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 September 30, 2001
------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from ___________to__________
Commission file number 0-26850
-------
First Defiance Financial Corp.
------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1803915
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
601 Clinton Street, Defiance, Ohio 43512
------------------------------------------------- ------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (419) 782-5015
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 [ ]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes [ ] No [ ]
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 practical date. Common Stock, $.01 Par Value -
6,832,143 shares outstanding at October 13, 2001.
FIRST DEFIANCE FINANCIAL CORP.
INDEX
Page Number
PART I.-FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Statements of Financial
Condition - September 30, 2001 and December 31, 2000 1
Consolidated Condensed Statements of Income -
Three and nine months ended September 30, 2001 and 2000 3
Consolidated Condensed Statement of Changes in
Stockholders' Equity - Nine months ended
September 30, 2001 4
Consolidated Condensed Statements of Cash Flows
- Nine months ended September 30, 2001 and 2000 6
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 32
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 3. Defaults upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
1
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statements of Financial Condition
(UNAUDITED)
(Amounts in thousands, except for share data)
- -----------------------------------------------------------------------------------------------
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS
Cash and cash equivalents:
Cash and amounts due from
depository institutions $ 10,847 $ 7,320
Interest-bearing deposits 7,326 13,634
---------- ----------
18,173 20,954
Securities:
Available-for-sale, carried at fair value 49,574 53,176
Trading, carried at fair value -- 234
Held-to-maturity, carried at amortized cost
(approximate fair value $6,312 and $7,770
at September 30, 2001 and December 31,
2000, respectively) 6,180 7,697
---------- ----------
55,754 61,107
Loans held for sale (at lower of cost or fair value,
approximate fair value $222,753 and $232,314 at
September 30, 2001 and December 31, 2000,
respectively) 222,753 232,314
Loans receivable, net 534,457 541,208
Mortgage servicing rights 150,455 134,760
Accrued interest receivable 6,765 5,976
Federal Home Loan Bank stock 16,083 15,251
Office properties and equipment 22,189 22,203
Real estate and other assets held for sale 540 312
Goodwill, net 13,404 13,983
Other assets 28,259 24,126
---------- ----------
Total assets $1,068,832 $1,072,194
========== ==========
See accompanying notes
1
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statements of Financial Condition
(UNAUDITED)
(Amounts in thousands, except for share data)
- ------------------------------------------------------------------------------------------------
September 30, 2001 December 31, 2000
------------------ -----------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 29,500 $ 33,256
Interest-bearing deposits 566,928 512,643
----------- -----------
Total deposits 596,428 545,899
Advances from Federal Home Loan Bank 216,903 223,258
Warehouse and term notes payable 23,477 120,425
Advance payments by borrowers for taxes and insurance 111,028 67,982
Deferred taxes 1,534 2,611
Other liabilities 12,636 12,546
----------- -----------
Total liabilities 962,006 972,721
STOCKHOLDERS' EQUITY
Preferred stock, no par value per share:
5,000,000 shares authorized; no shares
issued - --
Common stock, $.01 par value per share:
20,000,000 shares authorized; 6,831,143
and 6,863,541 shares outstanding, respectively 68 69
Additional paid-in capital 53,417 53,512
Stock acquired by ESOP (2,813) (3,238)
Deferred compensation (114) (204)
Accumulated other comprehensive income,
net of income taxes of $609
and $(22), respectively 1,064 47
Retained earnings 55,204 49,287
----------- -----------
Total stockholders' equity 106,826 99,473
----------- -----------
Total liabilities and stockholders' equity $ 1,068,832 $ 1,072,194
=========== ===========
See accompanying notes
2
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statements of Income
(UNAUDITED)
(Amounts in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
---- ---- ---- ----
Interest income
Loans $ 16,051 $ 15,838 $ 46,703 $ 44,352
Investment securities 833 985 2,696 3,458
Interest-bearing deposits 17 88 227 290
-------- -------- -------- --------
Total interest income 16,901 16,911 49,626 48,100
Interest expense
Deposits 5,999 6,848 19,538 18,623
FHLB advances and other 2,947 3,830 9,060 9,560
Notes payable and warehouse loans 594 1,009 1,829 3,371
-------- -------- -------- --------
Total interest expense 9,540 11,687 30,427 31,554
-------- -------- -------- --------
Net interest income 7,361 5,224 19,199 16,546
Provision for loan losses 1,200 539 2,604 2,528
-------- -------- -------- --------
Net interest income after provision for
loan losses 6,161 4,685 16,595 14,018
Noninterest income
Mortgage banking income 11,281 9,292 33,409 25,995
Loan service fees and other charges 659 627 1,854 1,536
Dividends on stock 280 278 836 792
Gain on sale of loans 2,875 2,697 6,729 7,228
Loss on sale of securities (45) (29) (106) (29)
Trust income 25 163 80 199
Other noninterest income 1,186 1,003 3,558 3,271
-------- -------- -------- --------
Total noninterest income 16,261 14,031 46,360 38,992
Noninterest expense
Compensation and benefits 5,952 5,636 17,745 17,071
Occupancy 1,266 1,167 3,886 3,580
SAIF deposit insurance premiums 32 30 92 88
State franchise tax 305 269 982 851
Data processing 291 307 899 955
Amortization of mortgage servicing rights 5,804 3,740 15,339 10,980
Net impairment of mortgage servicing rights 1,910 4 3,297 7
Amortization of goodwill 223 219 664 654
Other noninterest expense 2,093 2,572 6,762 6,821
-------- -------- -------- --------
Total noninterest expense 17,876 13,944 49,666 41,007
-------- -------- -------- --------
Income before income taxes 4,546 4,772 13,289 12,003
Federal income taxes 1,576 1,604 4,678 4,176
-------- -------- -------- --------
Net income $ 2,970 $ 3,168 $ 8,611 $ 7,827
======== ======== ======== ========
Earnings per share (Note 4)
Basic $ 0.46 $ 0.50 $ 1.35 $ 1.24
======== ======== ======== ========
Diluted $ 0.45 $ 0.49 $ 1.31 $ 1.22
======== ======== ======== ========
Dividends declared per share (Note 3) $ 0.12 $ 0.11 $ 0.36 $ 0.33
======== ======== ======== ========
Average shares outstanding (Note 4)
Basic 6,405 6,367 6,389 6,301
======== ======== ======== ========
Diluted 6,601 6,451 6,581 6,411
======== ======== ======== ========
See accompanying notes
3
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statement of Changes in Stockholders' Equity
(UNAUDITED)
(Amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------
2001
-------------------------------------------------------------
Stock Acquired By
-----------------
Additional Management
Common Paid-in Recognition
Stock Capital ESOP Plan
----- ------- ---- ----
Balance at December 31 $ 69 $ 53,512 $ (3,238) $ (204)
Comprehensive income:
Net income
Change in unrealized gains (losses)
net of income taxes of $632
Total comprehensive income
ESOP shares released -- 173 425 --
Amortization of deferred compensation
of Management Recognition Plan 90
Shares issued under stock option plan -- 114 -- --
Purchase of common stock for
treasury (1) (382) -- --
Dividends declared (Note 3)
-----------------------------------------------------------
Balance at September 30 $ 68 $ 53,417 $ (2,813) $ (114)
===========================================================
See accompanying notes
4
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statement of Changes in Stockholders' Equity (Continued)
(UNAUDITED)
(Amounts in thousands)
- --------------------------------------------------------------------------------------------------------------------
2001 2000
------------------------------------------------ --------------
Net Unrealized
Gains (Losses) on Total Total
Available-for- Retained Stockholders' Stockholder's
sale Securities Earnings Equity Equity
Balance at December 31 $ 47 $ 49,287 $ 99,473 $ 89,416
Comprehensive income:
Net income -- 8,611 8,611 7,826
Change in unrealized gains (losses),
net of income taxes of $632 1,017 -- 1,017 494
--------- ---------
Total comprehensive income -- -- 9,628 8,320
ESOP shares released -- -- 598 497
Amortization of deferred compensation
of Management Recognition Plan -- -- 90 192
Shares issued under stock option plan -- -- 114 365
Purchase of common stock for
treasury -- (365) (748) (29)
Dividends declared (Note 3) -- (2,329) (2,329) (2,129)
---------------------------------------------------------------
Balance at September 30 $ 1,064 $ 55,204 $ 106,826 $ 96,632
==============================================================
See accompanying notes
5
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statements of Cash Flows
(UNAUDITED)
(Amounts in thousands)
- --------------------------------------------------------------------------------------------------
Nine Months
Ended September 30,
2001 2000
-------------------------------
Operating Activities
Net income $ 8,611 $ 7,827
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for loan losses 2,604 2,528
Provision for depreciation 1,625 1,479
Net securities amortization 23 35
Amortization of mortgage servicing rights 15,339 10,980
Net impairment of mortgage servicing rights 3,297 7
Amortization of goodwill 664 654
Gain on sale of loans (6,729) (7,228)
Amortization of Management Recognition Plan
deferred compensation 90 192
Release of ESOP Shares 598 497
Gain on disposal of office properties and equipment -- (60)
Net securities losses 106 29
Deferred federal income tax credit (1,709) (663)
Proceeds from sale of loans 1,557,340 1,827,007
Origination of mortgage servicing rights, net (34,331) (39,258)
Origination of loans held for sale (1,540,843) (1,786,286)
Increase in interest receivable and other assets (5,007) (5,008)
Net repurchase of loans (18,219) (8,922)
(Decrease) increase in other liabilities 89 942
----------- -----------
Net cash (used in) provided by operating activities (16,452) 4,752
Investing Activities
Proceeds from maturities of held-to-maturity securities 1,494 1,611
Proceeds from maturities of available-for-sale securities 4,602 3,946
Proceeds from sale of available-for-sale securities 3,079 1,046
Proceeds from sale of trading securities 233 29,568
Proceeds from sales of real estate, mobile homes, and
other assets held for sale 443 2,640
Proceeds from sales of office properties and equipment 37 338
Purchases of available-for-sale securities (2,535) (3,334)
Purchases of Federal Home Loan Bank stock (832) (788)
Purchases of office properties and equipment (1,648) (2,503)
Net decrease (increase) in loans receivable 21,489 (55,555)
----------- -----------
Net cash provided by (used in) investing activities 26,362 (23,031)
6
FIRST DEFIANCE FINANCIAL CORP.
Consolidated Condensed Statements of Cash Flows (Continued)
(UNAUDITED)
(Amounts in thousands)
- -----------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
2001 2000
---- ----
Financing Activities
Net increase in deposits and advance payments by borrowers
for taxes and insurance 93,575 51,887
Repayment of Federal Home Loan Bank long-term advances (355) (100,546)
Repayment of term notes payable (170) (309)
Net (decrease) increase in Federal Home Loan Bank
short-term advances (96,000) 88,750
Proceeds from short-term line of credit 5,500 13,000
Proceeds from Federal Home Loan Bank long term notes 90,000 --
Decrease in mortgage warehouse loans (102,278) (27,352)
Purchase of common stock for treasury (748) (29)
Cash dividends paid (2,329) (2,122)
Proceeds from exercise of stock options 114 365
--------- ---------
Net cash provided by (used in) financing activities (12,691) 23,644
--------- ---------
Increase (decrease) in cash and cash equivalents (2,781) 5,365
Cash and cash equivalents at beginning of period 20,954 16,236
--------- ---------
Cash and cash equivalents at end of period $ 18,173 $ 21,601
========= =========
Supplemental cash flow information:
Interest paid $ 30,782 $ 31,845
========= =========
Income taxes paid $ 5,570 $ 4,500
========= =========
Transfers from loans to real estate
and other assets held for sale $ 242 $ 390
========= =========
Noncash operating activities:
Change in deferred tax established on net unrealized
gain or loss on available-for-sale securities $ (632) $ (255)
========= =========
Noncash investing activities:
Increase (decrease) in net unrealized gain or loss on
available-for-sale securities $ 1,649 $ (494)
========= =========
Noncash financing activities:
Cash dividends declared but not paid $ 779 $ 711
========= =========
See accompanying notes.
7
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements
(Unaudited at September 30, 2001 and 2000)
- --------------------------------------------------------------------------------
1. Principles of Consolidation
The consolidated condensed financial statements include the accounts of
First Defiance Financial Corp. ("First Defiance" or "the Company"), its
two wholly owned subsidiaries, First Federal Bank of the Midwest ("First
Federal") and First Insurance and Investments, Inc. ("First Insurance"),
and First Federal's wholly owned mortgage banking company, The Leader
Mortgage Company, LLC ("The Leader"). In the opinion of management, all
significant intercompany accounts and transactions have been eliminated
in consolidation.
2. Basis of Presentation
The consolidated condensed statement of financial condition at December
31, 2000 has been derived from the audited financial statements at that
date, which were included in First Defiance's Annual Report on Form
10-K.
The accompanying consolidated condensed financial statements as of
September 30, 2001 and for the three-month and nine-month periods ended
September 30, 2001 and 2000 have been prepared by First Defiance without
audit and do not include certain information or footnotes necessary for
the complete presentation of financial condition, results of operations,
and cash flows in conformity with accounting principles generally
accepted in the United States. It is suggested that these consolidated
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in First Defiance's 2000 Annual
Report on Form 10-K for the year ended December 31, 2000. However, in
the opinion of management, all adjustments, consisting of only normal
recurring items, necessary for the fair presentation of the financial
statements have been made. The results of operations for the three-month
and nine-month periods ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the entire year.
3. Dividends on Common Stock
As of September 30, 2001, First Defiance had declared a quarterly cash
dividend of $.12 per share for the third quarter of 2001, payable October 26,
2001.
8
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- -------------------------------------------------------------------------------
4. Earnings Per Share
Basic earnings per share as disclosed under Statement of Financial
Accounting Standard ("FAS") No. 128 has been calculated by dividing net
income by the weighted average number of shares of common stock
outstanding for the three and nine-month periods ended September 30,
2001 and 2000. First Defiance accounts for the shares issued to its
Employee Stock Ownership Plan ("ESOP") in accordance with Statement of
Position 93-6 of the American Institute of Certified Public Accountants
("AICPA"). As a result, shares controlled by the ESOP are not considered
in the weighted average number of shares of common stock outstanding
until the shares are committed for allocation to an employee's
individual account. In the calculation of diluted earnings per share for
the three and nine-month periods ended September 30, 2001 and 2000, the
effect of shares issuable under stock option plans and unvested shares
under the Management Recognition Plan have been accounted for using the
Treasury Stock method.
The following table sets forth the computation of basic and diluted
earning per share (in thousands except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Numerator for basic and diluted
earnings per share - net income $2,970 $3,168 $8,611 $7,827
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share - weighted average shares 6,405 6,367 6,389 6,301
Effect of dilutive securities:
Employee stock options 175 30 154 41
Unvested Management Recognition
Plan stock 21 54 38 69
------ ------ ------ ------
Dilutive potential common shares 196 84 192 110
------ ------ ------ ------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 6,601 6,451 6,581 6,411
====== ====== ====== ======
Basic earnings per share $ .46 $ .50 $ 1.35 $ 1.24
====== ====== ====== ======
Diluted earnings per share $ .45 $ .49 $ 1.31 $ 1.22
====== ====== ====== ======
9
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- -------------------------------------------------------------------------------
5. Loans
Loans receivable and held for sale consist of the following (in thousands):
September 30, December 31,
2001 2000
---- ----
Real Estate:
One-to-four family residential real estate $437,358 $478,221
Construction loans 8,475 9,628
Commercial real estate 159,888 132,204
-------- --------
605,721 620,053
Other Loans:
Commercial 87,390 82,851
Consumer finance 43,480 52,142
Home equity and improvement 35,363 31,836
-------- --------
166,233 166,829
-------- --------
Total mortgage and other loans 771,954 786,882
Deduct:
Loans in process 3,778 3,415
Net deferred loan origination fees and costs 1,075 1,041
Allowance for loan loss 9,891 8,904
-------- --------
Totals $757,210 $773,522
======== ========
Changes in the allowance for mortgage and other loan losses were as follows:
Three Months ended Nine Months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Balance at beginning of period $ 9,391 $ 8,439 $ 8,904 $ 7,758
Foreclosure expense charge-offs (585) (328) (1,460) (1,099)
Credit loss charge-offs (268) (14) (625) (825)
------- ------- ------- -------
Total Charge-offs (853) (342) (2,085) (1,924)
Foreclosure expenses recovered 98 114 294 266
Credit losses recovered 55 60 174 182
------- ------- ------- -------
Total Recoveries 153 174 468 448
------- ------- ------- -------
Net charge-offs (700) (168) (1,617) (1,476)
Provision for foreclosure costs 928 466 1,946 2,144
Provision for credit losses 272 73 658 384
------- ------- ------- -------
Total provision charged to income 1,200 539 2,604 2,528
------- ------- ------- -------
Balance at end of period $ 9,891 $ 8,810 $ 9,891 $ 8,810
======= ======= ======= =======
10
FIRST DEFIANCE FINANCIAL CORP
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- --------------------------------------------------------------------------------
6. Mortgage Servicing Rights
The activity in Mortgage Servicing Rights ("MSRs") is summarized as follows (in
thousands):
Nine Months
Ended Year Ended
September 30, December 31,
2001 2000
----- ----
Balance at beginning of period $ 134,760 $ 97,519
Loans sold, servicing retained 34,331 52,225
Net impairment charge (3,297) (21)
Amortization (15,339) (14,963)
--------- ---------
Balance at end of period $ 150,455 $ 134,760
========= =========
Accumulated amortization of mortgage servicing rights aggregated approximately
$47.8 million and $32.4 million at September 30, 2001 and December 31, 2000,
respectively. Additionally, the accumulated reserve for impairment aggregated
approximately $3.3 million and $11,000 at September 30, 2001 and December 31,
2000, respectively.
The Company's mortgage servicing portfolio (excluding subserviced loans) is
comprised of the following as of September 30, 2001 (dollars in thousands):
Number Principal Balance
of Loans Outstanding
-------- -----------
GNMA 92,195 $6,546,053
FNMA 14,164 934,496
FHLMC 2,233 113,875
Other VA, FHA and
conventional loans 27,245 1,267,108
---------- ----------
135,837 $8,861,532
========== ==========
11
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- -------------------------------------------------------------------------------
7. Deposits
A summary of deposit balances is as follows (in thousands):
September 30, December 31,
2001 2000
---- ----
Noninterest-bearing checking accounts $ 29,500 $ 33,256
Interest-bearing checking accounts 32,056 32,645
Savings accounts 36,546 37,551
Money market demand accounts 105,674 78,961
Certificates of deposit 392,652 363,486
-------- --------
$ 596,428 $ 545,899
========= ==========
8. Line of Business Reporting
First Defiance operates two major lines of business. Retail banking,
which consists of the operations of First Federal, includes direct and
indirect lending, deposit-gathering, small business services and
consumer finance. Mortgage banking, which consists of the operations of
The Leader, includes buying and selling mortgages to the secondary
market and the subsequent servicing of these sold loans. The business
units are identified by the channels through which the product or
service is delivered. The retail-banking unit funds the mortgage-banking
unit and an investment/funding unit within the retail-banking unit
centrally manages interest rate risk. Transactions between business
units are primarily conducted at fair value, resulting in profits that
are eliminated for reporting consolidated results of operations.
The parent unit is comprised of the operations of First Insurance and
inter-segment income elininations and unallocated expenses.
12
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- -------------------------------------------------------------------------------
8. Line of Business Reporting-Continued
Three-Months Ended September 30, 2001
(in thousands)
Retail Mortgage
Consolidated Parent Banking Banking
-------------------------------------------------------------------------
Total interest income $ 16,901 $ (4,065) $ 15,438 $ 5,528
Total interest expense 9,540 (3,915) 10,328 3,127
--------------------------------------------------------------------------
Net interest income 7,361 (150) 5,110 2,401
Provision for loan losses 1,200 -- 272 928
--------------------------------------------------------------------------
Net interest income after
provision 6,161 (150) 4,838 1,473
Non-interest income 16,261 590 1,734 13,937
Non-interest expense 17,876 628 4,598 12,650
--------------------------------------------------------------------------
Income before income taxes 4,546 (188) 1,974 2,760
Income taxes 1,576 (54) 649 981
--------------------------------------------------------------------------
Net income $ 2,970 $ (134) $ 1,325 $ 1,779
==========================================================================
Total assets $1,068,832 $ (436,802) $1,059,718 $ 445,916
==========================================================================
Nine-months Ended September 30, 2001
(in thousands)
Retail Mortgage
Consolidated Parent Banking Banking
-------------------------------------------------------------------------
Total interest income $ 49,626 $ (12,903) $ 48,454 $ 14,075
Total interest expense 30,427 (12,375) 33,076 9,726
--------------------------------------------------------------------------
Net interest income 19,199 (528) 15,378 4,349
Provision for loan losses 2,604 -- 658 1,946
--------------------------------------------------------------------------
Net interest income after
provision 16,595 (528) 14,720 2,403
Non-interest income 46,360 1,698 5,032 39,630
Non-interest expense 49,666 2,005 13,491 34,170
--------------------------------------------------------------------------
Income before income taxes 13,289 (835) 6,261 7,863
Income taxes 4,678 (256) 2,057 2,877
--------------------------------------------------------------------------
Net income $ 8,611 $ (579) $ 4,204 $ 4,986
==========================================================================
Total assets $1,068,832 $ (436,802) $1,059,718 $ 445,916
==========================================================================
13
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- --------------------------------------------------------------------------------
8. Line of Business Reporting-Continued
Three-Months Ended September 30, 2000
(in thousands)
Retail Mortgage
Consolidated Parent Banking Banking
--------------------------------------------------------------------------
Total interest income $ 16,911 $ (5,586) $ 17,714 $ 4,783
Total interest expense 11,687 (5,463) 12,401 4,749
--------------------------------------------------------------------------
Net interest income 5,224 (123) 5,313 34
Provision for loan losses 539 -- 73 466
--------------------------------------------------------------------------
Net interest income after
provision 4,685 (123) 5,240 (432)
Non-interest income 14,031 520 1,170 12,341
Non-interest expense 13,944 757 4,328 8,859
--------------------------------------------------------------------------
Income before income taxes 4,772 (360) 2,082 3,050
Income taxes 1,604 (109) 666 1,047
--------------------------------------------------------------------------
Net income $ 3,168 $ (251) $ 1,416 $ 2,003
==========================================================================
Total assets $1,021,309 $ (345,190) $ 985,420 $ 381,079
==========================================================================
Nine-months Ended September 30, 2000
(in thousands)
Retail Mortgage
Consolidated Parent Banking Banking
--------------------------------------------------------------------------
Total interest income $ 48,100 $ (14,415) $ 48,358 $ 14,157
Total interest expense 31,554 (14,317) 32,647 13,224
--------------------------------------------------------------------------
Net interest income 16,546 (98) 15,711 933
Provision for loan losses 2,528 -- 384 2,144
--------------------------------------------------------------------------
Net interest income after
provision 14,018 (98) 15,327 (1,211)
Non-interest income 38,992 1,786 3,153 34,053
Non-interest expense 41,007 2,164 12,989 25,854
--------------------------------------------------------------------------
Income before income taxes 12,003 (476) 5,491 6,988
Income taxes 4,176 (118) 1,758 2,536
--------------------------------------------------------------------------
Net income $ 7,827 $ (358) $ 3,733 $ 4,452
==========================================================================
Total assets $1,021,309 $ (345,190) $ 985,420 $ 381,079
==========================================================================
14
FIRST DEFIANCE FINANCIAL CORP.
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited at September 30, 2001 and 2000)
- --------------------------------------------------------------------------------
9. Accounting for Derivative Instruments and Hedging Activities
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, requires all derivative instruments to be
carried at fair value on the balance sheet. The Statement continues to
allow derivative instruments to be used to hedge various risks and sets
forth specific criteria to be used to determine when hedge accounting
can be used. The Statement also provides for offsetting changes in fair
value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any
changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings. For
derivative instruments not accounted for as hedges, changes in fair
value are to be recognized in earnings as they occur.
On January 1, 2001, First Defiance adopted the Statement. After-tax
adjustments associated with establishing the fair values of derivative
instruments on the balance sheet reduced net income by approximately
$11,000.
10. Accounting Pronouncements Pending Adoption
Business Combinations. In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 141,
"Business Combinations" (SFAS 141), which replaces Accounting Principles
Board Opinion No. 16. SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations initiated after June 30,
2001. Subsequent to June 30, 2001, First Defiance has not initiated any
business combinations that would have qualified for the
pooling-of-interest method of accounting.
Goodwill and Other Intangible Assets. In June 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142),
which takes effect for fiscal years beginning after December 15, 2001.
SFAS 142 replaces Accounting Principles Board Opinion No. 17 and
eliminates the amortization of goodwill and intangible assets deemed to
have indefinite lives. Goodwill and certain intangible assets are
subject to impairment tests which must be conducted at least annually.
Impairment losses that result from the initial application of SFAS 142
will be accounted for as a "cumulative effect of accounting change" on
First Defiance's income statement. First Defiance will adopt SFAS 142 as
of January 1, 2001. Management is currently reviewing SFAS and has not
yet determined the extent to which it will impact First Defiance's
financial condition and results of operations.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- --------------
General
First Defiance is a holding company which conducts business through its two
wholly owned subsidiaries, First Federal Bank of the Midwest ("First Federal")
and First Insurance and Investments, Inc. ("First Insurance") and First
Federal's wholly owned subsidiary, The Leader Mortgage Company, LLC ("The
Leader"). First Federal is primarily engaged in attracting deposits from the
general public through its offices and using those and other available sources
of funds to originate loans primarily in the areas in which its offices are
located. The Company's traditional banking activities include originating and
servicing residential, commercial and consumer loans; providing a broad range of
depository services; and providing trust services. First Federal is subject to
the regulations of certain federal agencies and undergoes periodic examinations
by those regulatory authorities. The Leader is a mortgage banking company which
specializes in servicing mortgage loans originated under first-time home-buyer
programs sponsored by various state, county and municipal governmental entities.
The Company's mortgage banking activities consist primarily of originating or
purchasing residential mortgage loans for either direct resale into secondary
markets or to be securitized under various Government National Mortgage
Association ("GNMA") mortgage backed securities. First Insurance is an insurance
agency that does business in the Defiance, Ohio area. First Insurance offers
property and casualty, life insurance, group health, and investment products.
First Defiance also invests in U.S. Treasury and federal government agency
obligations, money market mutual funds which are comprised of U.S. Treasury
obligations, obligations of the State of Ohio and its political subdivisions,
mortgage-backed securities which are issued by federal agencies and, to a lesser
extent, collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). Management determines the appropriate
classification of all such securities at the time of purchase in accordance with
FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities.
Securities are classified as held-to-maturity when First Defiance has the
positive intent and ability to hold the security to maturity. Held-to-maturity
securities are stated at amortized cost and had a recorded value of $6.2 million
at September 30, 2001. Loans held-for-sale securitized in the normal course of
The Leader's operations are classified as trading securities, reported at fair
market value. The Leader has committed to sell these securities at their
carrying value. Securities not classified as held-to-maturity or trading are
classified as available-for-sale, which are stated at fair value and had a
recorded value of $49.6 million at September 30, 2001. The available-for-sale
portfolio consists of U.S. Treasury securities and obligations of U.S.
Government corporations and agencies ($18.7 million), corporate bonds ($9.7
million), certain municipal obligations ($7.9 million), adjustable-rate
mortgage-backed security mutual funds ($3.4 million), CMOs and REMICs ($5.3
million), mortgage-backed securities ($2.3 million), and preferred stock and
other equity investments ($2.3 million). In accordance with Statement of
Financial Accounting Standards No. 115, unrealized holding gains and losses on
available-for-sale securities are reported in a separate component of
stockholders' equity and are not reported in earnings until realized. Net
unrealized holding gains on available-for-sale securities were $1.7 million at
September 30, 2001, or $1.1 million after considering the related deferred tax
liability.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
The profitability of First Defiance is primarily dependent on its net interest
income and non-interest income. Net interest income is the difference between
interest and dividend income on interest-earning assets, principally loans and
securities, and interest expense on interest-bearing deposits, Federal Home Loan
Bank advances, and other borrowings. The Company's non-interest income includes
mortgage loan servicing income, other loan administration fees, gains on sales
of mortgage loans, and the recognition of mortgage servicing rights generated by
The Leader and First Federal. First Defiance's earnings also depend on the
provision for loan losses and non-interest expenses, such as employee
compensation and benefits, occupancy and equipment expense, deposit insurance
premiums, and miscellaneous other expenses, as well as federal income tax
expense.
Changes in Financial Condition
At September 30, 2001, First Defiance's total assets, deposits (including
customer's escrow deposits) and stockholders' equity amounted to $1.069 billion,
$707.4 million and $106.8 million, respectively, compared to $1.072 billion,
$613.9 million and $99.5 million, respectively, at December 31, 2000.
Net loans receivable have decreased to $534.4 million at September 30, 2001 from
$541.2 million at December 31, 2000. This decrease is a result of conventional
mortgages, which were previously kept in the loan portfolio, being refinanced
due to the low interest rate environment and subsequently sold to the secondary
market. During the same period, loans held for sale decreased to $222.8 million
at September 30, 2001 from $232.3 million at December 31, 2000. The reduction in
the available for sale loans is a result of decreased production in The Leader's
bond programs as well as efforts by management to minimize the balance of this
lower yielding asset.
Mortgage servicing rights increased to $150.5 million at September 30, 2001 from
$134.8 at December 31, 2000. Mortgage servicing rights are recorded when loans
available for sale are securitized and sold into the secondary market and the
value is based on the servicing fees earned on the underlying mortgage loan
being serviced, management's estimate of future prepayments and a number of
other factors. At September 30, 2001 the weighted average coupon rate of the
mortgage servicing portfolio was 6.99% compared to 7.00% at December 31, 2000.
The Company has an independent appraisal prepared annually and estimates the
fair value each month based upon the results of the appraisal. The most recent
independent appraisal was completed as of May 31, 2001. The approximate fair
market value of the mortgage servicing rights was $163.5 million at September
30, 2001 compared to $184.9 million at December 31, 2000. The actual value of
servicing may vary significantly from the estimated fair value due to changes in
interest rates or other market conditions. See Non-Interest Expense discussion
included in Management's Discussion and Analysis and Item 3 - Qualitative and
Quantitative Disclosure About Market Risk.
Deposits increased from $545.9 million at December 31, 2000 to $596.4 million as
of September 30, 2001. This increase was the result of a $26.7 million increase
in money market demand accounts and a $29.2 million increase in certificates of
deposit, net of decreases in non-interest-bearing checking, interest bearing
demand deposit accounts and savings accounts of $3.8 million, $600,000 and $1.0
million, respectively. The increase in deposits was due to a combination of
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
favorable rates and marketing of the Company's money market demand and
certificate of deposit accounts and the continued growth of recently opened
branches.
Customer's escrow deposits increased from $68.0 million at December 31, 2000 to
$111.0 million at September 30, 2001 due to increases in prepayments in The
Leader's loan servicing portfolio. The Leader holds proceeds from prepayments
for a period of up to forty-five days prior to being remitted to the investors.
Advances from the Federal Home Loan Bank decreased to $216.9 million as of
September 30, 2001 from $223.3 million as of December 31, 2000. As a result of
the increases in internal sources of funds, warehouse and term notes payable
decreased from $120.4 million as of December 31, 2000 to $23.4 million.
Forward-Looking Information
Certain statements contained in this quarterly report that are not historical
facts, including but not limited to statements that can be identified by the use
of forward-looking terminology such as "may", "will", "expect", "anticipate", or
"continue" or the negative thereof or other variations thereon or comparable
terminology are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21B of the Securities Act
of 1934, as amended. Actual results could differ materially from those indicated
in such statements due to risks, uncertainties and changes with respect to a
variety of market and other factors.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Average Balances, Net Interest Income and Yields Earned and Rates Paid
The following table presents for the periods indicated the total dollar amount
of interest from average interest-earning assets and the resultant yields, as
well as the interest expense on average interest-bearing liabilities, expressed
both in thousands of dollars and rates, and the net interest margin. Dividends
received are included as interest income. The table does not reflect any effect
of income taxes. All average balances are based upon daily balances. See Results
of Operations section for a discussion of the impact on loan yields for the
nine-months ended September 30, 2000, resulting from a change in the estimated
income on loans 90 days or more past due which have FHA insurance or VA
guarantees.
Three Months Ended September 30,
--------------------------------------------------------------------------------
2001 2000
---------------------------------- ----------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
Interest-earning assets:
Loans receivable $ 814,038 $ 16,051 7.89% $ 758,019 $ 15,837 8.36%
Securities 57,120 850 5.95 61,655 1,073 6.96
FHLB stock 15,807 280 7.09 14,695 278 7.57
---------- ---------- ---------- ----------
Total interest-earning assets 886,965 17,181 7.75 834,369 17,188 8.24
Non-interest-earning assets 243,446 206,267
---------- ----------
Total assets $1,130,411 $1.040,636
========== ==========
Interest-bearing liabilities:
Deposits $ 581,674 $ 5,999 4.13% $ 542,468 $ 6,848 5.05%
FHLB advances and other 251,524 2,947 4.69 251,344 3,830 6.10
Notes payable 51,064 594 4.65 55,477 1,009 7.28
---------- ---------- ---------- ----------
Total interest-bearing liabilities 884,262 9,540 4.32 849,289 11,687 5.50
---------- ---------- ---- ---------- ----------
Non-interest-bearing liabilities 140,773 96,646
---------- ----------
Total liabilities 1,025,035 945,935
Stockholders' equity 105,376 94,701
---------- ----------
Total liabilities and stock-
holders' equity $1,130,411 $1,040,636
========== ==========
Net interest income; interest
rate spread $ 7,641 3.43% $ 5,501 2.74%
---------- ---- ---------- -----
Net interest margin (2) 3.45% 2.64%
---- -----
Average interest-earning assets
to average interest-bearing
liabilities 100% 98%
==== =====
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Nine Months Ended September 30,
--------------------------------------------------------------------------------
2001 2000
---------------------------------- ----------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
Interest-earning assets:
Loans receivable $ 768,825 $ 46,703 8.10% $ 721,073 $ 44,352 8.20%
Securities 59,212 2,923 6.58 70,270 3,748 7.11
FHLB stock 15,531 836 7.18 14,436 792 7.32
---------- ---------- ---------- ----------
Total interest-earning assets 843,568 50,462 7.98 805,779 48,892 8.09
Non-interest-earning assets 238,095 190,670
----------
Total assets $1,081,663 $ 996,449
========== ==========
Interest-bearing liabilities:
Deposits $ 574,787 $ 19,538 4.53% $ 526,052 $ 18,623 4.72%
FHLB advances and other 237,715 9,060 5.08 224,248 9,560 5.68
Notes payable 42,387 1,829 5.75 68,546 3,371 6.56
---------- ---------- ---------- ----------
Total interest-bearing liabilities 854,889 30,427 4.75 818,846 31,554 5.14
---- ---------- ---------- ----
Non-interest-bearing liabilities 123,777 85,402
---------- ----------
Total liabilities 978,666 904,248
Stockholders' equity 102,997 92,201
---------- ----------
Total liabilities and stock-
holders' equity $1,081,663 $ 996,449
========== ==========
Net interest income; interest
rate spread $ 20,035 3.23% $ 17,338 2.95%
========== ==== ========== ====
Net interest margin (2) 3.17% 2.87%
==== ====
Average interest-earning assets
to average interest-bearing
liabilities 99% 98%
==== ====
(1) Annualized
(2) Net interest margin is net interest income divided by average
interest-earning assets.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Results of Operations
- ---------------------
Three Months Ended September 30, 2001 compared to Three Months Ended September
- --------------------------------------------------------------------------------
30, 2000
- --------
On a consolidated basis, First Defiance had net income of $3.0 million for the
three months ended September 30, 2001 compared to $3.2 million for the same
period in 2000. On a per share basis, basic and diluted earnings per share were
$.46 and $.45, respectively, for the 2001 third quarter compared to $.50 and
$.49, respectively, for the 2000 third quarter.
The results for the quarter included a pre-tax charge of $1.9 million to write
down the value of certain segments of the Company's mortgage servicing rights
portfolio managed by The Leader. These write-downs were necessitated by
increased prepayments as a result of the current lower interest rate
environment. This adjustment resulted in an after-tax reduction in earnings of
$.19 per share.
Cash earnings for the third quarter of 2001 were $3.2 million or $.48 per
diluted share compared to $3.4 million or $.52 per diluted share for the same
period in 2000. Cash earnings are calculated by excluding the net income impact
of amortization of goodwill.
Net Interest Income. Net interest income for the quarter ended September 30,
2001 was $7.4 million compared to $5.2 million for the same period in 2000. Net
interest margin for the 2001 third quarter was 3.45% compared to 2.64% for the
same period in 2000, an increase of 81 basis points.
Total interest income was essentially unchanged at $16.9 million for the three
months ended September 30, 2001 compared to the same period in 2000. The average
balance of interest-earning assets increased $52.6 million when comparing the
third quarter of 2001 to the third quarter of 2000. However, the yield on
interest-earning assets decreased 49 basis points to 7.75% for the three-month
period ended September 30, 2001 from 8.24% for the same period in 2000 due to
declining interest rates. Interest earnings from the loan portfolio increased
$214,000 from $15.8 million for the three months ended September 30, 2000 to
$16.1 million for the same period in 2001. This increase was due to the fact
that the effect of increases in the average balances of loans receivable
exceeded the effects of declines in yields. The average balance of loans was
$814.0 million compared to $758.0 million for the same period in 2000. Loan
yields decreased by 47 basis points, from 8.36% for the three-months ended
September 30, 2000 to 7.89% for the three-months ended September 30, 2001.
Interest earnings from the investment portfolio decreased to $850,000 for the
three months ended September 30, 2001 compared to $1.1 million for the same
period in 2000. The decrease in interest on investments was primarily the result
of a $4.5 million decrease in the average balance of investment securities, from
$61.2 million for the third quarter of 2000 to $57.1 million for the same period
in 2001. Additionally, the yield on the average portfolio balance declined 101
basis points, to 5.95 % at September 30, 2001 compared to 6.96% for the same
period in 2000.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Interest expense decreased by $2.1 million, or 18.4%, to $9.5 million for the
third quarter of 2001 compared to $11.7 million for the same period in 2000. The
decrease is primarily due to the 118 basis point decrease in the average cost of
interest-bearing liabilities, to 4.32% for the third quarter of 2001 from 5.50%
for the same period of 2000. The decrease in funding cost was partially offset
by the $35.0 million increase in the average balance of interest-bearing
liabilities during the same period, from $849.3 million for the three-months
ended September 30, 2000 to $884.3 million for the same period in 2001. The
increase in average interest-bearing liabilities is primarily due to the funding
of a $52.6 million increase in average interest-earning assets noted above
combined with a $37.1 million increase in average non-interest-earning assets,
from $206.3 million for the third quarter of 2000 to $243.4 million for the same
period in 2001. This increase in average non-interest-earning assets was
primarily a result of the growth in The Leader's mortgage servicing assets from
an average of $120.3 million for the three-months ended September 30, 2000 to
$148.3 million for the same period in 2001. The growth in average assets was
partially funded by a $44.1 million increase in the average balance of
non-interest-bearing liabilities, from $96.6 million for the three-months ended
September 30, 2000 to $140.8 million for the same period in 2001. The growth in
the average balance of non-interest-bearing liabilities was primarily the result
of a $39.4 million increase in the average balance of customer escrow balances
from $82.0 million for the third quarter of 2000 to $121.4 million for the same
period in 2001.
The decrease in the Company's average cost of interest-bearing liabilities was
the result of the Company's strategy to position the balance sheet for lower
interest rates. The average costs of deposits and FHLB advances declined 92
basis points and 141 basis points, respectively, to 4.13% and 4.69%,
respectively for the three-months ended September 30, 2001 from 5.05% and 6.10%,
respectively for the same period in 2000. Additionally, the average balance of
interest-bearing deposits, the Company's lowest cost source of interest-bearing
liabilities, increased from $542.3 million for the three-months ended September
30, 2000 to $581.7 million for the same period in 2001. This growth, a result of
favorable rates on the money market deposit account, effective marketing,
increased penetration with commercial accounts and increased volumes at recently
opened branches, was a factor in allowing the Company to reduce the average
balance in warehouse and term notes payable, the Company's highest cost source
of funding, from $55.5 million for the third quarter of 2000 to $51.1 million
for the same period in 2001.
Provision for Loan Losses. The provision for loan losses for First Defiance is
comprised of two separate and distinct components: provisions for foreclosure
expenses and provisions for credit losses.
The provision for foreclosure expenses is management's best estimate of the
costs the Company will incur to take loans in the mortgage servicing portfolio
through the foreclosure process. First Defiance generally incurs a loss of
between $1,500 and $2,000 per loan that goes into foreclosure. For the three
months ended September 30, 2001 the total provision for foreclosure losses was
$928,000, compared to $466,000 for the same period in 2000. The increase is due
to an increase in foreclosure filings.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
The provision for credit losses was $272,000 for the 2001 third quarter compared
to $73,000 for the 2000 third quarter. Provisions for credit losses are charged
to earnings to bring the total allowance for loan losses to the level deemed
appropriate by management based on historical experience, the volume and type of
lending conducted by First Defiance, industry standards, the amount of
non-performing assets and loan charge-off activity, general economic conditions,
particularly as they relate to First Defiance's market area, and other factors
related to the collectibility of First Defiance's loan portfolio.
Non-performing assets, which include loans 90 days or more past due, loans
deemed impaired, and repossessed assets, totaled $2.5 million at September 30,
2001, which is .24% of total assets. Non-performing loans and repossessed assets
reported do not include $18.2 million for mortgage loans 90 days or more past
due which have FHA insurance or VA guarantees. The risk of loss on these loans
is generally limited to the administrative cost of foreclosure actions, which is
provided for in the allowance for foreclosure losses. The total allowance for
loan losses at September 30, 2001 was $9.9 million compared to $8.8 million at
September 30, 2000 and $8.9 million at December 31, 2000. For the quarter ended
September 30, 2001, First Defiance charged off $268,000 of credit losses and
$585,000 of foreclosure costs against its allowance and realized recoveries of
$55,000 from credit losses previously charged off and $98,000 from foreclosure
losses previously charged off. During the same quarter in 2000, First Defiance
charged off $14,000 in credit losses and $328,000 of foreclosure costs and
realized recoveries of $60,000 of credit losses and $114,000 of foreclosure
costs.
Non-Interest Income. Non-interest income increased substantially in the third
quarter of 2001, from $14.0 million for the quarter ended September 30, 2000 to
$16.3 million for the same period in 2001. Individual components of non-interest
income are as follows:
Mortgage Banking Income. Mortgage banking income, which includes servicing fees
and late charge income, increased to $11.3 million for the three-month period
ended September 30, 2001 compared to $9.3 million for the same period in 2000,
an increase of $2.0 million or 21.5%. This increase in mortgage banking income
was primarily the result of the growth in the mortgage servicing portfolio from
$7.5 billion as of September 30, 2000 to $8.9 billion at September 30, 2001.
Gain on Sale of Loans. Gain on sale of loans increased to $2.9 million for the
quarter ended September 30, 2001 from $2.7 million for the same period of 2000.
Gains realized from securitizing loans under the Company's niche first-time
home-buyers programs were $1.5 million in the current quarter, a reduction from
$2.5 million from the 2000 third quarter. In a falling interest rate
environment, like the industry has experienced thus far in 2001, demand for the
first-time homebuyer loans declines initially, resulting in lower loan
production levels. Over time, the housing finance agencies generally react to
lower market rates with lower program rates. Gains from conventional mortgage
lending, both at First Federal and through The Leader's retail origination
division, have offset some of the declines in the first-time homebuyer programs.
Total gain on sale from conventional mortgage originations was $1.0 million for
the 2001 third quarter, compared to $167,000 in the same period in 2000. The
2001 third quarter also included a gain of $385,000 from the sale of 30 and 60
day past due loans which were
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
purchased out of the servicing portfolio and sold to a third party. It is
anticipated that the Company will realize gains from similar sales from time to
time as conditions allow.
Other Non-Interest Income. Other non-interest income, including insurance
commission income, dividends on Federal Home Loan Bank stock, loan servicing
fees and other charges, and other miscellaneous charges, increased to $2.1
million for the quarter ended September 30, 2001 from $2.0 million for the same
period in 2000. Deposit fees and other related charges at First Federal
increased $220,000, to $578,000 for the three-months ended September 30, 2001
from $358,000 for the same period in 2000.
Non-Interest Expense. Total non-interest expense increased from $13.9 million
for the quarter ended September 30, 2000 to $17.9 million for the same period in
2001. Excluding amortization and impairment of mortgage servicing rights
non-interest expense for the 2001 third quarter was $10.16 million, slightly
less than the $10.20 million in other non-interest expense recognized in the
2000 third quarter. Significant individual components of the increase are as
follows:
Amortization and Impairment of Mortgage Servicing Rights. Amortization and
impairment of mortgage servicing rights (MSRs) increased to $5.8 million and
$1.9 million, respectively, for the quarter ended September 30, 2001 from $3.7
million and $4,000, respectively, for the same period in 2000. These increases
were due both to an acceleration of amortization due to increased prepayment
activity and the overall growth in the mortgage servicing portfolio, which
increased from $7.5 billion as of September 30, 2000 to $8.9 billion at
September 30, 2001. The lower interest rate environment of the third quarter of
2001 has increased prepayments on the Company's servicing portfolio to 9.83%,
annualized, compared to 4.54% for the third quarter of 2000, annualized. The
majority of the impairment charge was isolated to a specific segment of the
Company's servicing portfolio, which is servicing mortgages issued under taxable
bond programs with coupon rates ranging from 8.00% to 9.00%. The total estimated
fair value of the Company's servicing portfolio as of September 30, 2001 was
$163.5 million, which exceeds gross book value (excluding the impairment charges
recorded) by $13.0 million. Management believes it has accounted for impairment
in a conservative manner by using published industry prepayment speeds, adjusted
to account for the lower prepayment characteristics of the Company's portfolio
to calculate the fair value of the portfolio. Those prepayment speeds increased
significantly during the month of September. Management estimates that if
prepayment rates remain at the level they were at on September 30, there will be
a fourth quarter pre-tax impairment adjustment of between $3.5 million and $4.5
million. If interest rates drop further from the September 30, 2001 levels, the
impairment charges likely will exceed $4.5 million.
Compensation and Benefits. Compensation and benefits increased $316,000 from
$5.6 million for the quarter ended September 30, 2000 to $5.9 million for the
same period in 2001. This increase is due to staffing level increases at First
Federal to handle the increased production of conventional mortgage loans and to
generate deposits bank-wide. In addition, a full service branch in Bowling
Green, Ohio opened in the fourth quarter of 2000.
Occupancy. Occupancy expense increased from $1.2 million for the three-month
period ended September 30, 2000 to $1.3 million for the three months ended
September 30, 2001. This increase was a result of expansions throughout the
Company.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Amortization of Goodwill. Amortization of goodwill amounted to $223,000 in the
third quarter of 2001 compared to $219,000 during the same period in 2000. Under
the recently issued Statement of Financial Accounting Standards (SFAS) No. 142,
Accounting for Goodwill and Other Intangibles, First Defiance will not amortize
goodwill beginning in January 2002. However, goodwill will be subject to
periodic tests for impairment. Management has not completed the review necessary
to determine the impact of adopting SFAS No. 142.
Other Non-Interest Expenses. Other non-interest expenses (including state
franchise tax, data processing, deposit premiums, loan servicing, and
amortization of other acquisition costs) decreased from $3.2 million for the
quarter ended September 30, 2000 to $2.6 million for the same period in 2001.
The decrease in other non-interest expenses was primarily the result of expenses
incurred at The Leader during the third quarter of 2000 relating to the buy-back
of a group of loans from its servicing portfolio. In addition, there was a
decrease in amortization of other acquisition costs due to the expiration of
certain contractual payments that ended June 30, 2001. These were partially
offset by an increase of expense at The Leader relating to increases in the
mortgage loan-servicing portfolio. These expenses included postage, examination
fees, real estate inspection fees, and collateral handling fees.
First Defiance has computed federal income tax expense in accordance with SFAS
No. 109 which resulted in an effective tax rate of 34.7% for the quarter ended
September 30, 2001 compared to 33.6% for the same period in 2000.
As a result of the above factors, net income for the quarter ended September 30,
2001 was $3.0 million compared to $3.2 million for the comparable period in
2000. On a per share basis, basic and diluted earnings per share for the three
months ended September 30, 2001 were $.46 and $.45, respectively, compared to
$.50 and $.49, respectively, for the same period in 2000. Average shares
outstanding for the basic and diluted calculations were 6,405,000 and 6,601,000,
respectively, for the quarter ended September 30, 2001 compared to 6,367,000 and
6,451,000, respectively, for the quarter ended September 30, 2000.
First Defiance's board of directors declared a dividend of $.12 per common share
as of September 30, 2001. The dividend amounted to $819,857, including dividends
on unallocated ESOP shares. It was paid on October 26, 2001. Dividends are
subject to determination and declaration by the board of directors, which will
take into account First Defiance's financial condition and results of
operations, economic conditions, industry standards and regulatory restrictions
which affect First Defiance's ability to pay dividends.
Nine Months Ended September 30, 2001 compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
2000
- ----
On a consolidated basis, First Defiance had net income of $8.6 million for the
nine months ended September 30, 2001 compared to $7.8 million for the same
period in 2000. On a per share basis, basic and diluted earnings per share were
$1.35 and $1.31, respectively, compared to $1.24 and $1.22 basic and diluted per
share earnings for the same period in 2000. The results for the nine-month
period ended September 30, 2001 included a $3.3 million pre-tax charge ($.33 per
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
share after-tax) to write down the value of certain segments of the Company's
mortgage servicing rights portfolio.
Cash earnings for the nine-months ended September 30, 2001 were $9.2 million or
$1.40 per diluted share compared to $8.4 million or $1.32 per diluted share for
the same period in 2000. Cash earnings are calculated by excluding the net
income impact of amortization of goodwill.
Net Interest Income. Net interest income before provision for loan losses
increased to $19.2 million for the nine-month period ending September 30, 2001
compared to $16.5 million for the same period in 2000. The 2000 results included
a one-time adjustment of $690,000 for interest on certain loans that were more
than 90 days delinquent which had been purchased out of the servicing portfolio
by The Leader and which had FHA insurance or VA guarantees. In addition,
management enhanced its method of estimating the required reserve for potential
losses on foreclosure loans to more accurately reflect the total risk inherent
in the servicing and loan portfolios at The Leader. This resulted in a one-time
adjustment to provision for loan losses of $693,000. The net impact of these two
items essentially offset each other and without these adjustments earnings for
the nine months ended September 30, 2000 would still have been $1.22 per diluted
share. The net interest margin for the first three quarters of 2001 was 3.17%
compared to 2.87% for the same period in 2000 (2.75% excluding the one-time
adjustment noted above). The interest rate spread also increased to 3.23% for
the nine-month period ended September 30, 2001 from 2.95% for the same period in
2000 (2.84% excluding the one-time adjustment).
Excluding the estimate change, total interest income increased by $2.2 million,
or 4.7%, from $47.4 million for the nine months ended September 30, 2000 to
$49.6 million for the same period in 2001. The increase was due to a $37.8
million increase in the average balance of interest-earning assets for the nine
months ended September 30, 2001 when compared to the same period in 2000. The
yield on interest earning assets has remained the same at 7.98% (8.09% including
the change in estimate for 2000) for both the year-to-date periods ended
September 30, 2001 and 2000. Excluding the impact of the change in estimate
noted above, interest earnings on the loan portfolio increased $3.0 million to
$46.7 million for the nine months ended September 30, 2001 from $43.7 million
for the same period in 2000. This increase was due to increases in the average
balance of loans receivable and the yield on these loans from $721.1 million and
8.07% for the nine-month period ended September 30, 2000, respectively, to
$768.8 million and 8.10%, respectively, for the same period in 2001. As
previously noted, although interest rates have been decreasing throughout the
first nine months of 2001, the Company has increased the yield on the loan
portfolio as a result of continued growth in higher yielding commercial and
commercial real estate loans.
Interest earnings from the investment portfolio decreased to $2.9 million for
the nine months ended September 30, 2001 compared to $3.7 million for the same
period in 2000. The decrease in interest income was primarily the result of a
$11.1 million decrease in the average balance of investment securities, to $59.2
million for the first nine months of 2001 from $70.3 million for the same period
in 2000. This decrease resulted from including loans that were securitized
pending delivery to the bond trustees in trading securities beginning in late
December of 1999. These trading securities were delivered to the trustee during
the first quarter of 2000. Additionally, the yield on the average portfolio
balance for the nine months ended September 30, 2001 was 6.58% compared to 7.11%
for the same period in 2000.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Interest expense decreased by $1.1 million, or 3.6%, to $30.4 million for the
nine months ended September 30, 2001 compared to $31.6 million for the same
period in 2000. The decrease is due to a 39 basis point decrease in the cost of
interest-bearing liabilities, from 5.14% in the first nine months of 2000
compared to 4.75% in the same period in 2001. This decrease resulted from
decreases in the average costs of deposits and notes payable of 19 basis points
and 81 basis points, respectively, from 4.72% and 6.56%, respectively for the
nine-months ended September 30, 2000, to 4.53% and 5.75%, respectively, for the
same period in 2001. The average cost of Federal Home Loan Bank advances also
decreased 60 basis points, from 5.68% for the nine months of 2000 to 5.08% for
the same period in 2001.
The decrease in the average costs of funds was partially offset by a $36.0
million increase in the average balances of interest-bearing liabilities, to
$854.9 million for the first three quarters of 2001 from $818.8 million for the
same period in 2000. The increase in average interest-bearing liabilities is due
to the funding of the $37.8 million increase in average interest-earning assets
noted above combined with the funding of the $47.4 million increase in average
non-interest-earning assets, from $190.7 million for the first nine months of
2000 to $238.1 million for the same period in 2001. This increase in average
non-interest-earning assets was primarily a result of the growth in The Leader's
mortgage servicing assets from an average of $110.3 million for the year-to-date
period ended September 30, 2000 to $144.2 million for the same period in 2001.
The growth in the average balance of assets was partially funded by a $38.4
million increase in the average balance of non-interest-bearing liabilities, to
$123.8 million for the nine-months ended September 30, 2001 from $85.4 million
for the same period in 2000. The growth in the average balance of
non-interest-bearing liabilities was primarily the result of a $27.2 million
increase in the average balance of customer escrow balances to $107.1 million
for the first nine months of 2001 from $79.9 million for the same period in
2000.
Provision for Loan Losses. For the nine months ended September 30, 2001, the
total provision for foreclosure losses was $1.9 million, compared to $2.1
million for the same period in 2000. The 2000 period includes an adjustment of
approximately $700,000 made related to a change in the method for estimating
foreclosure losses.
The provision for credit losses was $658,000 for the 2001 nine-month period
ended September 30 compared to $384,000 for the same nine-month period in 2000.
The increase is due to continued growth in the Company's commercial and
non-residential real estate loan portfolios which require larger provisions.
For the nine months ended September 30, 2001, First Defiance charged off
$625,000 of credit losses and $1.5 million of foreclosure costs against its
allowance and realized recoveries of $174,000 from credit losses previously
charged off and $294,000 from foreclosure losses previously charged off. During
the same nine months in 2000, First Defiance charged off $825,000 in credit
losses and $1.1 million of foreclosure costs and realized recoveries of $182,000
of credit losses and $266,000 of foreclosure costs.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Non-Interest Income. Non-interest income increased $7.4 million for the
nine-month period ended September 30, 2001 to $46.4 million from $39.0 million
for 2000 period. Individual components of non-interest income are as follows:
Mortgage Banking Income. Mortgage banking income, which includes servicing fees
and late charge income, increased to $33.4 million for the nine-month period
ended September 30, 2001 from $26.0 million for the same period in 2000. This
increase in mortgage banking income was primarily the result of the growth in
the mortgage-servicing portfolio noted in the Results of Operations section for
the third quarter of 2001. The Company now services a total of 135,837 loans
with a balance of $8.9 billion.
Gain on Sale of Loans. Gain on sale of loans decreased to $6.7 million for the
nine months ended September 30, 2001 from $7.2 million for the same period in
2000. The decrease in gains on sale of loans is a result of the decreased
production in The Leader's niche first-time homebuyer programs noted in the
Results of Operations section for the third quarter of 2001. Through the first
nine months of 2001, loan settlements under these programs decreased to $1.358
billion from $1.744 billion for the same period in 2000.
Other Non-Interest Income. Other non-interest income, including insurance
commission income, dividends on Federal Home Loan Bank stock, gains on sale of
securities, trust revenues, and other miscellaneous charges, increased to $6.2
million for the nine-month period ended September 30, 2001 from $5.8 million for
the same period in 2000. The primary reason for the growth in other non-interest
income was due to increasing deposit fees at the Company's First Federal Bank
subsidiary from $955,000 for the nine-month period ended September 30, 2000 to
$1.6 million for the same period in 2001.
Non-Interest Expense. Total non-interest expense increased to $49.7 million for
the nine-month period ended September 30, 2001 from $41.0 million for the same
period in 2000. Excluding amortization and impairment of mortgage servicing
rights, non-interest expenses increased by $1.0 million, or 3.3%, from $30.0
million for the first nine months of 2000 to $31.0 million for the same period
of 2001. Significant individual components of the increase are as follows:
Amortization and Impairment of Mortgage Servicing Rights. Amortization and
impairment of mortgage servicing rights increased from $11.0 million and $7,000,
respectively, for the nine-month period ended September 30, 2000 to $15.3
million and $3.3 million, respectively, for the same period in 2001 due to the
growth in the mortgage servicing portfolio and greater than expected
prepayments. See the discussion in the Results of Operations section for the
third quarter of 2001. For the first nine months of 2001, the Company has
experienced prepayments in the servicing portfolio of 8.48%, annualized,
compared to 4.01%, annualized, for the same period in 2000.
Compensation and Benefits. Compensation and benefits increased $674,000, or
3.9%, from $17.1 million for the nine-month period ended September 30, 2000 to
$17.7 million for the same period in 2001. This increase was the result of
planned expansions of The Leader's operations, increases at First Federal to
support the growth in commercial lending and expansion of the branch network,
and general cost of living increases throughout the Company.
28
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
Occupancy. Occupancy expense increased to $3.9 million for the nine-month period
ended September 30, 2001 from $3.6 million for the same period in 2000. This
increase was a result of incremental increases throughout the Company.
Amortization of Goodwill. Amortization of goodwill amounted to $664,000 for the
nine months ended September 30, 2001 compared to $654,000 during the same period
in 2000.
Other Non-Interest Expenses. Other non-interest expenses (including state
franchise tax, data processing, deposit premiums, and loan servicing) remained
flat at $8.7 million for both of the nine-month periods ended September 30, 2001
and September 30, 2000. The Company experienced increases expenses at The Leader
relating to increases in the mortgage loan-servicing portfolio including
postage, examination fees, real estate inspection fees, and collateral handling
fees. These increases were offset by a decrease in expenses related to the
buy-back of a group of loans from its servicing portfolio recognized in the
third quarter of 2000 and the decrease in amortization of other acquisition
costs due to the expiration of certain contractual payments that ended September
30, 2000.
The effective tax rate utilized for the nine months ended September 30, 2001 was
35.2% compared to 34.8% for the nine months ended September 30, 2000.
As a result of the above factors, net income for the nine-month period ended
September 30, 2001 increased to $8.6 million from $7.8 million for the
nine-months ended September 30, 2000. On a per share basis, basic and diluted
earnings per share for the nine months ended September 30, 2001 were $1.35 and
$1.31, respectively, compared to $1.24 and $1.22, respectively, for the same
period in 2000. As stated above, the results for the nine months ended September
30, 2001 were negatively impacted by a pre-tax charge of nearly $3.3 million
($.33 per diluted share after tax) to write down the value of certain segments
of the Company's mortgage servicing rights portfolio. Average shares outstanding
for the basic and diluted calculations were 6,389,000 and 6,581,000,
respectively, for the nine-months ended September 30, 2001 compared to 6,301,000
and 6,411,000, respectively, for the same period in 2000.
Through September 30, 2001, First Defiance has declared dividends totaling $.36
per share.
Liquidity and Capital Resources
As a regulated financial institution, First Federal is required to maintain
appropriate levels of "liquid" assets to meet short-term funding requirements.
First Defiance believes it has adequate liquid assets and other sources to meet
its funding obligations. OTS regulations which required savings institutions to
maintain a specific level of liquid assets were repealed during the 2001 first
quarter.
First Defiance used $16.5 million of cash in operating activities during the
first nine months of 2001. The Company's cash from operating activities results
from net income for the period, adjusted for various non-cash items, including
the provision for loan losses, depreciation and amortization, including
amortization of mortgage servicing rights, ESOP expense related to release of
shares, and changes in loans available for sale, interest receivable and other
assets, and
29
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
other liabilities. The primary investing activity of First Defiance
is the origination of loans (both for sale in the secondary market and to be
held in portfolio), which is funded with cash provided by operations, proceeds
from the amortization and prepayments of existing loans, the sale of loans,
proceeds from the sale or maturity of securities, borrowings from the FHLB, and
customer deposits.
At September 30, 2001, First Defiance had $52.0 million in outstanding mortgage
loan commitments and loans in process to be funded generally within the next six
months and an additional $51.0 million committed under existing consumer and
commercial lines of credit and standby letters of credit. Also at that date,
First Defiance had commitments to sell $211.0 million of loans held-for-sale and
it also had commitments to acquire $2.2 billion of mortgage loans under active
or pending first-time homebuyer programs, all of which have offsetting
commitments for sale into the secondary market as GNMA or FNMA mortgage-backed
securities. Also as of September 30, 2001, the total amount of certificates of
deposit that are scheduled to mature by September 30, 2002 is $298.9 million.
First Defiance believes that it has adequate resources to fund commitments as
they arise and that it can adjust the rate on savings certificates to retain
deposits in changing interest rate environments. If First Defiance requires
funds beyond its internal funding capabilities, advances from the FHLB of
Cincinnati and other financial institutions are available.
First Defiance, through The Leader, utilizes forward purchase and forward sale
agreements to meet the needs of its customers and manage its exposure to
fluctuations in the fair value of mortgage loans held for sale and its pipeline.
These forward purchase and forward sale agreements are considered to be
derivatives as defined by SFAS No. 133, Accounting for Derivatives and Hedging
Instruments. The change in value in the forward purchase and forward sale
agreements is approximately equal to the change in value in the loans held for
sale and the effect of this accounting treatment is not material to the
financial statements.
First Defiance also invests in on-balance sheet derivative securities as part of
the overall asset and liability management process. Such derivative securities
include REMIC and CMO investments. Such investments are not classified as high
risk at September 30, 2001 and do not present risk significantly different than
other mortgage-backed or agency securities.
First Federal is required to maintain specified amounts of capital pursuant to
regulations promulgated by the OTS. The capital standards generally require the
maintenance of regulatory capital sufficient to meet a tangible capital
requirement, a core capital requirement, and a risk-based capital requirement.
30
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations -Continued
- ------------------------
The following table sets forth First Federal's compliance with each of the
capital requirements at September 30, 2001.
Tangible Core Risk-Based
Capital Capital Capital
------- ------- --------
(Dollars in Thousands)
Regulatory capital $ 67,342 $ 67,342 $ 75,937
Minimum required regulatory
capital 15,105 40,280 54,924
--------- --------- ---------
Excess regulatory capital $ 52,237 $ 27,062 $ 21,013
========= ========= =========
Regulatory capital as a
percentage of assets (1) 6.7% 6.7% 11.1%
Minimum capital required as
a percentage of assets 1.5% 4.0% 8.0%
--------- --------- ---------
Excess regulatory capital as a
percentage in excess of
requirement 5.2% 2.7% 3.1%
========= ========= =========
(1) Tangible and core capital are computed as a percentage of adjusted total
assets of $1.007 billion. Risk-based capital is computed as a percentage of
total risk-weighted assets of $686.6 million.
FDIC Insurance
The deposits of First Federal are currently insured by the Savings Association
Insurance Fund("SAIF") which is administered by the FDIC. The FDIC also
administers the Bank Insurance Fund ("BIF") which generally provides insurance
to commercial bank depositors. Both the SAIF and BIF are required by law to
maintain a reserve ratio of 1.25% of insured deposits. First Federal's annual
deposit insurance premiums for 2001 are approximately $0.019 per $100 of
deposits.
31
Item 3. Qualitative and Quantitative Disclosure About Market Risk
- -----------------------------------------------------------------
As discussed in detail in the 2000 Annual Report on Form 10-K, First Defiance's
ability to maximize net income is dependent on management's ability to plan and
control net interest income through management of the pricing and mix of assets
and liabilities. Because a large portion of assets and liabilities of First
Defiance are monetary in nature, changes in interest rates and monetary or
fiscal policy affect its financial condition and can have significant impact on
the net income of the Company. First Defiance does not use off balance sheet
derivatives to enhance its risk management, nor does it engage in trading
activities beyond the sale of mortgage loans.
First Defiance monitors its exposure to interest rate risk on a monthly basis
through simulation analysis which measures the impact changes in interest rates
can have on net income. The simulation technique analyses the effect of a
presumed 100 basis point shift in interest rates (which is consistent with
management's estimate of the range of potential interest rate fluctuations) and
takes into account prepayment speeds on amortizing financial instruments, loan
and deposit volumes and rates, nonmaturity deposit assumptions and capital
requirements. The results of the simulation indicate that in an environment
where interest rates rise or fall 100 basis points over a 12 month period, using
September 2001 amounts as a base case, First Defiance's net interest income
would be impacted by less than the board mandated guidelines of 10%.
The simulation model used by First Defiance measures the impact of rising and
falling interest rates on net interest income only. The Company also monitors
the potential change in the value of its mortgage-servicing portfolio given the
same 100 basis point shift in interest rates. At September 30, 2001, a 100 basis
point decrease in interest rates would require an $11.5 million adjustment to
First Defiance's reserve for impairment of MSRs.
32
FIRST DEFIANCE FINANCIAL CORP.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
First Defiance is not engaged in any legal proceedings of a material
nature.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Not applicable
33
FIRST DEFIANCE FINANCIAL CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
First Defiance Financial Corp.
(Registrant)
Date: November 14, 2001 By: /s/ William J. Small
----------------- ---------------------------------------
William J. Small
Chairman, President and
Chief Executive Officer
Date: November 14, 2001 By: /s/ John C. Wahl
----------------- ---------------------------------------
John C. Wahl
Senior Vice President, Chief
Financial Officer and
Treasurer
34