FFD Financial (FFDF) 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended     March 31, 2012

OR

o TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ____________ to _______________

Commission File Number:     0-27916   

FFD FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	38-1821148
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

321 North Wooster Avenue, Dover, Ohio  44622

(Address of principal executive offices) (Zip Code)

(330)  364-7777

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x                      No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x                      No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                      No  x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:May 14, 2012 – 1,016,096 common shares, no par value

INDEX

			Page
PART I	Item 1-	FINANCIAL INFORMATION
		Consolidated Statements of Financial Condition	3
		Consolidated Statements of Earnings	4
		Consolidated Statements of Comprehensive Income	5
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements	7
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3	Qualitative and Quantitative Disclosures about Market Risk	36
	Item 4	Controls and Procedures	36
PART II	-	OTHER INFORMATION	37
SIGNATURES			38

2

FFD Financial Corporation

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

	March 31,			June 30,
ASSETS	2012			2011
	(Unaudited)
Cash and due from financial institutions	$	1,141		$	1,352
Interest-bearing deposits in other financial institutions, including overnight deposits		22,190			14,944
Cash and cash equivalents		23,331			16,296
Investment securities available for sale		2			6,021
Mortgage-backed securities available for sale		10,469			6,257
Mortgage-backed securities held to maturity, fair value of $41 at March 31, 2012 and $51 at June 30, 2011		41			51
Loans receivable – net of allowance of $2,214 and $2,174		193,537			182,226
Loans held for sale		764			-
Premises and equipment, net		3,947			3,910
Federal Home Loan Bank of Cincinnati stock, at cost		2,422			2,422
Loan servicing rights		667			732
Accrued interest receivable		559			515
Prepaid expenses and other assets		1,504			1,106
Total assets	$	237,243		$	219,536
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	17,857		$	15,746
Interest bearing		184,264			169,297
Total deposits		202,121			185,043
Federal Home Loan Bank advances		12,428			13,137
Other borrowed funds		566			630
Accrued interest payable		102			118
Accrued and deferred federal income tax		402			62
Other liabilities		1,821			1,575
Total liabilities		217,440			200,565
Shareholders’ equity
Preferred stock - authorized 1,000,000 shares without par value; no shares issued		-			-
Common stock - authorized 5,000,000 shares without par or stated value; 1,454,750 shares issued		-			-
Additional paid-in capital		8,340			8,334
Retained earnings		17,409			16,686
Accumulated comprehensive income, net		99			35
Treasury stock, at cost (438,654 and 443,154 treasury shares at March 31, 2012 and June 30, 2011, respectively)		(6,045	)		(6,084	)
Total shareholders’ equity		19,803			18,971
Total liabilities and shareholders’ equity	$	237,243		$	219,536

The accompanying notes are an integral part of these statements.

3

FFD Financial Corporation

CONSOLIDATED STATEMENTS OF EARNINGS

 (In thousands, except per share data)

(Unaudited)

	For the three months					For the nine months
	ended March 31,					ended March 31,
	2012			2011		2012			2011
Interest income
Loans, including fees	$	2,569		$	2,509	$	7,716		$	7,736
Mortgage-backed securities		44			1		125			7
Investment securities		2			35		38			132
Interest-bearing deposits and other		35			30		93			87
		2,650			2,575		7,972			7,962
Interest expense
Deposits		497			542		1,538			1,846
Borrowings		124			148		383			454
		621			690		1,921			2,300
Net interest income		2,029			1,885		6,051			5,662
Provision for losses on loans		150			120		556			652
Net interest income after provision for losses on loans		1,879			1,765		5,495			5,010
Noninterest income
Net gain on sale of loans		225			56		646			591
Mortgage servicing revenue (loss)		(49	)		47		(109	)		(18	)
Service charges on deposit accounts		125			84		335			264
Other		54			27		111			85
		355			214		983			922
Noninterest expense
Employee and director compensation and benefits		706			669		2,055			1,938
Occupancy and equipment		169			124		477			412
Franchise taxes		63			61		184			185
FDIC Insurance Premiums		22			76		65			200
Data processing		105			109		303			289
ATM processing		50			36		130			108
Professional and consulting fees		97			72		273			207
Postage and stationery supplies		37			32		117			117
Advertising		64			40		187			130
Checking account maintenance expense		47			50		150			159
Other		237			182		649			546
		1,597			1,451		4,590			4,291
Income before income taxes		637			528		1,888			1,641
Income tax expense		218			180		647			562
Net Income	$	419		$	348	$	1,241		$	1,079
Earnings per share
Basic	$	.41		$	.34	$	1.22		$	1.07
Diluted	$	.41		$	.34	$	1.22		$	1.06
Dividends declared per share	$	.17		$	.17	$	.51		$	.51

The accompanying notes are an integral part of these statements.

4

FFD Financial Corporation

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (In thousands)

(Unaudited)

	For the three months					For the nine months
	ended March 31,					ended March 31,
	2012		2011			2012		2011
Net income	$	419	$	348		$	1,241	$	1,079
Other comprehensive income (loss), net of related tax effects:
Unrealized holding gains (losses) on securities during the period, net of taxes (benefits) of $13, $(8), $34 and $(76), during the respective periods		25		(16	)		64		(147	)
Comprehensive income	$	444	$	332		$	1,305	$	932

The accompanying notes are an integral part of these statements.

5

FFD Financial Corporation

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended March 31, 2012 and 2011

(In thousands)

(Unaudited)

	2012			2011
Cash flows from operating activities:
Net cash provided from (used by) operating activities	$	(1,396	)	$	6,680
Cash flows from investing activities:
Purchase of investment securities available for sale		(4,991	)		(8,000	)
Proceeds from maturities/calls of investment securities available for sale		6,000			6,000
Principal repayments on mortgage-backed securities		1,047			18
Loan originations and payments, net		(10,536	)		(2,376	)
Proceeds from participation loan sales to other financial institutions		1,333			-
Additions to premises and equipment		(254	)		(107	)
Proceeds from the sale of real estate owned		-			18
Net cash provided from investing activities		(7,401	)		(4,447	)
Cash flows financing activities:
Net change in deposits		17,078			5,094
Repayments of Federal Home Loan Bank advances		(709	)		(399	)
Net change in other borrowed funds		(64	)		-
Proceeds from exercise of stock options		45			6
Cash dividends paid		(518	)		(516	)
Net cash provided from financing activities		15,832			4,185
Net change in cash and cash equivalents		7,035			6,418
Beginning cash and cash equivalents		16,296			9,034
Ending cash and cash equivalents	$	23,331		$	15,452
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes	$	340		$	650
Supplemental noncash disclosures:
Transfer from loans to repossessed assets	$	-		$	404
Interest paid	$	1,937		$	2,326

The accompanying notes are an integral part of these statements.

6

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three-and nine-month periods ended March 31, 2012 and 2011

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with United States generally accepted accounting principles.  Accordingly, these financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto of FFD Financial Corporation (the “Corporation”) included in the Corporation’s Annual Report on Form 10-K for the year ended June 30, 2011.  However, in the opinion of management, all adjustments (consisting of only normal recurring accruals) which are necessary for a fair presentation of the financial statements have been included.  The results of operations for the three- and nine-month periods ended March 31, 2012, are not necessarily indicative of the results which may be expected for the entire fiscal year.

2.  Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Corporation and First Federal Community Bank (the “Bank).  All significant intercompany items have been eliminated.

3.  Earnings Per Share

Basic earnings per share is computed based upon the weighted-average common shares outstanding during the period.  Diluted earnings per common share includes the dilutive effect of additional common shares issuable under the Corporation’s stock option plans.  Stock options for 3,500 shares were not considered in computing diluted earnings per share for each of the three and nine months ended March 31, 2012 and 2011 because they were antidilutive.  The computations are as follows:

	For the three months ended				For the nine months ended
	March 31,				March 31,
	2012		2011		2012		2011
Weighted-average common shares outstanding (basic)		1,016,096		1,011,596		1,015,769		1,011,544
Dilutive effect of assumed exercise of stock options		2,066		2,978		2,070		2,718
Weighted-average common shares outstanding (diluted)		1,018,162		1,014,574		1,017,839		1,014,262

4.  Stock Option Plan

The FFD Financial Corporation 1996 Stock Option and Incentive Plan (the “Plan”) expired as to new awards in October of 2006.  Options granted prior to expiration remain exercisable for ten years from the grant date, unless terminated in accordance with the Plan or the applicable award agreement.  In addition, the Corporation has an option plan in which only one director participates.  The director-only plan was adopted in 2002 to permit an option issuance to a new director because the terms of the Plan at the time limited the aggregate number of options available for awards to directors.

7

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

4.  Stock Option Plan (continued)

A summary of the activity in the Plan for the nine months ended March 31, 2012 follows:

	Shares			Weighted average exercise price		Weighted average remaining contractual term	Aggregate intrinsic value
Outstanding at beginning of period		18,820		$	11.68
Granted		-			-
Exercised		(4,500	)		10.1
Forfeited or expired		-			-
Outstanding at end of period		14,320		$	12.18	1.0 yrs	$	57,539
Exercisable at end of period		14,320		$	12.18	1.0 yrs	$	57,539
Options available for grant		-

Information related to the Plan during the nine months ended March 31, 2012 and 2011 follows:

	2012		2011
Intrinsic value of options exercised	$	23,850	$	4,406
Cash received from options exercised		45,450		6,281
Tax benefit from options exercised		-		-

8

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans

Loans at period end and year end were as follows:

	March 31,			June 30,
	2012			2011
	(in thousands)
Residential real estate
One- to four-family	$	74,644		$	69,689
Multi-family		7,598			6,961
Nonresidential real estate and land		87,162			81,955
Commercial loans – secured		25,153			22,637
Commercial loans – unsecured		215			132
Consumer and other loans		5,144			6,086
		199,916			187,460
Net deferred loan origination costs		291			293
Undisbursed portion of loans in process		(4,456	)		(3,353	)
Allowance for loan losses		(2,214	)		(2,174	)
Loans, net	$	193,537		$	182,226

Activity in the allowance for loan losses was as follows:

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended

March 31, 2012.

	Residential real estate			Nonresidential real estate and land			Commercial secured and unsecured			Consumer and other			Total
	(in thousands)
Allowance for loan losses:
Beginning balance	$	935		$	861		$	268		$	110			2,174
Provision for loan losses		265			214			70			7			556
Loans charged-off		(298	)		(195	)		(21	)		(3	)		(517	)
Recoveries		-			-			-			1			1
Ending balance	$	902		$	880		$	317		$	115			2,214

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2012.

	Residential real estate		Nonresidential real estate and land			Commercial secured and unsecured			Consumer and other		Total
	(in thousands)
Allowance for loan losses:
Beginning balance	$	856	$	866		$	294		$	114		2,130
Provision for loan losses		46		60			44			-		150
Loans charged-off		-		(46	)		(21	)		-		(67	)
Recoveries		-		-			-			1		1
Ending balance	$	902	$	880		$	317		$	115		2,214

9

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2011.

	Consumer and other			Commercial secured and unsecured		Nonresidential real estate and land			Residential real estate			Unallocated		Total
	(in thousands)
Allowance for loan losses:
Beginning balance	$	289		$	359		1,293		$	490		$	-		2,431
Provision for loan losses		15			17		65			23			-		120
Loans charged-off		(2	)		-		(51	)		(26	)		-		(79	)
Recoveries		1			-		-			-			-		1
Ending balance	$	303		$	376		1,307		$	487		$	-		2,473

	Nine months ended
	March 31,
	2012			2011
	(in thousands)
Beginning balance	$	2,174		$	1,993
Provision for loan losses		556			652
Loans charged-off		(517	)		(174	)
Recoveries		1			2
Ending balance	$	2,214		$	2,473

The following tables present, based on the impairment method, the balance in the allowance for loan losses and loan balances by portfolio segment as of March 31, 2012 and June 30, 2011:

	Residential real estate		Nonresidential real estate and land		Commercial secured and unsecured		Consumer and other		Total
March 31, 2012	(in thousands)
Allowance for loan losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	186	$	65	$	45	$	-	$	296
Collectively evaluated for impairment		716		815		272		115		1,918
Total ending allowance balance	$	902	$	880	$	317	$	115	$	2,214
Loans
Loans individually evaluated for impairment	$	1,518	$	946	$	89	$	-	$	2,553
Loans collectively evaluated for impairment		79,971		86,080		21,966		5,181		193,198
Total ending loan balance	$	81,489	$	87,026	$	22,055		5,181	$	195,751

10

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

	Residential real estate		Nonresidential real estate and land		Commercial secured and unsecured		Consumer and other		Total
June 30, 2011	(in thousands)
Allowance for loan losses
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	323	$	222	$	23	$	-	$	568
Collectively evaluated for impairment		612		639		245		110		1,606
Total ending allowance balance	$	935	$	861	$	268	$	110		2,174
Loans
Loans individually evaluated for impairment	$	1,802	$	587	$	71	$	-	$	2,460
Loans collectively evaluated for impairment		74,707		79,211		21,897		6,125		181,940
Total ending loan balance	$	76,509	$	79,798		21,968	$	6,125	$	184,400

The recorded investment does not include accrued interest receivable due to immateriality.  Accrued interest receivable for the total loan portfolio is $532,000 at March 31, 2012 and $468,000 at June 30, 2011.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2012:

	Unpaid Principal balance		Recorded investment		Allowance for loan losses allocated
	(in thousands)
With no related allowance recorded:
Residential
One- to four-family	$	901	$	893	$	-
Nonresidential real estate and land		856		800		-
Commercial loans - secured		20		18		-
Total with no related allowance recorded		1,777		1,711	$	-
With an allowance recorded:
Residential
One- to four-family	$	638	$	446	$	117
Multi-family		196		179		69
Nonresidential real estate and land		304		146		65
Commercial loans - secured		90		67		41
Commercial loans – unsecured		4		4		4
Total with an allowance recorded	$	1,232	$	842	$	296
Total	$	3,009	$	2,553	$	296

11

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

The following table presents loans individually evaluated for impairment by class for the three-and nine-month periods ended March 31, 2012:

	For the three months ended						For the nine months ended
	31-Mar-12						31-Mar-12
	Average recorded investment		Interest income recognized		Cash Basis interest recognized		Average recorded investment		Interest income recognized		Cash Basis interest recognized
	(in thousands)						(in thousands)
With no related allowance recorded:
Residential
One- to four-family		1,055	$	10	$	10		1,093	$	38	$	38
Multi-family		-		-		-		-		-		-
Nonresidential real estate and land		359		1		1		371		7		7
Commercial loans - secured		28		-		-		36		-		-
Commercial loans – unsecured		-		-		-		-		-		-
Consumer and other loans		-		-		-		-		-		-
Total with no related allowance recorded		1,442	$	11	$	11	$	1,500	$	45	$	45
With an allowance recorded:
Residential
One- to four-family	$	485	$	3	$	3	$	567	$	6	$	6
Multi-family		89		-		-		60		-		-
Nonresidential real estate and land		484		-		-		539		-		-
Commercial loans - secured		43		-		-		45		-		-
Commercial loans – unsecured		4		-		-		4		-		-
Consumer and other loans		-		-		-		-		-		-
Total with an allowance recorded	$	1,105	$	3	$	3	$	1,215	$	6	$	6
Total	$	2,547	$	14	$	14	$	2,715	$	51	$	51

12

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

The following table presents loans individually evaluated for impairment by class as of June 30, 2011:

	Unpaid principal balance		Allowance for Recorded investment		loan losses allocated
	(in thousands)
With no related allowance recorded:
Residential
One- to four-family	$	878	$	878	$	-
Multi-family		-		-		-
Nonresidential real estate and land		-		-		-
Commercial loans - secured		8		-		-
Commercial loans – unsecured		-		-		-
Consumer and other loans		-		-		-
Total with no related allowance recorded	$	886	$	886	$	-
With an allowance recorded:
Residential
One- to four-family	$	933	$	924	$	323
Multi-family		-		-		-
Nonresidential real estate and land		590		587		222
Commercial loans - secured		64		63		23
Commercial loans – unsecured		-		-		-
Consumer and other loans		-		-		-
Total with an allowance recorded	$	1,587	$	1,574	$	568
Total	$	2,473	$	2,460	$	568

 At March 31, 2012 and June 30, 2011, there were no loans past due 90 days and still on accrual.

The following table presents information for loans individually evaluated for impairment for the three-and nine-month periods ended March 31, 2011:

	For the three months ended		For the nine months ended
	31-Mar-11		31-Mar-11
	(in thousands)		(in thousands)
Average of individually impaired loans during the period	$	2,451	$	2,914
Interest income recognized during the impairment		23		72
Cash-basis interest income recognized		23		72

13

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

Nonaccrual loans were as follows:

	March 31,		June 30,
	2012		2011
	(in thousands)
Residential real estate
One- to four-family		905		1,073
Multi-family		691		-
Nonresidential real estate and land		868		646
Commercial loans – secured		85		58
Consumer and other loans		5		20
	$	2,554	$	1,797

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012:

	30-59 days past due		60-89 days past due		90 or more days past due		Total past due		Loans not past due		Total
	(in thousands)
Residential real estate
One- to four-family	$	155	$	154	$	228	$	537	$	73,346	$	73,883
Multi-family		114		-		135		249		7,357		7,606
Nonresidential real estate and land		403		-		131		534		86,491		87,025
Commercial loans – secured		14		21		64		99		21,742		21,841
Commercial loans – unsecured		-		-		-		-		215		215
Consumer and other loans		44		1		-		45		5,136		5,181
Total	$	730	$	176	$	558		1,464	$	194,287		195,751

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011:

	30-59 days past due		60-89 days past due		90 or more days past due		Total past due		Loans not past due		Total
	(in thousands)
Residential real estate
One- to four-family	$	386	$	534	$	300	$	1,220	$	68,320	$	69,540
Multi-family		103		-		-		103		6,866		6,969
Nonresidential real estate and land		337		146		181		664		79,134		79,798
Commercial loans – secured		2		48		53		103		21,733		21,836
Commercial loans – unsecured		-		-		-		-		132		132
Consumer and other loans		63		28		12		103		6,022		6,125
Total	$	891	$	756	$	546	$	2,193	$	182,207	$	184,400

14

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

Troubled Debt Restructurings:

The Corporation has allocated $141,000 and $125,000 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2012 and June 30, 2011, respectively.  The Corporation had not committed to lend additional amounts as of March 31, 2012 and June 30, 2011 to customers whose loans were classified as troubled debt restructurings.

During the three-month period ending March 31, 2012, there was one modification of a loan totaling $25,000 that would be considered a troubled debt restructuring.   The loan modification extended the maturity date of the loan.

During the nine-month period ending March 31, 2012, there were three modifications of loans totaling $218,000 that would be considered troubled debt restructurings.  At March 31, 2012 the balance of these loans was $215,000.  The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

All troubled debt restructured loans which were modified prior to June 30, 2011 performed in accordance with their modified terms for the twelve-month period ending March 31, 2012.

A troubled debt restructured commercial or consumer loan is considered to be in payment default once it is 11 days contractually past due under the modified terms.  A troubled debt restructured residential real estate loan is considered to be in payment default once it is 16 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.

At March 31, 2012, troubled debt restructured loans totaled $1.66 million and included $1.14 million in one- to four-family, $496,000 in nonresidential real estate and land and $25,000 in commercial.  There were no consumer troubled debt restructurings at March 31, 2012.  At June 30, 2011 troubled debt restructured loans totaled $1.46 million.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  The Corporation analyzes loans individually by classifying the loans as to credit risk.  The Corporation uses the following definitions for risk ratings:

Not rated: Homogeneous one- to four-family real estate loans that have maintained their contractual payments and are not analyzed.

Pass:  Loans that are analyzed but that do not meet the criteria to be considered special mention, substandard or doubtful as defined below.

Special mention:  Loans that have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date.

15

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

5.  Loans (continued)

Substandard:  Loans that are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any.  These loans have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of the debt.  They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

Doubtful:  Loans that have all the weaknesses inherent of those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

As of March 31, 2012, and based on the most recent analysis performed, the risk category of loans by class was as follows:

	Not rated		Pass		Special mention		Substandard		Doubtful		Total
	(in thousands)
Residential real estate
One- to four-family	$	71,308	$	-	$	813	$	1,589	$	173	$	73,883
Multi-family		-		6,819		608		179		-		7,606
Nonresidential real estate and land		-		85,887		192		815		131		87,025
Commercial loans – secured		-		21,713		2		126		-		21,841
Commercial loans – unsecured		-		204		7		4		-		215
Consumer and other loans		5,167		-		14		-		-		5,181
Total	$	76,475	$	114,623	$	1,636	$	2,713	$	304	$	195,751

As of June 30, 2011,  the risk category of loans by class was as follows:

	Not rated		Pass		Special mention		Substandard		Doubtful		Total
	(in thousands)
Residential real estate
One- to four-family	$	67,094	$	-	$	641	$	1,765	$	40	$	69,540
Multi-family		-		6,923		46		-		-		6,969
Nonresidential real estate and land		-		78,625		397		595		181		79,798
Commercial loans – secured		-		21,715		113		8		-		21,836
Commercial loans – unsecured		-		79		-		-		53		132
Consumer and other loans		6,068		-		51		-		6		6,125
Total	$	73,162	$	107,342	$	1,248	$	2,368	$	280	$	184,400

16

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

6.  Securities

The amortized cost and fair value of available for sale securities and the related gross unrealized gains recognized in accumulated other comprehensive income were as follows:

	March 31, 2012
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(In thousands)
Equity securities	$	2	$	-	$	-	$	2
Total		2		-		-		2
Mortgage Backed Securities:
Federal National Mortgage Association participation certificates		147		-		-		147
Government National Mortgage Association participation certificates		10,172		150		-		10,322
Total mortgage-backed securities available for sale		10,319		150		-		10,469
Total	$	10,321	$	150	$	-	$	10,471

	June 30, 2011
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(In thousands)
U.S. Government agency obligations	$	5,999	$	20	$	-	$	6,019
Equity securities		2		-		-		2
Total		6,001		20		-		6,021
Mortgage Backed Securities:
Federal National Mortgage Association participation certificates		156		1		-		157
Government National Mortgage Association participation certificates		6,069		31		-		6,100
Total mortgage-backed securities available for sale		6,225		32		-		6,257
Total	$	12,226	$	52	$	-	$	12,278

All mortgage backed securities held by the Corporation at March 31, 2012 and June 30, 2011 had underlying collateral of residential real estate.

17

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

6.  Securities (continued)

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows:

	March 31, 2012
			Gross		Gross
	Carrying		unrecognized		unrecognized		Fair
	amount		gains		losses		value
	(In thousands)
Federal Home Loan Mortgage  Corporation participation certificates	$	41	$	-	$	-	$	41
Total mortgage-backed securities held to maturity	$	41	$	-	$	-	$	41

	June 30, 2011
			Gross		Gross
	Carrying		unrecognized		unrecognized		Fair
	amount		gains		losses		value
	(In thousands)
Federal Home Loan Mortgage  Corporation participation certificates	$	51	$	-	$	-	$	51
Total mortgage-backed securities held to maturity	$	51	$	-	$	-	$	51

No securities were sold during the three or nine months ended March 31, 2012 or 2011.

The fair value and carrying amount of debt securities at March 31, 2012 by contractual maturity were as follows.  Securities not due at a single maturity date, which consist primarily of mortgage-backed securities, are shown separately.  Equity securities were excluded.

	Held to maturity				Available for sale
	Carrying		Fair		Amortized		Fair
	amount		value		cost		value
	(in thousands)
Due in one year or less	$	-	$	-	$	-	$	-
Due from one to five years		-		-		-		-
Due from five to ten years		-		-		-		-
Due after ten years		-		-		-		-
Mortgage-backed		41		41		10,319		10,469
Total	$	41	$	41	$	10,319	$	10,469

Securities pledged to secure public deposits at March 31, 2012, and June 30, 2011, had carrying amounts of $4.0 million and $5.2 million, respectively.

18

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

6.  Securities (continued)

At March 31, 2012, and June 30, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.  There were no securities with unrealized losses at March 31, 2012 and June 30, 2011.

7.  Recent Accounting Developments

In May 2011, the Finanical Accounting Standard Board (“FASB”) issued Accounting Standards Update No, 2011-4, "Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement-and Disclosure Requirements in U.S. GAAP and IFRSs." Some amendments in this update clarify the FASB's intent about the application of existing fair value measurement requirements.  Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  The amendments in this update are effective during interim and annual reporting periods beginning after December 15, 2011.  Adopting this new guidance did not have a material effect on the Corporation's financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-5, "Comprehensive Income (Topic 220), Presentation of Comprehensive Income."  This update amends the FASB Accounting Standards Codification (Codification) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity.  The amendments to the Codification in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and retrospective application is required.  Adopting this new guidance did not have a material effect on the Corporation's financial statements.

In December 2011, the FASB issued Accounting Standards Update No. 2011-12, "Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-5."  This update defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately within their respective components of net income and other comprehensive income.  As such, the amendments in this update supersede only those paragraphs in Accounting Standards Update No. 2011-5 that pertain to how and where reclassification adjustments are presented.  The amendments were effective at the same time as the amendments in Accounting Standards Update 2011-5.  Adopting this new guidance did not have a material effect on the Corporation's financial statements.

19

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

8.  Fair Value Measurement

Fair value is the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the entity’s own assumptions about how market participants would price an asset or liability.

The Corporation used the following methods and significant assumptions to estimate fair value:

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).  The Corporation has no Level 3 investment securities.

Loan Servicing Rights: On a quarterly basis, loan servicing rights are evaluated for impairment in traunches based upon the fair value of the rights as compared to carrying amount.  If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value.  Fair value is determined at a tranche level or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).

Impaired Loans:  Impaired loans are valued at the lower of cost or fair value.  Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses.  For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

20

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

8.  Fair Value Measurement (continued)

Assets Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair value measurements
			at March 31, 2012 Using
			Quoted prices in		Significant
			active markets		other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Available for sale securities
U. S. government agency obligations	$	-	$	-	$	-	$	-
Equity securities		2		2		-		-
Federal National Mortgage Association participation certificates-residential		147		-		147		-
Government National Mortgage Association participation certificates-residential		10,322		-		10,322		-
Total securities available for sale	$	10,471	$	2	$	10,469	$	-

			Fair value measurements
			at June 30, 2011 Using
			Quoted prices in		Significant
			active markets		other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Available for sale securities
U. S. government agency obligations	$	6,019	$	-	$	6,019	$	-
Equity securities		2		2		-		-
Federal National Mortgage Association participation certificates-residential		157		-		157		-
Government National Mortgage Association participation certificates-residential		6,100		-		6,100		-
Total securities available for sale	$	12,278	$	2	$	12,276	$	-

All mortgage backed securities held by the Corporation at March 31, 2012 and June 30, 2011, had underlying collateral of residential real estate.

There were no transfers between Level 1 and Level 2 during fiscal 2012 or fiscal 2011.

21

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

8.  Fair Value Measurement (continued)

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

	Fair value measurements
	at March 31, 2012 Using
	Quoted prices in		Significant
	active markets		other		Significant
	for identical		observable		unobservable
	assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Loan servicing rights	$	-	$	515	$	-
Impaired loans, net of allowance
Residential one-to-four-family		-		-		329
Multi-family		-		-		110
Nonresidential real estate and land		-		-		207
Commercial loans – secured		-		-		26
Total	$	-	$	515	$	672

The following impairment charges were recognized during the three and nine months ended March 31, 2012:

Impaired loan servicing rights, which are carried at lower of cost or fair value based on stratifying rights into groupings, were written down to a fair value of $515,000, resulting in a valuation allowance of $106,000. Net charges of $54,000 and $65,000 were included in earnings for the three and nine months ended March 31, 2012, respectively.  Servicing rights totaling $152,000 were carried at amortized cost as of March 31, 2012.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $968,000, with a valuation allowance of $296,000, resulting in an additional provision for loan losses of $5,000 and a reduction in the provision for loan losses of $221,000 for the respective three-and nine-month periods ended March 31, 2012.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2012.

					Range
			Valuation		(Weighted
Impaired Loans	Fair value		Technique(s)	Unobservable Input(s)	Average)
Residential one-to-four family	$	329	Sales comparison approach	Negatively adjusted for selling costs and changes in market conditions since appraisal	0%-35% (8.6%)
Nonresidential real estate and land		317	Sales comparison approach	Negatively adjusted for selling costs and changes in market conditions since appraisal	0%-22% (10.6%)
Commercial loans – secured		26	Sales comparison approach	Negatively adjusted for selling costs and changes in market conditions since appraisal	5%-35% (35.8%)
Total	$	672

22

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

8.  Fair Value Measurement (continued)

Assets Measured on a Non-Recurring Basis

	Fair value measurements
	at June 30, 2011 Using
	Quoted prices in		Significant
	active markets		other		Significant
	for identical		observable		unobservable
	assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Loan servicing rights	$	-	$	97	$	-
Impaired loans, net of allowance
Residential one-to-four-family		-		-		601
Nonresidential real estate and land		-		-		365
Commercial loans – secured		-		-		40
Total	$	-	$	97	$	1,006

The following impairment charges were recognized during the year ended June 30, 2011:

Impaired loan servicing rights, which are carried at the lower of cost or fair value based on stratifying rights into groupings, were written down to a fair value of $97,000, resulting in a valuation allowance of $41,000. A net benefit of $67,000 from the recovery of servicing rights fair value was included in earnings for the year ending June 30, 2011.  Servicing rights totaling $635,000 were carried at amortized cost.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $1.57 million, with a valuation allowance of $568,000, resulting in an additional provision for loan losses of $456,000 for the year ended June 30, 2011.

The carrying amounts and estimated fair values of financial instruments, at March 31, 2012 and June 30, 2011 are as follows:

	Fair value measurements at
	March 31, 2012
	Carrying value			Level 1			Level 2			Level 3		Total
	(in thousands)
Financial assets
Cash and cash equivalents	$	23,331		$	23,331		$	-		$	-	$	23,331
Investment securities available for sale		2			2			-			-		2
Mortgage-backed securities		10,510			-			10,510			-		10,510
Loans, net		193,537			-			-			193,467		193,467
Loans held for sale		764			-			768			-		768
Federal Home Loan Bank stock		2,422			N/A			N/A			N/A		N/A
Loan servicing rights		667			-			515			-		515
Accrued interest receivable		559			-			27			532		559
Financial liabilities
Deposits	$	(202,121	)	$	(105,765	)	$	(98,021	)	$	-	$	(203,786	)
Federal Home Loan Bank advances		(12,428	)		-			(12,879	)		-		(12,879	)
Other borrowed funds		(566	)		-			(566	)		-		(566	)
Accrued interest payable		(102	)		(3	)		(99	)		-		(102	)

23

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

8.  Fair Value Measurement (continued)

	June 30, 2011
	Carrying amount			Fair value
	(in thousands)
Financial assets
Cash and cash equivalents	$	16,296		$	16,296
Investment securities available for sale		6,021			6,021
Mortgage-backed securities		6,308			6,308
Loans, net, including loans held for sale		182,226			182,004
Federal Home Loan Bank stock		2,422			n/a
Loan servicing rights		732			97
Accrued interest receivable		515			515
Financial liabilities
Deposits	$	(185,043	)	$	(187,265	)
Federal Home Loan Bank advances		(13,137	)		(13,667	)
Other borrowed funds		(630	)		(630	)
Accrued interest payable		(118	)		(118	)

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents:  The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

FHLB Stock:  It is not practical to determine the fair value of Federal Home Loan Bank (“FHLB”) stock due to restrictions placed on its transferability.

Loans:  Fair values of loans, excluding loans held for sale, are estimated as follows:  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values, resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, that applies interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.  Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent the price at which the loan could be sold.

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Deposits:  Fair values for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount), resulting in a Level 1 classification.  The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date, resulting in a Level 2 classification.  Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.

24

FFD Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the three-and nine-month periods ended March 31, 2012 and 2011

Other Borrowings: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements, resulting in a Level 2 classification.

Accrued Interest Receivable/Payable:  The carrying amounts of accrued interest approximate fair value.  The level of accrued interest is determined by the classification level of the asset/liability they are associated with.

Off-balance Sheet Instruments:  Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

25

FFD Financial Corporation

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained in this Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements involve inherent risks and uncertainties, and may address our financial condition, results of operations, plans, objectives, future performance and business.  Forward-looking statements may generally be identified by the words “may,” “expected,” “anticipated,” “estimated,” “intends,” “believes,” “plans,” “will,” “would,” “should,” “could,” “might,” “can,” or similar words.  There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements.  Factors that might cause such a difference include, but are not limited to:

· general economic conditions and weakening in the economy, specifically the real estate market, either nationally or in the Corporation’s market area;

· deteriorating credit and asset quality;

· political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions;

· changes in the interest rate environment and reductions in interest margins;

· prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions;

· our ability to maintain required capital levels and adequate sources of funding and liquidity;

· competitive pressures among depository institutions;

· effects of critical accounting policies and judgments;

· required changes in accounting policies or procedures;

· legislative or regulatory changes or actions, including the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”);

· our ability to attract and retain key personnel;

· our ability to dividend money from the Bank to the Corporation; and

· our reputation in our primary market.

Any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by our management in other reports and filings, in press releases and in oral statements, involve risks and uncertainties and are subject to change based upon the factors listed above and like items.  Actual results could differ materially from those expressed or implied, and therefore the forward-looking statements should be considered in light of these factors.

26

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Business Overview

The Corporation was incorporated in Ohio in 1996, and its primary business is the operation of the Bank, its principal subsidiary, which was established in 1898.  In late February 2012, the Bank completed its previously announced conversion from a federal savings bank to a national bank.  The Bank is now subject to the rules and regulations governing national banks and is subject to regulation by the Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”).  In connection with the Bank’s conversion to a national bank the Corporation converted from a savings and loan holding company to a bank holding company and is regulated, supervised and examined by the Federal Reserve. .

The Bank is a community-oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. Its business model emphasizes personalized service, clients’ access to decision makers, solution-driven lending and quick execution, efficient use of technology and the convenience of remote deposit, telephone banking, and internet banking. It attracts deposits from the general public and uses the deposits, together with borrowings and other funds, primarily to originate commercial loans,  single-family and multi-family residential mortgage loans, commercial real estate loans, vehicle loans, boat loans and home equity lines of credit. The majority of the Bank’s customers are consumers and small businesses.

Critical Accounting Policies

The financial condition and results of operations for the Corporation presented in the Consolidated Financial Statements, accompanying notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations are, to a large degree, dependent upon the Corporation's accounting policies. The selection and application of these accounting policies involve judgments, estimates and uncertainties that are susceptible to change.

Critical accounting policies are those policies that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Corporation has identified the appropriateness of the allowance for loan losses as a critical accounting policy and an understanding of this policy is necessary to understand the financial statements. Footnote 5 (Loans), and Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K for the year ended June 30, 2011 provide detail regarding the Corporation's accounting for the allowance for loan losses.  There have been no significant changes in the application of accounting policies since June 30, 2011.

Liquidity

The objective of liquidity management is to ensure adequate cash flows to accommodate the demands of customers and provide adequate flexibility for the Corporation to take advantage of market opportunities under both normal operating conditions and under unpredictable circumstances of industry or market stress. Cash is used to fund loan purchases, the maturity of liabilities and, at times, deposit outflows and operating activities. The Corporation's principal sources of funds are deposits, amortization and prepayments of loans, maturities, sales and principal receipt from securities, borrowings, and operations. Management considers the Corporation's asset position to be sufficiently liquid to meet normal operating needs and conditions. The Corporation's earning assets are mainly comprised of loans and investment securities. Management continually strives to obtain the best mix of loans and investments to both maximize yield and insure the soundness of the portfolio, as well as to provide funding for loan demand.

27

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Capital Resources

The Bank is subject to various regulatory capital requirements. Capital adequacy guidelines and prompt corrective-action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Failure to meet various capital requirements can result in regulatory action that could have a direct material effect on the Corporation's financial statements. The Bank exceeded the regulatory requirements to be “well capitalized” at March 31, 2012. Management is not aware of any matters occurring subsequent to March 31, 2012 that would cause the Bank's capital category to change.

The Bank’s actual and required capital amounts (in thousands) and ratios are presented below for March 31, 2012 and at fiscal year end 2011.

											To be well
						Required					capitalized under
						for capital					prompt corrective
	Actual					adequacy purposes					action regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	As of March 31, 2012
Total capital to risk  weighted assets	$	21,931		12.88	%	$	13,620		8.00	%	$	17,025		10.00	%
Tier 1 (core) capital to risk weighted assets		19,717		11.58	%		6,810		4.00	%		10,215		6.00	%
Tier 1 (core) capital to adjusted  assets		19,717		8.42	%		9,364		4.00	%		11,705		5.00	%
Tangible capital (to adjusted  total assets)		19,717		8.42	%		3,512		1.50	%		N/A		N/A

											To be well
						Required					capitalized under
						for capital					prompt corrective
	Actual					adequacy purposes					action regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	As of June 30, 2011
Total capital to risk weighted assets	$	20,794		12.43	%	$	13,388		8.0	%	$	16,735		10.0	%
Tier 1 (core) capital to risk  weighted assets		19,137		11.44	%		6,694		4.0	%		10,041		6.0	%
Tier 1 (core) capital to  adjusted assets		19,137		8.72	%		8,779		4.0	%		10,973		5.0	%
Tangible capital (to adjusted  total assets)		19,137		8.72	%		3,292		1.50	%		N/A		N/A

28

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

General

The Corporation’s net income is dependent primarily on net interest income, which is the difference between the interest income earned on loans and securities and the interest paid on deposits and borrowed funds. Net interest income is affected by regulatory, economic and competitive factors, such as federal monetary policy, that influence interest rates, loan demand and deposit flows. Net income is also affected by, among other things, loan fee income, provisions for loan losses, service charges, gains on loan sales, operating expenses, and franchise and income taxes. Operating expenses principally consist of employee compensation and benefits, occupancy, and other general and administrative expenses. In general, results of operations are significantly affected by overall economic and competitive conditions, particularly changes in market interest rates, government policies, and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially impact our performance.

Tuscarawas County and Holmes County in the Bank's primary market area had 7.8% and 5.6% unemployment at March 31, 2012, respectively.  This compares favorably to the State of Ohio’s unemployment rate of 7.8% for March 2012.  In the Bank’s market area, however, residential real estate sales and construction remain relatively soft.  Commercial loan demand is improving and overall loan demand was stronger than in prior quarters. Tuscarawas County, and to a lesser extent Holmes County, is experiencing an elevated level of oil and natural gas related economic activity related to the Marcellus Shale and Utica Shale gas and oil reserves.

Dodd-Frank imposes new restrictions and an expanded framework of regulatory oversight on financial institutions, including depository institutions. Because Dodd-Frank requires various federal agencies to adopt a broad range of regulations with significant discretion, many of the details of the new law and the effects it will have on the Corporation and the Bank will not be known for months or even years.  Many provisions of Dodd-Frank will not be implemented immediately and will require interpretation and extensive rule making by federal regulators. The Corporation is closely monitoring all relevant sections of Dodd-Frank to ensure continued compliance with laws and regulations.

Management’s Discussion and Analysis represents a review of the Corporation’s consolidated financial condition and results of operations. This review should be read in conjunction with the Corporation’s Consolidated Financial Statements and related notes.

Discussion of Financial Condition Changes from June 30, 2011 to March 31, 2012

The Corporation’s total assets at March 31, 2012, were $237.2 million, a $17.7 million, or 8.1%, increase from the total at June 30, 2011.

Cash and cash equivalents totaled $23.3 million at March 31, 2012, an increase of $7.0 million, or 43.2%, from the total at June 30, 2011.  The Corporation holds a portion of these funds in interest-bearing deposits, which may be invested in securities or loans in the future.  The increase was primarily a result of deposit growth and proceeds from calls of investment securities available for sale.

All available for sale investment securities have been called since June 30, 2011.  The remaining $2,000 is an equity investment in Federal Agricultural Mortgage Corporation stock.

Primarily from purchases and to a lesser extent from mark to market adjustments, mortgage-backed securities totaled $10.5 million at March 31, 2012, a $4.2 million, or 66.6%, increase from the total June 30, 2011 of $6.3 million.  Investments were made in liquid mortgage-backed securities to improve asset yield and provide liquidity until those funds can be used to originate loans.

29

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Discussion of Financial Condition Changes from June 30, 2011 to March 31, 2012 (continued)

Loans receivable, including loans held for sale, totaled $194.3 million at March 31, 2012, an increase of $12.1 million, or 6.6%, from the June 30, 2011 total.  Loans secured by nonresidential real estate and land totaled $87.2 million at March 31, 2012, an increase of $5.2 million, or .6.4%, from June 30, 2011.  The portfolio of loans secured by one- to four-family residential real estate increased by $5.0 million, or 7.1%, to $74.6 million at March 31, 2012.  Commercial loans increased $2.6 million or 11.4%, from June 30, 2011 to a total of $25.4 million at March 31, 2012.  Multi-family loans increased by $637,000, or 9.2%, to $7.6 million at March 31, 2012.

During the nine months ended March 31, 2012, loan originations totaling $77.5 million were substantially offset by principal repayments of $67.0 million, adjustments to the allowance for loan losses and net unamortized fees and costs.  These loan originations were comprised of $48.1 million of one- to four-family residential real estate loans, $19.7 million of nonresidential real estate loans, $5.8 million of commercial loans, $2.6 million of consumer loans and $1.3 million of multi-family real estate loans.  One- to four-family residential real estate originations resulted primarily from refinancings, while demand from home buyers remained soft.  The increase in nonresidential real estate and land and commercial loans resulted primarily from increased refinancing of loans from other financial institutions, increased demand for commercial loans and the Banks marketing effort.

Nonresidential real estate and commercial lending generally involve a higher degree of risk than one- to four-family residential real estate lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties and businesses.  The Corporation endeavors to reduce this risk by evaluating the credit history and past performance of the borrower, the location of the real estate, the quality of the management operating the property or business, the debt service ratio, the quality and characteristics of the income stream generated by the property or business and appraisals supporting the real estate or collateral valuation.

The allowance for loan losses totaled $2.2 million at March 31, 2012, an increase of $40,000, or 1.8%, from June 30, 2011, and represented 1.13% and 1.18% of total loans at those respective dates.  The increase resulted from provisions of $556,000 and recoveries of $1,000, which were partially offset by charge-offs of $517,000, of which $447,000 were impaired loans with specific reserves allocated to them in prior periods.

Nonaccrual loans were $2.6 million at March 31, 2012 and $1.8 million at June 30, 2011, which represented 1.30% and 0.97% of total loans at those respective dates. Non-accruing multi-family residential real estate increased by $691,000, non-residential real estate and land mortgage loans increased by $222,000, commercial loans-secured increased by $27,000, one- to four-family properties secured by first liens decreased by $168,000 and consumer and other loans decreased by $15,000.  The decrease in one- to four-family properties was partially due to the resolution of a number of non-performing one- to four-family loans during the period.  The overall increase in non-accruing loans was partially the result of increased downgrades on risk ratings within the multi-family residential and nonresidential real estate and land portfolios.  Management has reviewed these loans for loss exposure and believes they are adequately collateralized or potential losses are specifically reserved in the event of foreclosure.

Delinquent loans to total loans were 0.74% at March 31, 2012 and 1.19% at June 30, 2011.  At March 31, 2012, there were no loans past due over 90 days and still on accrual.  .There can be no assurance that increases in nonaccrual and delinquent loans will not occur in future periods.

Impaired loan balances were $2.6 million (with an allowance of $296,000) and $2.5 million (with an allowance of $568,000) at March 31, 2012 and June 30, 2011, respectively.  Although management believes that the allowance for loan losses at March 31, 2012, is adequate based upon the available facts and circumstances, there can be no assurance that additions to the allowance will not be necessary in future periods, which could adversely affect the Corporation’s results of operations.

30

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Discussion of Financial Condition Changes from June 30, 2011 to March 31, 2012 (continued)

Prepaid expenses and other assets totaled $1.5 million at March 31, 2012, a $398,000, or 36.0%, increase from the June 30, 2011 balance of $1.1 million.  The increase was the result of prepayments for equipment service contracts and software principally connected with the Bank’s data processing conversion.

Deposits totaled $202.1 million at March 31, 2012, a $17.1 million, or 9.2%, increase from total deposits at June 30, 2011.  This increase was attributable to deposit growth at the Bank’s branches resulting from what management believes is our strong banking franchise and reputation in the Bank’s market.  Our customers also moved funds into insured deposit accounts from uninsured investment vehicles, such as stocks and mutual funds, further increasing liquidity.  We also experienced the continued growth of the Kasasa© program that is designed to attract lower cost transactional deposit relationships, allowing us to reduce reliance on time deposits.  The Kasasa© program has an added benefit of enhancing non-interest income through increased point of sale transaction activity. Management also believes that some deposit growth may be attributable to elevated mineral rights leasing payments to land owners related to the Marcellus Shale and Utica Shale natural gas and oil reserves.

FHLB advances decreased $709,000 due to principal repayments from June 30, 2011 to March 31, 2012.  Other borrowed money, consisting of a line of credit with another financial institution, decreased $64,000 from June 30, 2011 to March 31, 2012.

Other liabilities totaled $1.8 million at March 31, 2012, a $246,000 increase from the June 30, 2011 balance of $1.6 million.  The increase was primarily due to an increase of $213,000 in custodial payments processing accounts.

Shareholders’ equity totaled $19.8 million at March 31, 2012, an increase of $832,000, or 4.4%, from June 30, 2011.  The increase was primarily due to net earnings of $1.2 million, and an increase in the unrealized gain on securities designated as available for sale of, net of tax, totaling $64,000, which were partially offset by dividends of $518,000.

31

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Nine-Month Periods Ended March 31, 2012 and 2011

General

The Corporation’s net earnings totaled $1.2 million for the nine months ended March 31, 2012, an increase of $162,000, or 15.0%, from the net earnings of $1.1 million recorded in the comparable period in 2011.  The increase in net earnings resulted from increases of $389,000, or 6.9%, in net interest income, $61,000, or 6.6%, in noninterest income and a decrease of $96,000, or 14.7%, in the provision for losses on loans, which were partially offset by increases of $299,000, or 7.0%, in noninterest expenses and $85,000, or 15.1%, in the provision for federal income taxes.

Net Interest Income

The Bank experienced an increase in net interest income in the current period as a result of its efforts to grow income generating assets and the favorable re-pricing of time deposits.

Total interest income increased $10,000, or 0.1%, to $8.0 million for the nine months ended March 31, 2012, compared to the same period in 2011.  The increase was due primarily to a $20.0 million increase in the average balances outstanding, which was partially offset by a 48 basis point decrease in yield.  Interest income on mortgage-backed securities increased by $118,000, due to an increase of $8.6 million in the average balance outstanding.  Interest income on interest bearing deposits increased $6,000, or 6.9%, to a total of $93,000 for the nine-months ended March 31, 2012, due to a $8.6 million, or 95.5%, increase in the average balance outstanding, which was partially offset by a 59 basis point decrease in yield.  Interest income on investment securities decreased by $94,000, or 71.2%, due to a 46 basis point decrease in yield and a $4.2 million, or 65.1%, decrease in the average balance outstanding.  Interest income on loans decreased by $20,000, or 0.3%, due to a 25 basis point decrease in yield, which was partially offset by an increase of $8.0 million, or 4.4%, in the average loan portfolio balance outstanding.  Mortgage-backed securities totaling $5.0 million were purchased in the first quarter of fiscal 2012.  This purchase was a strategy to improve asset yield and diversify our investment portfolio from step-up callable agency securities to increase the cash flow of the investment portfolio.

Total interest expense decreased by $379,000, or 16.5%, to $1.9 million for the nine months ended March 31, 2012, compared to the 2011 period.  Interest expense on deposits decreased by $308,000, or 16.7%, due to a 36 basis point decrease in the average cost of deposits, to 1.05%, for the 2012 period, which was partially offset by a $21.0 million, or 12.1%, increase in the average balance outstanding.  Interest expense on borrowings decreased by $71,000, or 15.6%, due to a $636,000, or 4.5%, decrease in the average balance outstanding, and a 50 basis point decrease in the average cost.

As a result of the foregoing, net interest income increased by $389,000, or 6.9%, for the nine months ended March 31, 2012, compared to the same fiscal period in 2011.  The interest rate spreads were 3.60% and 3.70%, and the net interest margins were 3.67% and 3.79%, for the nine-month periods ended March 31, 2012 and 2011, respectively.  The decrease in the interest rate spread and net interest margin have been the result of interest earning assets re-pricing to lower rates faster than interest costing liabilities, liquid assets having lower yields and holding more interest-bearing deposits over the nine-month period.

32

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Nine-Month Periods Ended March 31, 2012 and 2011 (continued)

Provision for Losses on Loans

The Corporation recorded a $556,000 provision for losses on loans during the nine months ended March 31, 2012, and a $652,000 provision for the comparable period in 2011.  The decrease in the provision for losses on loans was due to management’s assessment of the loan portfolio, delinquency rates, net charge-offs, and current economic conditions.  Net charge-offs were $516,000 for the nine months ended March 31, 2012 and $172,000 for the comparable nine months in 2011.  The increase in net charge-offs was primarily attributable to the charge-off of impaired loans which had $304,000 of specific reserves allocated to them in prior periods.  The decision to charge-off these loans was due to continued evaluation of the borrower’s ability to pay and economic circumstances.  An increase of $319,000 in general reserves was recorded on non-impaired loans during the nine months ended March 31, 2012 compared to the prior period, largely in response to loan portfolio growth.  Although management believes that the provision was adequate at March 31, 2012, there can be no assurance that the loan loss allowance will be adequate to cover losses on nonperforming assets in the future, which could result in additions to the allowance and could adversely affect the Corporation’s results of operations.

Noninterest Income

Noninterest income totaled $983,000 for the nine months ended March 31, 2012, an increase of $61,000, or 6.6%, from the 2011 total.  Net gain on sale of loans increased by $55,000, or 9.3%, to $646,000 for the nine months ended March 31, 2012, compared to $591,000 for the nine months ended March 31, 2011.  The increase in gain on sale of loans resulted from an increase in profit on loans sold into the secondary mortgage market and was partially offset by a 20.9% decline in volume due to a decrease in the number of newly originated and refinanced loans.  Service charges on deposit accounts increased by $71,000, or 26.9%, to $335,000 for the nine months ended March 31, 2012, compared to $264,000 for the same period in 2011.  Mortgage servicing revenue decreased $91,000 in 2012 compared to the same period in 2011, due to greater amortization expense and an impairment charge to servicing rights fair value.  The greater amortization expense partially resulted from the refinancing of loans with greater original servicing right values.  The impairment charge to servicing rights primarily resulted from declining interest rates in the secondary market in the third fiscal quarter.

Noninterest Expense

Noninterest expense totaled $4.6 million for the nine months ended March 31, 2012, an increase of $299,000, or 7.0%, compared to the same period in 2011.  The increase in noninterest expense includes increases of $117,000, or 6.0%, in employee and director compensation and benefits, $103,000, or 18.9%, in other operating expense, $66,000, or 31.9%, in professional and consulting fees, $65,000, or 15.8%, in occupancy and equipment expense, $57,000, or 43.9%, in advertising, $22,000, or 20.4%, in ATM processing and $14,000, or 4.8%, in data processing, which were partially offset by a decrease of $135,000, or 67.5%, in FDIC insurance expense.  The increase in employee compensation was due to additional staffing for operations and normal merit increases.  The increase in professional and consulting fees resulted from consulting fees for analysis and contract negotiations for data processing services and one-time costs related to the conversions  to a national bank and bank holding company.  The increase in other operating expense was partially the result of Kasasa© licensing and account fee charges, internet banking fees and increased accrual for bank examination fees. The increase in advertising was partially the result of marketing the Kasasa© checking and savings program.  Effective April 1, 2011, the FDIC changed to an asset based assessment from a deposit based assessment for the calculation of FDIC insurance premiums.  The Corporation benefitted from the change in the assessment base, which reduced the Bank’s deposit premiums.

Federal Income Taxes

The Corporation recorded a provision for federal income taxes totaling $647,000 for the nine months ended March 31, 2012, an increase of $85,000, or 15.1%, over the same period in 2011.  The increase resulted from a $247,000, or 15.1%, increase in earnings before taxes.  The Corporation’s effective tax rate was 34.3% for both nine-month periods ended March 31, 2012 and 2011.

33

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2012 and 2011

General

The Corporation’s net earnings totaled $419,000 for the three months ended March 31, 2012, an increase of $71,000, or 20.4%, from the net earnings of $348,000 recorded in the comparable period in 2011.  The increase in net earnings resulted from increases of $144,000, or 7.6%, in net interest income and $141,000, or 65.9%, in noninterest income, which were partially offset by increases of $146,000, or 10.1%, in noninterest expenses, $30,000, or 25.0%, in the provision for losses on loans and $38,000, or 21.1%, in the provision for federal income taxes.

Net Interest Income

Total interest income increased $75,000, or 2.9%, to $2.7 million for the three months ended March 31, 2012, compared to the same period in 2011.  The increase was due primarily to a $23.7 million increase in the average balances outstanding of interest earning assets, which was partially offset by a 41 basis point decrease in yield.  Interest income on loans increased by $60,000, or 2.4%, due to an increase of $11.6 million, or 6.3%, in the average loan portfolio balance outstanding, which was partially offset by a 20 basis point decrease in yield.  Interest income on mortgage-backed securities increased by $43,000, due to an increase of $10.1 million in the average balance outstanding, which was partially offset by a 64 basis point decrease in yield.  Interest income on interest bearing deposits increased $5,000, or 16.7%, to a total of $35,000 for the three-months ended March 31, 2012, due to a $7.2 million, or 62.2%, increase in the average balance outstanding, which was partially offset by a 31 basis point decrease in yield.  Interest income on investment securities decreased by $33,000, or 94.3%, due to a $5.3 million, or 88.8%, decrease in the average balance outstanding and a 77 basis point decrease in yield.

Total interest expense decreased by $69,000, or 10.0%, to $621,000 for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, primarily due to overall rate decreases.  Interest expense on deposits decreased by $45,000, or 8.3%, due to a 24 basis point decrease in the average cost of deposits, to .99% for the 2012 period, which was partially offset by a $24.8 million, or 14.2%, increase in the average balance outstanding.  Interest expense on borrowings decreased by $24,000, or 16.2%, due to a $784,000, or 5.6%, decrease in the average balance outstanding, and a 47 basis point decrease in the average cost.

As a result of the foregoing, net interest income increased by $144,000, or 7.6%, for the three months ended March 31, 2012, compared to the same period in 2011.  The interest rate spreads were 3.55% and 3.67%, and the net interest margins were 3.61% and 3.75%, for the three-month periods ended March 31, 2012 and 2011, respectively.

34

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2012 and 2011 (continued)

Provision for Losses on Loans

The Corporation recorded a $150,000 provision for losses on loans during the three months ended March 31, 2012, and a $120,000 provision for the comparable quarter in 2011.  The increase in the provision for losses on loans was due to management’s assessment of the loan portfolio, delinquency rates, net charge-offs, and current economic conditions.  Net charge-offs for the quarter ended March 31, 2012 were $66,000 and $78,000 for the comparable quarter in 2011.  An increase of $145,000 in general reserves was recorded on non-impaired loans during the quarter ended March 31, 2012 as compared to the prior quarter, largely in response to loan portfolio growth.  Although management believes that the provision was adequate at March 31, 2012, there can be no assurance that the loan loss allowance will be adequate to cover losses on nonperforming assets in the future, which could result in additions to the allowance and could adversely affect the Corporation’s results of operations.

Noninterest Income

Noninterest income totaled $355,000 for the three months ended March 31, 2012, an increase of $141,000, or 65.9%, from the 2011 total.  Net gain on sale of loans increased by $169,000, or 301.8%, to $225,000 for the three months ended March 31, 2012, compared to $56,000 for the three months ended March 31, 2011.  The increase in gain on sale of loans resulted from a 67.3% increase in loans sold into the secondary mortgage market due to a significant increase in the number of newly originated and refinanced loans in the current economic climate.  Service charges on deposit accounts increased by $41,000, or 48.8%, to $125,000 for the three months ended March 31, 2012, compared to $84,000 for the same period in 2011.  Quarterly mortgage servicing revenue decreased $96,000 as compared to the quarter ending March 31, 2011, due to greater amortization expense and an impairment charge to the fair value of servicing rights.  The greater amortization expense partially resulted from the refinancing of loans with greater original servicing right values.  The impairment charge to servicing rights fair value primarily resulted from declining interest rates in the secondary market during the third fiscal quarter.

Noninterest Expense

Noninterest expense totaled $1.6 million for the three months ended March 31, 2012, an increase of $146,000, or 10.6%, compared to the same period in 2011.  The increase in noninterest expense includes increases of $55,000, or 30.2%, in other operating expense, $45,000, or 36.3%, in occupancy and equipment expense, $37,000, or 5.5%, in employee and director compensation and benefits, $25,000, or 34.7%, in professional and consulting fees, $24,000, or 60.0%, in advertising, and $14,000, or 38.9% in ATM processing, which were partially offset by a decrease of $54,000, or 71.1%, in FDIC insurance expense.  The increase in other operating expense was the result of Kasasa© licensing and account fee charges, internet banking fees and increased accrual for bank examination fees.  The increase in occupancy and equipment expense was due to increases in maintenance and software contracts expense primarily from the data processing conversion.  The increase in employee compensation was due to additional staffing for operations, overtime hours to train for the data processing conversion and normal merit increases.  The increase in advertising was partially the result of marketing the Kasasa© checking and savings program.  Effective April 1, 2011, the FDIC changed to an asset based assessment from a deposit based assessment for the calculation of FDIC insurance premiums.  The Corporation benefitted from the change in the assessment base, which reduced its deposit premiums.

Federal Income Taxes

The Corporation recorded a provision for federal income taxes totaling $218,000 for the three months ended March 31, 2012, an increase of $38,000, or 21.1%, over the same period in 2011.  The increase resulted from a $109,000, or 20.6%, increase in earnings before taxes.  The Corporation’s effective tax rates were 34.3% and 34.1%, for the three-month periods ended March 31, 2012 and 2011, respectively.

35

FFD Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 AND RESULTS OF OPERATIONS (CONTINUED)

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

Not required.

ITEM 4: Controls and Procedures

The Corporation’s Chief Executive Officer and Chief Financial Officer have evaluated the Corporation’s disclosure controls and procedures (as defined under Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are effective.  There were no changes in the Corporation’s internal controls which materially affected, or are reasonably likely to materially effect, the Corporation’s internal controls over financial reporting.

36

FFD Financial Corporation

PART II

ITEM 1. Legal Proceedings

None

ITEM 1A: Risk Factors

Not required

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None

(b)  None

(c)  None

ITEM 3. Defaults Upon Senior Securities

Not applicable

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

31.1	Section 302 Chief Executive Officer certification
31.2	Section 302 Chief Financial Officer certification
32.1	Section 906 Chief Executive Officer certification
32.2	Section 906 Chief Financial Officer certification
101	Interactive Data File

37

FFD Financial Corporation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		FFD FINANCIAL CORPORATION
Date:	May 15, 2012	By:	/s/Trent B. Troyer
			Trent B. Troyer
			President and Chief Executive Officer
Date:	May 15, 2012	By:	/s/Robert R. Gerber
			Robert R. Gerber
			Senior Vice President, Treasurer and
			Chief Financial Officer

38