UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





(Mark One)





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


For the fiscal year ended June 30, 2011


OR





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


For the transition period from ______________ to ________________




Commission file number: 0-27916
  FFD FINANCIAL CORPORATION(Exact name of registrant as specified in its charter)


Ohio

34-1821148(State or other jurisdiction of incorporation of organization)

(I.R.S. Employer Identification Number)




321 North Wooster Avenue, Dover, Ohio 44622(Address of principal executive offices) (Zip Code)




Registrant’s telephone number, including area code: (330) 364-7777


Securities registered pursuant to Section 12(b) of the Exchange Act:





Common Shares, without par value
The NASDAQ Stock Market LLC

(NASDAQ Capital Market)(Title of each class)
(Name of each exchangeon which registered)


Securities registered under Section 12(g) of the Exchange Act:
  None(Title of class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No x





Indicate by check mark whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes o No x





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act  of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s 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.  o





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





Large accelerated filer o

Accelerated filer oNon-accelerated filer o (do not check if a smaller reporting company)
Smaller reporting company x










Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x





The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the price at which the common equity was least sold on the NASDAQ Capital Market, as of the last business day of the registrant’s most recently completed second fiscal quarter, was $12.8 million.





1,016,096 of the issuer’s common shares were issued and outstanding on September 27, 2011.





DOCUMENTS INCORPORATED BY REFERENCE





Part II of Form 10-K - Portions of the FFD Financial Corporation Annual Report to Shareholders for the fiscal year ended June 30, 2011.





Part III of Form 10-K - Portions of the Proxy Statement for the 2011 Annual Meeting of Shareholders of FFD Financial Corporation.





PART I





Item 1.                 Business.





Forward-Looking Statement





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





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


·
deteriorating credit and asset quality;


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


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


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


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


·
competitive pressures among depository institutions;


·
effects of critical accounting policies and judgments;


·
required changes in accounting policies or procedures;


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


·
our ability to attract and retain key personnel;


·
our ability to dividend money from our wholly-owned subsidiary bank to FFD; and


·
our reputation in our primary market.




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





General




FFD, an Ohio corporation formed in 1996, is a savings and loan holding company.  FFD owns all of the outstanding common shares of First Federal Community Bank, a federal savings bank (“First Federal”).





First Federal has conducted business in Tuscarawas County, Ohio since it was incorporated in 1898 as an Ohio savings and loan association under the name “Dover Building & Loan Company.”  First Federal obtained a federal savings and loan charter in 1937 under the name “First Federal Savings & Loan Association.”  In 1983, First Federal changed to a federal savings bank charter under the name “First Federal Savings Bank of Dover,” and in August 2001, First Federal adopted its present name.  First Federal’s primary market area is Tuscarawas, Holmes and some adjoining counties in Ohio.  First Federal presently conducts business from its main office in Dover, Ohio, and branches in Dover, New Philadelphia, Sugarcreek and Berlin, Ohio.  Additionally, First Federal provides access to its products and services via the Internet at www.onlinefirstfed.com.





Until July 21, 2011, FFD was subject to regulation and examination by the Office of Thrift Supervision of the United States Department of the Treasury (the “OTS”).  On that date, the OTS transferred regulatory authority over savings and loan holding companies, including FFD, to the Board of Governors of the Federal Reserve (the “Fed”).  FFD was and remains subject to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).





Also on July 21, 2011, the OTS transferred regulatory authority over federal savings banks, including First Federal, to the Office of the Comptroller of the Currency (the “OCC”).  First Federal was and continues to be regulated by the Federal Deposit Insurance Corporation (the “FDIC”).  First Federal’s deposits are FDIC insured up to applicable limits.  First Federal is also a member of the Federal Home Loan Bank (“FHLB”) of Cincinnati.


1




In April 2011, First Federal filed an application with the OCC to convert its charter from a federal savings bank to a national bank.  If the application is approved and the conversion completed, First Federal would become a national bank, subject to the rules and regulations governing national banks, but would remain subject to regulation, supervision and examination by the OCC and FDIC.  If First Federal converts to a national bank, FFD will convert from a savings and loan holding company to a bank holding company, but will continue to be regulated, supervised and examined by the Fed.  If approved, these conversions are expected to occur in the second or third quarter of fiscal 2012.





First Federal’s business involves attracting deposits from individual and business customers and using these deposits to originate loans to individuals and businesses in its primary market area.  First Federal provides deposit products, including checking, savings, money market and individual retirement accounts as well as certificates of deposit, and originates residential and home equity loans, construction loans, nonresidential real estate loans, business loans and consumer loans.  Loan funds are obtained primarily from deposits and loan repayments.  First Federal obtains advances from the FHLB of Cincinnati when other sources of funds are inadequate to fund loan demand and to help manage liquidity and interest rate risk.  First Federal also invests in U.S. Government agency obligations, interest-bearing deposits in other financial institutions, mortgage-backed securities and other investments permitted by applicable law.





First Federal’s primary source of income is interest on loans, mortgage-backed securities and investments.  First Federal’s principal expense is interest paid on deposit accounts and borrowings.  Operating results are dependent to a significant degree on First Federal’s net interest income, which is the difference between interest earned on loans, mortgage-backed securities and other investments and the interest paid on deposits and borrowings.  First Federal’s interest income and interest expense are significantly affected by general and local economic conditions and by the policies of various regulatory authorities.





Lending Activities





General.  First Federal’s principal lending activity is the origination of real estate loans and commercial loans in its primary market area.  Real estate loans are typically secured by nonresidential real estate and one- to four-family residential properties.  To a lesser extent, First Federal originates loans secured by multifamily properties containing five units or more, construction loans, and various types of consumer loans.





Loan Portfolio Composition.  The following table presents certain information regarding the composition of First Federal’s loan portfolio at the dates indicated:




At June 30,2011


2010


2009Amount


Percent

of total loans


Amount


Percent

of total loans


Amount


Percent

of total loans(Dollars in thousands)One- to four-family (1)

$
69,689



37.2
%

$
68,171



37.3
%

$
62,940



37.6
%Multifamily (1)


6,961



3.7



8,328



4.5



8,136



4.9Nonresidential and land (1)


81,955



43.7



80,066



43.8



72,157



43.1Commercial – secured


22,637



12.1



20,056



11.0



17,533



10.5Commercial – unsecured


132



.1



101



.1



145



.1Consumer


6,086



3.2



6,048



3.3



6,328



3.8Total loans


187,460



100.0
%


182,770



100.0
%


167,239



100.0
%Deferred loan origination costs


293







269







221Undisbursed portion of loans in process


( 3,353
)






(2,209
)






(4,328
)Allowance for loan losses


( 2,174
)






(1,993
)






(1,694
)Loans receivable, net

$
182,226






$
178,837






$
161,438




(1)      Includes construction loans.


2


Loan Maturity Schedule.  The following table presents certain information as of June 30, 2011, regarding the dollar amount of loans maturing in First Federal’s portfolio based on their contractual terms to maturity.  Demand loans and loans having no stated repayment schedule and no stated maturity are reported as due in one year or less.




Due during the year ending

June 30,2012


2013


2014


2015

2016


2017-

2021


2022 and

thereafter


Total(In thousands)Residential real estate (1)

$
10,311


$
4,435


$
4,672


$
10,105


$
30,378


$
16,749


$
76,650Nonresidential and land


4,407



4,655



4,917



10,680



32,434



24,862



81,955Commercial loans


9,092



9,583



4,094



-



-



-



22,769Consumer loans


2,414



1,539



1,650



483



-



-



6,086Total loans

$
26,224


$
20,212


$
15,333


$
21,268


$
62,812


$
41,611


$
187,460


__________________________


(1)
Includes one- to four-family and multifamily loans.




The following table shows the dollar amount of all loans due after June 30, 2012, which have fixed interest rates and which have floating or adjustable interest rates:





Due after June 30, 2012(In thousands)Fixed rate of interest

$
23,377Adjustable rate of interest


137,859$
161,236




One- to Four-Family Residential Real Estate Loans.  First Federal makes permanent loans secured by first mortgages on owner occupied and non-owner occupied existing one- to four-family residences primarily located in its market area.  First Federal also originates home equity loans secured by first or second mortgages on one- to four-family residential real estate.  The aggregate amount of First Federal’s one- to four-family residential real estate loans was $69.7 million, or 37.2% of total loans, at June 30, 2011.





First Federal offers adjustable-rate mortgage loans (“ARMs”) for terms up to 30 years.  The interest rate adjustment periods on ARMs are one year, three years or five years.  Most of First Federal’s ARMs adjust after one-year.  The rates on ARMs are tied to the average monthly mortgage contract rate for previously occupied homes published by the Federal Housing Finance Board.  The maximum allowable adjustment at each adjustment date is 2%.  A limited number of First Federal’s ARMs have a maximum adjustment of 6% over the term of the loan.





ARMs decrease First Federal’s interest rate risk but involve other risks, primarily credit risk.  As interest rates rise, the payment by the borrower increases 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 Federal believes that these risks have not had a material adverse effect to date.





First Federal originates fixed-rate loans with terms of up to 30 years, although the majority of First Federal’s fixed-rate loans are sold in the secondary market, usually with servicing retained.





To a lesser extent, First Federal makes loans for the construction of residential real estate.  These loans are typically structured as permanent loans with adjustable or fixed rates of interest and terms from 15 to 30 years.  Construction loans are made to owner-occupants for the construction of single-family homes by a general contractor and to developers for the construction of single-family homes.


3




Construction loans generally involve greater underwriting and default risks than loans secured by mortgages on existing properties.  First Federal advances loan funds upon the security of the project under construction, which is more difficult to value before construction is complete.  Because of the uncertainties inherent in estimating construction costs, if a default on a construction loan occurs and foreclosure follows, First Federal must take control of the project and attempt to either arrange for the completion of construction or dispose of the unfinished project.  At June 30, 2011, First Federal had $274,000 of undisbursed construction loans for one- to four-family real estate, had no construction loans in default and had not taken control of any construction projects.





Regulations limit the amount that First Federal may lend in relationship to the appraised value of the real estate securing the loan, as determined by an appraisal at the time of loan origination.  Lending policies of First Federal limit the maximum loan amount as it relates to the value of the property (“Loan-to-Value Ratio” or “LTVs”).  For fixed-rate loans, the maximum LTV without private mortgage insurance is 80% of the lower of appraised value or purchase price.  However, First Federal makes loans in excess of 80% LTV on owner occupied single family, duplex and three- to four-family properties with private mortgage insurance.  First Federal also offers ARMs for owner occupied properties with LTVs up to 89% and an affordable housing loan program under which it originates a small number of ARMs with LTVs of up to 95%, each without private mortgage insurance.  For non-owner occupied one- to two-family and three- to four-family properties, fixed rate loans with LTVs of 90% and 75%, respectively, are available with private mortgage insurance. For non-owner occupied properties with a maximum LTV of 85%, ARMs are available without private mortgage insurance.





Included in one- to four-family loans are lines of credit secured by a mortgage on the borrower’s principal residence.  Typically, home equity lines of credit, when added to any prior indebtedness secured by the real estate, do not exceed 89% of the estimated value of the real estate.  For borrowers with high credit ratings, First Federal originates a small number of home equity lines of credit up to 95% of the real estate’s value.  First Federal’s home equity loans have terms of up to 15 years.  Premier lines of credit are extended to certain limited high net worth borrowers in amounts which may exceed the estimated value of the underlying real estate.  The interest rates charged by First Federal on home equity loans adjust monthly and are tied to the base rate on corporate loans, posted by at least 75% of the nation’s 30 largest banks, as reported in The Wall Street Journal.  At June 30, 2011, First Federal’s one- to four-family residential real estate loan portfolio included $18.0 million in home equity loans, or 9.6% of total loans.





Multifamily Residential Real Estate Loans.  First Federal originates loans secured by multifamily properties containing five or more units.  The majority of these loans are ARMS with a maximum LTV of 85% and terms of up to 20 years.





Multifamily lending is generally considered to involve a higher degree of risk because the loan amounts are larger and the borrower typically depends upon income generated by the project to cover operating expenses and debt service.  The profitability of a project can be affected by economic conditions, government policies and other factors beyond the control of the borrower.  First Federal attempts to reduce the risk associated with multifamily lending by evaluating the borrower’s creditworthiness and the projected income from the project and by obtaining personal guarantees on loans made to business entities.  At June 30, 2011, loans secured by multifamily properties totaled approximately $7.0 million, or 3.7% of total loans.





Nonresidential Real Estate and Land Loans.  First Federal makes loans secured by nonresidential real estate such as retail stores, office buildings and other commercial properties, with terms of up to 20 years and a maximum LTV of 85%.  First Federal also makes loans secured by improved and unimproved lots for the construction of single-family residences.  Unimproved land and lot loans have terms of up to five years and a maximum LTV of 65%.  Improved lot loans have terms of up to five years and a maximum LTV of 80%.





Nonresidential real estate lending is generally considered to involve a higher degree of risk than residential lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties.  If, for example, leases are not obtained or renewed, the cash flow on the property may be reduced and the borrower’s ability to repay may be impaired.  First Federal attempts to reduce such risk by evaluating the borrower’s credit history and past performance, the location of the real estate, the quality of the management constructing and operating the property, the debt service ratio, the quality and characteristics of the income stream generated by the property, personal guarantees and appraisals supporting the property’s valuation.





First Federal also originates loans for the construction of nonresidential real estate.  These loans are typically structured as permanent loans with adjustable or fixed rates of interest and terms up to 20 years and generally involve greater underwriting and default risks than do loans secured by mortgages on existing properties.  Because of the uncertainties inherent in estimating construction costs, in the event a default on a construction loan occurs and foreclosure follows, First Federal must take control of the project and attempt to either arrange for completion of construction or dispose of the unfinished project.  At June 30, 2011, First Federal had $3.1 million in undisbursed construction loans for nonresidential real estate, none of which were in default or requiring First Federal to take control of any such projects.


4




At June 30, 2011, First Federal had a total of $82.0 million, or 43.7% of total loans, invested in nonresidential real estate and land loans.  Federal regulations limit the amount of nonresidential mortgage and land loans which First Federal may make to 400% of its capital.  At June 30, 2011, nonresidential mortgage and land loans totaled 358% of First Federal’s capital.





Commercial Loans.  First Federal makes commercial loans to businesses in its primary market area which are secured by inventory, equipment, accounts receivable, machinery, other assets of the borrower, and also by personal guarantees.  The LTVs for commercial loans depend upon the nature of the underlying collateral, but generally do not exceed 85%.  Commercial loans generally have fixed or adjustable interest rates with terms up to seven years.





Commercial loans generally entail significantly greater risk than real estate lending.  The repayment of commercial loans is typically dependent on the income stream and successful operation of a business, which can be affected by general economic conditions.





At June 30, 2011, First Federal had approximately $22.8 million, or 12.2% of total loans, invested in commercial loans.  OTS regulations limit the amount of First Federal’s commercial loans to 20% of First Federal’s total assets, provided that amounts in excess of 10% may only be used for small business loans.  At June 30, 2011, First Federal complied with these limits.





Consumer Loans.  First Federal makes various types of consumer loans, including unsecured loans and loans secured by savings accounts, motor vehicles and boats.  Consumer loans are made at fixed or adjustable rates of interest.  Unsecured loans are made with terms of up to two years.  Motor vehicle loans are made with terms of up to five and a half years.  Boat loans are made with terms up to ten years.  Consumer loans may entail greater credit risk than residential mortgage loans.  The risk of default on consumer loans increases during periods of recession, high unemployment and other adverse economic conditions, and often the underlying collateral, such as a vehicle, declines in value over time.





At June 30, 2011, First Federal had approximately $6.1 million, or 3.2% of its total loans, invested in consumer loans.





Loan Solicitation and Processing.  Loan originations are developed from a number of sources, including continuing business with depositors and borrowers, newspaper, television, and radio advertisements, solicitations by First Federal’s lending staff, automobile and boat dealers, word of mouth and walk-in customers.





Loan applications for residential and nonresidential real estate loans are taken by First Federal’s loan personnel.  First Federal typically obtains, as applicable, verification of income, personal and entity credit reports, tax returns, financial statements, and other documentation concerning the borrower’s and any guarantor’s creditworthiness.  An appraisal or valuation of the fair market value of the real estate securing the loan is prepared by a fee appraiser approved by the Board of Directors.  For construction loans, the appraiser also evaluates the building plans, construction specifications and estimates of construction costs, and First Federal evaluates the feasibility of the proposed construction project and the experience and record of the builder.  Upon the completion of the appraisal or valuation and the receipt of information on the borrower’s credit history, the loan application is reviewed in accordance with First Federal’s underwriting guidelines.





Under First Federal’s current loan guidelines, if a residential or nonresidential real estate loan application is approved, First Federal usually obtains title insurance on the real estate which will secure the mortgage loan.  In the past, First Federal used an attorney’s opinion for single-family loans.  First Federal requires borrowers to carry satisfactory fire and casualty insurance and, if applicable, flood insurance, and to name First Federal as an insured mortgagee.





Loan applications for commercial loans are taken by one of First Federal’s commercial loan officers.  First Federal typically obtains information from the business entity and any guarantors that includes, as applicable, personal or entity credit reports, tax returns, financial statements, and other documentation concerning creditworthiness.  An appraisal or a valuation of the fair market value of the collateral securing the loan is typically obtained.  This can take the form of officer inspection, book value, aging schedules, or borrowing base reports.  Occasionally First Federal receives an opinion by an industry field expert.  Upon the completion of the appraisal or valuation and the receipt of information on the credit history of the borrower and any guarantors, the loan application is reviewed in accordance with First Federal’s underwriting guidelines.





Loan applications for consumer loans are taken by First Federal’s loan personnel, with the exception of some auto and boat loan applications taken by the dealers and provided to First Federal.  Underwriting guidelines require that a credit report, verification of income and other documents concerning the borrower’s creditworthiness must be obtained.  Additionally, an appraisal or valuation of the fair market value of the collateral securing the loan is typically obtained.  Consumer loans are underwritten on the basis of the borrower’s credit history, an analysis of the borrower’s income and expenses, the borrower’s ability to repay the loan and the value of collateral, if any.


5


Loan Originations, Purchases and Sales.  Currently, First Federal originates both adjustable-rate and fixed-rate loans for its portfolio.  First Federal sells a majority of its fixed-rate one- to four-family residential real estate loans to Freddie Mac, but retains the right to service the loans sold in exchange for a fee.  During the year ended June 30, 2011, First Federal sold approximately $28.7 million in loans to Freddie Mac and sold approximately $300,000 in loan participations to other financial institutions.





Applicable regulations limit the aggregate amount that a savings association may lend to any one borrower to 15% of the association’s total capital for risk-based capital purposes, plus any loan loss reserves not already included in total capital (the “Lending Limit Capital”).  A savings association may loan to one borrower an additional amount not to exceed 10% of the association’s Lending Limit Capital if the additional amount is fully secured by certain forms of “readily marketable collateral.”  Real estate is not considered “readily marketable collateral.”  The regulations require that loans to certain related or affiliated borrowers be aggregated when applying this limit.  Exceptions to the lending limit may be granted by First Federal’s regulators on a case-by-case basis under certain circumstances.





Based on the 15% limit, First Federal was able to lend approximately $3.1 million to one borrower at June 30, 2011, although the largest amount First Federal had outstanding to one borrower at June 30, 2011, was $2.8 million.





Loan Origination and Other Fees.  First Federal receives loan origination fees and other fee income from its lending activities, including late payment charges, application fees and fees for other miscellaneous services.  Loan origination fees and other fees are a volatile source of income, varying with the volume of lending, loan repayments and general economic conditions.  All nonrefundable loan origination fees and certain direct loan origination costs are deferred and recognized as an adjustment to yield over the life of the related loan.





Delinquent Loans, Nonperforming Assets and Classified Assets.  First Federal strives to maintain a high level of asset quality through sound underwriting and efficient collection practices.  To discourage late payments, First Federal charges a late fee of 5% of the monthly payment after 15 days for fixed-rate mortgages and most ARMs and after 30 days for some older ARMs.  Consumer loans are charged a late fee of 5% of the monthly payment after 10 days.  When a mortgage loan is 15 days or more delinquent or a consumer loan is 10 days or more delinquent, the borrower is sent a delinquency notice.  When a loan is 30 days delinquent, First Federal usually contacts the borrower by telephone.  When a loan becomes 90 days delinquent, it is generally referred to an attorney for foreclosure or collection.  First Federal considers various factors when deciding whether and when to initiate foreclosure or collection proceedings, such as the amount of the outstanding loan in relation to the original indebtedness, the extent of the delinquency and the borrower’s ability and willingness to cooperate in curing the delinquency.  Additional measures may be taken to accelerate the collection process for commercial or consumer loans.





If a foreclosure or repossession occurs, the real estate or other collateral is sold at public sale and may be purchased by First Federal.  Real estate acquired by First Federal as a result of foreclosure proceedings or by deed-in-lieu of foreclosure is classified as real estate owned (“REO”) until it is sold.  When First Federal acquires a property, or any other collateral, it is recorded at the lower of cost or fair value, less estimated selling costs.  First Federal records a loss provision if the collateral’s fair value declines substantially below the value determined at the recording date.  In determining the lower of cost or fair value at acquisition, costs relating to development and improvement are capitalized.  Costs relating to holding REO, net of rental income, are charged against earnings as incurred.  First Federal held no REO at June 30, 2011.





The following table reflects the amount of First Federal’s delinquent loans as of the dates indicated:





June 30, 2011


June 30, 2010


June 30, 2009Number


Amount


Percent

of total loans


Number


Amount


Percent

of total loans


Number


Amount


Percent

of total loans(Dollars in thousands)Loans delinquent for:30 - 59 days


24


$
891



0.49
%


24


$
783



0.44
%


22


$
764



0.47
%60 - 89 days


17



756



0.41
%


20



1,215



0.68
%


19



1,014



0.63
%90 days and over


11



546



0.29
%


14



2,188



1.22
%


7



949



0.59
%Total delinquent loans


52


$
2,193



1.19
%


58


$
4,186



2.34
%


48


$
2,727



1.69
%





Nonperforming assets include nonaccruing loans, real estate acquired by foreclosure or by deed-in-lieu of foreclosure, and repossessed assets.  First Federal stops accruing interest on all real estate and other loans that are delinquent 90 days or more or when management determines that the collection of past due interest is unlikely.  Further, interest accrual may stop before a loan is 90 days delinquent if, in management’s opinion, the collateral value is not adequate to cover the outstanding principal and interest.


6


The following table gives information regarding First Federal’s nonaccruing, impaired and nonperforming loans and nonperforming assets at the dates indicated.





At June 30,2011


2010


2009(Dollars in thousands)Impaired nonperforming loans


286


$
2,102


$
989Impaired performing loans


2,174



1,822



834Total impaired loans


2,460



3,924



1,823Other nonperforming loans


260



86



115Total nonperforming and impaired loans


2,720



4,010



1,938Real estate acquired through foreclosure


-



-



121Total nonperforming and impaired assets

$
2,720


$
4,010


$
2,059Total nonperforming and impaired loans as a percent of total loans


1.52
%


2.24
%


1.14
%Allowance for loan losses as a percent of nonperforming and impaired loans


78.40
%


49.69
%


87.41
%Total nonperforming and impaired assets to total assets


1.26
%


1.94
%


1.09
%





For the year ended June 30, 2011, interest income of $88,000 would have been recorded on nonaccruing loans had they been accruing pursuant to their contractual terms.





Applicable regulations require that each thrift institution classify its own assets on a regular basis.  Problem assets are classified as “substandard,” “doubtful” or “loss.”  “Substandard” assets have one or more defined weaknesses and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.  “Doubtful” assets have the same weaknesses as “substandard” assets, with the additional characteristics that (i) the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable and (ii) there is a high possibility of loss.  An asset classified as “loss” is considered uncollectible and of such little value that its continuance as an asset of the institution is not warranted.  If an asset, or portion thereof, is classified as loss, the association must either establish a specific allowance for losses for the entire portion of the asset classified as loss or charge-off such amount.  The regulations also contain a “special mention” category, consisting of assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but which possess credit deficiencies or potential weaknesses deserving management’s close attention.  At June 30, 2011, First Federal had $1.2 million in special mention assets.





The aggregate amounts of First Federal’s classified assets at the dates indicated were as follows:





At June 30,2011


2010


2009(In thousands)Classified assets:Substandard

$
2,368


$
3,486


$
1,232Doubtful


280



-



81Total

$
2,648


$
3,486


$
1,313




Federal examiners are authorized to classify an association’s assets.  If the association does not agree with an examiner’s classification of an asset, it may appeal the determination.  First Federal had no disagreements with the examiners regarding the classification of assets at the time of its last examination.


7




Allowance for Loan Losses.  First Federal maintains an allowance for loan losses based upon a number of relevant factors, including growth and changes in the composition of the loan portfolio, trends in the level of delinquent and problem loans, loan charge-offs, current and anticipated economic conditions in First Federal’s primary lending area, past loss experience and probable losses arising from specific problem assets.





The two largest components of First Federal’s loan portfolio consist of nonresidential and land and one- to four-family residential real estate loans.  Substantially all of these loans are secured by property in First Federal’s primary lending area, consisting of Tuscarawas, Holmes and some adjoining counties in Ohio, which has a fairly stable economy.  First Federal’s underwriting standards and credit culture contributed to its relatively low net charge-off rate to total loans of .36% for the year ended June 30, 2011.  Substantially all of First Federal’s other real estate loans, consisting of multifamily loans, are secured by properties in First Federal’s primary lending area.  First Federal has not experienced any significant charge-offs from the multifamily real estate loan category in recent years.  Consumer loans are a small portion of First Federal’s total loans and did not result in any significant charge-offs.  Of the $667,000 in total charge-offs, $485,000 was related to one out of market participation loan.  At June 30, 2011 participation loans accounted for 1.3% of total loans.





Large loans are reviewed periodically to identify potential problems at an early date.  While First Federal believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in material adjustments, and net earnings could be significantly adversely affected, if circumstances differ substantially from the assumptions used in determining the allowance.





The following table sets forth an analysis of First Federal’s allowance for loan losses for the periods indicated:





Year ended June 30,2011


2010


2009(Dollars in thousands)Balance at beginning of period

$
1,993


$
1,694


$
1,482Charge-offs


(667
)


(257
)


(253
)Recoveries


2



8



21Provision for losses on loans


846



548



444Balance at end of period

$
2,174


$
1,993


$
1,694Ratio of net charge-offs to average loans outstanding during the period


0.37
%


0.15
%


0.15
%Ratio of allowance for loan losses to total loans


1.18
%


1.10
%


1.04
%





The following table sets forth the allocation of First Federal’s allowance for loan losses by type of loan at the dates indicated:




At June 30,2011


2010


2009Amount


% of loans in each

category to

total loans


Amount


% of loans in each

category to

total loans


Amount


% of

loans in each

category to

total loans(Dollars in thousands)Balance at year end applicable to:Residential real estate

$
935



40.9
%

$
662



41.8
%

$
508



85.6
%Nonresidential and land


861



43.7



988



43.8



1,022



10.6Commercial


268



12.2



218



11.1



164



3.8Consumer


110



3.2



125



3.3



-



-Total

$
2,174



100.0
%

$
1,993



100.0
%

$
1,694



100.0
%





Because the loan loss allowance is based on estimates, it is monitored quarterly and adjusted as necessary.


8




Investment Activities





First Federal is permitted to invest in certain commercial paper, corporate debt securities rated in one of the four highest rating categories by one or more nationally recognized statistical rating organizations, and other investments permitted by federal regulations.





First Federal maintains a $6.3 million portfolio of mortgage-backed securities in the form of Freddie Mac, Ginnie Mae and Fannie Mae participation certificates.  Mortgage-backed securities generally entitle First Federal to receive a portion of the cash flows from an identified pool of mortgages.  Freddie Mac, Ginnie Mae and Fannie Mae securities are guaranteed by the issuing agency as to principal and interest.


9


The following table sets forth information regarding First Federal’s investment securities and mortgage-backed securities at the dates indicated:





At June 30,2011


2010


2009Amortized

cost


% of

total


Market

Value


% of

total


Amortized

cost


% of

total


Market

value


% of

total


Amortized

cost


% of

total


Market

value


% of

total(Dollars in thousands)Investment securities designated as available for sale:U.S. Government and agency obligations

$
5,999



48.9
%

$
6,019



48.8
%

$
7,997



96.7
%

$
8,038



96.7
%

$
6,000



95.3
%

$
5,863



95.2
%Equity securities


2



-



2



-



2



-



2



-



2



-



2



-Mortgage-backed securities designated as held to maturity


51



0.4



51



0.4



57



0.7



57



0.7



62



1.0



62



1.0Mortgage-backed securities designated as available for sale


6,225



50.7



6,257



50.8



213



2.6



216



2.6



229



3.7



231



3.8Total mortgage-backed securities


6,276



51.1



6,308



51.2



270



3.3



273



3.3



291



4.7



293



4.8Total investment securities and mortgage-backed securities

$
12,277



100.0
%

$
12,329



100.0
%

$
8,269



100.0
%

$
8,313



100.0
%

$
6,293



100.0
%

$
6,158



100.0
%





The maturities of First Federal’s U. S. Government and agency obligations and mortgage-backed securities at June 30, 2011, are indicated in the following table:




Less than one year


After one year through

five years


After five

through ten years


After ten

years


TotalCarrying

value


Average

yield


Carrying

value


Average

yield


Carrying

value


Average

yield


Carrying

value


Average

yield


Carrying

value


Weighted-

average yield(Dollars in thousands)U.S. Government and agency obligations

$
-



-
%

$
-



-
%

$
4,014



2.44
%

$
2,005



2.00
%

$
6,019



2.29
%Mortgage-backed securities


-



-
%


1



11.08
%


3



2.36
%


6,304



2.69
%


6,308



2.69
%$
-



-
%

$
1



11.08
%

$
4,017



2.44
%

$
8,309



2.52
%

$
12,327



2.49
%




10


Deposits and Borrowings





Deposits.  Deposits have traditionally been First Federal’s primary source of funds for use in lending and other investment activities.  Deposits are obtained principally from within First Federal’s primary market area by offering a broad selection of deposit instruments, including negotiable order of withdrawal (“NOW”) accounts, savings accounts, health savings accounts, individual retirement accounts (“IRAs”) and certificates of deposit (“CDs”).  Interest rates paid, maturity terms, service fees and withdrawal penalties for the various types of accounts are established periodically by First Federal’s management based on liquidity requirements, growth goals and competition.  First Federal does not use brokers to attract deposits.  First Federal’s lending activities have also contributed to deposit growth due to its focus on developing relationships with commercial borrowers.





At June 30, 2011, First Federal’s CDs totaled $96.7 million, or 52.3% of total deposits.  Of this amount, approximately $45.1 million mature within one year.  Based on past experience and First Federal’s prevailing pricing strategies, management believes that a substantial percentage of these CDs will renew with First Federal at maturity.  If there is a significant deviation from historical experience, First Federal can utilize FHLB borrowings as an alternative to this source of funds, although the cost of such borrowings might be greater.





The following table shows the dollar amount of deposits in the various types of accounts offered by First Federal at the dates indicated:




At June 30,2011


2010


2009Amount


%

of total

deposits


Amount


%

of total

deposits


Amount


%

of total

deposits(Dollars in thousands)Transaction accounts:Demand deposit accounts


$
15,746



8.5
%

$
13,257



7.7
%

$
9,828



6.4
%NOW and money market accounts (1)



42,805



23.1



37,275



21.8



34,167



22.2Savings accounts (2)



29,803



16.1



24,510



14.3



22,954



14.9Total transaction accounts



88,354



47.7



75,042



43.8



66,949



43.5CDs:0.50 – 1.00%


$
19,654



10.6


$
10,504



6.1


$
5,039



3.31.01 – 2.00%



29,106



15.7



27,836



16.2



5,756



3.82.01 - 4.00%



41,461



22.4



27,622



16.2



33,067



21.54.01 - 6.00%



6,468



3.6



30,335



17.7



42,816



27.9Total CDs (3)



96,689



52.3



96,297



56.2



86,678



56.5Total deposits


$
185,043



100.0
%

$
171,339



100.0
%

$
153,627



100.0
%


_____________________________





(1)
The weighted-average interest rates on NOW and money market accounts were .41% at June 30, 2011, .43% at June 30, 2010 and .66% at June 30, 2009.





(2)
The weighted-average interest rates on savings accounts were .37% at June 30, 2011, .38% at June 30, 2010 and .56% at June 30, 2009.





(3)
The weighted-average rates on all CDs were 2.01% at June 30, 2011, 2.69% at June 30, 2010 and 3.54% at June 30, 2009.


11




The following table shows rate and maturity information for First Federal’s CDs at June 30, 2011:




Amount DueRate


Up to

1 year


Over

1 year to

3 years


Over

3 years to

5 years


Total(In thousands).50 - 2.00%



$
31,724


$
16,372


$
664


$
48,7602.01 - 4.00%




8,454



23,907



9,100



41,4614.01 - 6.00%




4,887



1,581



-



6,468Total


$
45,065


$
41,860


$
9,764


$
96,689




The following table shows at June 30, 2011, the amount of First Federal’s CDs of $100,000 or more by the time remaining until maturity:





Maturity

Amount(In thousands)Three months or less

$
9,106Over 3 months to 6 months


7,398Over 6 months to 12 months


3,816Over 12 months


18,917Total

$
39,237





Borrowings.First Federal’s primary alternative source of funds is FHLB 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 (i) 1% 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, and (ii) 5% of its outstanding advances from the FHLB.  First Federal complied with this requirement at June 30, 2011, with an investment in stock of the FHLB of Cincinnati of $2.4 million.





FHLB advances are secured by collateral in one or more of the following categories: (i) fully-disbursed, whole first mortgage loans on improved residential property or securities representing a whole interest in such loans; (ii) securities issued, insured, or guaranteed by the U.S. Government or an agency thereof; (iii) deposits in any FHLB; or (iv) other real estate related collateral acceptable to the FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security interest in the collateral.  At June 30, 2011, First Federal had $13.1 million of outstanding FHLB advances.





The following table gives certain information as to First Federal’s FHLB advances at the dates indicated:




At June 30,2011


2010


2009(Dollars in thousands)FHLB advances

$
13,137


$
13,699


$
13,869Weighted-average interest rate


3.17
%


4.22
%


4.37
%





The following table shows the maximum balance, the average balance and the weighted-average interest rate of First Federal’s FHLB advances during the periods indicated:




Year ended June 30,2011


2010


2009(Dollars in thousands)Maximum balance

$
13,745


$
14,427


$
20,517Average balance

$
13,427


$
13,847


$
17,697Weighted-average interest rate


3.96
%


4.33
%


4.07
%




FFD entered into a Commercial Loan Agreement on February 25, 2010, with The Home Loan Savings Bank permitting borrowings by FFD up to an aggregate principal amount of $2.0 million.  At June 30, 2011, FFD had $630,000 in borrowings outstanding under this line of credit.




12





Competition





First Federal competes for deposits with other savings associations, commercial banks, credit unions, brokerage firms and with the issuers of commercial paper and other securities, such as shares in money market mutual funds.  The primary factors in competing for deposits are interest rates, convenience and availability of funds and related penalties.  In making loans, First Federal competes with other savings associations, commercial banks, consumer finance companies, credit unions, leasing companies, mortgage companies and other lenders.  First Federal competes for loan originations primarily through the interest rates and loan fees offered and through the efficiency and quality of services provided.  Competition is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable.





Personnel





At June 30, 2011, First Federal had a total of 64 employees, of which 51 were full-time employees.  First Federal believes that relations with its employees are good.  First Federal offers health, disability, life insurance and retirement benefits.  None of First Federal’s employees is represented by a collective bargaining unit.





REGULATION


General





During the fiscal year ended June 30, 2011, FFD and First Federal were subject to examination and comprehensive federal regulation and oversight by the OTS.  Effective July 21, 2011, the Dodd-Frank Act transferred the regulatory responsibilities and authority over federal savings associations and savings and loan holding companies from the OTS to the OCC and the Fed, respectively.





If First Federal’s application to convert to a national bank is approved and the conversion to a national bank is completed, First Federal will be subject to the rules and regulations governing national banks, but will remain subject to regulation, supervision and examination by the OCC and FDIC.  Upon First Federal’s conversion to a national bank, FFD will convert from a savings and loan holding company to a bank holding company, but will continue to be regulated, supervised and examined by the Fed.  Though the regulators will remain the same for FFD and First Federal after the conversion, each will be subject to a new set of rules and regulations.  Within the new rules and regulations that will apply to FFD and First Federal after the conversion, many of the requirements will remain the same, but some provisions, including lending limitations and restrictions on investment, will change.





First Federal has also been and continues to be subject to regulation and examination by the FDIC, which insures the deposits of First Federal to the maximum extent permitted by law, and other certain requirements established by the Fed.  As an Ohio corporation, FFD is subject to provisions of the Ohio Revised Code applicable to corporations.  FFD is also subject to regulation by the SEC.





The investment and lending authority of savings institutions is prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws or regulations.  The regulations and supervision to which FFD and First Federal are subject are intended for the protection of depositors, and not for the purpose of protecting shareholders.





Federal banking regulators, including the OTS, the OCC, the Fed and the FDIC, have substantial enforcement powers. The enforcement authority of the OCC and the Fed (which previously resided with the OTS) over savings institutions and their holding companies includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe and unsound practices.  Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed previously with the OTS or going forward with the OCC and the Fed.





This discussion is not intended to be a complete explanation of all applicable laws and regulations and is qualified in its entirety by reference to the actual statutes and regulations involved.





Recently Enacted Regulatory Reform





Federal regulators continue to implement many provisions of the Dodd-Frank Act, which was signed into law by President Obama on July 21, 2010.  The Dodd-Frank Act created many new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions.  The following discussion summarizes significant aspects of the new law that may affect FFD and First Federal:


13




·
The OTS has merged into the OCC and the authority of the remaining bank regulatory agencies will be restructured;





·
The Consumer Financial Protection Bureau has been established and empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws;





·
New capital regulations for thrift holding companies have been adopted and any new trust preferred securities no longer count toward Tier 1 capital;





·
The current prohibition on the payment of interest on demand deposits has been repealed, effective July 21, 2011;





·
The standard maximum amount of deposit insurance per customer has been permanently increased to $250,000 and non-interest bearing transaction accounts have unlimited deposit insurance through January 1, 2013;





·
The deposit insurance assessment base calculation has been expanded to equal a depository institution’s total assets minus the sum of its average tangible equity during the assessment period; and





·
New corporate governance requirements applicable generally to all public companies in all industries now require new compensation practices, including, but not limited to, requiring companies to “claw back” incentive compensation under certain circumstances, to provide shareholders the opportunity to cast a non-binding vote on executive compensation , to consider the independence of compensation advisors and new executive compensation disclosure requirements.





Many provisions of the Dodd-Frank Act have not yet been implemented and still require interpretation and rule-making by federal regulators.  FFD and First Federal are closely monitoring relevant sections of the Dodd-Frank Act to ensure continued compliance.  While the ultimate effect of the Dodd-Frank Act on FFD and First Federal cannot currently be determined, it is likely to result in increased compliance costs and fees paid to regulators, along with possible restrictions on FFD’s and First Federal’s operations, all of which may have a material adverse affect on their operating results and financial condition.





Regulation of First Federal





General.  As a savings institution, First Federal is subject to extensive regulation by federal banking regulators.  Historically, the OTS periodically examined savings associations, including First Federal, for compliance with various regulatory requirements and has imposed assessments based on asset size to cover the costs of general supervision and examination.  The OTS also maintained the authority to 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.  In certain circumstances, the OTS could appoint a conservator or receiver for a savings association.  After July 21, 2011, such examination and enforcement will be conducted by the OCC.





The FDIC also has the authority to conduct special examinations of all FDIC-insured savings institutions.  First Federal must regularly file reports describing its activities and financial condition.  First Federal is also subject to certain reserve requirements promulgated by the Fed.  Certain of these regulatory requirements are referred to below or elsewhere herein.





Savings associations are subject to various consumer protection and fair lending laws.  These laws govern, among other things, truth-in-lending and truth-in-savings disclosures, equal credit opportunity, fair credit reporting and community reinvestment.  Community reinvestment regulations evaluate how well and to what extent an association lends and invests in its designated service area, with particular emphasis on low- to moderate-income communities and borrowers in those areas.  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.





Regulatory Capital Requirements.  Federal regulations require First Federal to meet certain minimum capital requirements.  All savings associations must maintain tangible capital equal to at least 1.5% of adjusted total assets, Tier 1 (core) capital equal to at least 4.0% of adjusted total assets (or 3.0% for associations with the highest examination rating and acceptable levels of risk) and risk-based capital equal to 8% of risk-weighted assets.  At June 30, 2011, First Federal exceeded these requirements with tangible capital of 8.7%, core capital of 8.7% and total risk-based capital of 12.4%.





Prompt Corrective Regulatory Action.  Federal banking regulators have adopted regulations governing prompt corrective action to address capital deficient and otherwise troubled savings associations.  Under these regulations, a savings institution’s capital adequacy is determined on the basis of the institution’s total risk-based capital ratio (the ratio of its total capital to risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core capital to risk-weighted assets) and leverage ratio (the ratio of its Tier 1 or core capital to adjusted total assets).  The four categories range from the highest level, which is “well capitalized,” to the lowest of “significantly undercapitalized.”


14




At each successively lower defined capital category, an association is subject to more restrictive operations and limits, and the OCC has less flexibility in determining how to resolve the institution’s problems.  A “critically undercapitalized” savings institution is defined as a savings institution that has a ratio of “tangible equity” to total assets of less than 2.0%.  If an institution becomes critically undercapitalized, it will be subject to conservatorship or receivership.  At June 30, 2011, First Federal was deemed a “well capitalized” institution for purposes of the prompt corrective action regulations.





Safety and Soundness Standards.  Federal banking regulations require savings institutions to maintain internal controls and information systems and internal audit systems that are appropriate for the size, nature and scope of the institution’s business. The guidelines also establish certain basic standards for loan documentation, credit underwriting, interest rate risk exposure, and asset growth. The guidelines further provide that savings institutions should maintain safeguards to prevent the payment of compensation, fees and benefits that are excessive or that could lead to material financial loss, and should take into account factors such as comparable compensation practices at peer institutions. If the OCC determines that a savings institution is not in compliance with the safety and soundness guidelines, it may require the institution to submit an acceptable plan to achieve compliance with the guidelines.  Additionally, a savings institution should maintain systems, commensurate with its size and the nature and scope of its operations, to identify problem assets and prevent deterioration in those assets as well as to evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves.





Federal Home Loan Bank System.  First Federal is a member of the FHLB of Cincinnati, one of 12 regional FHLBs.  The FHLB of Cincinnati serves as a reserve or central bank for its member institutions within its assigned region and makes advances of funds to its member institutions for lending, such as residential housing finance, small business loans, small farm loans and small agri-business loans.  At June 30, 2011, First Federal had $13.1 million in advances outstanding from the FHLB of Cincinnati.  For more information regarding First Federal’s source of funds, see the section captioned “Deposits and Borrowings.”  As a member of the FHLB, First Federal is required to acquire and hold specified amounts of capital stock in the FHLB of Cincinnati.  First Federal was in compliance with this requirement with an investment in FHLB of Cincinnati stock at June 30, 2011 of $2.4 million.  The FHLB of Cincinnati’s ability to pay dividends to its stockholders is subject to a variety of factors such as legal requirements, and its financial condition, income and general economic conditions.





Qualified Thrift Lender Test.  If a savings association fails to meet one of the two tests to be a qualified thrift lender (“QTL”), the association and its holding company become subject to certain operating and regulatory restrictions.  The first test requires a savings association to maintain at least 65% of its portfolio assets in certain “qualified thrift investments” (“QTIs”) on a monthly basis in at least nine months of the most recent twelve-month period.  Generally, QTIs are assets related to domestic residential real estate and manufactured housing and include credit card, student and small business loans and certain securities.  The second test permits a savings association to qualify as a QTL if at least 60% of such institution’s assets consist of specified types of property, including cash, loans secured by residential real estate or deposits, educational loans and certain governmental obligations.  If a savings association is not a QTL, it must operate under certain restrictions on its activities.  The Dodd-Frank Act made non-compliance potentially subject to agency enforcement action for violation of law.  At June 30, 2011, First Federal was a QTL.





Uniform Lending Standards.  Banking regulations require savings institutions to adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate.  These policies must establish loan portfolio diversification standards, prudent underwriting standards, including loan-to-value limits that are clear and measurable, loan administration procedures and documentation, approval and reporting requirements.  First Federal believes that its current lending policies conform to the Interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators.





Federal Deposit Insurance Corporation.  First Federal’s deposit accounts are insured by the FDIC up to applicable limits and are backed by the full faith and credit of the U.S. government.  The FDIC has examination authority over all insured depository institutions, including First Federal, and has authority to initiate enforcement actions if the FDIC believes the action is necessary to safeguard the safety and soundness of First Federal and the deposit insurance fund.





The FDIC is required to maintain designated levels of reserves.  These reserves are established and replenished through assessments paid by FDIC-insured institutions.  The FDIC may increase assessment rates to restore the ratio of reserves to insured deposits to its target level, and may decrease such rates if such target level has been met.  The current system provides for quarterly payments, the amounts of which are determined by the risk the institution poses to the deposit insurance fund based on the institution’s capital level and the FDIC’s level of supervisory concern about the institution.  In December 2009, the FDIC required institutions to prepay their estimated premiums for the following 13 quarters.  The FDIC may also impose special assessments on insured institutions, has done so in the recent past and may do so in the future.


15





The Dodd-Frank Act permanently increased deposit insurance on most accounts to $250,000.  The FDIC previously implemented two temporary programs to provide deposit insurance for the full amount of most noninterest bearing transaction deposit accounts through the end of 2010.  Effective December 31, 2010 and continuing through December 31, 2012, the Dodd-Frank Act provides for unlimited insurance coverage on noninterest bearing transaction accounts at all insured institutions.  There will be no additional premiums specifically related to this coverage, and institutions will not have the ability to opt-out.





If the FDIC determines that an institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC, the FDIC may permanently terminate insurance on the institution or may suspend it during hearings regarding the potential termination.   If FDIC insurance is terminated, accounts at the institution at the time of the termination, less subsequent withdrawals, will continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of First Federal’s deposit insurance.





Limitations on Capital Distributions.  Federal law prohibits a savings association from making a capital distribution if, after the distribution, the association would be undercapitalized.  Capital distributions include payments of cash dividends, stock repurchases, and payments to stockholders of another institution in a cash merger.





Federal regulations require that savings institutions submit notice to the OCC prior to making a capital distribution if: (i) they would not be well capitalized after the distribution; (ii) the distribution would result in the retirement of any of the institution’s common or preferred stock or debt counted as its regulatory capital; or (iii) the institution is a subsidiary of a holding company.  An application must be filed the OCC if (i) the proposed distribution would cause the savings association’s total distributions for the calendar year to exceed its net income for that year to date plus its retained net income for the preceding two years; (ii) the savings association would not be at least adequately capitalized following the capital distribution; or (iii) the proposed distribution would violate a prohibition contained in any applicable statute, regulation or agreement between the savings association and the OCC or the FDIC.  As a subsidiary of FFD, First Federal must, at a minimum, provide prior notice to the OCC of any capital distributions, even though the full application may not be required.  The OCC may disapprove or deny a capital distribution if, in the view of the OCC, the distribution would constitute an unsafe or unsound practice.





Federal Reserve Board Reserve Requirements.  The Fed’s regulations currently require that savings associations maintain average daily reserves of 3% of net transaction accounts between $10.7 million and $58.8 million, and of 10% of net transaction accounts on any amounts in excess of $58.8 million.  At June 30, 2011, First Federal complied with its reserve requirements.





The Fed announced on October 6, 2008, that Federal Reserve Banks will begin to pay interest on depository institutions' required and excess reserve balances.  The interest rate paid on required reserve balances is currently the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest target federal funds rate in effect during the reserve maintenance period.





Loans to One Borrower Limitations.  Under federal law, loans and extensions of credit, to a borrower may generally not exceed 15% of the unimpaired capital and surplus of the savings institution. Loans and extensions of credit fully secured by certain readily marketable collateral may represent an additional 10% of unimpaired capital and surplus.





Enforcement.  Effective July 21, 2011, the OCC has primary enforcement responsibility over savings institutions.  In this regard, the OCC has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants, who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution.  Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and directors to institution of receivership, conservatorship or termination of deposit insurance.  Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases.  The FDIC has the authority to recommend to the OCC that enforcement action to be taken with respect to a particular savings institution.  If action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.





Transactions with Insiders and Affiliates.  All transactions between savings associations and their affiliates must comply with Sections 23A and 23B of the Federal Reserve Act and the Fed’s Regulation W.  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.  FFD is an affiliate of First Federal.  Generally, Sections 23A and 23B and Regulation W (i) limit the extent to which a savings association or its subsidiaries may engage in “covered transactions” with any one affiliate up to an amount equal to 10% of the institution’s capital stock and surplus, (ii) limit the aggregate of all covered transactions with all affiliates up to an amount equal to 20% of 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 making loans and extending credit, purchasing assets, accepting securities issued by an affiliate as collateral, issuing a guarantee and other similar transactions.  First Federal complied with these requirements and restrictions at June 30, 2011.


16





Savings institutions are also subject to the restrictions contained in Section 22(h) and Section 22(g) of the Federal Reserve Act on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, executive officer or to a greater than 10% stockholder of a savings institution, and certain affiliated entities of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities the institution’s loan to one borrower limit.  Section 22(h) also requires that loans exceeding the greater of (i) $25,000 or (ii) 5% of capital and surplus (and any loan or loans aggregating to $500,000 or more) must be approved in advance by a majority of the board of directors of the institution with any “interested” director not participating in the voting.  Further, loans to directors, executive officers and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons, unless they are made pursuant to a benefit or compensation program that is widely available to employees of the institution that does not give preference to directors or executive officers over other employees.





Section 22(g) of the Federal Reserve Act and Regulation O promulgated by the Federal Reserve Board requires that loans to executive officers of depository institutions (i) not be made on terms more favorable than those afforded to other borrowers, (ii) be approved by the board of directors, and (iii) are subject to reporting requirements and additional restrictions on the type, amount and terms of credits.





Holding Company Regulation





FFD is currently a registered savings and loan holding company.  FFD was historically subject to OTS regulation, examination, supervision and reporting requirements. However, effective July 21, 2011, the Dodd-Frank Act regulatory restructuring transferred to the Fed the responsibility for regulating and supervising savings and loan holding companies. As a subsidiary of a savings and loan holding company, First Federal is subject to certain restrictions in its dealings with FFD and affiliates thereof.





Savings and loan holding companies are not currently subject to specific regulatory capital requirements.  The Dodd-Frank Act, however, requires the Fed to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves.  Those requirements will become effective July 21, 2015.





The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies.  The regulatory agencies must promulgate regulations implementing the “source of strength” policy that holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.





Unitary savings and loan holding companies, like FFD, generally have no restrictions on their activities, although this broad latitude may be restricted if the Fed determines that an activity constitutes a serious risk to the financial safety, soundness or stability of the holding company, or if its subsidiary savings association fails to qualify as a QTL.  The Fed may impose restrictions it deems necessary to address any such risk, including limiting (i) the 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.





Federal law generally prohibits a savings and loan holding company from controlling any other savings association or savings and loan holding company, or from acquiring or retaining more than 5% of the voting shares of a savings association or holding company that is not a subsidiary, without prior approval of the Fed.  Except with the prior approval of the Fed, 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 acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company.





Ohio Corporation Law





Merger Moratorium Statute.  Chapter 1704 of the Ohio Revised Code regulates certain takeover bids affecting public corporations with significant ties to Ohio.  The statute prohibits, with some exceptions, mergers, combinations and certain other sales, distributions, dividends, or other transactions between 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 transaction is permitted only if, prior to the time the person first becomes an Interested Shareholder, the board of directors has approved the purchase of shares that resulted in such person first becoming an Interested Shareholder.


17





After the initial three-year moratorium, such a transaction may not occur unless (i) one of the specified exceptions applies (ii) the holders of two-thirds of the voting shares, and a majority of the voting shares not beneficially owned by the Interested Shareholder, approve the transaction at a meeting called for such purpose; or (iii) the transaction meets certain statutory criteria designed to ensure that the issuing public corporation’s remaining shareholders receive fair consideration for their shares.





Control Share Acquisition Statute.  Section 1701.831 of the Ohio Revised Code (the “Control Share Acquisition Statute”) requires that, with certain exceptions, acquisitions of shares which would result in the acquiring shareholder owning 20%, 33 1/3%, or 50% of the outstanding shares of an Ohio corporation (a “Control Share Acquisition”) must be approved in advance by  (i) the holders of a majority of the outstanding voting shares of the corporation represented at a meeting at which a quorum is present, and (ii) a majority of the portion of the outstanding voting shares represented at the meeting, excluding the voting shares owned by the acquiring shareholder, owned by certain other persons who acquire or transfer shares after public announcement of the acquisition, or held by certain officers of the corporation or directors of the corporation who are employees of the corporation.





Federal Regulation of Acquisitions of Control of FFD and First Federal





Federal law generally requires regulatory approval of acquisitions at specified levels.  Under applicable federal law and regulations, no person, directly or indirectly, or acting in concert with others, may acquire control of First Federal or FFD without 60 days’ prior notice to the Fed.  “Control” is generally defined as having more than 25% ownership or voting power; however, ownership or voting power of more than 10% may be deemed “control” if certain factors exist.  If the acquisition of control is by a company, the acquirer must obtain the Fed’s approval of the acquisition.  In addition, the Fed’s approval must be obtained for any merger involving FFD or First Federal.





Federal Taxation





FFD and First Federal are each subject to the federal tax laws and regulations which apply to corporations generally.  In addition to the regular income tax, FFD and First Federal may be subject to the alternative minimum tax which 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.  In addition, 75% of the amount by which a corporation’s “adjusted current earnings” exceeds its alternative minimum taxable income computed without regard to preference items 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.





Certain thrift institutions, such as First Federal, are allowed deductions for bad debts under methods more favorable than those granted to other taxpayers.  Qualified thrift institutions may compute deductions for bad debts using either the specific charge-off method of Section 166 of the Code or the experience method of Section 593 of the Code.  The experience method is also available to small banks.  Under the experience method, a thrift institution is 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.  Thrift institutions that are 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.





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.  Section 481(a) of the Code requires certain amounts to be recaptured with respect to such change.  Generally, the amounts to be recaptured 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, commencing with the first taxable year beginning after 1995, subject to the residential loan requirement described below.  In the case of a thrift institution that is treated as 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 (i.e., the “pre-1988 reserves”).  In the case of a thrift institution that is treated as a small bank, like First Federal, 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.


18





The balance of the pre-1988 reserves is subject to the provisions of Section 593(e), which require 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; third, out of supplemental reserves for losses on loans; and fourth, out of such other accounts as may be proper.  To the extent a distribution by First Federal to FFD is deemed paid out of its pre-1988 reserves or supplemental reserves under these rules, the pre-1988 reserves or supplemental 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 or supplemental reserves.  As of June 30, 2011, First Federal’s pre-1988 reserves totaled approximately $1.65 million.  See Notes 1 and 11 to the Consolidated Financial Statements for additional information.





First Federal’s tax returns have been audited or closed without audit through 2006.  In the opinion of management, any examination of open returns would not result in a deficiency which could have a material adverse effect on First Federal’s financial condition.





Ohio Taxation





FFD is subject to the Ohio corporation franchise tax, which, as applied to FFD, 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 8.5% of computed Ohio taxable income in excess of $50,000 or (ii) 0.4% of taxable net worth.





In computing its tax under the net worth method, FFD may exclude 100% of its investment in the capital stock of First Federal, as reflected on the balance sheet of FFD 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, FFD may be entitled to various other deductions in computing taxable net worth that are not generally available to operating companies.





FFD may elect to be a “qualifying holding company” and as such be exempt from the net worth tax.  A corporation franchise tax based solely on net earnings would still apply.  To be exempt, FFD must satisfy all of the requirements of the applicable statute, including making related member adjustments that could affect the taxable net worth of First Federal.  FFD made such an election for fiscal 2011.





First Federal is a “financial institution” for Ohio tax purposes.  As such, it is subject to the Ohio corporate franchise tax on “financial institutions,” which is imposed at a rate of 1.3% of the taxable book net worth.  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.





Ohio imposes a commercial activity tax on gross receipts in excess of $150,000; however, gross receipts of financial institutions and their holding companies are exempt from this tax.





Item 1A.
Risk Factors.





Not required.





Item 1B.
Unresolved Staff Comments.





Not applicable.





Item 2.
Properties.





The following table sets forth certain information at June 30, 2011, regarding the properties on which First Federal’s main office and branch offices are located:


19




Location
Office

type

Owned

or leased

Date

acquired


Lease

expiration date


Net

book value(In thousands)321 North Wooster Avenue

Dover, Ohio  44622
Main

Owned


1/96



N/A


$
870224 West High Avenue

New Philadelphia, Ohio 44663
Branch

Owned


11/97



N/A


$
225902 Boulevard

Dover, Ohio  44622

4737 U.S. Highway 62
Branch

Owned


12/01



N/A


$
657Berlin, Ohio 44610
Branch

Owned


7/09



N/A


$
1,5541047 W. Main St., Suite C

Sugarcreek, Ohio 44681
Branch

Leased


3/05



4/13


$
-





There are no mortgages or liens on the property owned by First Federal.  FFD believes that all office locations are adequately covered by insurance and are in good physical condition.  At June 30, 2011, First Federal’s office premises and equipment had a total net book value of approximately $3.9 million.  For additional information regarding First Federal’s office premises and equipment, see Notes 1 and 6of Notes to Consolidated Financial Statements contained in the FFD Financial Corporation 2011 Annual Report to Shareholders for the fiscal year ended June 30, 2011 (the “Annual Report”).





Item 3.
Legal Proceedings.





Neither FFD nor First Federal is presently involved in any legal proceedings of a material nature.  From time to time, First Federal is a party to legal proceedings incidental to its business to enforce its security interest in collateral pledged to secure loans it has made.





Item 4.
(Removed and Reserved).





PART II





Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.





The information contained in the Annual Report under the caption “MARKET PRICE OF FFD’S COMMON SHARES AND RELATED SHAREHOLDER MATTERS” is incorporated herein by reference.  At September 1, 2011, FFD had approximately 462 shareholders of record.





Purchases of Equity SecuritiesPeriod

(a)

Total number of shares purchased


(b)

Average price paid per share


(c)

Total number of shares purchased as part of publicly announced plan

or programs


(d)

Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans

or programsApril 1, 2011throughApril 31, 2011


-



-



-



-May 1, 2011throughMay 31, 2011


-



-



-



-June 1, 2011throughJune 30, 2011


-



-



-



23,300
(1)Total


-


$
-



-



23,300





20





(1)
FFD currently maintains one repurchase program.  This program approved by FFD’s Board of Directors and announced in April 2010, and authorized the repurchase of up to 25,000 shares in public or private transactions. This repurchase program does not have a specified expiration date.





Item 6.
Selected Financial Data.





Not required.





Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.





The information contained in the Annual Report under the caption “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” is incorporated herein by reference.





Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.





Not required.





Item 8.
Financial Statements and Supplementary Data.





The Consolidated Financial Statements appearing in the Annual Report, including the report of Crowe Horwath LLP dated September 19, 2011, are incorporated herein by reference.





Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.





None.





Item 9A.
Controls and Procedures.





FFD’s Chief Executive Officer and Chief Financial Officer evaluated the disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that FFD’s disclosure controls and procedures are effective.  There were no changes in FFD’s internal controls which materially affected, or are reasonably likely to materially affect, FFD’s internal controls over financial reporting.





The report of FFD’s Chief Executive Officer and its Chief Financial Officer dated September 19, 2011, on FFD’s internal control over financial reporting, contained in the Annual Report under the caption “REPORT OF MANAGEMENT ON THE COMPANY’S INTERNAL CONTROL OVER FINANCIAL REPORTING,” is incorporated herein by reference.





Item 9B.
Other Information.





Not applicable.





PART III




Item 10.
Directors, Executive Officers and Corporate Governance.





The information contained in the definitive Proxy Statement for FFD’s 2011 Annual Meeting of Shareholders to be held on October 18, 2011 (the “Proxy Statement”) under the captions “PROPOSAL ONE-ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS,” “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” and “CORPORATE GOVERNANCE – Meetings of the Board and Committees – Audit Committee” is incorporated herein by reference.





FFD has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees that complies with SEC and NASDAQ requirements.  A copy of FFD’s Code of Business Conduct and Ethics may be obtained without charge upon written request to FFD’s Secretary at 321 North Wooster Avenue, Dover, Ohio 44622.


21





Item 11.
Executive Compensation.





The information contained in the Proxy Statement under the captions “EXECUTIVE OFFICERS – Executive Compensation; - Stock Option Information; - Change of Control Agreements; and – Retirement Benefits” and “CORPORATE GOVERNANCE – Director Compensation” is incorporated herein by reference.





Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.





The information contained in the Proxy Statement under the captions“OWNERSHIP OF FFD SHARES” is incorporated herein by reference.





FFD currently maintains the FFD Financial Corporation 1996 Stock Option and Incentive Plan (the “1996 Plan”) and the FFD Financial Corporation 2002 Stock Option Plan for Non-Employee Directors (the “Directors Plan”).  For additional information regarding the 1996 Plan and the Directors Plan, see Note 10 to Consolidated Financial Statements contained in the Annual Report.





The following table shows for the 1996 Plan and the Directors Plan the (a) number of common shares issuable upon exercise of outstanding stock options, (b) the weighted average exercise price of those stock options, and (c) the number of common shares remaining for future issuance at June 30, 2011, excluding shares issuable upon exercise of outstanding stock options.  The 1996 Plan has been previously approved by the shareholders; the Directors Plan has not.





(a)


(b)


(c)Plan Category

Number of securities

to be issued upon

exercise of

outstanding options


Weighted-average

exercise price of

outstanding options


Number of securities remaining available for

future issuance under

equity compensation plans (excluding securities

reflected in column (a))Equity compensation plans approved by security holders (the 1996 Plan) (1)


9,875


$
13.12Equity compensation plans not approved by security holders (the Directors Plan) (2)


8,945


$
10.10



3,305Total


18,820


$
11.68



3,305





(1)
On October 8, 2006, the 1996 Plan expired as to new awards and, as a result, no shares remain available for future awards under such plan.





(2)
The Board adopted the Directors Plan because certain restrictions then contained in the 1996 Plan prevented any future option grants to directors under the 1996 Plan.  Because a grant of options to a new director was not possible under the 1996 Plan, the Board adopted the Directors Plan in order to award options to Leonard L. Gundy upon his election as a director at the 2002 Annual Meeting of Shareholders.  There were 12,250 options authorized for issuance under the Directors Plan, of which 4,445 are presently outstanding.  As of September 20, 2011, 4,500 options granted under the Directors Plan have been exercised.  Because of the small number of options available under the Directors Plan, shareholder approval of the plan was not required under NASDAQ rules applicable at the time. Options granted under the Directors Plan are non-qualified stock options and the option exercise price of each option granted under the Directors Plan must be at least 100% of the “fair market value” (as defined in the Directors Plan) of FFD’s common shares on the date of the grant.





Item 13.
Certain Relationships and Related Transactions, and Director Independence.





The information contained in the Proxy Statement under the caption “RELATED PERSON TRANSACTIONS” and “CORPORATE GOVERNANCE – Director Independence; and – Meetings of the Board and Committees” is incorporated by reference.


22





Item 14.
Principal Accounting Fees and Services.





The information contained in the Proxy Statement under the caption “PROPOSAL TWO – RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM – Fees of Independent Registered Public Accounting Firm” is incorporated by reference.





Item 15.
Exhibits, Financial Statement Schedules





(a)      1.         Financial Statements





The Following consolidated financial statements (and reports thereon) are set forth on pages 16 through 55 of the Annual Report (Exhibit 13 to this Annual Report on Form 10-K) and are incorporated herein by reference:





Pages in 2011

Annual Report

To ShareholdersReport of Management on Internal Control Over Financial Reporting
16Report of Independent Registered Public Accounting Firm
17Consolidated Statements of Financial Condition for the Years Ended June 30, 2011 and 2010
18Consolidated Statements of Income for the Years Ended June 30, 2011and 2010
19Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2011 and 2010
20Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2011 and 2010
21Consolidated Statements of Cash Flows for the Years Ended June 30, 2011 and 2010
22-23Notes to Consolidated Financial Statements
24-55





(a)      2.          Financial Statement Schedules





Financial statement schedules have been omitted either because they are not applicable or because the required information is provided in the consolidated financial statements, including the notes thereto, set forth on pages 18 through 55 of the Annual Report (Exhibit 13 to this Annual Report on Form 10-K).





(a)      3.          Exhibits Required by Item 601 of Regulation S-K





The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are listed in the Index to Exhibits, which appears on page 25 hereof and is incorporated herein by reference.


23





SIGNATURES





In accordance with Section 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.





FFD FINANCIAL CORPORATIONBy:
/s/ Trent B. TroyerTrent B. TroyerPresident and Chief Executive OfficerDate: September 28, 2011





Pursuant to the requirements of the security Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.








/s/ Richard A. Brinkman, Jr.

/s/ Stephen G. ClintonRichard A. Brinkman, Jr.

Stephen G. ClintonDirector

DirectorDate: September 28, 2011

Date: September 28, 2011/s/ Leonard L. Gundy

/s/ Enos L. LoaderLeonard L. Gundy

Enos L. LoaderDirector

DirectorDate: September 28, 2011

Date: September 28, 2011/s/ Robert D. Sensel

/s/ David W. KaufmanRobert D. Sensel

David W. KaufmanDirector

DirectorDate: September 28, 2011

Date: September 28, 2011/s/ Robert R. Gerber

/s/ Trent B. TroyerRobert R. Gerber

Trent B. TroyerSenior Vice President, Chief Financial Officer and Treasurer

President and Chief Executive Officer (Principal Executive Officer)(Principal Financial Officer and Principal Accounting Officer)Date: September 28, 2011

Date: September 28, 2011




24


INDEX TO EXHIBITS


EXHIBIT

NUMBER

DESCRIPTION3.1

Articles of Incorporation of FFD Financial Corporation

Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (the “S-1”) filed with the Securities and Exchange Commission (the “SEC”) on December 15, 19953.2

Certificate of Amendment to Articles of Incorporation of FFD Financial Corporation

Incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 1 to the S-1 filed with the SEC on February 1, 1996 (“Pre-Effective Amendment No. 1”)3.3

Certificate of Amendment to Articles of Incorporation of FFD Financial Corporation

Incorporated by reference to Exhibit 3.3 to Pre-Effective Amendment No. 13.4

Code of Regulations of FFD Financial Corporation

Incorporated by reference to Exhibit 3.3 to the S-110.1

FFD Financial Corporation 1996 Stock Option and Incentive Plan, as amended

Incorporated by reference to Annex A to the Proxy Statement for the 2003 Annual Meeting of Shareholders, filed with the SEC on September 22, 2003 (SEC File No. 000-27916)10.2

FFD Financial Corporation 2002 Stock Option Plan for Non-Employee Directors

Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-KSB for the fiscal year ended June 30, 2003, filed with the SEC on September 29, 2003 (SEC File No. 000-27916)10.3

Amended and Restated Change of Control Agreement between First Federal Community Bank and Scott C. Finnell dated December 9, 2008

Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2009, filed with the SEC on September 28, 2009 (SEC File No. 000-27916) (the “2009 10-K”)10.4

Amended and Restated Change of Control Agreement between First Federal Community Bank and Sally K. O’Donnell dated December 9, 2008

Incorporated by reference to Exhibit 10.4 to the 2009 10-K10.5

Amended and Restated Change of Control Agreement between First Federal Community Bank and Trent B. Troyer dated December 9, 2008

Incorporated by reference to Exhibit 10.5 to the 2009 10-K10.6

Commercial Security Agreement between FFD Financial Corporation and The Home Loan Savings Bank dated February 25, 2010

Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed with the SEC on May 17, 2010 (SEC File No. 000-27916) (the “March 31, 2010 10-Q”)10.7

Note dated February 25, 2010, from FFD Financial Corporation to The Home Loan Savings Bank

Incorporated by reference to Exhibit 10.2 to the March 31, 2010 10-Q10.8

Stock Purchase Agreement dated November 13, 2008, by and FFD Financial Corporation, Bulldog Investors, Kimball and Winthrop, Phillip Goldstein and Andrew Dakos

Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K dated November 13, 2008, filed with the SEC on November 19, 2008 (SEC File No. 000-27916)13

FFD Financial Corporation 2011 Annual Report to Shareholders

Included herewith20

Proxy Statement for 2011 Annual Meeting of Shareholders

Incorporated by reference to the Proxy Statement for the 2011 Annual Meeting of Shareholders, filed with the SEC on September 19, 2011 (SEC File No. 000-27916)21

Subsidiaries of FFD Financial Corporation

Included herewith31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Included herewith31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Included herewith32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Included herewith32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Included herewith






25