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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number ________________
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 Identification Number)
incorporation or organization)
601 Clinton Street, Defiance, Ohio 43512
(Address of principal executive offices) (Zip code)
Registrants telephone number, including area code: (419) 782-5015
Securities registered pursuant to Section 12(b) of the Act:
(None)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 26, 1998, there were issued and outstanding 8,123,171
shares of the Registrants common stock.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant computed by reference to the average bid and ask price of such
stock as of March 26, 1998 was approximately $126.7 million.
-----------------
Documents Incorporated by References
List hereunder the following documents incorporated by reference and
the Part of the Form 10-K into which the document is incorporated.
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 are incorporated into Part II, Items 5-8 of
this Form 10-K.
(2) Portions of the Registrant's definitive proxy statement for its 1998 Annual
Meeting of Stockholders are incorporated into Part III, Items 10-13 of this
Form 10-K.
PART I
Item 1. Business
First Defiance Financial Corp. ("First Defiance" or the "Company") was
organized in June, 1995 and on September 29, 1995 became the parent company of
First Federal Savings and Loan, Defiance, Ohio ("First Federal") when First
Federal and First Federal Mutual Holding Company, which at the time owned 59% of
the outstanding common stock of First Federal, completed a Conversion and
Reorganization from the mutual holding company form of ownership to full stock
ownership. In connection with the Conversion and Reorganization ("the
Reorganization") First Defiance completed a Subscription and Community Stock
Offering ("the Offering") in which it sold 6,476,914 shares of common stock
(equivalent to the 59% ownership of First Federal Mutual Holding Company) for
$10 per share. The outstanding public shares of common stock of First Federal
were converted into common shares of First Defiance in a ratio of 2.1590231
shares for every one share of First Federal.
First Federal had reorganized on June 19, 1993 from a mutual savings
and loan association to a mutual holding company known as First Federal Mutual
Holding Company ("the Mutual Holding Company Reorganization"). As part of the
Mutual Holding Company Reorganization First Federal Mutual Holding Company
organized a federally chartered stock savings and loan association (now First
Federal) and transferred all of its assets and liabilities to First Federal in
exchange for 3,000,000 shares of common stock which represented all of the
outstanding shares of First Federal upon completion of the Mutual Holding
Company Reorganization. Concurrent with the Mutual Holding Company
Reorganization, First Federal sold 2,080,000 additional shares of common stock
to members and employees of First Federal and to the public. On September 29,
1995, as part of the Reorganization, the 3,000,000 shares of First Federal held
by the Mutual Holding Company were canceled and the shares held by the public
were exchanged for shares of First Defiance in accordance with an exchange ratio
which assured they would maintain their existing 41.0% ownership.
The business of the Company and its subsidiaries will be discussed
herein as activities of the Company (on a consolidated basis), and references to
the Company's historical investment activities include the activities of First
Federal prior to September 29, 1995 unless otherwise noted.
The Company employs executive officers and a support staff if and as
the need arises. Such personnel are provided by First Federal and are not paid
separate remuneration for such services. The Company reimburses First Federal
for the use of First Federal personnel, pursuant to an expense sharing agreement
between the Company and First Federal. First Federal provides the Company with
office space and is reimbursed for the use of the space through the expense
sharing agreement. At December 31, 1997, the Company had consolidated assets of
$579.7 million, consolidated deposits of $395.3 million, and consolidated
stockholders' equity of $106.9 million. The Company's executive office is
located at 601 Clinton St., Defiance, Ohio 43512 and its telephone number is
(419) 782-5015.
First Federal Savings and Loan
First Federal is a federally chartered stock savings and loan
headquartered in Defiance, Ohio. It conducts operations through its main office,
nine full service branch offices in Defiance, Fulton, Henry, Paulding, Putnam
and Williams Counties in northwest Ohio. First Federal's deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC") under the Savings Association
Insurance Fund ("SAIF"). First Federal is a member of the Federal Home Loan Bank
System.
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 secured by single-family residences
(one-to-four-family units) primarily located in the six counties in which its
offices are located. First Federal also originates other real estate loans
secured by nonresidential and multi-family residential real estate and
construction loans. First Federal also holds a significant number of non real
estate loans including commercial, home improvement and equity, consumer finance
loans, primarily automobile loans, and mobile home loans. First Federal also
invests in U.S. Treasury and federal government agency obligations, obligations
of the State of Ohio and its political subdivisions, mortgage-backed securities
which are issued by federal agencies and corporate bonds.
Securities
Management determines the appropriate classification of debt securities
at the time of purchase. Debt securities are classified as held-to-maturity when
First Defiance has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost. Debt
securities not classified as held-to-maturity and equity securities are
classified as available-for-sale. Available for-sale securities are stated at
fair value.
First Defiance's securities portfolio is managed in accordance with a
written policy adopted by the Board of Directors and administered by the
Investment Committee. All securities transactions must be approved by the
Investment Committee and reported to the Board of Directors.
First Defiance's investment portfolio includes five CMO and REMIC
issues totaling $4.0 million, all of which are fully amortizing securities, and
five separate agencies securities totaling $8.8 million which have a step-up
feature. All such investments are considered derivative securities. None of
First Defiance's investments are considered to be high risk and management does
not believe the risks associated with these investments to be significantly
different from risks associated with other pass-through mortgage backed or
agency securities. First Defiance does not invest in off-balance sheet
derivative securities.
The amortized cost and fair value of securities at December 31, 1997 by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Money market mutual
funds and other mutual funds are not due at a single maturity date. For purposes
of the maturity table, mortgage-backed securities, which are not due at a single
maturity date, have been allocated over maturity groupings based on the
weighted-average contractual maturities of underlying collateral. The
mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
Contractually Maturing Total
------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Under 1 Average 1 - 5 Average 6-10 Average Over 10 Average
Year Rate Years Rate Years Rate Years Rate Amount Yield
---- ---- ----- ---- ----- ---- ----- ---- ------ -----
(Dollars in Thousands)
U.S. Government and
federal agency
obligations $16,800 5.24% $25,136 6.28% $14,925 6.76% $ 1,990 6.00% $ 58,851 6.10%
Corporate bonds 3,068 7.50 7,026 6.13 10,094 6.54
Obligations of
states and
political 229 6.34 420 6.56 835 5.48 300 7.38 1,784 6.16
subdivisions
Mortgage-backed
securities 979 5.51 2,831 8.02 866 8.11 15,039 7.26 19,715 7.32
REMICs and CMOs - - - - 2,010 7.00 2,029 6.14 4,039 6.57
------- ------- ------- ------- --------
Total $21,076 $35,413 $18,636 $19,358 94,483
======= ======= ======= =======
Mutual funds 8,981
Unrealized loss
on securities
available for
sale (75)
========
Total $103,389
========
The book value of investment securities is as follows:
December 31
1997 1996 1995
------- ------- -------
Available-for-Sale Securities:
U. S. Treasury and other U. S. Government
agencies and corporations ................... $58,850 $44,234 $53,626
Obligations of state and political subdivisions 550 -- --
Other ......................................... 23,036 33,173 39,415
------- ------- -------
Totals ........................................... $82,436 $77,407 $93,041
======= ======= =======
Held-to-Maturity Securities:
U. S. Treasury and other U. S. Government
agencies and corporations ................... $19,715 $24,514 $24,465
Obligations of state and political subdivisions 1,238 1,423 1,608
------- ------- -------
Totals ........................................... $20,953 $25,937 $26,073
======= ======= =======
For additional information regarding First Defiance's investment portfolio refer
to Note 4 to the financial statements.
Interest-Bearing Deposits
First Defiance has interest-bearing deposits in the FHLB of Cincinnati
amounting to $1.6 million at December 31, l997 and l996.
Lending Activities
General. A savings association generally may not make loans to one
borrower and related entities in an amount which exceeds 15% of its unimpaired
capital and surplus, although loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are fully
secured by readily marketable securities. See "Regulation - Federal Regulation
of Savings Associations." At December 31, 1997, First Federal's limit on
loans-to-one borrower was $12.0 million and its five largest loans or groups of
loans to one borrower, including related entities, aggregated $4.4 million, $3.4
million, $2.5 million, $2.4 million and $2.3 million. All of these loans or
groups of loans were performing in accordance with their terms at December 31,
1997.
Loan Portfolio Composition. Loan volume continues to be strong. The net
increase in net loans outstanding over the prior year was $26.5million, $33.9
million, and $26.5 million in 1997, 1996 and 1995, respectively. The loan
portfolio contains no foreign loans nor any concentrations to identified
borrowers engaged in the same or similar industries exceeding 10% of total
loans.
The following table sets forth the composition of the Company's loan
portfolio by type of loan at the dates indicated.
December 31
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
------------------------------------------------------------------------------------------------
(Dollars in thousands)
Real estate:
Single-family residential $255,340 57.0% $241,228 57.1% $220,880 56.9% $222,035 61.6% $219,435 64.7%
Multi-family residential 9,363 2.1 9,175 2.2 16,929 4.4 7,577 2.1 5,745 1.7
Non-residential real estate 20,159 4.5 21,348 5.0 19,780 5.1 19,888 5.5 18,596 5.5
Construction 10,148 2.2 11,412 2.7 8,200 2.1 6,858 1.9 6,954 2.1
------------------------------------------------------------------------------------------------
Total real estate loans 295,010 65.8 283,163 67.0 265,789 68.5 256,358 71.1 250,730 74.0
Non-real estate:
Consumer finance 81,111 18.1 74,019 17.5 61,810 15.9 52,491 14.6 41,041 12.1
Commercial 29,758 6.6 26,674 6.3 23,647 6.1 17,436 4.8 15,560 4.6
Mobile home 25,424 5.7 25,199 6.0 24,671 6.4 24,191 6.7 22,274 6.5
Home equity and improvement 16,940 3.8 13,570 3.2 11,875 3.1 10,265 2.8 9,464 2.8
------------------------------------------------------------------------------------------------
Total non-real estate loans 153,233 34.2 139,462 33.0 122,003 31.5 104,383 28.9 88,339 26.0
------------------------------------------------------------------------------------------------
Total loans 448,243 100.0% 422,625 100.0% 387,792 100.0% 360,741 100.0% 339,069 100.0%
===== ===== ===== ===== =====
Less:
Loans in process 3,087 4,474 3,971 3,440 2,860
Deferred loan origination fees 645 568 559 631 883
Allowance for loan losses 2,687 2,217 1,817 1,733 1,662
-------- -------- -------- -------- --------
Net loans $441,824 $415,366 $381,445 $354,937 $333,664
======== ======== ======== ======== ========
First Defiance also had $87,500, $558,600 and $3.8 million in loans
classified as held for sale at December 31, 1997, 1996 and 1995, respectively.
The fair value of such loans, which are all single-family residential mortgage
loans, exceeded their carrying value by $2,000, $5,000 and $64,000 as of
December 31, 1997, 1996 and 1995, respectively.
Contractual Principal Repayments and Interest Rates. The following
table sets forth certain information at December 31, 1997 regarding the dollar
amount of loans maturing in First Defiance's portfolio, based on the contractual
terms to maturity, before giving effect to net items. Demand loans, loans having
no stated schedule of repayments and no stated maturity and overdrafts are
reported as due in one year or less.
Due 3-5 Due 5-10 Due 10-15 Due 15+
Due Due Years Years Years Years
Before Before After After After After
12/31/98 12/31/99 12/31/97 12/31/97 12/31/97 12/31/97 Total
------------------------------------------------------------------------------------
(In Thousands)
Real estate $21,680 $14,935 $31,886 $ 82,875 $61,035 $82,599 $295,010
Non-real estate:
Commercial 18,741 3,759 4,362 2,548 345 3 29,758
Home equity and
improvement 5,326 781 1,302 1,566 241 7,724 16,940
Mobile home 1,936 2,010 4,262 9,917 4,898 2,401 25,424
Consumer finance 27,569 20,721 27,738 5,005 63 15 81,111
===================================================================================
Total $75,252 $42,206 $69,550 $101,911 $66,582 $92,742 $448,243
===================================================================================
The schedule above does not reflect the actual life of the Company's
loan portfolio. The average life of loans is substantially less than their
contractual terms because of prepayments and due-on-sale clauses, which give
First Defiance the right to declare a conventional loan immediately due and
payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid.
The following table sets forth the dollar amount of all loans, before
net items, due after one year from December 31, l997 which have fixed interest
rates or which have floating or adjustable interest rates.
Floating or
Fixed Adjustable
Rates Rates Total
--------------------------------------------
(In Thousands)
Real estate $192,036 $81,294 $273,330
Non-real estate:
Commercial 3,954 7,063 11,017
Other 80,371 8,273 88,644
===========================================
$276,361 $96,630 $372,991
===========================================
Originations, Purchases and Sales of Loans. The lending activities of
First Defiance are subject to the written, non-discriminatory, underwriting
standards and loan origination procedures established by the Board of Directors
and management. Loan originations are obtained from a variety of sources,
including referrals from real estate brokers, developers, builders, and existing
customers; newspapers and radio advertising; and walk-in customers.
First Defiance's loan approval process is intended to assess the
borrowers ability to repay the loan, the viability of the loan, and the adequacy
of the value of the property that will secure the loan. A loan application is
first reviewed by a loan officer of First Defiance and then is submitted for
approval to the Senior Vice President of Lending. All loans greater than
$200,000, all commercial loans and all employee loans are subject to the
approval of the executive committee of the Board of Directors. Loans is excess
of $500,000 require approval by the full Board of Directors.
First Defiance offers adjustable rate loans in order to decrease the
vulnerability of its operations to changes in interest rates. The demand for
adjustable-rate loans in First Defiance's primary market area has been a
function of several factors, including customer preference, the level of
interest rates, the expectations of changes in the level of interest rates and
the difference between the interest rates offered for fixed-rate loans and
adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate
residential loans that can be originated at any time is largely determined by
the demand for each in a competitive environment.
Adjustable rate loans represented 34.7% of First Federal's total
originations of mortgage loans in 1997 compared to 26.0% and 33.4% during 1996
and 1995, respectively. First Defiance continues to hold adjustable-rate
securities in order to further reduce its interest-rate gap.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates.
First Defiance originated substantially all of the loans in its
portfolio. To better manage interest rate risk, First Defiance is an approved
seller/servicer for the Federal Home Loan Mortgage Corporation (Freddie Mac).
The Company sold $8.2 million, $13.3 million and $86,000 in loans during the
years ended December 31, 1997, 1996 and 1995, respectively. First Defiance had
identified $87,500 and $559,000 in additional loans which were classified as
held for sale as of December 31, 1997 and 1996, respectively. All loans with a
30-year maturity which meet the Freddie Mac underwriting guidelines are deemed
available-for-sale. Management intends to retain servicing rights on any loans
sold.
The following table shows total loans originated, loan reductions, and
the net increase in First Defiance's total loans during the periods indicated:
Year ended December 31
1997 1996 1995
----------------------------------------------
(In thousands)
Loan originations:
One to four family residential $ 72,752 $ 70,494 $ 49,430
Five or more family residential 1,464 1,414 2,564
Non-residential real estate 5,153 5,006 4,065
Construction 11,044 15,936 13,133
Commercial 31,435 25,298 23,854
Mobile home 5,945 6,465 5,982
Home equity and improvement 10,103 6,448 5,323
Consumer 54,994 53,698 42,700
--------------------------------------------
Total loans originated 192,890 184,759 147,051
Loan reductions:
Loan pay-offs 106,840 87,879 73,869
Mortgage loans sold 8,242 13,332 86
Periodic principal repayments 52,190 48,715 46,045
---------------------------------------------
167,272 149,926 120,000
---------------------------------------------
Net increase in total loans $ 25,618 $ 34,833 $ 27,051
=============================================
Asset Quality
First Defiance's credit policy establishes guidelines to manage credit
risk and asset quality. These guidelines include loan review and early
identification of problem loans to ensure sound credit decisions. First
Defiance's credit policies and review procedures are meant to minimize the risk
and uncertainties inherent in lending. In following the policies and procedures,
management must rely on estimates, appraisals and evaluations of loans and the
possibility that changes in these could occur because of changing economic
conditions.
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1997, in dollar amount and as a percentage of
First Defiance's total loan portfolio. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.
Non-residential and
Single-family multi-family Home equity
residential residential Mobile home and improvement
-------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
-------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Loans delinquent for:
30-59 days $1,787 .40% $160 .04% $1,464 .33% $181 .04%
60-89 days 467 .10 600 .13 13
90 days and over 313 .07 315 .07
=======================================================================================================
Total delinquent loans $2,567 .57% $160 .04% $2,379 .53% $194 .04%
=======================================================================================================
Consumer
finance Commercial Total
--------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
--------------------------------------------------------------------------
(Dollars in thousands)
Loans delinquent for:
30-59 days $1,763 .39% $ 962 .21% $6,317 1.41%
60-89 days 275 .06 404 .09 1,759 .39
90 days and over 167 .04 570 .13 1,365 .31
====================================================================================================
Total delinquent loans $2,205 .49% $1,936 .43% $9,441 2.11%
====================================================================================================
Non-Performing Assets. All loans are reviewed on a regular basis and
are placed on a non-accrual status when, in the opinion of management, the
collection of additional interest is deemed insufficient to warrant further
accrual. Generally, First Defiance places all loans more than 90 days past due
on non-accrual status. When a loan is placed on non-accrual status, total unpaid
interest accrued to date is reserved. Subsequent payments are either applied to
the outstanding principal balance or recorded as interest income, depending on
the assessment of the ultimate collectibility of the loan. First Defiance
considers that a loan is impaired when, based on current information and events,
it is probable that they will be unable to collect all amounts due (both
principal and interest) according to the contractual terms of the loan
agreement. When a loan is impaired, First Defiance measures impairment based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price, or the fair value
of the collateral, if collateral dependent. If the measure of the impaired loan
is less than the recorded investment, First Defiance will recognize an
impairment by creating a valuation allowance. This policy excludes large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment such as residential mortgage, consumer installment, and credit card
loans. Impairment of loans having recorded investments of $537,000 and $1.6
million has been recognized as of December 31, 1997 and 1996, respectively.
Interest received and recorded in income during 1997 and 1996 on impaired loans
including interest received and recorded in income prior to such impaired loan
designation amounted to $53,000 and $156,000, respectively. Unrecorded interest
income on these and all non-performing loans in 1997 and 1996 was $24,000 and
$34,000, respectively. The average recorded investment in impaired loans during
1997 and 1996 was $1.30 million and $1.45 million, respectively. The total
allowance for loan losses related to these loans was $327,000 and $804,000 at
December 31, 1997 and 1996, respectively.
Real estate acquired by foreclosure is classified as real estate owned
until such time as it is sold. In addition, First Defiance also repossesses
other assets securing loans, consisting primarily of automobiles and mobile
homes. When such property is acquired it is recorded at the lower of the
restated loan balance, less any allowance for loss, or fair value. Costs
relating to development and improvement of property are capitalized, whereas
costs relating to holding the property are expensed. Valuations are periodically
performed by management and an allowance for losses is established by a charge
to operations if the carrying value of property exceeds its estimated net
realizable value.
As of December 31, 1997, First Defiance's total non-performing loans
amounted to $1,365,000, or .43% of total loans, compared to $1,972,000, or .47%
of total loans, at December 31, 1996.
The following table sets forth the amounts and categories of First
Defiance's nonperforming assets and troubled debt restructurings at the dates
indicated.
December 31
1997 1996 1995 1994 1993
------------------------------------------------------
(Dollars in thousands)
Non-performing loans:
Single-family residential $ 313 $ 88 $ 263 $ 207 $ 150
Non-residential and multi-family
residential real estate -- 19 -- 18 209
Commercial 570 1,561 268 294 380
Mobile home 315 193 130 163 135
Consumer finance 167 111 111 16 41
------------------------------------------------------
Total non-performing loans 1,365 1,972 772 698 915
Real estate owned 18 -- 1 3 29
Other repossessed assets 523 267 172 164 71
------------------------------------------------------
Total repossessed assets 541 267 173 167 100
------------------------------------------------------
Total non-performing assets $1,906 $2,239 $ 945 $ 865 $1,015
------------------------------------------------------
Troubled debt restructurings $ -- $ -- $ 437 $ 443 $ 136
======================================================
Total non-performing assets as a
percentage of total assets .33% .41% .18% .18% .22%
======================================================
Total non-performing loans and troubled
debt restructurings as a percentage of
total loans .43% .47% .31% .32% .31%
======================================================
Total non-performing assets and troubled
debt restructurings as a percentage of
total assets .33% .41% .26% .28% .25%
======================================================
Allowance for loan losses as a percent of
total non-performing assets 140.9% 99.0% 192.3% 200.5% 164.0%
======================================================
Allowance for Loan Losses. It is management's policy to maintain an
allowance for loan losses based upon an assessment of prior loss experience, the
volume and type of lending conducted by First Defiance, industry standards, past
due loans, general economic conditions and other factors related to the
collectibility of the loan portfolio. Although management believes that it uses
the best information available to make such determinations, future adjustments
to allowances may be necessary, and net earnings could be significantly
affected, if circumstances differ substantially from the assumptions used in
making the initial determinations.
At December 31, l997, First Defiance's allowance for loan losses
amounted to $2.7 million compared to $2.2 million at December 31, 1996. As of
December 31, 1997 and l996, $499,000 and $837,000, respectively, constituted an
allowance with respect to specific loans or assets held for sale.Charge-offs in
non-real estate consumer finance increased $648,000 for the year ended December
31, 1997 over 1996 due to increases in lending and delinquencies in this area.
The following table sets forth the activity in First Defiance's
allowance for loan losses during the periods indicated.
Year Ended December 31
1997 1996 1995 1994 1993
---------------------------------------------------------
(Dollars in thousands)
Allowance at beginning of period $2,217 $1,817 $1,733 $1,662 $1,185
Provisions 1,613 1,020 374 426 829
Charge-offs:
Single-family real estate - - - 19 63
Non-real estate:
Consumer finance 1,078 430 230 222 132
Mobile home 259 334 91 159 121
Commercial 4 12 23 1 86
---------------------------------------------------------
Total non-real estate 1,341 776 344 382 339
---------------------------------------------------------
Total charge-offs 1,341 776 344 401 402
Recoveries:
Consumer finance 195 152 51 46 50
Commercial - 4 - - -
Mobile home 2 - - - -
Assets held for sale - 3 - -
---------------------------------------------------------
Total 197 156 54 46 50
---------------------------------------------------------
Allowance at end of period $2,686 $2,217 $1,817 $1,733 $1,662
=========================================================
Allowance for loan losses to total
non-performing loans at end of period
196.8% 112.4% 235.4% 248.3% 181.6%
Allowance for loan losses to total loans
at end of period .60% .53% .47% .48% .49%
The following table sets forth information concerning the allocation of
First Defiance's allowance for loan losses by loan categories at the dates
indicated. For information about the percent of total loans in each category to
total loans, see "- Lending Activities - Loan Portfolio Composition."
December 31
1997 1996 1995
------------------------------------------------------------------------------
Percent of Percent of Percent of
total loans total loans total loans
Amount by category Amount by category Amount by category
------------------------------------------------------------------------------
Real estate mortgage loans $ 351,149 65.8% $ 307,041 67.0% $ 431,133 68.5%
Other:
Commercial business loans 827,816 6.6 866,185 6.3 687,122 6.1
Mobile home loans 361,468 5.7 208,095 6.0 191,646 6.4
Consumer and home equity
and improvement loans 1,146,039 21.9 835,701 20.7 507,043 19.0
==============================================================================
$2,686,472 100.0% $2,217,022 100.0% $1,816,944 100.0%
==============================================================================
Sources of Funds
General. Deposits are the primary source of First Defiance's funds for
lending and other investment purposes. In addition to deposits, First Defiance
derives funds from loan principal repayments. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings
from the Federal Home Loan Bank may be used on a short-term basis to compensate
for reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes.
Deposits. First Defiance's deposits are attracted principally from
within First Defiance's primary market area through the offering of a broad
selection of deposit instruments, including NOW accounts, money market accounts,
regular savings accounts, and term certificate accounts. Included among these
deposit products are individual retirement account certificates of approximately
$55.5 million at December 31, l997. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate.
Average balances and average rates paid on deposits are as follows:
Year ended December 31
1997 1996 1995
--------------------- ----------------------- ---------------------
Amount Rate Amount Rate Amount Rate
--------- ---- ----------- ----- --------- ----
(Dollars in thousands)
Noninterest bearing
demand deposits $ 2,545 -- $ 1,902 -- $ 1,395 --
Interest bearing and money
market demand deposits 48,766 2.88% 45,649 2.45% 45,109 2.72%
Savings deposits 63,028 2.58 67,926 3.00 68,459 3.12
Time deposits 268,235 5.58 265,967 5.80 261,901 5.92
========= ==== =========== ==== ========= ====
Totals $382,574 4.70% $ 381,444 4.87% $ 376,864 5.00%
======== ==== =========== ==== ========= ====
The following table sets forth the maturities of First Defiance's
certificates of deposit having principal amounts of $100,000 or more at December
31, 1997.
Certificates of deposit maturing
in quarter ending:
- --------------------------------------------------------------------------------
(In thousands)
March 31, 1998 $ 7,584
June 30, 1998 4,171
September 30, 1998 6,475
December 31, 1998 3,021
After December 31, 1998 8,626
--------
Total certificates of deposit with balances of $100,000 or
more $ 29,877
========
The following table details the deposit accrued interest payable as of December
31:
1997 1996
---------------------------
Checking and money market accounts $ 71,687 $ 49,502
Passbook Accounts 3,882 --
Certificates 1,325,698 166,811
========== ==========
$1,401,267 $ 216,313
========== ==========
For additional information regarding First Defiance's deposits see Note 9 to the
financial statements.
Borrowings. First Defiance may obtain advances from the FHLB of
Cincinnati upon the security of the common stock it owns in that bank and
certain of its residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending. See "Regulation
- - Federal Regulation of Savings Associations - Federal Home Loan Bank System."
The following table sets forth certain information as to First
Defiance's FHLB advances at the dates indicated.
December 31
1997 1996 1995
------------------------------------------
(Dollars in thousands)
Long-term:
FHLB advances $ 4,529 $ 5,601 $ 6,842
Weighted average interest rate 6.57% 6.58% 6.70%
Short-term:
FHLB advances 67,136 35,220 --
Weighted average interest rate 5.85% 6.28% --
The following table sets forth the maximum month-end balance and
average balance of First Defiance's FHLB advances during the periods indicated.
Year ended December 31
1997 1996 1995
---------------------------------
(Dollars in thousands)
Long-term:
Maximum balance $ 5,601 $ 6,842 $12,641
Average balance 4,529 6,115 9,881
Weighted average interest rate of FHLB advances 6.19% 6.59% 7.28%
Short-term:
Maximum balance 70,135 35,220 18,000
Average balance 53,039 8,310 8,154
Weighted average interest rate of FHLB advances 5.77% 5.59% 6.19%
$3.2 million of First Defiance's outstanding long-term FHLB advances
were obtained in the first calendar quarter of 1992 as part of the Company's
asset and liability management strategy and $1.3 million were obtained in the
fourth quarter in 1995 as part of the FHLB's Affordable Housing Program. First
Defiance utilizes short-term advances from the FHLB to meet cash flow needs and
for short-term investment purposes. There were $67.1 and $35.2 million in
short-term advances outstanding at December 31, 1997 and 1996, respectively.
First Defiance borrows funds under a variety of programs at the FHLB. At
December 31, 1997, $30 million was outstanding under First Defiance's REPO
Advance line of credit. The total available under the REPO line is $30 million.
Amounts are generally borrowed under the REPO line on an overnight basis. An
additional $13.8 million was borrowed under the FHLB's Cash Management Advance
(CMA) program at a variable rate. Amounts borrowed under the CMA program mature
within 90 days. The $23.4 million of other advances are borrowed under the
FHLB's short-term fixed or LIBOR based programs.
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar amounts
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 dollars and rates, and the net interest margin. Dividends received on
Federal Home Loan Bank stock are included as interest income. The table does not
reflect the effect of income taxes.
Year Ended December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-Earning Assets
Loans receivable $428,550 $37,302 8.70% $399,949 $34,635 8.66% $367,773 $32,003 8.70%
Securities 103,304 6,556 6.35 107,702 6,622 6.15 106,120 6,562 6.18
Dividends on FHLB stock 3,355 242 7.21 2,955 207 7.00 2,798 191 6.82
---------------------------------------------------------------------------------------
Total interest-earning assets 535,209 44,100 8.24 510,606 41,464 8.12 476,691 38,756 8.13
Non-interest-earning assets 25,500 18,257 12,927
-------- -------- --------
Total assets $560,709 $528,863 $489,628
======== ======== ========
Interest-Bearing Liabilities
Deposits $382,574 17,992 4.70 $381,444 $18,579 4.87 $376,864 $18,857 5.00
FHLB advances 58,100 3,394 5.84 15,828 880 5.56 19,036 1,432 7.52
---------------------------------------------------------------------------------------
Total interest-bearing liabilities 440,674 21,386 4.85 397,272 19,459 4.90 395,900 20,289 5.12
Non-interest-bearing liabilities 4,804 4,311 3,855
-------- -------- --------
Total liabilities 445,478 401,583 399,755
Stockholders' equity 115,231 127,280 89,873
-------- -------- --------
Total liabilities and stockholders' equity $560,709 $528,863 $489,628
======== ======== ========
Net interest income; interest rate spread $22,714 3.39% $22,005 3.22% $18,467 3.01%
=============== =============== ==============
Net interest margin (2) 4.24% 4.31% 3.87%
===== ===== =====
Average interest-earning assets to average
interest-bearing liabilities 121% 129% 120%
===== ===== =====
(1) At December 31, 1997, the yields earned and rates paid were as follows:
loans receivable, 8.64%; securities, 6.37%; other interest-earning assets,
7.25%; total interest-earning assets, 8.21%; deposits, 4.72%; FHLB
advances, 5.86%; total interest-bearing liabilities, 4.89%; and interest
rate spread 3.31%.
(2) Net interest margin is net interest income divided by average
interest-earning assets.
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected First
Defiance's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) change in rate (change in rate
multiplied by prior year volume), and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
Year Ended December 31,
-----------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
----------------------------------------- -----------------------------------------
Increase Increase Increase Increase
(decrease) (decrease) Total (decrease) (decrease) Total
due to due to increase due to due to increase
rate volume (decrease) rate volume (decrease)
------------- ------------- ------------- ------------- ------------- -------------
(In thousands)
Interest-Earning Assets
Loans $ 190 $ 2,477 $ 2,667 $ (146) $ 2,778 $ 2,632
Securities 204 (270) (66) (29) 89 60
FHLB stock 7 28 35 5 11 16
======= ======= ======= ======= ======= =======
Total interest-earning assets $ 402 $ 2,234 $ 2,636 $ (170) $ 2,878 $ 2,708
======= ======= ======= ======= ======= =======
Interest-Bearing Liabilities
Deposits $ (642) $ 55 $ (587) $ (522) $ 244 $ (278)
FHLB advances 164 2,350 2,514 (335) (217) (552)
======= ======= ======= ======= ======= =======
Total interest-bearing liabilities $ (478) $ 2,405 $ 1,927 $ (857) $ 27 $ (830)
======= ======= ======= ======= ======= =======
Increase (decrease) in net interest income $ 709 $ 3,538
======= =======
---------------------------------------
1995 vs. 1994
---------------------------------------
Increase Increase
(decrease) (decrease) Total
due to due to increase
rate volume (decrease)
------------- ------------- -----------
Interest-Earning Assets
Loans $ 732 $ 2,091 $ 2,823
Securities 632 (150) 482
FHLB stock 30 (1) 29
======= ======= =======
Total interest-earning assets $ 1,394 $ 1,940 $ 3,334
======= ======= =======
Interest-Bearing Liabilities
Deposits $ 3,283 $ 94 $ 3,377
FHLB advances 137 (153) (16)
======= ======= =======
Total interest-bearing liabilities $ 3,420 $ (59) $ 3,361
======= ======= =======
Increase (decrease) in net interest income $ (27)
=======
Subsidiaries
The Company has two wholly-owned subsidiaries, First Federal and First
Defiance Service Company ("First Defiance Service"). First Defiance Service was
established to provide customers with certain uninsured financial service
products through an affiliation with a third party vendor. Total fees collected
in 1997 by First Defiance Service were less than $4,000.
Employees
First Defiance had 139 full-time employees and 36 part-time employees
at December 31, 1997. None of these employees are represented by a collective
bargaining agent, and First Defiance believes that it enjoys good relations with
its personnel.
Competition
First Defiance faces strong competition both in attracting deposits and
making real estate loans. Its most direct competition for deposits has
historically come from commercial banks and credit unions located in
northwestern Ohio, including many large financial institutions which have
greater financial and marketing resources available to them. In addition, First
Defiance has faced additional significant competition for investors' funds from
short-term money market securities and other corporate and government
securities. The ability of First Defiance to attract and retain savings deposits
depends on its ability to generally provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities.
First Defiance experiences strong competition for real estate loans
principally from other savings associations, commercial banks, and mortgage
banking companies. First Defiance competes for loans principally through the
interest rates and loan fees it charges and the efficiency and quality of
services it provides borrowers. Competition may increase as a result of the
continuing reduction of restrictions on the interstate operations of financial
institutions.
REGULATION
General. First Defiance, as the holding company of First Federal, is
subject to regulation, examination and oversight by the OTS and is required to
submit periodic reports to the OTS. As a savings association organized under the
laws of the United States, First Federal is also subject to regulatory oversight
by the OTS, and, because First Federal's deposits are insured by the FDIC, First
Federal is also subject to examination and regulation by the FDIC. First Federal
must file periodic reports with the OTS concerning its activities and financial
condition. Examinations are conducted periodically by the OTS and the FDIC to
determine whether First Federal is in compliance with various regulatory
requirements and is operating in a safe and sound manner. First Federal is a
member of the FHLB of Cincinnati.
Congress is considering legislation to eliminate the federal savings and
loan charter and the separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may eliminate the OTS and
First Federal may be regulated under federal law as a bank or may be required to
change its charter. Such change in regulation or charter would likely change the
range of activities in which First Federal may engage and would probably subject
First Federal to more regulation by the FDIC. In addition, First Defiance might
become subject to a different form of holding company regulation which may limit
the activities in which First Defiance may engage and subject First Defiance to
additional regulatory requirements, including separate capital requirements.
First Defiance cannot predict when or whether Congress may actually pass
legislation regarding First Defiance's and First Federal's regulatory
requirements or charter. Although such legislation may change the activities in
which First Defiance and First Federal may engage, it is not anticipated that
the current activities of either First Defiance or First Federal will be
materially affected by those activity limits.
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury and is responsible for the regulation and supervision of all
federally chartered savings associations and all other savings associations, the
deposits of which are insured by the FDIC in the SAIF. The OTS issues
regulations governing the operation of savings associations, regularly examines
such associations and imposes assessments on savings associations based on their
asset size to cover the costs of general supervision and examination. It also
promulgates regulations that prescribe the permissible investments and
activities of federally chartered savings associations, including the type of
lending that such associations may engage in and the investments in real estate,
subsidiaries and securities they may make. The OTS also may initiate enforcement
actions against savings associations and certain persons affiliated with them
for violations of laws or regulations or for engaging in unsafe or unsound
practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Federally chartered savings associations are subject to regulatory
oversight under various consumer protection and fair lending laws. These laws
govern, among other things, truth-in-lending disclosure, equal credit
opportunity, fair credit reporting and community reinvestment. Failure to abide
by federal laws and regulations governing community reinvestment could limit the
ability of an association to open a new branch or engage in a merger
transaction. Community reinvestment regulations evaluate how well and to what
extent an institution lends and invests in its designated service area, with
particular emphasis on low-to-moderate income communities and borrowers in such
areas. First Federal has received a "satisfactory" examination rating under
those regulations.
OTS Regulatory Capital Requirements. First Federal is required by OTS
regulations to meet certain minimum capital requirements. The following table
sets forth the amount and percentage level of regulatory capital of First
Federal at December 31, 1997, and the amount by which it exceeds the minimum
capital requirements. Tangible and core capital are reflected as a percentage of
adjusted total assets. Total (or risk-based) capital, which consists of core and
supplementary capital, is reflected as a percentage of risk-weighted assets.
Assets are weighted at percentage levels ranging from 0% to 100% depending on
their relative risk.
At December 31, 1997
Amount Percent
------ -------
(In thousands)
Tangible capital $80,284 13.65%
Requirement 8,821 1.50
------- -----
Excess $71,463 12.15%
======= =====
Core capital $80,284 13.65%
Requirement 17,642 3.00
------- -----
Excess $62,642 10.65%
======= =====
Total capital $82,473 21.55%
Risk-based requirement 30,613 8.00
------- -----
Excess $51,860 13.55%
======= =====
Current capital requirements call for tangible capital (which for First
Federal is equity capital under generally accepted accounting principles plus
the unrealized losses on available-for-sale securities less servicing assets and
deferred tax assets) of 1.5% of adjusted total assets, core capital (which for
First Federal consists of tangible capital) of 3.0% of adjusted total assets and
risk-based capital (which for First Federal consists of core capital plus
general valuation reserves of $2.189 million) of 8% of risk-weighted assets. The
OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. First
Federal does not anticipate that it will be adversely affected if the core
capital requirement regulation is amended as proposed. First Federal's current
core capital level is 13.65% of adjusted total assets.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement, a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio, as determined under the methodology established by
the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
that excess exposure from its total capital when determining its level of
risk-based capital. In general, an association with less than $300 million in
assets and a risk-based capital ratio of greater than 12% will not be subject to
the interest rate risk component. First Federal does not currently qualify for
such exemption. Pending implementation of the interest rate risk component, the
OTS has the authority to impose a higher individualized capital requirement on
any savings association it deems to have excess interest rate risk. The OTS also
may adjust the risk-based capital requirement on an individual basis for any
association to take into account risks due to concentrations of credit and
non-traditional activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. The OTS has defined
these capital levels as follows: (1) well-capitalized associations must have
total risk-based capital of at least 10%, core risk-based capital (consisting
only of items that qualify for inclusion in core capital) of at least 6% and
core capital of at least 5%; (2) adequately capitalized associations are those
that meet the regulatory minimum of total risk-based capital of at least 8%,
core risk-based capital (consisting only of items that qualify for inclusion in
core capital) of at least 4% and core capital of at least 4% (except for
associations receiving the highest examination rating and with an acceptable
level of risk, in which case the level is at least 3%); (3) undercapitalized
associations are those that do not meet regulatory limits, but that are not
significantly undercapitalized; (4) significantly undercapitalized associations
have total risk-based capital of less than 6%, core risk-based capital
(consisting only of items that qualify for inclusion in core capital) of less
than 3% or core capital of less than 3%; and (5) critically undercapitalized
associations are those with tangible equity of less than 2% of total assets. In
addition, the OTS generally can downgrade an association's capital category,
notwithstanding its capital level, if, after notice and opportunity for hearing,
the association is deemed to be engaging in an unsafe or unsound practice
because it has not corrected deficiencies that resulted in it receiving a less
than satisfactory examination rating on matters other than capital or it is
deemed to be in an unsafe or unsound condition. An undercapitalized association
must submit a capital restoration plan to the OTS within 45 days after it
becomes undercapitalized. Such an association will be subject to increased
monitoring and asset growth restrictions and will be required to obtain prior
approval for acquisitions, branching and engaging in new lines of business.
Furthermore, critically undercapitalized institutions must be placed in
conservatorship or receivership within 90 days of reaching that capitalization
level, except under limited circumstances. First Federal's capital at December
31, 1997, meets the standards for a well-capitalized institution.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized or (b) the amount that is necessary
to bring the association into compliance with all capital standards applicable
to such association at the time the association fails to comply with its capital
restoration plan.
Limitations on Capital Distributions. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions, including dividend payments. An association which has converted
to stock form is prohibited from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the net worth of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. OTS
regulations also establish a three-tier system limiting capital distributions
according to ratings of associations based on their capital level and
supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year equal to
the greater of 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its capital requirement for such capital component, as measured at the
beginning of the calendar year, or the amount authorized for a Tier 2
association. A Tier 1 association deemed to be in need of more than normal
supervision by the OTS may be downgraded to a Tier 2 or Tier 3 association. Tier
2 consists of associations that before and after the proposed distribution meet
their current minimum, but not fully phased-in, capital requirements, as such
requirements are defined by OTS regulations. Associations in this category may
make capital distributions of up to 75% of net income over the four most recent
quarters. Tier 3 associations do not meet current minimum capital requirements
and must obtain OTS approval of any capital distribution.
First Federal meets the requirements for a Tier 1 Association and has
not been notified of any need for more than normal supervision. As a subsidiary
of First Defiance, First Federal is required to give the OTS 30 days notice
prior to declaring any dividend on its common shares. The OTS may object to the
dividend during that 30-day period based on safety and soundness concerns.
Moreover, the OTS may prohibit any capital distribution otherwise permitted by
regulation if the OTS determines that such distribution would constitute an
unsafe or unsound practice. First Federal paid no dividends to First Defiance
during 1997.
In January 1998, the OTS issued a proposal to amend the capital
distribution limits. Under that proposal, an association owned by a holding
company would still be required to provide either a notice or an application to
the OTS, although under certain circumstances a savings association without a
holding company having an examination rating of 1 or 2 could make a capital
distribution without notice to the OTS, if it would remain adequately
capitalized after the distribution is made.
Liquidity. OTS regulations require that each savings association
maintain an average daily balance of liquid assets (cash, certain time deposits,
bankers' acceptances and specified United States government, state or federal
agency obligations) equal to a monthly average of not less than 4% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Monetary penalties may be imposed upon associations failing to meet liquidity
requirements. The eligible liquidity of First Federal, as computed under current
regulations, at December 31, 1997, was $72.7 million, or 15.3% and exceeded the
4.0% liquidity requirement by approximately $54.5 million.
Qualified Thrift Lender Test. Savings associations are required to meet
the Qualified Thrift Lender ("QTL") Test. Prior to September 30, 1996, the QTL
Test required savings associations to maintain a specified level of investments
in assets that are designated as qualifying thrift investments ("QTI"), which
are generally related to domestic residential real estate and manufactured
housing and include stock issued by any FHLB, the FHLMC or the FNMA. Under this
test 65% of an institution's "portfolio assets" (total assets less goodwill and
other intangibles, property used to conduct business and 20% of liquid assets)
must consist of QTI on a monthly average basis in 9 out of every 12 months.
Congress created a second QTL Test, effective September 30, 1996, pursuant to
which a savings association may also qualify as a QTL thrift if at least 60% of
the institution's assets (on a tax basis) consist of specified assets (generally
loans secured by residential real estate or deposits, educational loans, cash
and certain governmental obligations). The OTS may grant exceptions to the QTL
Test under certain circumstances. If a savings association fails to meet the QTL
Test, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
the QTL Test will not be eligible for new FHLB advances. At December 31, 1997,
First Federal met the QTL Test.
Lending Limit. OTS regulations generally limit the aggregate amount
that a savings association may lend to one borrower (the "Lending Limit") to an
amount equal to 15% of the savings association's total capital under the
regulatory capital requirements plus any additional loan reserve not included in
total capital (the "Lending Limit Capital"). A savings association may loan to
one borrower an additional amount not to exceed 10% of total capital plus
additional reserves if the additional loan amount is fully secured by certain
forms of "readily marketable collateral." Real estate is not considered "readily
marketable collateral." Certain types of loans are not subject to these limits.
In applying these limits, loans to certain borrowers may be aggregated.
Notwithstanding the specified limits, an association may lend to one borrower up
to $500,000 "for any purpose." At December 31, 1997, First Federal was in
compliance with this lending limit.
Transactions with Insiders and Affiliates. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the Lending Limit, and the total of such loans cannot exceed the association's
Lending Limit Capital. Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of board of directors of the association with any "interested" director
not participating. All loans to directors, executive officers and principal
shareholders must be made on terms substantially the same as offered in
comparable transactions with the general public or as offered to all employees
in a company-wide benefit program. Loans to executive officers are subject to
additional restrictions. First Federal was in compliance with such restrictions
at December 31, 1997.
All transactions between savings associations and their affiliates must
comport with Sections 23A and 23B of the Federal Reserve Act ("FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. First
Defiance is an affiliate of First Federal. Generally, Sections 23A and 23B of
the FRA (i) limit the extent to which a savings association or its subsidiaries
may engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such institution's capital stock and surplus, (ii) limit the aggregate
of all such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus, and (iii) require that all such transactions be on
terms substantially the same, or at least as favorable to the association, as
those provided in transactions with a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions. In addition to the limits in
Sections 23A and 23B, a savings association may not make any loan or other
extension of credit to an affiliate unless the affiliate is engaged only in
activities permissible for a bank holding company and may not purchase or invest
in securities of any affiliate except shares of a subsidiary. First Federal was
in compliance with these requirements and restrictions at December 31, 1997.
Federal Deposit Insurance Corporation Regulations. The FDIC is an
independent federal agency that insures the deposits of federally insured banks
and thrifts, up to prescribed statutory limits, and safeguards the safety and
soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the Bank Insurance Fund ("BIF") for commercial banks
and state savings banks and the SAIF for savings associations. First Federal is
a member of the SAIF and its deposit accounts are insured by the FDIC, up to the
prescribed limits. The FDIC has examination authority over all insured
depository institutions, including First Federal, and has authority to initiate
enforcement actions against federally insured savings associations, if the FDIC
does not believe the OTS has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to its target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Because of the differing reserve levels of the funds, deposit insurance
assessments paid by healthy banks were reduced significantly below the level
paid by healthy savings associations effective in mid-1995. Federal legislation,
which was effective September 30, 1996, provided for the recapitalization of the
SAIF by means of a special assessment of $.657 per $100 of SAIF deposits held at
March 31, 1995, in order to increase SAIF reserves to the level required by law.
First Federal paid a special assessment of $2.5 million, which was accounted for
and recorded as of September 30, 1996. BIF assessments for healthy banks in 1997
were $.013 per $100 in deposits and SAIF assessments for healthy institutions in
1997 were $.064 per $100 in deposits. First Federal paid $194,000 in SAIF
assessments in 1997 compared to $872,000 in 1996, exclusive of the special
assessment.
FRB Reserve Requirements. FRB regulations currently require that
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $47.8
million (subject to an exemption of up to $4.7 million), and of 10% of net
transaction accounts in excess of $47.8 million. At December 31, 1997, First
Federal was in compliance with its reserve requirements.
Federal Home Loan Banks. The FHLBs provide credit to their members in
the form of advances. First Federal is a member of the FHLB of Cincinnati and
must maintain an investment in the capital stock of that FHLB in an amount equal
to the greater of 1.0% of the aggregate outstanding principal amount of First
Federal's residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 5% of its advances from the FHLB.
First Federal is in compliance with this requirement with an investment in stock
of the FHLB of Cincinnati of $3.8 million at December 31, 1997.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
United States government or an agency thereof; deposits in any FHLB; or other
real estate related collateral (up to 30% of the member association's capital)
acceptable to the applicable FHLB, if such collateral has a readily
ascertainable value and the FHLB can perfect its security interest in the
collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance.
Holding Company Regulation. First Defiance is a unitary savings and
loan holding company within the meaning of the Home Owners' Loan Act (the
"HOLA"). As such, First Defiance is registered with the OTS and is subject to
OTS regulations, examination, supervision and reporting requirements.
There are generally no restrictions on the activities of unitary
savings and loan holding companies and such companies are the only financial
institution holding companies that may engage in commercial, securities and
insurance activities without limitation. The broad latitude to engage in
activities under current law can be restricted if the OTS determines that there
is reasonable cause to believe that the continuation of an activity by a savings
and loan holding company constitutes a serious risk to the financial safety,
soundness or stability of its subsidiary savings association. The OTS may impose
such restrictions as deemed necessary to address such risk, including limiting
(i) payment of dividends by the savings association, (ii) transactions between
the savings association and its affiliates, and (iii) any activities of the
savings association that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL Test, then such unitary holding
company would become subject to the activities restrictions applicable to
multiple holding companies. At December 31, 1997, First Federal met the QTL
Test.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the OTS, no director or
officer of a savings and loan holding company or person owning or controlling by
proxy or otherwise more than 25% of such company's stock may also acquire
control of any savings institution, other than a subsidiary institution, or any
other savings and loan holding company.
If First Defiance were to acquire control of another savings
institution, other than through a merger or other business combination with
First Federal, First Defiance would become a multiple savings and loan holding
company. Unless the acquisition is an emergency thrift acquisition and each
subsidiary savings association meets the QTL Test, the activities of First
Defiance and any of its subsidiaries (other than First Federal or other
subsidiary savings associations) would thereafter be subject to activity
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof that is not a savings institution
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof, any business
activity other than (i) furnishing or performing management services for a
subsidiary savings institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by federal
regulation as of March 5, 1987, to be engaged in by multiple holding companies,
or (vii) those activities authorized by the FRB as permissible for bank holding
companies, unless the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). The OTS may approve an acquisition resulting in a multiple
savings and loan holding company controlling savings associations in more than
one state in the case of certain emergency thrift acquisitions.
Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations with
significant ties to Ohio. The statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares that resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) an exception specifically enumerated in the statute is
applicable to the combination, (2) the combination is approved, at a meeting
held for such purpose, by the affirmative vote of the holders of the issuing
public corporation entitling them to exercise at least two-thirds of the voting
power of the issuing public corporation in the election of directors or of such
different proportion as the articles may provide, provided the combination is
also approved by the affirmative vote of the holders of at least a majority of
the disinterested shares, or (3) the business combination meets certain
statutory criteria designed to ensure that the issuing public corporation's
remaining shareholders receive fair consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. The
Articles of Incorporation of First Defiance do not opt out of the protection
afforded by Chapter 1704.
Control Share Acquisition. Section 1701.831 of the Ohio Revised Code
(the "Control Share Acquisition Statute") requires that, with certain
exceptions, acquisitions of voting securities which would result in the
acquiring shareholder owning 20%, 33 1/3%, or 50% of the outstanding voting
securities of an Ohio corporation (a "Control Share Acquisition") must be
approved in advance by (a) the holders of at least a majority of the outstanding
voting shares of such corporation represented at a meeting at which a quorum is
present, and (b) a majority of the portion of the outstanding voting shares
represented at such a meeting excluding the voting shares owned by the acquiring
shareholder, by certain other persons who acquire or transfer voting shares
after public announcement of the acquisition or by certain officers of the
corporation or directors of the corporation who are employees of the
corporation. The Control Share Acquisition Statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers.
Takeover Bid Statute. Ohio law provides that an offeror may not make a
tender offer or request or invitation for tenders that would result in the
offeror beneficially owning more than ten percent of any class of the target
company's equity securities unless such offeror files certain information with
the Ohio Division of Securities (the "Securities Division") and provides such
information to the target company and the offerees within Ohio. The Securities
Division may suspend the continuation of the control bid if the Securities
Division determines that the offeror's filed information does not provide full
disclosure to the offerees of all material information concerning the control
bid. The statute also provides that an offeror may not acquire any equity
security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
TAXATION
Federal Taxation
The Company and First Federal are each subject to the federal tax laws
and regulations which apply to corporations generally. Certain thrift
institutions, including First Federal, were, however, prior to the enactment of
the Small Business Jobs Protection Act, which was signed into law on August 21,
1996, allowed deductions for bad debts under methods more favorable than those
granted to other taxpayers. Qualified thrift institutions could compute
deductions for bad debts using either the specific charge off method of Section
166 of the Code, or the reserve method of Section 593 of the Code under which a
thrift institution annually could elect to deduct bad debts under either (i) the
"percentage of taxable income" method applicable only to thrift institutions, or
(ii) the "experience" method that also was available to small banks. Under the
"percentage of taxable income" method, a thrift institution generally was
allowed a deduction for an addition to its bad debt reserve equal to 8% of its
taxable income (determined without regard to this deduction and with additional
adjustments). Under the experience method, a thrift institution was generally
allowed a deduction for an addition to its bad debt reserve equal to the greater
of (i) an amount based on its actual average experience for losses in the
current and five preceding taxable years, or (ii) an amount necessary to restore
the reserve to its balance as of the close of the base year. A thrift
institution could elect annually to compute its allowable addition to bad debt
reserves for qualifying loans either under the experience method or the
percentage of taxable income method. For tax year 1995, First Federal used the
percentage of taxable income method.
Section 1616(a) of the Small Business Job Protection Act repealed the
Section 593 reserve method of accounting for bad debts by thrift institutions,
effective for taxable years beginning after 1995. Thrift institutions that would
be treated as small banks are allowed to utilize the experience method
applicable to such institutions, while thrift institutions that are treated as
large banks are required to use only the specific charge off method. The
percentage of taxable income method of accounting for bad debts is no longer
available for any financial institution.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer, and having been made with the consent of
the Secretary of the Treasury. Any adjustment under Section 481(a) of the Code
required to be recaptured with respect to such change generally will be
determined solely with respect to the "applicable excess reserves" of the
taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift institution that becomes a large bank, the amount
of the institution's applicable excess reserves generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (ie., the "pre-1988 reserves"). In the case of a thrift institution that
becomes a small bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans and its reserve for losses on nonqualifying loans
as of the close of its last taxable year beginning before January 1, 1996, over
(ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the
thrift's reserves would have been at the close of its last year beginning before
January 1, 1996, had the thrift always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996.
A residential loan is a loan as described in Section 7701(a)(19)(C)(v)
(generally a loan secured by residential real and church property and certain
mobile homes), but only to the extent that the loan is made to the owner of the
property to acquire, construct, or improve the property.
In addition to the regular income tax, the Company and First Federal
are subject to a minimum tax. An alternative minimum tax is imposed at a minimum
tax rate of 20% on "alternative minimum taxable income" (which is the sum of a
corporation's regular taxable income, with certain adjustments, and tax
preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its alternative minimum taxable income computed without regard to this
preference item and prior to reduction by net operating losses, is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years. In addition, for taxable years after 1986 and
before 1996, the Company and First Federal are also subject to an environmental
tax equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2.0 million.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e) as modified by the Small Business Job Protection Act which
requires recapture in the case of certain excessive distributions to
shareholders. The pre-1988 reserves may not be utilized for payment of cash
dividends or other distributions to a shareholder (including distributions in
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). Distribution of a cash dividend by a thrift institution to a
shareholder is treated as made: first, out of the institution's post-1951
accumulated earnings and profits; second, out of the pre-1988 reserves; and
third, out of such other accounts as may be proper. To the extent a distribution
by First Federal to the Company is deemed paid out of its pre-1988 reserves
under these rules, the pre-1988 reserves would be reduced and First Federal's
gross income for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount
in its gross income, equals the amount deemed paid out of the pre-1988 reserves.
As of December 31, 1997, First Federal's pre-1988 reserves for tax purposes
totaled approximately $9.52 million.
The tax returns of First Federal have been audited or closed without
audit through the tax year ended December 31, 1993. In the opinion of
management, any examination of open returns would not result in a deficiency
which would have a material adverse effect on the financial condition of First
Federal.
Ohio Taxation
The Company is subject to the Ohio corporation franchise tax, which, as
applied to the Company, is a tax measured by both net earnings and net worth.
The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable income and 8.9% of computed Ohio taxable income in excess of $50,000 or
(ii) 0.582% times taxable net worth.
In computing its tax under the net worth method, the Company may
exclude 100% of its investment in the capital stock of First Federal after the
Conversion, as reflected on the balance sheet of the Company, in computing its
taxable net worth as long as it owns at least 25% of the issued and outstanding
capital stock of First Federal. The calculation of the exclusion from net worth
is based on the ratio of the excludable investment (net of any appreciation or
goodwill included in such investment) to total assets multiplied by the net
value of the stock. As a holding company, the Company may be entitled to various
other deductions in computing taxable net worth that are not generally available
to operating companies.
A special litter tax is also applicable to all corporations, including
the Company, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,00 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
First Federal is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of First
Federal's book net worth determined in accordance with GAAP. As a "financial
institution," First Federal is not subject to any tax based upon net income or
net profits imposed by the State of Ohio.
Item 2. Properties
At December 31, 1997, First Federal conducted its business from its
main office at 601 Clinton Street, Defiance, Ohio, and nine other full service
branches in northwestern Ohio.
First Defiance maintains its headquarters in the main office of First
Federal at 601 Clinton Street, Defiance, Ohio.
The following table sets forth certain information with respect to the
office and other properties of the Company at December 31, l997. See Note 8 to
the Consolidated Financial Statements.
Net book value
Description/address Leased/owned of property Deposits
- --------------------------------------------------------------------------------
(Dollars in thousands)
Main Office Owned $ 6,204 $166,114
601 Clinton Street
Defiance, OH
Branch Offices
204 E. High Street Owned 1,240 77,566
Bryan, OH
211 S. Fulton Street Owned 877 36,085
Wauseon, OH
625 Scott Street Owned 1,778 62,760
Napoleon, OH
1050 East Main Street Owned 650 18,036
Montpelier, OH
926 East High Street Owned 126 7,265
Bryan, OH
1333 Woodlawn Owned 82 14,220
Napoleon, OH
825 N. Clinton Street Owned 412 8,870
Defiance, OH
Inside Super K-Mart Leased 177 2,740
190 Stadium Dr.
Defiance, OH
905 N. Williams St. Leased - 1,666
Paulding, OH
==============================
$11,546 $395,322
==============================
Item 3. Legal Proceedings
First Defiance is involved in routine legal proceedings occurring in
the ordinary course of business which, in the aggregate, are believed by
management to be immaterial to the financial condition of First Defiance.
Item 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of securities holders during the
fourth quarter of l997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required herein is incorporated by reference from page
36 of First Defiance's Annual Report to Stockholders for fiscal 1997 ("Annual
Report"), which is included herein as Exhibit 13.
Item 6. Selected Financial Data
The information required herein is incorporated by reference from pages
6 through 7 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required herein is incorporated by reference from pages
8 through 13 of the Annual Report.
Item 8. Financial Statements and Supplementary Data
The financial statements required herein are incorporated by reference
from pages 15 through 36 of the Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required herein is incorporated by reference from page
7 through 11 of the definitive proxy statement dated March 23, 1998. Otherwise,
the requirements of this Item 10 are not applicable.
Item 11. Executive Compensation
The information required herein is incorporated by reference from page
14 of the definitive proxy statement dated March 23, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required herein is incorporated by reference from page
3 of the definitive proxy statement dated March 23, 1998.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference from page
22 of the definitive proxy statement dated March 23, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The following financial statements are incorporated herein by reference
from pages 14 through 36 of the Annual Report:
Report of Independent Auditors
Consolidated Statements of Financial Condition as of December 31, 1997
and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are included in the Notes to Financial Statements
incorporated herein by reference and therefore have been omitted.
(3) Exhibits
The following exhibits are either filed as a part of this report or are
incorporated herein by reference to documents previously filed as indicated
below:
Exhibit
Number Description Page
- ------------------------------------------------------------------------------------------
3.1 Articles of Incorporation *
3.2 Form of Code of Regulations *
3.2 Bylaws *
4.1 Specimen Stock Certificate *
10.1 1996 Stock Option Plan **
10.2 1996 Management Recognition Plan and Trust ***
10.3 1993 Management Recognition Plan and Trust *
10.4 1993 Stock Incentive Plan *
10.5 1993 Directors' Stock Option Plan *
10.6 Employment Agreement with Don C. Van Brackel *
13 Annual Report to Shareholders and Notice of Annual Meeting of
Shareholders and Proxy Statement E-1
21.1 List of Subsidiaries of the Company E-64
23.1 Consent of Independent Auditors E-66
* Incorporated herein by reference to the like numbered exhibit in the
Registrant's Form S-1 (File No. 33-93354).
** Incorporated herein by reference to Appendix A to the 1996 Proxy
Statement.
*** Incorporated herein by reference to Appendix B to the 1996 Proxy
Statement.
(b) Reports on Form 8-K
None
(c) See (a)(3) above for all exhibits filed herewith or incorporated herein by
reference to documents previously filed and the Exhibit Index.
(d) There are no other financial statements and financial statement schedules
which were excluded from the Annual Report to Stockholders which are
required to be included herein.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
FIRST DEFIANCE FINANCIAL CORP.
March 27, 1998 By: /s/ Don C. Van Brackel
----------------------
Don C. Van Brackel
Chairman, President, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1998.
Signature Title
--------- -----
/s/ Don C. Van Brackel Chairman of the Board, President
- ---------------------- and CEO
Don C. Van Brackel
/s/ John C. Wahl Senior Vice President and CFO
- ----------------
John C. Wahl
/s/ Edwin S. Charles Director, Vice Chairman
- --------------------
Edwin S. Charles
/s/ Stephen L. Boomer Director
- ---------------------
Stephen L. Boomer
/s/ Dr. Douglas A. Burgei Director
- -------------------------
Dr. Douglas A. Burgei
/s/ Dr. John U. Fauster, III Director
- ----------------------------
Dr. John U. Fauster, III
/s/ Dr. Marvin J. Ludwig Director
- ------------------------
Dr. Marvin J. Ludwig
/s/ Gerald W. Monnin Director
- --------------------
Gerald W. Monnin
/s/ Thomas A. Voigt Director
- -------------------
Thomas A. Voigt
/s/ James M. Zachrich Director
- ---------------------
James M. Zachrich