loan growth just a little bit sluggish in large measures due to the prepayment you cited.

However, year-to-date organic loans are up only about 3% on an annualized basis by my math.

And I guess to get to the upper single-digit implies a pretty steep ramp from here in the back half of the year.

So when you say upper single digits, are you thinking of 7%, 8%, 9% and is it really reasonable to get there?

When I look at the numbers, Matt, and I know that payoffs, it happens so you can't totally ignore it.

But organic growth in the first quarter was about $13 million, second quarter were showing $16.4 million but if you adjust that $16.4 million by the 20, it would be $36.4 which would be 6.4%.

With the size of our current pipeline which is at all-time high over the last 3 years, we're feeling pretty confident about being able to deliver in that mid-upper single-digit growth over the remainder of the year.

And we realize that we have to execute on that.

Our indications are in talking to our loan people and [mark area] presidents and that they're feeling.

That is not just Don and Kevin thinking we can do it, they are the ones driving our decision in our communication.

But their momentum has certainly been building.

As Don indicated, our loan originations were way up in the second quarter.

So our outlook is that, that's a very doable number for us.

The next question comes from Damon DelMonte of KBW.

Just to kind of talk onto the loan growth question.

The loans that you guys have been putting on or that you see in your pipeline, are these all self-originated loans?

Or are you guys participating in any shared national credits?

No.

No new originations in shared national credits.

Right.

It's all originated by us.

By us.

We just have 1 shared national credit that we -- that we're involved in.

Okay.

Is it a local loan or is that a local lender that's outside the market?

Yes.

No, the loan in the business is inside our market footprint.

Okay, great.

Okay.

And then with regards to the margin, I think roughly 5 basis points of a benefit from the interest recoveries.

So if you look at -- call it a [383] or so, as your core margin for this quarter, Kevin, how do we kind of frame that going forward?

Just given the 2 recent rate hikes and kind of what are you seeing on loan pricing?

Right.

I don't see anything pushing it down at this point.

As the rate increases have been coming through that's generally -- had a slight benefit to us as loans have repriced in the portfolio.

The pressure on the funding side has not been felt to-date.

Yes, we're not sensing that there's anything imminent that's going to change that either at this point.

So we think the margin should remain strong as we finish out the year.

Okay.

So no change in the pricing dynamics, like larger banks aren't changing the rates at all which is putting pressure on the smaller guys?

Yes.

Not anything that's affecting our business.

Okay.

And then I guess just lastly, with the insurance agency acquisition.

Is first quarter still your seasonally high quarter for insurance commissions?

It is.

So then we can expect something in the 3 to 3.2ish, 3.3 range for the next couple of quarters as your normal run rate?

Correct.

The next question comes from Daniel Cardenas of Raymond James.

Just a couple of quick questions here.

Going back to the 2 nonperformers that were added on this quarter.

Were those kind of from the legacy portfolio or were those from some of the recent acquisitions that you guys have completed?

No.

They were our origination, not related to the acquisition at all.

One was -- one I would categorize as a fairly new credit to us that had issues and that's still we took to charge-off.

But that was -- we originated those.

Not part of the acquisition at all.

Perfect.

And then with People Pay, could you maybe give us a little bit of color as to what impact, if any, that's going to have on operating expenses going forward?

It's at a very minimal on operating expenses.

It's just another service on our mobile and our electronic banking suite to allow customers more of a flexibility to pay individuals and other payments outside of electronic banking.

So they don't necessarily have to have an account with us to receive a payment now.

Which is, we think is a very -- what we're seeing in the industry and then in something that was very convenient for our customers and they kind of asked for it.

But the additional incremental expense is going to be very minimal.

Okay.

Then the kind of a core operating expense number that we saw this quarter.

Is that a good run rate to build off of for the second half of the year?

I'd say, yes.

Absolutely.

We did have about $300,000 of one-time costs for the merger.

But as we finish out the year and continue to grow.

So I would expect a number very similar to what we had this quarter as we go forward.

Yes.

We do have some additional facilities, adds for expansion but that's going to be later in the fourth quarter.

So we really want to affect our run rate here.

And I think we've mentioned we're going to expand facilities in Toledo.

Right.

And then just kind of last question.

I know you guys just completed commercial, but maybe -- what's your appetite for additional acquisitions?

And then what's the market like right in your footprint?

Is there a lot of activity, a lot of noise?

Or is it fairly quiet?

Yes.

At someplace in the middle, I wouldn't say there's a lot of activity but there is activity.

There's still a lot of questions going on.

There's -- we're receiving books to look at.

I'd say our appetite is, we feel good about our ability of where we are today of absorbing CSB.

With anything, we probably serve our people, some are ready and some are saying, well, let me digest and finish up some of the things that didn't get done before you want do another one.

But I think generally our organization feels good about what we accomplished with CSB.

We feel really good about the integration process, the management of that integration process and the corresponding results.

And like Kevin said, we're seeing those integration benefits right now.

So yes, we will be receptive to looking at another transaction in the near term to -- if the outright opportunity comes along.

The next question is from Christopher Marinac of FIG Partners.

Just want to ask a little bit more on the credit picture that's beyond the comments stated earlier.

Do you have a sense of kind of directionally what happens with substandard and classifieds when you follow the queue?

Will those be directionally higher or was a lot of that sort of curtailed by taking the charge-offs in the quarter?

No, they will be directionally higher.

Due to these 2 adds, they're both classified and substandard, all right?

Okay.

And I may have missed earlier on your remarks about.

Were those C&I loans?

Or what was the history on those 2 deals?

The loan we took to charge-off, Chris, was a C&I loan.

And the other one is CRE.

Got it.

Okay.

So one of each.

All right.

One of each.

Yes, but the charge-offs are related to the C&I portfolio.

And then excluding those 2 credits, are there other trends that you see that would indicate higher issues or just more downgrades in the future or again, these really isolated as you said?

I think there's early indications of the potential for more credit stress.

We're not necessarily seeing -- I can't say this credit or this credit.

But when I sit in committees and we talked about things, a lot of that indications when we get the year-end financials coming in.

And some of those are a little -- maybe not as strong as you would think in our environment.

So that's kind of an indicator that maybe things aren't as strong as what you would hope.

So it's things like that, Chris, it's not necessarily to say that we're seeing obvious deterioration in trends, but I think we're maybe not seeing as much of the improvement that I would have hoped to see based on getting in some of the year-end financials for some of our clients that I would've hoped at this point in time.

I would agree with Don's comments.

Again, I don't think anything that -- the only area that might have anything in my mind is the ag.

That's -- and even there, are our collateral positions are very strong and we don't see losses but we do see customers have had little more distress, if you will, over the last couple of years.

And -- so that's the only thing that maybe is a little bit of issue in my mind.

Otherwise, I don't think the trends are really very different than what we have seen.

And Kevin, as you mentioned ag is not necessarily ag loans within First Defiance as more of the customers have potential issues and that impacts other pieces of the portfolio, is that a fair interpretation?

I suppose on a broader sense, sure.

Yes.

Okay, great.

Alright, and then I guess a separate question, different topic is just on the People Pay program, did you have to pay sort of a per user?

Or just curious if that ends up being a better economics for you than some of the other, sort of (inaudible) and other things at the big banks are starting to adopt?

Well, this is easier one for us at a lower cost entry point for us to get into this because of our relationship with our core provider.

And that made this an easier, less costly relationship kind of a way to get into this -- that market of the People Pay, Chris.

We do -- I believe we do have a set cost on this program by user but it's not as dramatic as some of those other ones that maybe have more bells and whistles than our product.

But we're excited about at least having a good product that we can offer our customer and we'll continue to look at that.

But I wouldn't necessarily match it up by completely from a cost structure with some of those other products.

(Operator Instructions) There are no additional questions at this time.

This concludes our question-and-answer session.

I would like to turn the conference back over to Tera Murphy for closing remarks.

Thank you for joining us today as we discussed our quarterly results.

We appreciate your time and interest in First Defiance Financial Corp.

Have a great day.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.