x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934. For the Quarterly Period Ended September
30, 2006
|
o
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 For the Transition Period from
___________to__________
|
First
Defiance Financial Corp.
|
||
(Exact
name of registrant as specified in its charter)
|
Ohio
|
34-1803915
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
601
Clinton Street, Defiance, Ohio
|
43512
|
|||
(Address
or principal executive office)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Page
Number
|
||
PART
I.-FINANCIAL INFORMATION
|
||
Item
1.
|
||
2
|
||
4
|
||
5
|
||
6
|
||
7
|
||
Item
2.
|
26
|
|
Item
3.
|
40
|
|
Item
4.
|
41
|
|
PART
II-OTHER INFORMATION:
|
||
Item
1.
|
42
|
|
Item
1A.
|
42
|
|
Item
2.
|
42
|
|
Item
3.
|
42
|
|
Item
4.
|
42
|
|
Item
5.
|
42
|
|
Item
6.
|
43
|
|
|
44
|
September
30, 2006
|
December
31, 2005
|
||||||
(In
Thousands)
|
|||||||
Assets
|
|||||||
Cash
and cash equivalents:
|
|||||||
Cash
and amounts due from depository institutions
|
$
|
41,742
|
$
|
44,060
|
|||
Interest-bearing
deposits
|
-
|
5,190
|
|||||
|
41,742
|
49,256
|
|||||
Securities:
|
|||||||
Available-for-sale,
carried at fair value
|
118,429
|
113,079
|
|||||
Held-to-maturity,
carried at amortized cost (fair value $1,644 and $1,845 at September
30,
2006 and December 31, 2005, respectively)
|
1,588
|
1,775
|
|||||
|
120,017
|
114,854
|
|||||
Loans
held for sale
|
3,669
|
5,282
|
|||||
Loans
receivable, net
|
1,222,414
|
1,164,481
|
|||||
Accrued
interest receivable
|
7,430
|
6,207
|
|||||
Federal
Home Loan Bank stock
|
18,309
|
17,544
|
|||||
Bank
owned life insurance
|
25,076
|
24,346
|
|||||
Premises
and equipment
|
34,893
|
32,429
|
|||||
Real
estate and other assets held for sale
|
3,026
|
404
|
|||||
Goodwill
|
35,124
|
35,084
|
|||||
Core
deposit and other intangibles
|
3,577
|
4,117
|
|||||
Mortgage
servicing rights
|
5,430
|
5,063
|
|||||
Other
assets
|
3,972
|
2,015
|
|||||
Total
assets
|
$
|
1,524,679
|
$
|
1,461,082
|
September
30, 2006
|
December
31, 2005
|
||||||
(In
Thousands)
|
|||||||
Liabilities
and stockholders’ equity
|
|||||||
Liabilities:
|
|||||||
Deposits
|
$
|
1,130,526
|
$
|
1,069,501
|
|||
Advances
from the Federal Home Loan Bank
|
176,442
|
180,960
|
|||||
Short
term borrowings and other interest-bearing liabilities
|
23,607
|
25,748
|
|||||
Subordinated
debentures
|
20,619
|
20,619
|
|||||
Advance
payments by borrowers
|
393
|
605
|
|||||
Deferred
taxes
|
1,050
|
795
|
|||||
Other
liabilities
|
13,887
|
11,638
|
|||||
Total
liabilities
|
1,366,524
|
1,309,866
|
|||||
|
|||||||
Stockholders’
equity:
|
|||||||
Preferred
stock, no par value per share:
|
|||||||
5,000
shares authorized; no shares issued
|
-
|
-
|
|||||
Common
stock, $.01 par value per share:
|
|||||||
20,000
shares authorized; 11,703 shares issued and 7,141 and 7,086 shares
outstanding, respectively
|
117
|
117
|
|||||
Additional
paid-in capital
|
110,147
|
108,626
|
|||||
Stock
acquired by ESOP
|
(627
|
)
|
(1,053
|
)
|
|||
Accumulated
other comprehensive loss, net of tax of $(37) and $(13),
respectively
|
(67
|
)
|
(22
|
)
|
|||
Retained
earnings
|
117,912
|
112,041
|
|||||
Treasury
stock, at cost, 4,562 and 4,617 shares respectively
|
(69,325
|
)
|
(68,493
|
)
|
|||
Total
stockholders’ equity
|
158,155
|
151,216
|
|||||
|
|||||||
Total
liabilities and stockholders’ equity
|
$
|
1,524,679
|
$
|
1,461,082
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Interest
Income
|
|||||||||||||
Loans
|
$
|
22,341
|
$
|
18,395
|
$
|
63,605
|
$
|
50,203
|
|||||
Investment
securities:
|
|
|
|
|
|||||||||
Taxable
|
1,198
|
976
|
3,387
|
3,065
|
|||||||||
Non-taxable
|
284
|
279
|
853
|
914
|
|||||||||
Interest-bearing
deposits
|
7
|
72
|
145
|
277
|
|||||||||
FHLB
stock dividends
|
262
|
210
|
765
|
579
|
|||||||||
Total
interest income
|
24,092
|
19,932
|
68,755
|
55,038
|
|||||||||
Interest
Expense
|
|||||||||||||
Deposits
|
9,140
|
5,539
|
23,835
|
14,395
|
|||||||||
FHLB
advances and other
|
2,256
|
2,059
|
6,778
|
5,650
|
|||||||||
Subordinated
debentures
|
343
|
-
|
962
|
-
|
|||||||||
Notes
payable
|
144
|
117
|
403
|
313
|
|||||||||
Total
interest expense
|
11,883
|
7,715
|
31,978
|
20,358
|
|||||||||
Net
interest income
|
12,209
|
12,217
|
36,777
|
34,680
|
|||||||||
Provision
for loan losses
|
373
|
368
|
1,438
|
1,064
|
|||||||||
Net
interest income after provision for loan losses
|
11,836
|
11,849
|
35,339
|
33,616
|
|||||||||
Non-interest
Income
|
|||||||||||||
Service
fees and other charges
|
2,580
|
1,511
|
6,658
|
4,023
|
|||||||||
Insurance
commission income
|
981
|
966
|
3,643
|
3,229
|
|||||||||
Mortgage
banking income
|
923
|
1,087
|
2,544
|
2,471
|
|||||||||
Gain
on sale of non-mortgage loans
|
63
|
-
|
500
|
-
|
|||||||||
Gain
on sale of securities
|
-
|
86
|
-
|
1,222
|
|||||||||
Trust
income
|
76
|
91
|
232
|
229
|
|||||||||
Income
from Bank Owned Life Insurance
|
250
|
184
|
730
|
541
|
|||||||||
Other
non-interest income
|
187
|
91
|
395
|
444
|
|||||||||
Total
non-interest income
|
5,060
|
4,016
|
14,702
|
12,159
|
|||||||||
Non-interest
Expense
|
|||||||||||||
Compensation
and benefits
|
6,211
|
6,058
|
18,251
|
17,577
|
|||||||||
Occupancy
|
1,278
|
1,197
|
3,793
|
3,424
|
|||||||||
State
franchise tax
|
331
|
290
|
995
|
865
|
|||||||||
Acquisition
related charges
|
-
|
97
|
-
|
3,457
|
|||||||||
Data
processing
|
903
|
813
|
2,760
|
2,404
|
|||||||||
Amortization
of intangibles
|
180
|
214
|
539
|
541
|
|||||||||
Other
non-interest expense
|
2,188
|
1,827
|
6,291
|
4,992
|
|||||||||
Total
non-interest expense
|
11,091
|
10,496
|
32,629
|
33,260
|
|||||||||
Income
before income taxes
|
5,805
|
5,369
|
17,412
|
12,515
|
|||||||||
Federal
income taxes
|
1,982
|
1,742
|
5,785
|
3,989
|
|||||||||
Net
Income
|
$
|
3,823
|
$
|
3,627
|
$
|
11,627
|
$
|
8,526
|
|||||
Earnings
per share (Note 7)
|
|||||||||||||
Basic
|
$
|
0.54
|
$
|
0.52
|
$
|
1.66
|
$
|
1.25
|
|||||
Diluted
|
$
|
0.53
|
$
|
0.50
|
$
|
1.62
|
$
|
1.20
|
|||||
Dividends
declared per share (Note 6)
|
$
|
0.24
|
$
|
0.22
|
$
|
0.72
|
$
|
0.66
|
|||||
Average
shares outstanding (Note 7)
|
|||||||||||||
Basic
|
7,032
|
6,966
|
7,020
|
6,835
|
|||||||||
Diluted
|
7,146
|
7,213
|
7,161
|
7,091
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30
|
September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Balance
at beginning of period
|
$
|
154,312
|
$
|
147,550
|
$
|
151,216
|
$
|
126,874
|
|||||
Comprehensive
income:
|
|||||||||||||
Net
income
|
3,823
|
3,627
|
11,627
|
8,526
|
|||||||||
Other
comprehensive income (loss)
|
962
|
(756
|
)
|
(45
|
)
|
(1,877
|
)
|
||||||
Total
comprehensive income
|
4,785
|
2,871
|
11,582
|
6,649
|
|||||||||
ESOP
shares released
|
324
|
351
|
1,326
|
1,350
|
|||||||||
Stock
option expense
|
77
|
-
|
210
|
-
|
|||||||||
Tax
benefit of employee plans
|
409
|
-
|
409
|
-
|
|||||||||
Amortization
of deferred compensation of Management Recognition Plan
|
-
|
-
|
-
|
1
|
|||||||||
Shares
issued under stock option plans
|
498
|
31
|
2,208
|
1,122
|
|||||||||
Treasury
shares repurchased
|
(569
|
)
|
(323
|
)
|
(3,741
|
)
|
(1,275
|
)
|
|||||
Shares
issued to acquire ComBanc, Inc.
|
-
|
333
|
-
|
19,104
|
|||||||||
Common
cash dividends declared (Note 6)
|
(1,681
|
)
|
(1,529
|
)
|
(5,055
|
)
|
(4,541
|
)
|
|||||
Balance
at end of period
|
$
|
158,155
|
$
|
149,284
|
$
|
158,155
|
$
|
149,284
|
Nine
Months Ended
|
|||||||
September
30,
|
|||||||
2006
|
2005
|
||||||
Operating
Activities
|
|||||||
Net
cash provided by operating activities
|
$
|
17,018
|
$
|
8,526
|
|||
Investing
Activities
|
|||||||
Proceeds
from maturities of held-to-maturity securities
|
185
|
193
|
|||||
Proceeds
from maturities of available-for-sale securities
|
8,542
|
21,263
|
|||||
Proceeds
from sale of available-for-sale securities
|
-
|
24,160
|
|||||
Proceeds
from sale of real estate and other assets held for sale
|
1,714
|
396
|
|||||
Proceeds
from sale of property, plant and equipment
|
222
|
1,192
|
|||||
Net
cash received for acquisition of ComBanc, Inc.
|
-
|
52,646
|
|||||
Net
cash paid for acquisition of Genoa Savings and Loan
Company
|
-
|
(602
|
)
|
||||
Purchases
of available-for-sale securities
|
(14,061
|
)
|
(23,767
|
)
|
|||
Purchases
of Federal Home Loan Bank Stock
|
-
|
(583
|
)
|
||||
Purchases
of office properties and equipment
|
(4,611
|
)
|
(4,083
|
)
|
|||
Net
increase in loans receivable
|
(64,386
|
)
|
(70,852
|
)
|
|||
Net
cash provided by/used in investing activities
|
(72,395
|
)
|
(37
|
)
|
|||
Financing
Activities
|
|||||||
Net
increase (decrease) in deposits and advance payments by
borrowers
|
61,061
|
33,084
|
|||||
Repayment
of Federal Home Loan Bank long-term advances
|
(66,988
|
)
|
(1,879
|
)
|
|||
Net
increase (decrease) in Federal Home Loan Bankshort-term
advances
|
17,500
|
(15,500
|
)
|
||||
Proceeds
from Federal Home Loan Bank long-term advances
|
45,000
|
|
-
|
||||
Decrease
in securities sold under repurchase agreements
|
(2,141
|
)
|
1,778
|
||||
Purchase
of common stock for treasury
|
(3,741
|
)
|
(1,275
|
)
|
|||
Cash
dividends paid
|
(5,036
|
)
|
(4,330
|
)
|
|||
Proceeds
from exercise of stock options
|
2,208
|
1,122
|
|||||
Net
cash provided by financing activities
|
47,863
|
11,000
|
|||||
(Decrease)
increase in cash and cash equivalents
|
(7,514
|
)
|
19,513
|
||||
Cash
and cash equivalents at beginning of period
|
49,256
|
20,521
|
|||||
Cash
and cash equivalents at end of period
|
$
|
41,742
|
$
|
40,034
|
|||
Supplemental
cash flow information:
|
|||||||
Interest
paid
|
$
|
31,114
|
$
|
18,945
|
|||
Income
taxes paid
|
$
|
4,664
|
$
|
3,558
|
|||
Transfers
from loans to other real estate owned and other assets held for
sale
|
$
|
4,336
|
$
|
292
|
ComBanc
|
Genoa
|
Total
|
||||||||
Fair
value of assets acquired
|
$
|
213,927
|
$
|
88,077
|
$
|
302,004
|
||||
Purchase
price
|
(38,339
|
)
|
(11,212
|
)
|
(49,551
|
)
|
||||
Liabilities
assumed
|
$
|
175,588
|
$
|
76,865
|
$
|
252,453
|
1.
|
Principles
of Consolidation
|
2.
|
Basis
of Presentation
|
2.
|
Basis
of Presentation
(continued)
|
2.
|
Basis
of Presentation
(continued)
|
Three
months ended September 30, 2006
|
||||||||||
Using
Previous
Accounting
|
SFAS
123(R)
Adjustments
|
As
Reported
|
||||||||
(dollars
in thousands, except per share data)
|
||||||||||
Income
before income taxes
|
$
|
5,883
|
$
|
(78
|
)
|
$
|
5,805
|
|||
Income
taxes
|
1,983
|
(1
|
)
|
1,982
|
||||||
Net
income
|
$
|
3,900
|
(77
|
)
|
$
|
3,823
|
||||
Basic
earnings per share
|
$
|
.55
|
$
|
(.01
|
)
|
$
|
.54
|
|||
Diluted
earnings per share
|
$
|
.54
|
$
|
(.01
|
)
|
$
|
.53
|
|||
Cash
flow from operating activities
|
$
|
10,461
|
$
|
-
|
$
|
10,461
|
Nine
months ended September 30, 2006
|
||||||||||
Using
Previous
Accounting
|
SFAS
123(R)
Adjustments
|
As
Reported
|
||||||||
(dollars
in thousands, except per share data)
|
||||||||||
Income
before income taxes
|
$
|
17,625
|
$
|
(213
|
)
|
$
|
17,412
|
|||
Income
taxes
|
5,788
|
(3
|
)
|
5,785
|
||||||
Net
income
|
$
|
11,837
|
(210
|
)
|
$
|
11,627
|
||||
Basic
earnings per share
|
$
|
1.69
|
$
|
(.03
|
)
|
$
|
1.66
|
|||
Diluted
earnings per share
|
$
|
1.65
|
$
|
(.03
|
)
|
$
|
1.62
|
|||
Cash
flow from operating activities
|
$
|
17,018
|
$
|
-
|
$
|
17,018
|
2.
|
Basis
of Presentation
(continued)
|
Three
months ended September 30, 2005
|
||||||||||
As
Reported
|
Pro
Forma
Adjustments
|
Pro
Forma as
if
under
SFAS
123(R)
|
||||||||
(dollars
in thousands, except per share data)
|
||||||||||
Income
before income taxes
|
$
|
5,369
|
$
|
(71
|
)
|
$
|
5,298
|
|||
Income
taxes
|
1,742
|
(1
|
)
|
1,741
|
||||||
Net
income
|
$
|
3,627
|
(70
|
)
|
$
|
3,557
|
||||
Basic
earnings per share
|
$
|
.52
|
$
|
(.01
|
)
|
$
|
.51
|
|||
Diluted
earnings per share
|
$
|
.50
|
$
|
(.01
|
)
|
$
|
.49
|
|||
Cash
flow from operating activities
|
$
|
5,296
|
$
|
-
|
$
|
5,296
|
Nine
months ended September 30, 2005
|
||||||||||
As
Reported
|
Pro
Forma
Adjustments
|
Pro
Forma as
if
under
SFAS
123(R)
|
||||||||
(dollars
in thousands, except per share data)
|
||||||||||
Income
before income taxes
|
$
|
12,515
|
$
|
(200
|
)
|
$
|
12,315
|
|||
Income
taxes
|
3,989
|
(3
|
)
|
3,986
|
||||||
Net
income
|
$
|
8,526
|
(197
|
)
|
$
|
8,329
|
||||
Basic
earnings per share
|
$
|
1.25
|
$
|
(.03
|
)
|
$
|
1.22
|
|||
Diluted
earnings per share
|
$
|
1.20
|
$
|
(.03
|
)
|
$
|
1.17
|
|||
Cash
flow from operating activities
|
$
|
8,526
|
$
|
-
|
$
|
8,526
|
2.
|
Basis
of Presentation
(continued)
|
2.
|
Basis
of Presentation
(continued)
|
3.
|
Stock
Compensation Plans
|
Nine
months ended September, 2006
Total
options outstanding
|
||||||||||
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Fair Value
|
||||||||
Options
outstanding, beginning of period
|
569,099
|
$
|
16.00
|
$
|
4.05
|
|||||
Forfeited
or cancelled
|
(11,150
|
)
|
23.14
|
5.27
|
||||||
Exercised
|
(194,588
|
)
|
11.35
|
3.70
|
||||||
Granted
|
48,250
|
26.49
|
5.97
|
|||||||
Options
outstanding, end of period
|
411,611
|
$
|
19.24
|
$
|
4.42
|
|||||
Options
exercisable, end of period
|
269,709
|
$
|
16.02
|
$
|
3.66
|
3.
|
Stock
Compensation Plans
(continued)
|
Nine
months ended September 30, 2006 Total unvested
options
|
|||||||
Shares
|
Weighted
Average
Fair
Value
|
||||||
Unvested
options, beginning of period
|
164,853
|
$
|
5.26
|
||||
Vested
|
(61,351
|
)
|
4.40
|
||||
Granted
|
48,250
|
5.97
|
|||||
Forfeited
|
(9,850
|
)
|
5.39
|
||||
Unvested
options, end of period
|
141,902
|
$
|
5.87
|
Nine
months ended September 30,
|
|||||||
2006
|
2005
|
||||||
Proceeds
of options exercised
|
$
|
2,208
|
$
|
1,122
|
|||
Related
tax benefit recognized
|
409
|
164
|
|||||
Intrinsic
value of options exercised
|
2,970
|
1,492
|
Outstanding
|
Exercisable
|
||||||||||||
Range
of Exercise Prices
|
Shares
|
Weighted
Average Remaining Contractual Life
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||
$8.25
- $12.99
|
26,000
|
2.9
|
26,000
|
$
|
11.54
|
||||||||
$13.00
- $17.99
|
182,308
|
3.6
|
181,108
|
14.20
|
|||||||||
$18.00
- $22.99
|
49,450
|
6.4
|
29,950
|
19.38
|
|||||||||
$23.00
- $27.99
|
153,853
|
8.6
|
32,651
|
26.58
|
|||||||||
Outstanding
at period end
|
411,611
|
5.8
|
269,709
|
$
|
16.02
|
3.
|
Stock
Compensation Plans
(continued)
|
Nine
Months Ended September 30,
|
|||||||
2006
|
2005
|
||||||
Expected
average risk-free interest rate
|
5.17
|
%
|
4.40
|
%
|
|||
Expected
average life (in years)
|
6.50
|
10.00
|
|||||
Expected
volatility
|
22.40
|
%
|
22.40
|
%
|
|||
Expected
dividend yield
|
3.63
|
%
|
3.39
|
%
|
Remainder
of 2006
|
$
|
59
|
||
2007
|
230
|
|||
2008
|
194
|
|||
2009
|
133
|
|||
2010
|
72
|
|||
2011
|
21
|
|||
Total
|
$
|
709
|
4.
|
Acquisitions
|
4.
|
Acquisitions
(continued)
|
5.
|
Acquisition
Related Charges
|
6.
|
Dividends
on Common Stock
|
7.
|
Earnings
Per Share
|
7.
|
Earnings
Per Share (continued)
|
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Numerator
for basic and diluted earnings per share - Net income
|
$
|
3,823
|
$
|
3,627
|
$
|
11,627
|
$
|
8,526
|
|||||
Denominator:
|
|||||||||||||
Denominator
for basic earnings per share - weighted average shares
|
7,032
|
6,966
|
7,020
|
6,835
|
|||||||||
Effect
of dilutive securities:
|
|||||||||||||
Employee
stock options
|
114
|
246
|
141
|
255
|
|||||||||
Unvested
management recognition
plan stock
|
-
|
1
|
-
|
1
|
|||||||||
Dilutive
potential common shares
|
114
|
247
|
141
|
256
|
|||||||||
Denominator
for diluted earnings per share - adjusted weighted average shares
and assumed conversions
|
7,146
|
7,213
|
7,161
|
7,091
|
|||||||||
Basic
earnings per share from net income
|
$
|
0.54
|
$
|
0.52
|
$
|
1.66
|
$
|
1.25
|
|||||
Diluted
earnings per share from net income
|
$
|
0.53
|
$
|
0.50
|
$
|
1.62
|
$
|
1.20
|
8. |
Investment
Securities
|
September
30, 2006
|
|||||||||||||
Amortized
Cost
|
Gross
Unrealized Gains
|
Gross
Unrealized Losses
|
Fair
Value
|
||||||||||
Available-for-Sale
Securities:
|
|||||||||||||
U.S.
Treasury securities and obligations of U.S. Government corporations
and
agencies
|
$
|
45,067
|
$
|
209
|
$
|
(227
|
)
|
$
|
45,049
|
||||
Mortgage-backed
securities
|
19,458
|
23
|
(294
|
)
|
19,187
|
||||||||
REMICs
|
216
|
-
|
(1
|
)
|
215
|
||||||||
Collateralized
mortgage obligations
|
20,894
|
54
|
(359
|
)
|
20,589
|
||||||||
Trust
preferred stock
|
8,218
|
51
|
(82
|
)
|
8,187
|
||||||||
Obligations
of state and political subdivisions
|
24,680
|
522
|
-
|
25,202
|
|||||||||
Totals
|
$
|
118,533
|
$
|
859
|
$
|
(963
|
)
|
$
|
118,429
|
||||
Held-to-Maturity
Securities:
|
|||||||||||||
FHLMC
certificates
|
$
|
288
|
$
|
7
|
$
|
-
|
$
|
295
|
|||||
FNMA
certificates
|
644
|
3
|
(2
|
)
|
645
|
||||||||
GNMA
certificates
|
211
|
1
|
-
|
212
|
|||||||||
Obligations
of state and political subdivisions
|
445
|
47
|
-
|
492
|
|||||||||
Totals
|
$
|
1,588
|
$
|
58
|
$
|
(2
|
)
|
$
|
1,644
|
8.
|
Investment
Securities (continued)
|
Duration
of Unrealized Loss Position
|
|||||||||||||||||||
Less
than 12 Months
|
12
Month or Longer
|
Total
|
|||||||||||||||||
Gross
|
Gross
|
||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loses
|
||||||||||||||
(In
Thousands)
|
|||||||||||||||||||
At
September 30, 2006
|
|||||||||||||||||||
Available-for-sale
securities:
|
|||||||||||||||||||
U.S.
treasury securities and obligations of U.S. government corporations
and
agencies
|
$
|
4,989
|
$
|
(12
|
)
|
$
|
22,838
|
$
|
(215
|
)
|
$
|
27,827
|
$
|
(227
|
)
|
||||
Mortgage-backed
securities
|
2,502
|
(28
|
)
|
11,493
|
(266
|
)
|
13,995
|
(294
|
)
|
||||||||||
Collateralized
mortgage obligations
|
3,427
|
(20
|
)
|
14,377
|
(340
|
)
|
17,804
|
(360
|
)
|
||||||||||
Trust
preferred stock
|
417
|
(82
|
)
|
-
|
-
|
417
|
(82
|
)
|
|||||||||||
Obligations
of state and political subdivisions
|
136
|
-
|
55
|
-
|
191
|
-
|
|||||||||||||
|
|||||||||||||||||||
Held
to maturity securities:
|
|||||||||||||||||||
Mortgage-backed
securities
|
53
|
-
|
227
|
(2
|
)
|
280
|
(2
|
)
|
|||||||||||
Total
temporarily impaired securities
|
$
|
11,524
|
$
|
(142
|
)
|
$
|
48,990
|
$
|
(823
|
)
|
$
|
60,514
|
$
|
(965
|
)
|
8.
|
Investment
Securities (continued)
|
December
31, 2005
|
|||||||||||||
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||
Available-for-Sale
Securities:
|
|||||||||||||
U.S.
Treasury securities and obligations of U.S. Government corporations
and
agencies
|
$
|
41,173
|
$
|
217
|
$
|
(325
|
)
|
$
|
41,065
|
||||
Mortgage-backed
securities
|
19,959
|
35
|
(263
|
)
|
19,731
|
||||||||
REMICs
|
998
|
-
|
(7
|
)
|
991
|
||||||||
Collateralized
mortgage obligations
|
20,002
|
1
|
(330
|
)
|
19,673
|
||||||||
Trust
preferred stock
|
7,725
|
76
|
-
|
7,801
|
|||||||||
Obligations
of state and political subdivisions
|
23,257
|
574
|
(13
|
)
|
23,818
|
||||||||
Totals
|
$
|
113,114
|
$
|
903
|
$
|
(938
|
)
|
$
|
113,079
|
||||
|
|||||||||||||
Held-to-Maturity
Securities:
|
|||||||||||||
FHLMC
certificates
|
$
|
333
|
$
|
11
|
$
|
-
|
$
|
344
|
|||||
FNMA
certificates
|
756
|
4
|
(3
|
)
|
757
|
||||||||
GNMA
certificates
|
241
|
-
|
(1
|
)
|
240
|
||||||||
Obligations
of state and political subdivisions
|
445
|
59
|
-
|
504
|
|||||||||
Totals
|
$
|
1,775
|
$
|
74
|
$
|
(4
|
)
|
$
|
1,845
|
9.
|
Loans
|
September
30,
2006
|
December
31,
2005
|
||||||
Real
Estate:
|
|||||||
One-to-four
family residential
|
$
|
260,028
|
$
|
275,497
|
|||
Construction
|
16,578
|
21,173
|
|||||
Non-residential
and multi-family
|
568,346
|
551,983
|
|||||
844,952
|
848,653
|
||||||
Other
Loans:
|
|||||||
Commercial
|
231,232
|
171,289
|
|||||
Consumer
finance
|
46,969
|
55,297
|
|||||
Home
equity and improvement
|
120,883
|
113,000
|
|||||
399,084
|
339,586
|
||||||
Total
real estate and other loans
|
1,244,036
|
1,188,239
|
|||||
Deduct:
|
|||||||
Loans
in process
|
6,118
|
8,782
|
|||||
Net
deferred loan origination fees and costs
|
1,206
|
1,303
|
|||||
Allowance
for loan loss
|
14,298
|
13,673
|
|||||
Totals
|
$
|
1,222,414
|
$
|
1,164,481
|
Three
Months ended
September
30,
|
Nine
Months ended
September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Balance
at beginning of period
|
$
|
14,239
|
$
|
13,460
|
$
|
13,673
|
$
|
9,956
|
|||||
Provision
for loan losses
|
373
|
368
|
1,438
|
1,064
|
|||||||||
Reserve
from Acquisitions
|
-
|
-
|
-
|
3,027
|
|||||||||
Charge-offs:
|
|||||||||||||
One-to-four
family residential real estate
|
58
|
32
|
269
|
32
|
|||||||||
Non-residential
and multi-family real estate
|
134
|
134
|
364
|
201
|
|||||||||
Commercial
|
85
|
65
|
115
|
214
|
|||||||||
Home
equity and improvement
|
48
|
-
|
101
|
-
|
|||||||||
Consumer
finance
|
67
|
74
|
296
|
233
|
|||||||||
Total
charge-offs
|
392
|
305
|
1,145
|
680
|
|||||||||
Recoveries
|
78
|
101
|
332
|
257
|
|||||||||
Net
charge-offs
|
314
|
204
|
813
|
423
|
|||||||||
Ending
allowance
|
$
|
14,298
|
$
|
13,624
|
$
|
14,298
|
$
|
13,624
|
9.
|
Loans
(continued)
|
September
30, 2006
|
December
31, 2005
|
||||||
(in
thousands)
|
|||||||
Non-accrual
loans
|
$
|
7,018
|
$
|
4,952
|
|||
Loans
over 90 days past due and still accruing
|
-
|
-
|
|||||
Total
non-performing loans
|
7,018
|
$
|
4,952
|
||||
Real
estate owned (REO)
|
3,026
|
404
|
|||||
Total
non-performing assets
|
$
|
10,044
|
$
|
5,356
|
10.
|
Deposits
|
September
30,
2006
|
December
31,
2005
|
||||||
Non-interest-bearing
checking accounts
|
$
|
102,664
|
$
|
103,498
|
|||
Interest-bearing
checking accounts
|
97,024
|
102,144
|
|||||
Savings
accounts
|
73,518
|
82,766
|
|||||
Money
market demand accounts
|
203,657
|
174,414
|
|||||
Certificates
of deposit
|
653,663
|
606,679
|
|||||
$
|
1,130,526
|
$
|
1,069,501
|
11.
|
Borrowings
|
September
30,
2006
|
December
31,
2005
|
||||||
(in
thousands)
|
|||||||
FHLB
Advance:
|
|||||||
Callable
fixed maturity advances
|
$
|
45,000
|
$
|
111,000
|
|||
Callable
fixed maturity strike rate advances
|
27,000
|
27,000
|
|||||
Other
fixed rate long-term advances
|
13,442
|
14,181
|
|||||
Three
month LIBOR based advances
|
45,000
|
−
|
|||||
Short-term
and overnight advances
|
46,000
|
28,779
|
|||||
Total
|
$
|
176,442
|
$
|
180,960
|
|||
|
|||||||
Junior
subordinated debentures owed to unconsolidated subsidiary trust,
due
October 2035, 6.77%
at September 30, 2006 and 5.87% at December 31, 2005
(variable)
|
$
|
20,619
|
$
|
20,619
|
12.
|
Commitments,
Guarantees and Contingent
Liabilities
|
September
30,
2006
|
December
31,
2005
|
||||||
(In
Thousands)
|
|||||||
Loan
commitments
|
$
|
275,273
|
$
|
275,982
|
|||
Standby
Letters of Credit
|
12,863
|
8,785
|
|||||
Total
|
$
|
288,136
|
$
|
284,767
|
13.
|
Postretirement
Benefits
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
(In
Thousands)
|
|||||||||||||
Service
cost-benefits attributable to
service during the period
|
$
|
10
|
$
|
13
|
$
|
30
|
$
|
39
|
|||||
Interest
cost on accumulated postretirement benefit obligation
|
27
|
23
|
80
|
71
|
|||||||||
Net
amortization and deferral
|
8
|
6
|
23
|
18
|
|||||||||
Net
periodic postretirement benefit cost
|
$
|
45
|
$
|
42
|
$
|
133
|
$
|
128
|
Three
Months Ended September 30,
|
|||||||||||||||||||
2006
|
2005
|
||||||||||||||||||
Average
|
Yield/
|
Average
|
Yield/
|
||||||||||||||||
Balance
|
Interest(1)
|
Rate(2)
|
Balance
|
Interest(1)
|
Rate(2)
|
||||||||||||||
Interest-earning
assets:
|
|||||||||||||||||||
Loans
receivable
|
$
|
1,225,456
|
$
|
22,346
|
7.23
|
%
|
$
|
1,136,526
|
$
|
18,402
|
6.42
|
%
|
|||||||
Securities
|
119,628
|
1,625
|
5.35
|
113,832
|
1,395
|
4.91
|
|||||||||||||
Interest-earning
deposits
|
580
|
7
|
4.79
|
7,674
|
72
|
3.72
|
|||||||||||||
FHLB
stock and other
|
18,050
|
262
|
5.76
|
17,085
|
210
|
4.88
|
|||||||||||||
Total
interest-earning assets
|
1,363,714
|
24,240
|
7.05
|
1,275,117
|
20,079
|
6.25
|
|||||||||||||
Non-interest-earning
assets
|
148,930
|
|
136,307
|
||||||||||||||||
Total
assets
|
$
|
1,512,644
|
|
|
$
|
1,411,424
|
|||||||||||||
Interest-bearing
liabilities:
|
|||||||||||||||||||
Deposits
|
$
|
1,030,433
|
$
|
9,140
|
3.52
|
%
|
$
|
958,590
|
$
|
5,539
|
2.29
|
%
|
|||||||
FHLB
advances and other
|
175,255
|
2,256
|
5.11
|
184,333
|
2,059
|
4.43
|
|||||||||||||
Notes
payable
|
19,749
|
144
|
2.89
|
19,893
|
117
|
2.33
|
|||||||||||||
Subordinated
debentures
|
20,619
|
343
|
6.60
|
-
|
-
|
0.00
|
|||||||||||||
Total
interest-bearing liabilities
|
1,246,056
|
11,883
|
3.78
|
1,162,816
|
7,715
|
2.63
|
|||||||||||||
Non-interest
bearing deposits
|
93,964
|
- |
|
|
87,697
|
-
|
|||||||||||||
Total
including non-interest bearing demand deposits
|
1,340,020
|
11,883
|
3.52
|
1,250,513
|
7,715
|
2.45
|
|||||||||||||
Other
non-interest-bearing liabilities
|
16,607
|
11,579
|
|||||||||||||||||
Total
liabilities
|
1,356,627
|
1,262,092
|
|||||||||||||||||
Stockholders'
equity
|
156,017
|
149,332
|
|||||||||||||||||
Total
liabilities and stock-holders' equity
|
$
|
1,512,644
|
$
|
1,411,424
|
|||||||||||||||
Net
interest income; interest rate spread
|
$
|
12,357
|
3.27
|
%
|
$
|
12,364
|
3.62
|
%
|
|||||||||||
Net
interest margin (3)
|
3.59
|
%
|
3.85
|
%
|
|||||||||||||||
Average
interest-earning assets to average interest-bearing
liabilities
|
109
|
%
|
110
|
%
|
(1)
|
Interest
on certain tax-exempt loans and securities is not taxable for Federal
income tax purposes. In order to compare the tax-exempt yields on
these
assets to taxable yields, the interest earned on these assets is
adjusted
to a pre-tax equivalent amount based on the marginal corporate federal
income tax rate of 35%.
|
(2)
|
Annualized
|
(3)
|
Net
interest margin is net interest income divided by average interest-earning
assets.
|
Nine
Months Ended September 30,
|
|||||||||||||||||||
2006
|
2005
|
||||||||||||||||||
Average
|
Yield/
|
Average
|
Yield/
|
||||||||||||||||
Balance
|
Interest(1)
|
Rate(2)
|
Balance
|
Interest(1)
|
Rate(2)
|
||||||||||||||
Interest-earning
assets:
|
|||||||||||||||||||
Loans
receivable
|
$
|
1,204,142
|
$
|
63,622
|
7.06
|
%
|
$
|
1,069,943
|
$
|
50,220
|
6.28
|
%
|
|||||||
Securities
|
116,215
|
4,670
|
5.38
|
124,091
|
4,440
|
4.85
|
|||||||||||||
Interest-earning
deposits
|
3,992
|
145
|
4.86
|
11,643
|
277
|
3.18
|
|||||||||||||
FHLB
stock and other
|
17,797
|
765
|
5.75
|
16,037
|
579
|
4.83
|
|||||||||||||
Total
interest-earning assets
|
1,342,146
|
69,202
|
6.89
|
1,221,714
|
55,516
|
6.08
|
|||||||||||||
Non-interest-earning
assets
|
146,633
|
121,364
|
|||||||||||||||||
Total
assets
|
$
|
1,488,779
|
$
|
1,343,078
|
|||||||||||||||
Interest-bearing
liabilities:
|
|||||||||||||||||||
Deposits
|
$
|
999,977
|
$
|
23,835
|
3.19
|
%
|
$
|
920,838
|
$
|
14,395
|
2.09
|
%
|
|||||||
FHLB
advances and other
|
185,826
|
6,778
|
4.88
|
167,225
|
5,650
|
4.52
|
|||||||||||||
Notes
payable
|
19,224
|
403
|
2.80
|
17,796
|
313
|
2.35
|
|||||||||||||
Subordinated
debentures
|
20,619
|
962
|
6.24
|
-
|
-
|
0.00
|
|||||||||||||
Total
interest-bearing liabilities
|
1,225,646
|
31,978
|
3.49
|
1,105,859
|
20,358
|
2.46
|
|||||||||||||
Non-interest
bearing deposits
|
93,492
|
-
|
-
|
84,644
|
-
|
-
|
|||||||||||||
Total
including non-interest bearing demand deposits
|
1,319,138
|
31,978
|
3.24
|
1,190,503
|
20,358
|
2.29
|
|||||||||||||
Other
non-interest-bearing liabilities
|
15,348
|
9,285
|
|||||||||||||||||
Total
liabilities
|
1,334,486
|
1,199,788
|
|||||||||||||||||
Stockholders'
equity
|
154,293
|
143,290
|
|||||||||||||||||
Total
liabilities and stock-holders' equity
|
$
|
1,488,779
|
$
|
1,343,078
|
|||||||||||||||
Net
interest income; interest rate spread
|
|
|
$
|
37,224
|
3.40
|
%
|
$
|
35,158
|
3.61
|
%
|
|||||||||
Net
interest margin (3)
|
3.71
|
%
|
3.85
|
%
|
|||||||||||||||
Average
interest-earning assets to average interest-bearing
liabilities
|
110
|
%
|
110
|
%
|
(1)
|
Interest
on certain tax-exempt loans and securities is not taxable for Federal
income tax purposes. In order to compare the tax-exempt yields on
these
assets to taxable yields, the interest earned on these assets is
adjusted
to a pre-tax equivalent amount based on the marginal corporate federal
income tax rate of 35%.
|
(2)
|
Annualized
|
(3)
|
Net
interest margin is net interest income divided by average interest-earning
assets.
|
September
30,
2006
|
December
31,
2005
|
||||||
(in
thousands)
|
|||||||
Non-accrual
loans
|
$
|
7,018
|
$
|
4,952
|
|||
Loans
over 90 days past due and still accruing
|
-
|
-
|
|||||
Total
non-performing loans
|
7,018
|
$
|
4,952
|
||||
Real
estate owned (REO)
|
3,026
|
404
|
|||||
Total
non-performing assets
|
$
|
10,044
|
$
|
5,356
|
|||
Allowance
for loans losses as a percentage of total loans
|
1.15
|
%
|
1.16
|
%
|
|||
Allowance
for loan losses as a percentage of non-performing assets
|
142.35
|
%
|
255.28
|
%
|
|||
Allowance
for loan losses as a percentage of non-performing loans
|
203.73
|
%
|
276.11
|
%
|
|||
Total
non-performing assets as a percentage of total assets
|
0.66
|
%
|
0.37
|
%
|
|||
Total
non-performing loans as a percentage of total loans
|
0.57
|
%
|
0.42
|
%
|
Core
Capital
|
Risk-Based
Capital
|
||||||||||||
Adequately
Capitalized
|
Well
Capitalized
|
Adequately
Capitalized
|
Well
Capitalized
|
||||||||||
Regulatory
capital
|
$
|
134,546
|
$
|
134,546
|
$
|
148,447
|
$
|
148,447
|
|||||
Minimum
required regulatory capital
|
59,280
|
74,100
|
95,771
|
119,713
|
|||||||||
Excess
regulatory capital
|
$
|
75,266
|
$
|
60,446
|
$
|
52,676
|
$
|
28,734
|
|||||
Regulatory
capital as a percentage of assets (1)
|
9.1
|
%
|
9.1
|
%
|
12.4
|
%
|
12.4
|
%
|
|||||
Minimum
capital required as a percentage of assets
|
4.0
|
%
|
5.0
|
%
|
8.0
|
%
|
10.0
|
%
|
|||||
Excess
regulatory capital as a percentage of assets
|
5.1
|
%
|
4.1
|
%
|
4.4
|
%
|
2.4
|
%
|
(1)
|
Core
capital is computed as a percentage of adjusted total assets of $1.48
billion. Risk-based capital is computed as a percentage of total
risk-weighted assets of $1.20 billion.
|
Item
1.
|
Legal
Proceedings
|
Risk
Factors
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or Programs
(a)
|
|||||||||
July
1, 2006 - July 31, 2006
|
17,262
|
$
|
26.11
|
2,550
|
320,521
|
||||||||
August
1, 2006 - August 31, 2006
|
4,302
|
$
|
26.53
|
4,302
|
316,219
|
||||||||
September
1, 2006 - September30, 2006
|
150
|
$
|
27.25
|
-0-
|
316,219
|
||||||||
Total
for 2006 Third
Quarter
|
21,714
|
$
|
26.20
|
6,852
|
316,219
|
Item
3.
|
Defaults
upon Senior Securities
|
Not
applicable.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
applicable
|
Item
5.
|
Other
Information
|
Not
applicable.
|
Item
6.
|
Exhibits
|
Exhibit
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
Exhibit
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
Exhibit
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act
|
Exhibit
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act
|
First
Defiance Financial Corp.
|
|||||
(Registrant)
|
|||||
Date:
|
November
6, 2006
|
By:
|
/s/
William J. Small
|
||
|
William
J. Small
|
||||
Chairman,
President and Chief Executive Officer
|
|||||
Date:
|
November
6, 2006
|
By:
|
/s/
John C. Wahl
|
||
John
C. Wahl
|
|||||
Senior
Vice President, Chief Financial Officer and Tresurer
|