SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
FIRST DEFIANCE FINANCIAL CORP.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
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[LOGO]
FIRST DEFIANCE
FINANCIAL CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held
April 20, 2004
and
PROXY STATEMENT
[LOGO]
FIRST DEFIANCE
FINANCIAL CORP.
601 Clinton Street
Defiance, Ohio 43512
(419) 782-5015
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 20, 2004
----------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of First Defiance Financial Corp., Defiance, Ohio ("First Defiance")
will be held at the home office of its subsidiary First Federal Bank of the
Midwest, located at 601 Clinton Street, Defiance, Ohio 43512, Tuesday, April 20,
2004 at 1:00 p.m., Eastern Time, for the following purposes, all of which are
more completely set forth in the accompanying Proxy Statement:
(1) To elect three (3) directors for three-year terms, and until
their successors are elected and qualified;
(2) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof. Management is not aware of any
other business.
The Board of Directors has fixed March 5, 2004 as the voting record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting or at any adjournment thereof. Only those shareholders of record
as of the close of business on that date will be entitled to vote at the Annual
Meeting or at any such adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William J. Small
William J. Small
Chairman, President and Chief Executive
Officer
Defiance, Ohio
March 15, 2004
--------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED OR FOLLOW THE INSTRUCTIONS ON THE PROXY CARD
FOR VOTING BY TELEPHONE OR OVER THE INTERNET. IF YOU ATTEND THE ANNUAL MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME BEFORE IT IS EXERCISED.
--------------------------------------------------------------------------------
PROXY STATEMENT
----------
First Defiance Financial Corp.
601 Clinton Street
Defiance, Ohio 43512
----------
2003 ANNUAL MEETING OF SHAREHOLDERS
April 20, 2004
GENERAL
This Proxy Statement is being furnished to holders of common stock, $0.01
par value per share ("Common Stock"), of First Defiance Financial Corp.,
Defiance, Ohio ("First Defiance"). Proxies are being solicited on behalf of the
Board of Directors of First Defiance to be used at the Annual Meeting of
Shareholders ("Annual Meeting") to be held at the home office of First Federal
Bank of the Midwest ("First Federal") located at 601 Clinton Street, Defiance,
Ohio 43512, on Tuesday April 20, 2004 at 1:00 p.m., Eastern Time, and at any
adjournment thereof for the purposes set forth in the Notice of Annual Meeting
of Shareholders. This Proxy Statement is first being mailed to shareholders on
or about March 15, 2004.
PROXIES
The proxy solicited hereby, if properly submitted to First Defiance and
not revoked prior to its use, will be voted in accordance with the instructions
contained therein. If no contrary instructions are given, each proxy received
will be voted for the nominees for director described herein and, upon the
transaction of such other business as may properly come before the meeting, in
accordance with the best judgment of the persons appointed as proxies. Any
shareholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing with the Secretary of First Defiance written notice
thereof (John W. Boesling, Secretary, First Defiance Financial Corp., 601
Clinton Street, Defiance, Ohio 43512); (ii) submitting a valid proxy bearing a
later date; or (iii) appearing at the Annual Meeting and giving notice of
revocation to the Secretary. Proxies solicited hereby may be exercised only at
the Annual Meeting and any adjournment thereof and will not be used for any
other meeting.
1
VOTING RIGHTS
Only shareholders of record at the close of business on March 5, 2004
("Voting Record Date") are entitled to notice of and to vote at the Annual
Meeting. On the Voting Record Date, there were 6,398,282 shares of Common Stock
issued and outstanding and First Defiance had no other class of equity
securities outstanding. Each share of Common Stock is entitled to one vote at
the Annual Meeting on all matters properly presented at the meeting.
The presence, either in person or by proxy, of at least a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. Directors are elected by a plurality of the votes
cast with a quorum present. Abstentions are considered in determining the
presence of a quorum and will not affect the plurality vote required for the
election of directors. The proposal for election of directors is considered a
"discretionary" item upon which brokerage firms may vote in their discretion on
behalf of their clients if such clients have not furnished voting instructions.
2
BENEFICIAL OWNERSHIP
The following table includes, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("1934 Act"), known to First
Defiance to be the beneficial owner of more than 5% of the issued and
outstanding Common Stock, (ii) each director and each person nominated to become
a director of First Defiance, (iii) the executive officers of First Defiance
named in the Summary Compensation Table set forth under "Executive
Compensation," and (iv) all directors and executive officers of First Defiance
as a group.
Amount and Nature of
Name of Beneficial Owner or Beneficial Ownership as of Percent of
Number of Persons in Group March 5, 2004 (1) Common Stock
----------------------------- -------------------------- -------------
First Defiance Financial Corp.
Employee Stock Ownership Plan 653,951(2) 10.22%
Private Capital Management 560,956(3) 8.78%
Dimensional Fund Advisors, Inc. 458,551(4) 7.18%
Stephen L. Boomer 20,311(5) (6)
Dr. Douglas A. Burgei 29,350(7) (6)
Peter A. Diehl 18,158(8) (6)
Dr. John U. Fauster III 54,932(9) (6)
Gerald W. Monnin 54,448(10) (6)
James L. Rohrs 59,020(11) (6)
William J. Small 170,806(12) 2.63%
Don C. Van Brackel 177,698(13) 2.77%
Thomas A. Voigt 24,720(14) (6)
Gregory R. Allen 30,158(15) (6)
John C. Wahl 111,359(16) 1.73%
All directors and executive
officers as a group (11 persons) 750,963(17) 11.29%
(1) Unless otherwise indicated, the named person has sole voting power and
sole investment power with respect to the indicated shares.
(2) Shares owned by First Defiance Financial Corp. Employee Stock Ownership
Plan ("ESOP") which have been allocated to persons listed in this table
are also included in those persons' holdings.
(3) Based on Schedule 13G filed with the Securities and Exchange Commission
(the "SEC") on February 13, 2004, Private Capital Management ("PCM") is an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940. PCM has reported shared voting and investment power over
544,456 shares of Common Stock. Gregg J. Powers, President of PCM, has
reported shared voting and investment power over the same 544,456 shares
of Common Stock. Bruce S. Sherman, Chief Executive Officer of PCM, has
reported shared voting and investment power over 549,456 shares of Common
Stock, (including the 544,456 shares also reported by PCM and Mr. Powers)
and sole voting and investment power over an additional 11,500 shares of
Common Stock.
(footnotes continued on next page)
3
(4) Based on Schedule 13G dated February 6, 2004, filed with the SEC on
February 6, 2004, Dimensional Fund Advisors Inc. ("Dimensional"), an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, possesses both voting and investment power over 458,551
shares of Common Stock. All 458,551 shares reported are owned by the
entities for which Dimensional serves as investment advisor, and
Dimensional disclaims beneficial ownership of such securities.
(5) Includes 3,886 shares that may be acquired upon the exercise of stock
options.
(6) Less than 1% of the total outstanding shares of Common Stock.
(7) Includes 13,930 shares that may be acquired upon exercise of stock options
(8) Includes 310 shares that vest within 60 days under the 1996 Management
Recognition Plan and Trust ("MRP") and 778 shares that may be acquired
upon the exercise of stock options.
(9) Includes 19,430 shares that may be acquired upon the exercise of stock
options and 1,000 shares owned with shared voting and investment power.
(10) Includes 155 shares that vest within 60 days under the MRP and 389 shares
that may be acquired upon the exercise of stock options.
(11) Includes 640 shares that vest within 60 days under the MRP, 2,159 shares
that have been allocated to Mr. Rohrs' account in the ESOP and 37,600
shares that may be acquired upon the exercise of stock options.
(12) Includes 16,678 shares which have been allocated to Mr. Small's account in
the ESOP and 107,300 shares that may be acquired upon the exercise of
stock options.
(13) Includes 123,255 shares owned with shared voting and investment power,
3,032 shares held in trust for the MRP which vest after 60 days for which
Mr. Van Brackel is a trustee, 26,946 shares that have been allocated to
Mr. Van Brackel's account in the ESOP and 24,465 shares that may be
acquired upon the exercise of stock options.
(14) Includes 9,930 shares that may be acquired upon the exercise of stock
options and 1,330 shares owned with shared voting and investment power.
(15) Includes 2,809 shares that have been allocated to Mr. Allen's account in
the ESOP and 14,000 shares that may be acquired upon the exercise of stock
options.
(16) Includes 3,032 shares held in trust for the MRP which vest after 60 days
for which Mr. Wahl is a trustee, 17,084 shares that have been allocated to
Mr. Wahl's account in the ESOP and 54,000 shares that may be acquired upon
the exercise of stock options.
(17) Includes options to purchase 283,708 shares, 1,105 shares that vest within
60 days under the MRP, 62,678 shares allocated to the accounts of
executive officers in the ESOP, and 3,032 shares held in trust for the MRP
which vest after 60 days for which Mr. Van Brackel and Mr. Wahl are
trustees.
4
INFORMATION REGARDING DIRECTORS
AND EXECUTIVE OFFICERS
Election of Directors
First Defiance's Board of Directors is composed of nine members, divided
into three classes. The members of each class are elected for a term of three
years and until their successors are elected and qualified. One class of
directors is elected annually. A majority of the directors are "independent
directors" as defined by the listing standards of the Nasdaq Stock Market. The
Board of Directors has determined that such independent directors have no
relationship with the Company that would interfere with the exercise of their
independent judgment in carrying out the responsibilities of a director. The
independent directors are Drs. Burgei and Fauster and Messrs. Boomer, Diehl,
Monnin and Voigt
At the Annual Meeting, shareholders of First Defiance will be asked to
elect three directors for three year terms expiring in 2007, and in each case
until their successors are elected and qualified. The nominees, Mr. Boomer, Mr.
Diehl and Mr. Small, currently serve as directors of First Defiance.
Unless otherwise directed, each valid proxy submitted by a shareholder
will be voted for the election of the nominees for director listed below. If any
person named as nominee should be unwilling to stand for election at the time of
the Annual Meeting, the proxies will vote for any replacement nominee or
nominees recommended by the Board of Directors. At this time, the Board of
Directors knows of no reason why any of the nominees listed below may not be
able to serve as a director if elected.
5
Information Regarding Nominees for Director and Continuing Directors
The following tables present information concerning each nominee for
director and each director whose term continues.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
NOMINEES BE ELECTED AS DIRECTORS
NOMINEES FOR DIRECTOR WITH THREE-YEAR TERMS EXPIRING IN 2007
Director
Name Age Positions Held at First Defiance Since (1)
--------------------- --- ------------------------------------- ---------
Stephen L. Boomer 53 Director 1994
Peter A. Diehl 53 Director 1998
William J. Small 53 Chairman, President and Chief 1998
Executive Officer
DIRECTORS WITH TERMS EXPIRING IN 2006
Director
Name Age Positions Held at First Defiance Since (1)
--------------------- --- ------------------------------------- ---------
Dr. Douglas A. Burgei 49 Director 1995
Gerald W. Monnin 65 Director 1997
Don C. Van Brackel 65 Director, Vice Chairman 1979
DIRECTORS WITH TERMS EXPIRING IN 2005
Director
Name Age Positions Held at First Defiance Since (1)
--------------------- --- ------------------------------------- ---------
Dr. John U. Fauster 66 Director 1975
James L. Rohrs 56 Executive Vice President of First 2002
Defiance and President and Chief
Operating Officer of First Federal
Thomas A. Voigt 61 Director 1995
----------
(1) Each director also serves as a director of First Federal, a wholly owned
subsidiary of First Defiance. The indicated year includes service as a director
of First Federal prior to the formation of First Defiance in 1995.
6
The business experience of each of the nominees or directors for at least
the past five years is as follows:
Stephen L. Boomer. Mr. Boomer is President/Chief Executive Officer and
co-owner of Arps Dairy Inc., Defiance, Ohio, a processor and distributor of
dairy products. He has been a director since August 1994 and currently serves as
Chairman of the Audit Committee and as a member of the Governance Committee and
the Trust Committee as well as the First Insurance and Investments Board. He
also serves on the Executive and Loan Review Committees on a rotating basis
during the year. Mr. Boomer has been designated the lead director by the
independent directors on the Board.
Peter A. Diehl. Mr. Diehl is President/Chief Executive Officer of Diehl,
Inc., a privately held company headquartered in Defiance, Ohio which produces
canned dairy products and non-dairy creamers for distribution throughout the
United States and Asia. He has been a director since April 1998 and currently
serves as chairman of the Compensation Committee, as a member of the Audit and
Long Range Planning Committees, and as a member of the First Insurance and
Investments Board. He also serves on the Executive and Loan Review Committees on
a rotating basis during the year.
William J. Small. Mr. Small has served as President, Chairman of the Board
and Chief Executive Officer of First Defiance and Chairman of the Board and
Chief Executive Officer of First Federal since January 1, 1999. He previously
served as President and Chief Operating Officer of First Federal from June 1996
through December 31, 1998 and before that he served as Senior Vice President
responsible for lending from July 1, 1994. Mr. Small is also Chairman of the
Executive Committee and the Loan Review Committee, and a member of the
Investment and Trust Committees of First Federal. He is also Chairman of First
Insurance and Investments' Board of Directors.
Douglas A. Burgei, D.V.M. Dr. Burgei is a veterinarian practicing in
Napoleon, Ohio since 1978. He was appointed to the Board of Directors in August
1995 and he serves as chairman of the Corporate Governance Committee and as a
member of the Investment and Long Range Planning Committees and serves on the
Executive and Loan Review Committees on a rotating basis.
John U. Fauster III, D.D.S. Dr. Fauster retired from the practice of
dentistry during 2000. Prior to that he was affiliated with the Defiance Dental
Group, Defiance, Ohio. He has been a director since 1975 and currently serves as
a member of the Audit, Investment and Long Range Planning Committees and serves
on the Executive and Loan Review Committees on a rotating basis during the year.
Gerald W. Monnin. Mr. Monnin is Chairman of the Board of Northwest
Controls, a Defiance, Ohio company that distributes high technology electronic
automation and control products and systems. He has been a director since April
1997 and serves as a member of the Compensation, Audit and Corporate Governance
Committees and serves on the Executive and Loan Review Committees on a rotating
basis during the year.
7
James L. Rohrs. Mr. Rohrs has served as an Executive Vice President of
First Defiance and as President and Chief Operating Officer of First Federal
since August 1999 and he has been a director since 2002. He joined First
Defiance in his present capacity in August 1999. Prior to joining First
Defiance, Mr. Rohrs was employed by Huntington National Bank for 27 years in a
variety of capacities. Mr. Rohrs is a member of the Executive and Loan Review
Committees and First Insurance and Investments Board of Directors.
Don C. Van Brackel. Mr. Van Brackel has served as Vice Chairman of the
First Defiance Board of Directors since January 1, 1999. Prior to that, Mr. Van
Brackel served as Chairman of the Board of Directors and Chief Executive Officer
of First Defiance and First Federal, from January 1, 1995 until his retirement
on December 31, 1998. He was President and Managing Officer of First Federal
from July 1992 until June 1996 and has been a director since 1979. Mr. Van
Brackel is a member of the Investment, Long Range Planning, Compensation and
Trust Committees. He also serves on the Executive and Loan Review committees on
a rotating basis
Thomas A. Voigt. Mr. Voigt is Vice President and general manager of the
Bryan Publishing Company, commercial printers and publishers of The Bryan Times,
The Northwest Signal (Napoleon, OH), The Countyline, The Montpelier Leader
Enterprise and Realty Northwest. He was appointed to the board in August 1995
and he serves as Chairman of the Long Range Planning Committee and as a member
of the Compensation and Corporate Governance Committees and serves on the
Executive and Loan Review Committees on a rotating basis during the year.
Executive Officers Who are Not Directors
The following sets forth certain information regarding the executive
officers of First Defiance who are not directors or nominees, including their
business experience for at least the past five years.
John C. Wahl, Age 43. Mr. Wahl was promoted to Executive Vice President of
First Defiance and First Federal in November 1998. He previously was appointed
Treasurer in April, 1997 and Senior Vice President and Chief Financial Officer
in January, 1997 after having served as Controller since June 1, 1994. Prior to
joining First Defiance he was with Ernst & Young LLP, the Company's independent
auditors. Mr. Wahl is also a member of the Board of Directors of First Federal
Bank and First Insurance and Investments.
Gregory R. Allen, Age 40. Mr. Allen was promoted to Executive Vice
President and Chief Lending Officer of First Federal in November 1998 after
joining First Federal as Vice President of Commercial Lending in June 1998. He
joined First Federal with 10 years of banking experience, most recently with the
Ohio Bank in Findlay, Ohio.
8
Compliance with Section 16(a) of the 1934 Act
Section 16(a) of the 1934 Act requires First Defiance's officers and
directors, and persons who own more than 10% of the Common Stock to file reports
of ownership and changes in ownership with the SEC. Officers, directors and
greater than 10% shareholders are required by regulation to furnish First
Defiance with copies of all Section 16(a) forms they file.
SEC regulations require that First Defiance disclose any Section 16 filing
that was not made by the appropriate due date. Based on a review of the filings
for 2003, First Defiance determined that all Section 16 filings were filed by
the applicable due date except for one Form 4 filed by Mr. Allen which was late.
Board Meetings
Regular meetings of the Board of Directors of First Defiance are held
monthly and special meetings of the Board of Directors of First Defiance are
held from time to time as needed. Regular meetings of the Board of Directors of
First Federal are also held on at least a monthly basis and special meetings of
the Board of Directors of First Federal are held from time to time as needed.
There were 14 meetings of the Board of Directors of First Defiance and 15
meetings of the Board of Directors of First Federal held during 2003. No
director attended fewer than 75% of the total number of meetings of the Board of
Directors of First Defiance or First Federal, as applicable, and meetings held
by all committees of the Board on which the director served during 2003.
Attendance at Annual Meeting
Neither the Board nor the Corporate Governance Committee has implemented a
formal policy regarding director attendance at the Annual Meeting. Typically,
the Board holds its annual organizational meeting directly following the Annual
Meeting, which results in most directors attending the Annual Meeting. In 2003,
all nine directors attended the Annual Meeting.
Communication with Directors
The Board of Directors has adopted a process by which shareholders may
communicate with our directors. Any shareholder wishing to do so may write to
the Board of Directors at the Company's principal business address, 601 Clinton
St., Defiance, OH 43512. Any shareholder communication so addressed will be
delivered unopened to the director to whom it is addressed or to the Lead
Director if addressed to the Board of Directors.
Committees
The Boards of Directors of First Defiance and First Federal have
established various committees, including Executive, Audit, Compensation, Long
Range Planning and Governance.
Executive Committee. The Executive Committee generally has the power and
authority to act on behalf of the Board of Directors between scheduled Board
meetings unless specific Board of Directors action is required or unless
otherwise restricted by First Defiance's articles of incorporation or code of
regulations or its Board of Directors. As Chairman of the Board, Mr. Small
serves as Chairman of the Executive Committee. Mr. Rohrs served as a permanent
member of the Executive Committee in 2003. The remaining directors serve on the
Committee on a rotating basis during the year. The Executive Committee met 52
times during 2003.
9
Audit Committee. The Audit Committee is responsible for (i) the
appointment of the Company's independent auditors; (ii) review of the external
audit plan and the results of the auditing engagement; (iii) review of the
internal audit plan and results of the internal audits; (iv) review of reports
issued by First Federal Bank's Compliance Officer and (v) review of the adequacy
of the Company's system of internal control. The Company's securities are listed
on the Nasdaq National Market, and all members of the Audit Committee meet the
independence standards of Rule 4200(a)(15) of the National Association of
Securities Dealers, Inc. (the "NASD"). Messrs. Boomer, Monnin and Diehl and Dr.
Fauster serve as members of this committee.
The Board has determined that all members of the committee are financially
literate, but that none of the committee members meet the definition of "Audit
Committee financial expert" as defined in Item 401(h) of Regulation S-K under
the 1934 Act. However, the board has determined that (a) collectively the audit
committee members possess the skills to adequately monitor the financial and
control environment of the Company and (b) expert resources, independent of
management and the Company's external auditors, are available for members of the
committee to consult with. Three of the Audit Committee members, through their
past or current employment as chief executive officers, meet the NASDAQ standard
for financial sophistication. The Audit Committee Charter is attached as Exhibit
A to this Proxy Statement.
Compensation Committee. The Compensation Committee, consisting of Messrs.
Diehl, Monnin, Voigt and Van Brackel was established by the Board of Directors
to oversee the compensation programs provided to First Defiance's Chief
Executive Officer and other members of senior management including base
salaries, bonuses and benefit plans. Messrs. Diehl, Monnin and Voigt meet the
independence standards of Rule 4200(a)(15) of the NASD. Mr. Van Brackel, a
former CEO of the Company, was a paid employee through March 2003.
Corporate Governance Committee. The Corporate Governance Committee was
established by the Board of Directors to ensure that the board is appropriately
constituted and conducts its affairs in a manner that will best serve the
interests of the Company and its shareholders. The members of the committee, who
all meet the independence standards of Rule 4200(a)(15) of the NASD, are Dr.
Burgei and Messrs. Boomer, Voigt and Monnin. Specific duties of the committee
include administering the Company's code of ethics/conflict of interest policy,
the process for evaluation of the CEO and Chairman, monitoring of the Board's
continuing education and self-assessment process, nomination of directors to the
Board, and conducting annual assessment of the Board as a whole including
assessment of Board composition and committee assignments. The committee met 3
times during 2003. The charter for the Corporate Governance Committee, which was
adopted in 2003, is attached as Exhibit B to this Proxy Statement.
The Board does not have a separate nominating committee as those functions
are performed by the Corporate Governance Committee and the Board as a whole.
The Corporate Governance committee considers the following criteria in proposing
nominations for director to the full Board: independence; high personal and
professional ethics and integrity; ability to devote sufficient time to
fulfilling duties as a director; impact on diversity of the Board, including
skills and other factors relevant to the Company's business; overall experience
in business, education, and other factors relevant to the Company's business.
Stockholders of the Company may also make nominations to the Board of Directors,
provided that notice of such nomination is given in writing to the Secretary of
the Company not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting of Stockholders. Such notice with respect
to director nominations shall set forth the name, age, business address and
residence address (if available) of the nominee and the number of shares of
stock of the Company which are beneficially owned by such nominee. Also, the
stockholder making such nomination shall promptly provide any other information
10
reasonably requested by the Corporate Governance Committee. No such nominations
were received from stockholders for the 2004 election of directors. All three
current nominees for director are standing for re-election.
Board Fees
Employees of the Company who are also directors receive no additional
compensation for service as director. In 2003, cash compensation for
non-employee directors included the following:
o An annual retainer of $16,580 plus $500 annual retainer for each
committee served on;
o $400 for each First Defiance or First Federal Board meeting attended
(back-to-back First Defiance and First Federal board meetings were
considered one meeting for purpose of the board meeting fee);
o $100 for each committee meeting attended ($200 for committee chair);
o $100 for each executive committee meeting attended;
o $300 per meeting for service on the board of First Insurance and
Investments.
Effective January 1, 2004, cash compensation for non-employee directors
was adjusted as follows:
o An annual retainer of $20,000 which covers all service including
committee service. The lead director receives an annual retainer of
$21,000;
o $400 for each First Federal Board meeting attended;
o $400 for each First Defiance Board meeting attended (even if such
meeting is back-to-back with the First Federal Board meeting);
o $500 for attendance at audit committee meetings ($750 for the
committee chairman);
o $400 for attendance at compensation committee meetings ($600 for the
committee chairman);
o $200 for attendance at executive committee meetings;
o $300 for attendance at other committee meetings ($400 for committee
chairman);
o $400 per meeting for service on the board of First Insurance and
Investments;
o $300 per meeting for periodic meetings of outside directors.
As Vice Chairman of the Board, Mr. Van Brackel was paid an annual salary
of $63,000 through March 31, 2003 in lieu of any other director's compensation.
Effective April 1, 2003, Mr. Van Brackel received the same compensation as the
outside directors.
All directors have the option to defer a portion of their annual cash
compensation pursuant to a deferred compensation plan. The Company pays the
country club dues of directors who wish to utilize such a benefit, which amounts
to up to $3,500 annually for those individuals.
11
Executive Compensation
Summary Compensation Table
The following table sets forth a summary of certain information concerning
the compensation awarded or paid by First Defiance for services rendered in all
capacities during the last three fiscal years to the Chief Executive Officer and
the most highly compensated executive officers of First Defiance and its
subsidiaries. Positions are listed as of December 31, 2003.
======================================================================================================================
Annual Compensation (3) Long Term Compensation
-----------------------
Name and Year Salary (1) Bonus (2) Awards All Other Compensation
Principal Position (5)
----------------------
Stock Securities
Grants(4) Underlying
Options
----------------------------------------------------------------------------------------------------------------------
William J Small, Chairman, 2003 $225,024 $136,823 -- 1,000 $24,133
President and Chief Executive 2002 216,186 43,815 -- -- 22,776
Officer 2001 208,432 102,502 -- -- 17,439
----------------------------------------------------------------------------------------------------------------------
John C. Wahl, Executive Vice 2003 $140,000 $ 66,326 -- 5,000 $19,562
President, Chief Financial 2002 134,677 21,230 -- -- 22,776
Officer and Treasurer 2001 129,800 56,408 -- -- 16,947
----------------------------------------------------------------------------------------------------------------------
James L. Rohrs, Executive 2003 $162,000 $ 76,749 -- 5,000 $23,769
Vice President, President and 2002 155,471 24,507 -- -- 22,776
Chief Operating Officer of 2001 150,000 63,279 $34,800 40,000 17,439
First Federal
----------------------------------------------------------------------------------------------------------------------
Gregory R. Allen, Executive 2003 $126,006 $ 51,169 -- 10,000 $19,234
Vice President and Chief 2002 $121,102 $ 36,348 -- 20,445
Lending Officer of First
Federal
======================================================================================================================
(1) Includes amounts deferred by executives pursuant to First Defiance's
deferred compensation program.
(2) Bonus amounts reflect amounts earned during the fiscal year as determined
by the Compensation Committee, including amounts which are paid in the
following year.
(3) Does not include amounts attributable to miscellaneous benefits received
by executive officers. In the opinion of management of First Defiance, the
costs to First Defiance of providing such benefits to any individual
executive during each of the years presented did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for the
individual.
(4) Represents the grant of 3,200 shares of restricted Common Stock to Mr.
Rohrs in April 2001 under the MRP. All shares granted under this program
vest 20% per year over five years on the anniversary date of the grant.
Unvested shares are forfeited upon termination or retirement. The awards
to Mr. Rohrs had a fair value at December 31, 2003 of $82,880.
(5) Consists of amounts allocated by First Defiance on behalf the executives
pursuant to the ESOP and matching and profit sharing contributions
pursuant to First Defiance's 401(k) Plan.
12
Report of Compensation Committee
In order to provide compensation levels comparable to its peers and to
provide incentives for achieving improved performance, the Compensation
Committee recommended and the Board of Directors adopted an incentive-based
executive salary program which will provide the Chief Executive Officer with a
base salary targeted at approximately 70% of total cash compensation with the
remaining 30% consisting of an incentive bonus. Other members of senior
management participate under a similar program, with base targets ranging from
70% to 80% of total compensation and incentive bonus targets ranging from 20% to
30%. Under the program, senior management would attain targeted levels of
compensation only upon realizing prescribed levels of performance established by
the Board.
The Committee evaluates the base salary of the Chief Executive Officer of
First Defiance annually and the Chief Executive Officer evaluates the base
salaries of the rest of the executive officers. An executive officer's base
salary is determined based upon longevity with First Defiance, the effectiveness
of such individual in performing his duties, peer averages at the position in
question and First Defiance's overall performance. No particular weight is
assigned to these variables. The base salary component alone, while designed to
be competitive with peer group averages, is not designed to produce top levels
of compensation for the executive officers of First Defiance and its
subsidiaries when compared to its peer group. The incentive component, as
described below, which requires First Defiance to achieve specific goals before
additional compensation is paid, is the element which is designed to make total
compensation for each of the executive officers comparable with executive
compensation for executive officers in First Defiance's peer group.
For 2003, the Board of Directors prescribed that certain target
measurements be met in order to fund the executive compensation pool. The
components measured included diluted earnings per share, growth in combined net
interest income and non-interest income, and the efficiency ratio. The Plan
provides for threshold, target and maximum payout levels with achievement of
targets resulting in 100% payouts. The formula provides for payouts in excess of
100% of the bonus pools if target levels are exceeded. Based on 2003 financial
results, 135% of the targeted executive bonus pool was funded.
Peter A. Diehl, Compensation Committee Chair
Thomas A. Voigt, Compensation Committee Member
Don C. Van Brackel, Compensation Committee Member
Gerald W. Monnin, Compensation Committee Member
13
Stock Options
The following table provides information relating to option grants made
pursuant to the 1996 Stock Option Plan and the 2001 Stock Option and Incentive
Plan to the individuals named in the Summary Compensation Table.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent of
Number of total Potential realizable value at
securities options assumed rates of stock price
underlying granted to appreciation for option terms
options employees Exercise Expiration -----------------------------
Executive Officer granted in 2003 Price date 5% 10%
----------------- ---------- ---------- -------- ---------- -------- --------
William J. Small 1,000(1) 1.75% $19.53 2013 $ 12,282 $ 31,126
John C. Wahl 5,000(1) 8.77 19.53 2013 61,411 155,629
James L. Rohrs 5,000(1) 8.77 19.53 2013 61,411 155,629
Gregory R. Allen 5,000(2) 8.77 19.56 2013 61,506 155,868
5,000(1) 8.77 19.53 2013 61,411 155,629
------ ----- -------- --------
10,000 17.54 $122,917 $311,497
----------
(1) Options were granted under the 2001 Stock Option and Incentive Plan.
Options vest 20% per year over a five year period on the anniversary date
of the grant. Unvested options under the 2001 Stock Option Plan are
generally forfeited upon termination of employment.
(2) Options were granted under the 1996 Stock Option Plan. Options vest 20%
per year over a five year period on the anniversary date of the grant.
Unvested options under the 1996 Stock Option Plan are generally forfeited
upon termination of employment including retirement.
The following table sets forth certain information concerning options held
at December 31, 2003 under the 1993 Stock Incentive Plan, the 1996 Stock Option
Plan and the 2001 Stock Option and Incentive Plan.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Shares
Acquired Number of Securities Value of Unexercised
on Value Underlying Unexercised In-the-Money
Name Exercise Realized Options at Year End Options at Year End (1)
--------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------
William J. Small -- -- 107,100 1,000 $1,651,540 $ 6,370
John C. Wahl 6,000 $49,500 54,000 5,000 802,850 31,850
James L. Rohrs -- -- 36,600 34,000 486,380 389,137
Gregory R. Allen 2,000 $15,080 12,000 29,200 142,800 294,730
----------
(1) Based on a per share market price of $25.90 at December 31, 2003 and
exercise prices ranging from $10.375 per share to $19.56 per share.
14
Employment Agreements
First Defiance has entered into employment agreements with Messrs. Small,
Rohrs, Wahl and Allen (the "Executives"). The form of employment agreement for
each of the Executives is substantially the same and provides each officer with
a three-year term of employment commencing on the date of the agreement. Each
year, the Board of Directors of First Defiance considers and reviews the
extension of the terms of each agreement and extends the term unless either
party gives notice of non-renewal to the other party.
The employment agreements are terminable with or without cause by First
Defiance. However, in the event that (i) the Company terminates an Executive's
employment for a reason other than cause, (ii) an Executive terminates his
employment because of failure of First Defiance to comply with any material
provision of the employment agreement or (iii) the employment agreement is
terminated by an Executive for Good Reason, as defined, an Executive would be
entitled to (A) 2.99 times the average annual compensation paid to him by First
Defiance during the five most recent taxable years ending during the calendar
year in which the notice of termination occurs or such portion of such period in
which the Executive served as senior officer of First Defiance as well as (B)
continued participation in employee benefit plans of First Defiance (other than
retirement plans and stock compensation plans) until the expiration of the
remaining term of employment. "Good Reason" is generally defined in the
employment agreements to include the assignment by First Defiance to the
Executive of any duties which, in the Executive's good faith determination, are
materially inconsistent with the Executive's positions, duties, responsibilities
and status with First Defiance prior to such assignment or prior to a change in
control of First Defiance.
The employment agreements provide that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment are
deemed to constitute "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, then such payments and benefits
received thereunder would be reduced, in the manner determined by First
Defiance, by the amount, if any, which is the minimum necessary to result in no
portion of the payments and benefits being nondeductible by First Defiance for
federal income tax purposes.
15
PERFORMANCE GRAPH
The following graph compares the yearly cumulative total return on the
Common Stock for the last five years with (i) the yearly cumulative total return
on the stocks included in the Nasdaq Stock Market Index (for United States
companies), (ii) the yearly cumulative total return on stocks included in the
Nasdaq Bank Stock Index and (iii) the SNL Midwest Thrift Index. All of these
cumulative returns are computed assuming the reinvestment of dividends at the
frequency with which dividends were paid during the applicable years.
Total Return Performance
[LINE GRAPH OMITTED]
Period Ending
----------------------------------------------------------------
Index 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
---------------------------------------------------------------------------------------------------
First Defiance Financial Corp. 100.00 76.19 82.79 119.82 153.70 216.77
NASDAQ - Total US 100.00 185.95 113.19 89.65 61.67 92.90
SNL NASDAQ Bank Index 100.00 96.08 110.92 120.73 124.18 160.28
SNL Midwest Thrift Index 100.00 83.13 112.12 128.94 166.22 230.93
NASDAQ Bank Index* 100.00 96.15 109.84 118.92 121.74 156.62
*Because of cost considerations, the Company is discontinuing the use of
the NASDAQ Bank Index after this year. It is being replaced with the SNL NASDAQ
Bank Index.
16
Indebtedness of Management
First Defiance had no loans outstanding during 2003 to any director,
nominee for election as a director or executive officer of First Defiance, any
member of the immediate family of any such person or to certain corporations,
organizations or trusts affiliated with any such person, except loans made in
the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and which did not involve more than the normal
risk of collectibility or present other unfavorable features.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP served as the Company's independent auditors for the
fiscal year ended December 31, 2003, and has reported on the Company's
consolidated financial statements. Fees for the last fiscal year paid to Ernst &
Young LLP were as follows:
2003 2002
-------- --------
Audit Fees $123,970 $102,000
Audit Related Fees 16,900 47,248
Tax Fees 38,687 129,654
Other -- --
-------- --------
Total fees paid to Ernst & Young $179,557 $278,902
Audit related fees relate to services for employee benefit plan audits,
compliance services and services related to accounting consultations relating to
the Company's mergers and acquisitions activity. Tax fees include the following:
2003 2002
-------- --------
Tax return preparation $ 29,587 $ 50,385
Other tax 9,100 79,269
-------- --------
$ 38,687 $129,654
The Audit Committee has determined that the provision of these services is
compatible with maintaining Ernst & Young LLP's independence.
Representatives of Ernst & Young LLP will be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions from shareholders.
17
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of four directors, all of whom are
considered "independent" under rule 4200(a)(15) of the National Association of
Securities Dealers' listing standards.
The Audit Committee oversees First Defiance's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal control. In fulfilling its oversight responsibilities, the Committee
reviewed with management the audited financial statements in the Annual Report
on Form 10-K, including a discussion of the quality, not just the acceptability,
of the accounting principles, the reasonableness of significant judgments, and
the clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditor, which is responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, its judgment as to the
quality, not just the acceptability, of the Company's accounting principles and
such other matters as are required to be discussed under generally accepted
auditing standards. In addition, the Committee has discussed with the
independent auditor the auditor's independence from management and the Company,
including the matters in the written disclosures required by the Independence
Standards Board, and considered the compatibility of non-audit services with the
auditors' independence. The committee also pre-approved all professional
services provided to the Company by the external auditor.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting. The Committee held five meetings during 2003.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2003 for filing with the SEC. The Committee
and the Board have also approved the selection of Ernst & Young LLP as the
Company's independent auditors for the year ended December 31, 2004.
Stephen L. Boomer, Audit Committee Chair
John U. Fauster, III, Audit Committee Member
Peter A. Diehl, Audit Committee Member
Gerald W. Monnin, Audit Committee Member
March 8, 2004
18
OTHER MATTERS
Each proxy confers discretionary authority on the Board of Directors of
First Defiance to vote the proxy for the election of any person as a director if
the nominee is unable to serve or for good cause will not serve, matters
incident to the conduct of the meeting, and upon such other matters as may
properly come before the Annual Meeting. Management is not aware of any business
to come before the Annual Meeting other than those matters described in this
Proxy Statement. However, if any other matters should properly come before the
Annual Meeting, it is intended that the proxies solicited hereby will be voted
with respect to those other matters in accordance with the judgment of the
persons voting the proxies.
The cost of solicitation of proxies will be borne by First Defiance. First
Defiance will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of the Common Stock. In addition to solicitations by
mail, directors, officers and employees of First Defiance may solicit proxies
personally or by telephone without additional compensation.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy
solicitation materials to be used in connection with the next Annual Meeting of
Shareholders of First Defiance must be received at the main office of First
Defiance no later than November 19, 2004. If such proposal is in compliance with
all of the requirements of Rule 14a-8 under the 1934 Act, it will be included in
the Proxy Statement and set forth on the form of proxy issued for the next
Annual Meeting of Shareholders. It is urged that any such proposals be sent by
certified mail, return receipt requested. In addition, if a shareholder intends
to present a proposal at the 2005 annual meeting of shareholders of First
Defiance without including the proposal in the proxy solicitation materials
relating to that meeting, and if the proposal is not received by January 31,
2005, then the proxies designated by the Board of Directors of First Defiance
for the 2005 annual meeting may vote proxies in their discretion on any such
proposal without mention of such matter in the proxy solicitation materials or
on the proxy card for such meeting.
19
ANNUAL REPORTS AND FINANCIAL STATEMENTS
Shareholders of First Defiance as of the Voting Record Date for the Annual
Meeting are being provided with a copy of First Defiance's Annual Report to
Shareholders and Form 10-K for the year ended December 31, 2003 ("Annual
Report"). Included in the Annual Report are the consolidated financial
statements of First Defiance as of December 31, 2003 and 2002 and for each of
the years in the three-year period ended December 31, 2003, prepared in
accordance with generally accepted accounting principles, and the related report
of First Defiance's independent public accountants. The Annual Report is not a
part of this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William J. Small
William J. Small, Chairman, President
and Chief Executive Officer
March 15, 2004
Defiance, Ohio
20
Appendix A
First Defiance Financial Corp.
Audit Committee of the Board of Directors
Charter
Committee Role
The role of the audit committee of the board of directors of First Defiance
Financial Corp. ("The Company") is to act on behalf of the board of directors
and oversee all material aspects of the Company's accounting and financial
reporting processes and the audits of the financial statements of the Company.
The audit committee's role includes a particular focus on the qualitative
aspects of financial reporting to shareholders and on company processes for the
management of business/financial risk and for compliance with significant
applicable legal, ethical, and regulatory requirements.
The role also includes coordination with other board committees and maintenance
of strong, positive working relationships with management, external and internal
auditors, counsel, and other committee advisors.
Organization
The audit committee shall be comprised of three or more independent directors as
determined by the Board. Members of the audit committee shall be considered
independent if they meet the criteria for independence as defined by the Nasdaq
Stock Market, Inc. ("Nasdaq"). All audit committee members shall have (1)
knowledge of the financial services industry; (2) the ability to read and
understand fundamental financial statements, including a balance sheet, income
statement, statement of cash flows, and key performance indicators; and (3) the
ability to understand key business and financial risks and related controls and
control processes. The committee shall have access to its own counsel and other
advisors at the committee's sole discretion.
One member, preferably the chairperson, should be literate in business and
financial reporting and control, including basic knowledge of the regulatory
requirements. Preferably this person should have experience in finance or
accounting, experience in supervising a finance or accounting function or other
comparable experience or background. Committee appointments shall be approved
annually by the full board and the committee chairperson shall be selected and
approved by the full board.
Statement of Policy
The audit committee shall provide assistance to the directors in fulfilling
their responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the Company,
and the quality and integrity of financial reports of the Company. In so doing,
it is the responsibility of the audit committee to maintain free and open
communication
A-1
Appendix A
between the directors, the external auditors, the internal auditors, and the
financial management of the Company.
Meetings
The committee shall meet at least four times annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
committee should meet at least semi-annually with management, the internal
auditors, and the external auditors in separate executive sessions to discuss
any matters the committee or each of these groups believe should be discussed
separately. The committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.
Operating Principles
The committee shall fulfill its responsibilities within the context of the
following overriding principles:
Communications - The chairperson or others on the committee shall, to the extent
appropriate, have contact throughout the year with senior management, other
committee chairpersons, and other key committee advisors, external and internal
auditors, etc. to strengthen the committee's knowledge of relevant current and
prospective business issues.
Committee Education/Orientation - The committee, with management, shall develop
and participate in a process for review of important financial and operating
topics that present potential significant risk to the company. Additionally,
individual committee members are encouraged to participate in relevant and
appropriate self-study education to assure understanding of the business
environment in which the company operates.
Annual Plan - The committee, with input from management and other key committee
advisors, shall develop an annual plan responsive to the "primary committee
responsibilities" detailed herein. The annual plan shall be reviewed and
approved by the full board.
Meeting Agenda - Committee meeting agendas shall be the responsibility of the
committee chairperson, with input from committee members. It is expected that
the chairperson would also ask management and key committee advisors to
participate in this process.
Committee Expectations and Information Needs - The committee shall communicate
committee expectations and nature, timing, and extent of committee information
needs to management, internal audit and external audit and other external
parties. Written materials, including key performance indicators and measures
related to key business and financial risks, shall be received from management,
auditors and others at least four days in advance of meeting dates
External Resources - The committee shall be authorized to access internal and
external resources, as the committee requires, to carry out its
responsibilities.
A-2
Appendix A
Reporting to the Board of Directors - The committee, through the committee
chairperson, shall report to the full board following each meeting of the
committee. In addition, minutes of the audit committee meetings shall be
available to each board member upon request.
Committee Self Assessment - The committee shall review, discuss and assess its
own performance as well as the committee role and responsibilities, seeking
input from senior management, the full board, and others. Changes in role and/or
responsibilities, if any, shall be recommended to the full board for approval.
Relationship with External and Internal Auditors
The external auditors, in their capacity as independent public accountants,
shall be responsible to the board of directors and the audit committee as
representatives of shareholders. The audit committee has the sole authority to
appoint, retain, determine funding for and oversee the Company's external
auditors.
As the external auditors review financial reports, they will be reporting to the
audit committee. They shall report all relevant issues to the committee
responsive to agreed-on committee expectations. In executing its oversight role,
the committee should review the work of external auditors.
Annually, the audit committee should direct the external auditors to attend the
full board of directors meeting to assist in reporting the results of the annual
audit or to answer other directors' questions.
The committee shall annually review the performance (effectiveness, objectivity,
and independence) of the external and internal auditors. The committee shall
ensure receipt of a formal written statement from the external auditors
consistent with standards set by the Independence Standards Board. Additionally,
the committee shall discuss with the auditor relationships or services that may
affect auditor objectivity or independence. If the committee is not satisfied
with the auditors' assurances of independence, it shall take or recommend to the
full board appropriate action to assure the independence of the external
auditor.
The internal audit function shall be responsible to the board of directors
through the committee.
If either the internal or the external auditors identify significant issues
relative to the overall board responsibility that have been communicated to
management but, in their judgment, have not been adequately addressed, they
should communicate these issues to the committee chairperson.
Changes in outsourced internal audit firms, or directors of internal audit
should the committee decide to establish the function in-house, shall be subject
to committee approval. Changes in the compliance officer shall also be subject
to committee approval.
A-3
Appendix A
Responsibilities
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
o Obtain the full board of directors' approval of this Charter and review
and reassess this Charter as conditions dictate (at least annually).
o Review and recommend to the directors the external auditors to be selected
to audit the financial statements of the Company and its divisions and
subsidiaries and evaluate the performance of the external auditors on an
on-going basis.
o Approve all audit services and permitted non-audit services (as defined by
the SEC) entered into with the external auditors prior to such services
being performed. If it is necessary to engage the external auditors for
permitted services prior to scheduled meetings of the committee, such
services can be approved by the committee chairperson and reported after
the fact to the committee. Such circumstances are expected to be
infrequent.
o The committee approves the following de minimus exception to the
pre-approval requirements for non-audit services. Such services:
o must not aggregate to more than 5% of the total revenues paid by
First Defiance to the external auditor in the fiscal year in which
such services are provided,
o were not recognized by First Defiance as non-audit services at the
time of the engagement of the external auditor, and
o are promptly brought to the attention of the audit committee via
timely communication with the audit committee chairperson and
approved prior to the completion of the audit by the audit committee
o Review and concur with management's approach to the internal audit
function. Review internal auditor performance and changes in internal
audit firms/leadership.
o Review and approve the internal audit policy.
o Review the independence and authority of internal audit's reporting
obligations, the proposed audit plans for the coming year, and the
coordination of such plans with the external auditors. Review the
qualifications of the Internal Auditor to specific areas within the audit
plan.
A-4
Appendix A
o Meet with the external auditors and financial management of the Company to
review the scope of the proposed audit and timely quarterly reviews for
the current year and the procedures to be utilized, the adequacy of the
external auditor's compensation, and at the conclusion thereof review such
audit or review, including any comments or recommendations of the external
auditors.
o Review with the external auditors, the Company's internal auditor, and
financial and accounting personnel, the adequacy and effectiveness of the
accounting and financial controls of the Company, and elicit any
recommendations for the improvement of such internal controls or
particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of internal
controls to expose any payments, transactions, or procedures that might be
deemed illegal or otherwise improper.
o Review reports received from regulators and review other legal and
regulatory matters that may have a material effect on the financial
statements or related company compliance policies.
o Inquire of management, the internal auditor, and the external auditors
about significant risks or exposures and assess the steps management has
taken to minimize such risks to the Company.
o Receive prior to each meeting, a summary of findings from completed
internal audits and a progress report on the proposed internal audit plan,
with explanations for any deviations from the original plan.
o Engage the external auditors to perform timely reviews of interim
financial statements following procedures set forth in Statement of
Auditing Standard (SAS) No. 71, or such other auditing standards that may
in time modify, supplement or replace SAS 71. Such review should be
completed prior to the Company filing its form 10-Q.
o Review with management and the external auditors any changes in important
accounting principles and the application thereof in both interim and
annual financial reports.
o Review the quarterly financial statements with financial management and
the external auditors prior to the filling of the Form 10-Q (or prior to
the press release of results, if possible) to determine that the external
auditors do not take exception to the disclosure and content of the
financial statements, and discuss any other matters required to be
communicated to the committee by the auditors. The chair of the committee
or his designee may represent the entire committee for purposes of this
review.
A-5
Appendix A
o Review the financial statements contained in the annual report to
shareholders with management and the external auditors to determine that
the external auditors are satisfied with the disclosure and content of the
financial statements to be presented to the shareholders. Also review with
financial management and the external auditors their judgements about the
quality, not just acceptability, of accounting principles and the clarity,
consistency, and completeness of the Company's accounting information
contained in the financial statements and related disclosures. Discuss
items that may have a significant impact on the representational
faithfulness, verifiability, neutrality, and consistency of the accounting
information. Review with financial management and the external auditors
the results of their timely analysis of significant financial reporting
issues and practices, including changes in, or adoptions of, accounting
principles and disclosure practices, and discuss any other matters
required to be communicated to the committee by the auditors.
o The following communications are explicitly required to be made between
the external auditors and the audit committee prior to the filing of any
audit report with the SEC:
o critical accounting policies and practices used
o all alternative treatments within GAAP for policies and practices
related to material items that have been discussed with management,
including the ramifications of the use of such alternative
treatments and disclosures and the treatment preferred by the
accounting firm; and
o other material written communications, including but not limited to,
the management representation letter, reports on observations and
recommendations on internal controls, the schedule of adjusted audit
differences and a listing of adjustments and reclassifications not
recorded, the engagement letter, and the independence letter.
o Disclose in the annual proxy statement in connection with the annual
meeting of shareholders at which directors are to be elected a statement
that audit committee members are independent.
o Disclose in the annual proxy statement in connection with the annual
meeting of shareholders at which directors are to be elected a statement
which states: (1) the audit committee has reviewed and discussed the
audited financial statements with management, (2) the audit committee has
discussed with the independent auditors the matters required to be
discussed by SAS 61, as may be modified or supplemented and (3) the audit
committee has received the written disclosures and the letter from the
independent auditors required by ISB Standard No. 1, as may be modified or
supplemented, and has discussed with the auditors the auditors'
independence. The audit committee should then state whether, based on the
reviews and discussions referred to above, it recommended to the Board of
Directors that the financial statements be included in the Annual Report
on Form 10-K for the last fiscal year for filing with the SEC. This
disclosure is to appear over the printed names of each voting member of
the audit committee.
o Review and recommend to the full board ratification of the code of ethical
conduct
o Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters.
A-6
Appendix A
o Establish procedures for the confidential and anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
o Investigate any matter brought to its attention within the scope of its
duties.
o Review all significant conflicts of interest and related party
transactions
o Review with senior management any changes in key financial management.
o Include a copy of this Charter in the proxy statement at least triennially
or the year after any significant amendment to the Charter.
A-7
Appendix B
CHARTER FOR THE CORPORATE GOVERNANCE COMMITTEE
OF FIRST DEFIANCE FINANCIAL CORP.
1. PURPOSE. The committee is intended to provide a forum for
independent Directors to address issues of corporate governance to
ensure that the board is appropriately constituted and conducts its
affairs in a manner that will best serve the interest of the Company
and its shareholders.
2. ORGANIZATION. The committee shall consist of at least three
independent Directors. The Chairman shall be appointed by the
Committee. The Committee shall meet at least two times each year.
3. PRINCIPAL RESPONSIBILITIES. The principal responsibilities of the
committee shall be as follows:
General
a. Periodically review and recommend to the Board any
appropriate modifications to the Company's Corporate
Governance Policy.
b. Periodically review documentation for Code of Ethics and
Conflict of Interest for Directors and Senior Officers.
c. Periodically review and recommend to the Board any
appropriate changes to the process for evaluation of the
CEO, Chairman of the Board and Senior Management.
d. Review and oversee the Board's continuing education and
self-assessment process on an annual basis.
e. Evaluate candidates for the position of CEO, Chairman,
and Chair of the Executive Committee, as appropriate.
f. In carrying out its duties, the Committee will confer
with and solicit the views of the Chairman and CEO.
g. Oversee and review the Corporation's processes of
providing information to the Board in a timely manner.
B-1
Appendix B
Board Compensation and Membership
a. Establish criteria for the selection of new directors
and nominees for vacancies on the Board.
b. Evaluate the qualifications, skills, and other
attributes of nominees.
c. Reassess annually the composition, challenges, and needs
of the board as a whole, both in connection with
recommending candidates for election to the Board and in
analyzing the composition of the Board committees. The
assessment of the overall composition of the Board
considers issues of judgment, diversity in skills,
background and experience.
d. Review the status of a Director for reason of change of
employment or other circumstances and make a
recommendation regarding his or her suitability for
remaining on the Board.
e. Evaluate the performance of any Director whose term is
expiring and whether such Director should be invited to
stand for reelection.
B-2
INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST DEFIANCE FINANCIAL CORP.
ANNUAL MEETING OF SHAREHOLDERS
April 20, 2004
1:00 p.m. local time
The undersigned hereby appoints the Board of Directors of First Defiance
Financial Corp. (the "Company") as proxies, each with power to appoint his
substitute, and hereby authorizes them to represent and vote, as designated
below, all the shares of Common Stock of the Company held of record by the
undersigned on March 5, 2004 at the Annual Meeting of Shareholders to be held at
the home office of its subsidiary, First Federal Bank, located at 601 Clinton
Street, Defiance, Ohio 43512, on Tuesday, April 20, 2004, at 1:00 p.m., Eastern
Time, and any adjournment thereof.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS INSTRUCTION CARD PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE OR PROVIDE YOUR INSTRUCTIONS TO VOTE VIA THE
INTERNET OR BY TELEPHONE.
(Continued, and to be marked, dated and signed, on the other side)
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
FIRST DEFIANCE FINANCIAL CORP.-- ANNUAL MEETING, APRIL 20, 2004
YOUR INSTRUCTIONS TO VOTE ARE IMPORTANT!
You can provide your instructions to vote in one of three ways:
1. Call toll free 1-888-216-1302 on a Touch-Tone Phone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
or
--
2. Via the Internet at https://www.proxyvotenow.com/def and follow the
instructions.
or
--
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE SEE REVERSE SIDE FOR VOTING INSTRUCTIONS
Printed on recycled paper
Please mark as indicated in this example [X]
The Board of Directors recommends a vote "FOR" Proposal 1.
Withhold For All
For All Except
1. Election of directors for three-year term expiring in 2007.
Nominees for a three-year term expiring in 2007:
(01) Stephen L. Boomer (02) Peter A. Diehl
(03) William J. Small
Instruction: To withhold authority to vote for any nominee(s), mark "For All
Except" and write that nominee(s') name(s) or number(s) in the space provided
below.
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES OF THE
COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES
TO THE BOARD OF DIRECTORS SPECIFIED IN PROPOSAL 1 AND OTHERWISE AT THE
DISCRETION OF THE PROXIES. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE
TIME IT IS VOTED AT THE ANNUAL MEETING.
Mark here if you plan to attend the meeting
Mark here for address change and note change
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS CARD. When signing as an
attorney, executor, administrator, trustee or guardian, please give full title.
If a corporation or partnership, write in the full corporate or partnership name
and have the President or other authorized officer sign. If shares are held
jointly, each holder should sign, but only one signature is required.
Please be sure to date and sign this instruction card in the box below.
----------------------------------------
Date
----------------------------------------
Sign above
***IF YOU WISH TO PROVIDE YOUR INSTRUCTIONS TO VOTE BY TELEPHONE OR INTERNET,
PLEASE READ THE INSTRUCTIONS BELOW ***
--------------------------------------------------------------------------------
FOLD AND DETACH HERE IF YOU ARE VOTING BY MAIL
PROXY VOTING INSTRUCTIONS
Stockholders of record have three ways to vote:
1. By Mail; or
2. By Telephone (using a Touch-Tone Phone); or
3. By Internet.
A telephone or Internet vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed, dated and returned this proxy. Please
note telephone and Internet votes must be cast prior to 3 a.m., April 20, 2004.
It is not necessary to return this proxy if you vote by telephone or Internet.
Vote by Telephone
Call Toll-Free on a Touch-Tone Phone anytime prior to
3 a.m., April 20, 2004.
1-888-216-1320
Vote by Internet
anytime prior to
3 a.m., April 20, 2004 go to
https://www.proxyvotenow.com/def
Please note that the last vote received, whether by telephone, Internet or by
mail, will be the vote counted.
ON-Line Proxy Materials : Access at https://www.proxyvotenow.com/def
Your vote is important!