Notes to Consolidated Condensed Financial
Statements
(Unaudited at June 30, 2014 and 2013)
1. Basis of Presentation
First Defiance Financial
Corp. (“First Defiance” or the “Company”) is a unitary thrift holding company that, through its subsidiaries,
First Federal Bank of the Midwest (“First Federal”), First Insurance Group of the Midwest, Inc. (“First
Insurance”), and First Defiance Risk Management Inc. (collectively, the “Subsidiaries”), focuses on traditional banking
and property and casualty, life and group health insurance products. All significant intercompany transactions and balances are
eliminated in consolidation.
First Federal is primarily
engaged in community banking attracting deposits from the general public and using those and other available sources of funds to
originate loans primarily in the counties in which its offices are located. First Federal’s traditional banking activities
include originating and servicing residential, non-residential real estate, commercial, home improvement and home equity and consumer
loans and providing a broad range of depository, trust and wealth management services. First Insurance is an insurance agency that
does business in the Defiance, Bryan, Bowling Green, Maumee and Oregon, Ohio areas, offering property and casualty, group health
insurance and life insurance products.
First Defiance Risk Management is a wholly-owned insurance
company subsidiary of the Company to insure the Company and its subsidiaries against certain risks unique to the operations of
the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.
First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions
to spread a limited amount of risk among themselves.
The consolidated condensed
statement of financial condition at December 31, 2013 has been derived from the audited financial statements at that date, which
were included in First Defiance’s Annual Report on Form 10-K for the year-ended December 31, 2013.
The accompanying consolidated
condensed financial statements as of June 30, 2014 and for the three and six month periods ended June 30, 2014 and 2013 have been
prepared by First Defiance without audit and do not include information or footnotes necessary for the complete presentation of
financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United
States. These consolidated condensed financial statements should be read in conjunction with the financial statements and notes
thereto included in First Defiance's 2013 Annual Report on Form 10-K for the year ended December 31, 2013. However, in the opinion
of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial
statements have been made. The results for the three and six month periods ended June 30, 2014 are not necessarily indicative of
the results that may be expected for the entire year.
2
.
Significant Accounting Policies
Use of Estimates
The preparation of
consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. Significant areas where First Defiance uses estimates are the valuation
of certain investment securities, the determination of the allowance for loan losses, the valuation of mortgage servicing rights
and goodwill, the determination of unrecognized income tax benefits and the fair value of financial instruments.
Earnings Per Common Share
Basic earnings per
common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the
period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating
securities for the calculation. Diluted earnings per common share include the dilutive effect of additional potential common shares
issuable under stock options, warrants, restricted stock awards and stock grants.
Newly Adopted Accounting
Standard
In January 2014, the
FASB issued ASU 2014-01,
"Accounting for Investments in Qualified Affordable Housing Projects."
ASU 2014-01 applies to all reporting entities that invest in qualified affordable housing projects through limited
liability entities. The pronouncement permits reporting entities to make an accounting policy election to account for these investments
using the proportional amortization method if certain conditions exist. The pronouncement also requires disclosure that enables
users of its financial statements to understand the nature of these investments. Under the proportional amortization method, an
entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes
the net investment performance in the income statement as a component of income tax expense (benefit). The pronouncement should
be applied retrospectively for all periods presented, effective for annual periods and interim reporting periods within those annual
periods, beginning after December 15, 2014. Early adoption is permitted. The Company elected to early adopt ASU 2014-01 and such
adoption did not have a material impact on the Company’s Consolidated Financial Statements. As of June 30, 2014, the Company
had $3.8 million in qualified investments recorded in other assets, $2.3 million in unfunded commitments recorded in other liabilities
and $84,000 of tax credits (benefit) recorded in federal income taxes.
Newly Issued but Not Yet
Effective Accounting Standards
In January 2014, the
FASB issued ASU 2014-04, “
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
.”
The objective of the amendments in ASU 2014-04 to Topic 310, “
Receivables - Troubled Debt Restructurings by Creditors,”
is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be
considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such
that the loan receivable should be derecognized and the real estate property recognized. The amendments are effective for fiscal
years, and interim periods within those years, beginning after December 15, 2014. An entity can elect to adopt the amendments using
either a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The adoption
of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In May 2014, the FASB
issued ASU 2014-09, “
Revenue from Contracts with Customers.
” ASU 2014-09 relates to the recognition of revenue
from contracts with customers. The new revenue pronouncement creates a single source of revenue guidance for all companies in all
industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company
to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to
which it expects to be entitled in exchange for those goods or services. The five steps are (1) identify the contract with the
customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate
the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied.
The pronouncement is effective for annual periods, and interim periods within those annual periods, beginning after December 15,
2016 using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective
approach. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this pronouncement
on its Consolidated Financial Statements.
In June 2014, the FASB issued ASU No. 2014-12,
"Accounting for Share-Based Payments When the Terms
of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period."
The amendments in
the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be
treated as a performance condition. A reporting entity should apply existing guidance in Topic 718,
Compensation - Stock Compensation
,
as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should
not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable
to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being
achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively
over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service
period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately
vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award
if the performance target is achieved. The amendments in this ASU are effective for interim or annual reporting periods beginning
after December 15, 2015; early adoption is permitted. Entities may apply the amendments in this ASU either: (1) prospectively to
all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are
outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified
awards thereafter. The adoption of ASU No. 2014-12 is not expected to have a material impact on the Company's Consolidated Financial
Statements.
3. Fair Value
FASB ASC Topic 820
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability
occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market
for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset
or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the
market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions
involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal
market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
FASB ASC Topic 820
requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable
assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to
replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation
techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable,
meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on the
best information available. In that regard, FASB ASC Topic 820 established a fair value hierarchy for valuation inputs that gives
the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The fair value hierarchy is as follows:
|
·
|
Level 1
: Quoted prices (unadjusted) in active markets for identical assets or liabilities
that the reporting entity has the ability to access at the measurement date.
|
|
·
|
Level 2
: Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.) or inputs
that are derived principally from or corroborated by market data by a correlation or other means.
|
|
·
|
Level 3
: Unobservable inputs for determining fair value of assets and liabilities that reflect
an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
|
A description of the
valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy, is set forth below.
Available for sale
securities
- Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where
the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical
technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value
measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and
conditions, among other things. Securities in Level 1 include federal agency preferred stock securities. Securities in Level 2
include U.S. Government agencies, mortgage-backed securities, corporate bonds and municipal securities. The Company classified its pooled trust preferred collateralized debt obligations as Level 1 and Level
3 at December 31, 2013. The portfolio consisted of collateralized debt obligations backed by pools of trust preferred securities
issued by financial institutions and insurance companies. The two collateralized debt obligations, which are backed by financial
institutions, are allowed under the Volcker Rule and classified as Level 3 based on the lack of observable market data, the Company
estimated fair values based on the observable data available and reasonable unobservable market data. The Company estimated fair
value based on a discounted cash flow model, which used appropriately adjusted discount rates reflecting credit and liquidity risks.
Impaired loans
-
Fair values for impaired collateral dependent loans are
generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of
offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three
methods to derive value: cost, sales or market comparison and income approach. The cost method bases value in the cost
to replace the current property. The value of market comparison approach evaluates the sales price of similar
properties in the same market area. The income approach considers net operating income generated by the property and an
investor’s required return. Adjustments are routinely made in the appraisal process by the independent appraisers to
adjust for differences between the comparable sales and income data available. Comparable sales adjustments are based
on known sales prices of similar type and similar use properties and duration of time that the property has been on the
market to sell. Such adjustments made in the appraisal process are typically significant and result in a Level 3
classification of the inputs for determining fair value.
Real Estate held
for sale
- Assets acquired through or instead of loan foreclosure
are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are then reviewed
monthly by members of the asset review committee for valuation changes and are accounted for at lower of cost or fair value less
estimated costs to sell. Fair value is commonly based on recent real estate appraisals which may utilize a single valuation approach
or a combination of approaches including cost, comparable sales and the income approach. Adjustments are routinely made in the
appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.
Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for both
collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties)
or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified
by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions
and approaches utilized in the appraisal. Appraisal values are discounted from 0% to 20% to account for other factors that
may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned,
significant unobservable inputs may be used, which include: physical condition of comparable properties sold, net operating
income generated by the property and investor rates of return.
Mortgage servicing
rights
- On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon the fair value of the
rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded
on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level based on a model
that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market
participants would use in estimating future net servicing income and are validated against available market data (Level 2).
Mortgage banking
derivative
- The fair value of mortgage banking derivatives are evaluated monthly based on derivative valuation models using
quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation
date (Level 2).
The following table
summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within
the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured on a
Recurring Basis
June 30, 2014
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government corporations and agencies
|
|
$
|
-
|
|
|
$
|
5,002
|
|
|
$
|
-
|
|
|
$
|
5,002
|
|
Mortgage-backed - residential
|
|
|
-
|
|
|
|
49,191
|
|
|
|
-
|
|
|
|
49,191
|
|
Collateralized mortgage obligations
|
|
|
-
|
|
|
|
79,454
|
|
|
|
-
|
|
|
|
79,454
|
|
REMIC
|
|
|
-
|
|
|
|
1,957
|
|
|
|
-
|
|
|
|
1,957
|
|
Corporate bonds
|
|
|
-
|
|
|
|
6,990
|
|
|
|
-
|
|
|
|
6,990
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
89,695
|
|
|
|
-
|
|
|
|
89,695
|
|
Mortgage banking derivative – asset
|
|
|
-
|
|
|
|
580
|
|
|
|
-
|
|
|
|
580
|
|
Mortgage banking derivative - liability
|
|
|
-
|
|
|
|
(107
|
)
|
|
|
-
|
|
|
|
(107
|
)
|
December 31, 2013
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government corporations and agencies
|
|
$
|
-
|
|
|
$
|
4,921
|
|
|
$
|
-
|
|
|
$
|
4,921
|
|
Mortgage-backed - residential
|
|
|
-
|
|
|
|
41,292
|
|
|
|
-
|
|
|
|
41,292
|
|
Collateralized mortgage obligations
|
|
|
-
|
|
|
|
59,841
|
|
|
|
-
|
|
|
|
59,841
|
|
Trust preferred stock
|
|
|
1,654
|
|
|
|
-
|
|
|
|
582
|
|
|
|
2,236
|
|
Preferred stock
|
|
|
718
|
|
|
|
-
|
|
|
|
-
|
|
|
|
718
|
|
Corporate bonds
|
|
|
-
|
|
|
|
8,942
|
|
|
|
-
|
|
|
|
8,942
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
80,220
|
|
|
|
|
|
|
|
80,220
|
|
Mortgage banking derivative - asset
|
|
|
-
|
|
|
|
295
|
|
|
|
-
|
|
|
|
295
|
|
Mortgage banking derivative - liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The table below presents
a reconciliation and income classification of gains and losses for all assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the three and six months ended June 30, 2014 and 2013:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In Thousands)
|
Beginning balance, January 1, 2014
|
|
$
|
582
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
Included in earnings (realized)
|
|
|
(329
|
)
|
Included in other comprehensive income (presented gross of taxes)
|
|
|
993
|
|
Amortization
|
|
|
-
|
|
Sales
|
|
|
(1,246
|
)
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending balance, June 30, 2014
|
|
$
|
-
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In Thousands)
|
Beginning balance, April 1, 2014
|
|
$
|
704
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
Included in earnings (realized)
|
|
|
(329
|
)
|
Included in other comprehensive income (presented gross of taxes)
|
|
|
871
|
|
Amortization
|
|
|
-
|
|
Sales
|
|
|
(1,246
|
)
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending balance, June 30, 2014
|
|
$
|
-
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In Thousands)
|
Beginning balance, January 1, 2013
|
|
$
|
1,474
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
Included in earnings (realized)
|
|
|
-
|
|
Included in other comprehensive income (presented gross of taxes)
|
|
|
262
|
|
Amortization
|
|
|
-
|
|
Sales
|
|
|
-
|
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending balance, June 30, 2013
|
|
$
|
1,736
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In Thousands)
|
Beginning balance, April 1, 2013
|
|
$
|
1,651
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
Included in earnings (realized)
|
|
|
-
|
|
Included in other comprehensive income (presented gross of taxes)
|
|
|
85
|
|
Amortization
|
|
|
-
|
|
Sales
|
|
|
-
|
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
Ending balance, June 30, 2013
|
|
$
|
1,736
|
|
The following
table summarizes the financial assets measured at fair value on a non-recurring basis segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair value:
Assets and Liabilities Measured on a
Non-Recurring Basis
June 30, 2014
|
|
Level 1 Inputs
|
|
|
Level 2 Inputs
|
|
|
Level 3 Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
519
|
|
|
$
|
519
|
|
Commercial Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
1,068
|
|
|
|
1,068
|
|
Multi Family Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
303
|
|
|
|
303
|
|
Home Equity Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
102
|
|
|
|
102
|
|
CRE Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
7,512
|
|
|
|
7,512
|
|
Total impaired loans
|
|
|
-
|
|
|
|
-
|
|
|
|
9,504
|
|
|
|
9,504
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
1,173
|
|
|
|
-
|
|
|
|
1,173
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CRE loans
|
|
|
-
|
|
|
|
-
|
|
|
|
489
|
|
|
|
489
|
|
Total Real Estate held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
489
|
|
|
|
489
|
|
December 31, 2013
|
|
Level 1 Inputs
|
|
|
Level 2 Inputs
|
|
|
Level 3 Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
259
|
|
|
$
|
259
|
|
Multi Family Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
338
|
|
|
|
338
|
|
Home Equity Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
531
|
|
|
|
531
|
|
CRE Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
9,590
|
|
|
|
9,590
|
|
Total impaired loans
|
|
|
-
|
|
|
|
-
|
|
|
|
10,718
|
|
|
|
10,718
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
1,370
|
|
|
|
-
|
|
|
|
1,370
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
|
|
112
|
|
CRE
|
|
|
-
|
|
|
|
-
|
|
|
|
1,278
|
|
|
|
1,278
|
|
Total Real Estate held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
1,390
|
|
|
|
1,390
|
|
For Level 3 assets
and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2014, the significant unobservable inputs
used in the fair value measurements were as follows:
|
|
Fair
Value
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range
of
Inputs
|
|
|
Weighted
Average
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans- Applies to all loan classes
|
|
$
|
9,504
|
|
|
Appraisals which utilize
sales comparison, net income and cost approach
|
|
Discounts for collection issues and changes in
market conditions
|
|
|
0-10
|
%
|
|
|
10
|
%
|
Real estate held for sale –
Applies to all classes
|
|
$
|
489
|
|
|
Appraisals which
utilize sales comparison, net income and cost approach
|
|
Discounts for changes in market conditions
|
|
|
0-20
|
%
|
|
|
20
|
%
|
For Level 3 assets
and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2013, the significant unobservable
inputs used in the fair value measurements were as follows:
|
|
Fair
Value
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range
of
Inputs
|
|
|
Weighted
Average
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred stock
|
|
$
|
582
|
|
|
Discounted cash flow
|
|
Constant prepayment rate
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
Expected asset default
|
|
|
0-30
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
Expected recoveries
|
|
|
10-15
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans- Applies to all loan classes
|
|
$
|
10,718
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for collection issues and changes in market conditions
|
|
|
0-10
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate held for sale – Applies to all classes
|
|
$
|
1,390
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for changes in market conditions
|
|
|
0-20
|
%
|
|
|
20
|
%
|
Impaired loans, which
are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $9.5 million,
with no valuation allowance and a fair value of $10.7 million, with no valuation allowance at June 30, 2014 and December 31, 2013,
respectively. A provision expense of $725,000 and $1.5 million for the three and six months ended June 30, 2014 and a provision
expense of $551,000 and $1.2 million for the three and six months ended June 30, 2013, respectively, was included in earnings.
Mortgage servicing
rights which are carried at the lower of cost or fair value, had a fair value of $1.2 million with a valuation allowance of $1.0
million at both June 30, 2014 and December 31, 2013. A recovery of $44,000 and $37,000 for the three and six months ended June
30, 2014 and a recovery of $312,000 and $785,000 for the three and six months ended June 30, 2013, respectively, were included
in earnings.
Real estate held for
sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair
value of real estate held for sale was $73,000 for the three and six months ended June 30, 2014 and $215,000 for the three and
six months ended June 30, 2013, which was recorded directly as an adjustment to current earnings through non-interest expense.
In accordance with
FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition
based on carrying amount and estimated fair values of financial instruments as of June 30, 2014 and December 31, 2013. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value of First Defiance.
Much of the information
used to arrive at “fair value” is highly subjective and judgmental in nature and therefore the results may not be precise.
Subjective factors include, among other things, estimated cash flows, risk characteristics and interest rates, all of which are
subject to change. With the exception of investment securities, the Company’s financial instruments are not readily marketable
and market prices do not exist. Since negotiated prices for the instruments, which are not readily marketable, depend greatly on
the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these
instruments could be significantly different.
The carrying amount
of cash and cash equivalents, term notes payable and advance payments by borrowers for taxes and insurance, as a result of their
short-term nature, is considered to be equal to fair value and are classified as Level 1.
It was not practicable
to determine the fair value of Federal Home Loan Bank (“FHLB”) stock due to restrictions placed on its transferability.
The fair value of loans
that reprice within 90 days is equal to their carrying amount. For other loans, the estimated fair value is calculated based on
discounted cash flow analysis, using interest rates currently being offered for loans with similar terms, resulting in a Level
3 classification. Impaired loans are valued at the lower of cost or fair value as previously described. The allowance for loan
losses is considered to be a reasonable adjustment for credit risk. The methods utilized to estimate the fair value of loans do
not necessarily represent an exit price. The fair value of loans held for sale is estimated based on binding contracts and quotes
from third party investors resulting in a Level 2 classification.
The fair value of accrued
interest receivable is equal to the carrying amounts resulting in a Level 2 or Level 3 classification, which is consistent with
its underlying value.
The fair value of non-interest
bearing deposits are considered equal to the amount payable on demand at the reporting date (i.e., carrying value) and are classified
as Level 1. The fair value of savings, NOW and certain money market accounts are equal to their carrying amounts and are a Level
2 classification. Fair values of fixed rate certificates of deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time
deposits resulting in a Level 2 classification.
The fair values of
securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 2 classification. The carrying
value of subordinated debentures and deposits with fixed maturities is estimated based on discounted cash flow analyses based on
interest rates currently being offered on instruments with similar characteristics and maturities resulting in a Level 3 classification.
FHLB advances with
maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted
for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options
is based on the estimated cost to settle the option at June 30, 2014.
|
|
|
|
|
Fair Value Measurements at June 30, 2014
(In Thousands)
|
|
|
|
Carrying
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
156,246
|
|
|
$
|
156,246
|
|
|
$
|
156,246
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
232,619
|
|
|
|
232,622
|
|
|
|
-
|
|
|
|
232,622
|
|
|
|
-
|
|
Federal Home Loan Bank Stock
|
|
|
13,802
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net, including loans held for sale
|
|
|
1,564,681
|
|
|
|
1,572,926
|
|
|
|
-
|
|
|
|
7,665
|
|
|
|
1,565,261
|
|
Accrued interest receivable
|
|
|
5,730
|
|
|
|
5,730
|
|
|
|
-
|
|
|
|
813
|
|
|
|
4,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,741,812
|
|
|
$
|
1,743,793
|
|
|
$
|
355,268
|
|
|
$
|
1,388,525
|
|
|
$
|
-
|
|
Advances from Federal Home Loan Bank
|
|
|
22,034
|
|
|
|
22,290
|
|
|
|
-
|
|
|
|
22,290
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
52,455
|
|
|
|
52,455
|
|
|
|
-
|
|
|
|
52,455
|
|
|
|
-
|
|
Subordinated debentures
|
|
|
36,083
|
|
|
|
35,256
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,256
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013
(In Thousands)
|
|
|
|
Carrying
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
179,318
|
|
|
$
|
179,318
|
|
|
$
|
179,318
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
198,557
|
|
|
|
198,563
|
|
|
|
2,372
|
|
|
|
195,609
|
|
|
|
582
|
|
Federal Home Loan Bank Stock
|
|
|
19,350
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net, including loans held for sale
|
|
|
1,564,618
|
|
|
|
1,568,929
|
|
|
|
-
|
|
|
|
9,140
|
|
|
|
1,559,789
|
|
Accrued interest receivable
|
|
|
5,778
|
|
|
|
5,778
|
|
|
|
4
|
|
|
|
696
|
|
|
|
5,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,735,792
|
|
|
$
|
1,738,216
|
|
|
$
|
348,943
|
|
|
$
|
1,389,273
|
|
|
$
|
-
|
|
Advances from Federal Home Loan Bank
|
|
|
22,520
|
|
|
|
22,713
|
|
|
|
-
|
|
|
|
22,713
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
51,919
|
|
|
|
51,919
|
|
|
|
-
|
|
|
|
51,919
|
|
|
|
-
|
|
Subordinated debentures
|
|
|
36,083
|
|
|
|
35,237
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,237
|
|
4. Stock
Compensation Plans
First Defiance has
established equity based compensation plans for its directors and employees. On March 15, 2010, the Board adopted, and the shareholders
approved at the 2010 Annual Shareholders Meeting, the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “2010
Equity Plan”). The 2010 Equity Plan replaced all plans that were in existence at the time of adoption. All awards currently outstanding under prior plans will
remain in effect in accordance with their respective terms. Any new awards will be made under the 2010 Equity Plan. The 2010 Equity
Plan allows for issuance of up to 350,000 common shares through the award of options, stock grants, restricted stock units (“RSU”),
stock appreciation rights or other stock-based awards.
As of June 30, 2014,
190,520 options had been granted and remained outstanding at option prices based on the market value of the underlying shares on
the date the options were granted. Options granted under all plans vest 20% per year except, for the 2009 grant to the Company’s
executive officers, which vested 40% in 2011 and then 20% annually. All options expire ten years from the date of grant. Vested
options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.
In March 2013, the Company approved a 2013 Short-Term Incentive Plan (“STIP”) and a 2013 Long-Term
Incentive Plan (“LTIP”) for selected members of management.
Under the 2013 STIP
the participants may earn up to 25% to 45% of their salary for potential payout based on the achievement of certain corporate performance
targets during the calendar year. The participants are required to be employed on the day of payout in order to receive such payment.
The final amount of benefits under the 2013 STIP was determined as of December 31, 2013 and paid out in cash in the first
quarter of 2014.
Under the 2013
LTIP the participants may earn up to 25% to 45% of their salary for potential payout in the form of equity awards based on
the achievement of certain corporate performance targets over a three year period. The Company granted 86,065 RSU’s to
the participants in the 2013 LTIP effective January 1, 2013, which represents the maximum target award. The amount of benefit
under the 2013 LTIP will be determined individually at the 12 month period ending December 31, 2013, the 24 month period
ending December 31, 2014 and the 36 month period ending December 31, 2015. The awards’ vesting will be as follows:
16.7% of the target award after the end of the performance period ending December 31, 2013, 27.8% of the target award at the
end of the performance period ending December 31, 2014 and 55.5% of the target award at the end of the performance period
ending December 31, 2015. The benefits earned under the 2013 LTIP will be paid out in equity in the first quarter
following the close of the applicable performance period. The participants are required to be employed on the day of payout
in order to receive such payment. A total of 6,425 RSU’s were issued to the participants in the second quarter of 2014
for the year one performance period ended December 31, 2013.
In March 2014, the
Company approved a 2014 STIP and a 2014 LTIP for selected members of management.
Under the 2014 STIP
the participants may earn up to 30% to 45% of their salary for potential payout based on the achievement of certain corporate performance
targets during the calendar year. The final amount of benefits under the 2014 STIP will be determined as of December 31, 2014
and will be paid out in cash in the first quarter of 2015. The participants are required to be employed on the day of payout in
order to receive such payment.
Under the
2014 LTIP the participants may earn up to 20% to 45% of their salary for potential payout in the form of equity awards based
on the achievement of certain corporate performance targets over a three year period. The Company granted 30,538 RSU’s
to the participants in the 2014 LTIP effective January 1, 2014, which represents the maximum target award. The amount
of benefit under the 2014 LTIP will be determined individually at the end of the 36 month performance period
ending December 31, 2016. The awards’ will vest 100% of the target award at the end of the performance period
ending December 31, 2016. The benefits earned under the 2014 LTIP will be paid out in equity in the first quarter of 2017. The
participants are required to be employed on the day of payout in order to receive such payment.
The fair value of each
option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities
of the Company’s common shares. The Company uses historical data to estimate option exercise and post-vesting termination
behavior. The expected term of options granted is based on historical data and represents the period of time that options granted
are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for
the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
The fair value of stock
options granted during the six months ended June 30, 2014 was determined at the date of grant using the Black-Scholes stock option-pricing
model and the following assumptions:
|
|
Six Months ended
|
|
|
|
June 30, 2014
|
|
Expected average risk-free rate
|
|
|
1.64
|
%
|
Expected average life
|
|
|
7.44 years
|
|
Expected volatility
|
|
|
44.62
|
%
|
Expected dividend yield
|
|
|
2.17
|
%
|
The weighted-average
fair value of options granted for the six months ended June 30, 2014 was $11.25. There were no options granted in the six months
ended June 30, 2013.
Following is activity
under the plans during the six months ended June 30, 2014:
Stock options
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic
Value
(in 000’s)
|
|
Options outstanding, January 1, 2014
|
|
|
251,020
|
|
|
$
|
20.76
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(34,100
|
)
|
|
|
26.72
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(26,900
|
)
|
|
|
16.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
500
|
|
|
|
27.59
|
|
|
|
|
|
|
|
|
|
Options outstanding, June 30, 2014
|
|
|
190,520
|
|
|
$
|
20.37
|
|
|
|
3.08
|
|
|
$
|
1,587
|
|
Vested or expected to vest at
June 30, 2014
|
|
|
190,520
|
|
|
$
|
20.37
|
|
|
|
3.08
|
|
|
$
|
1,587
|
|
Exercisable at June 30, 2014
|
|
|
190,020
|
|
|
$
|
20.35
|
|
|
|
3.07
|
|
|
$
|
1,586
|
|
As
of June 30, 2014, there was $5,000 of total unrecognized compensation costs related to unvested stock options granted under the
Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 4.7 years
.
At June 30, 2014, 91,812
RSU’s were outstanding. Compensation expense is recognized over the performance period based on the achievements of targets
as established under the plan documents. Total accrued expense of $130,000 was recorded during the six months ended June 30, 2014
compared to an expense of $570,000 for the same period in 2013. There was approximately $335,000 included within other liabilities
at June 30, 2014 related to the STIPs and LTIPs.
|
|
Restricted Stock Units
|
|
|
Stock Grants
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
Unvested Shares
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at January 1, 2014
|
|
|
106,061
|
|
|
$
|
18.66
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
30,538
|
|
|
|
25.77
|
|
|
|
13,087
|
|
|
|
21.87
|
|
Vested
|
|
|
(7,320
|
)
|
|
|
18.63
|
|
|
|
(7,320
|
)
|
|
|
18.63
|
|
Forfeited
|
|
|
(37,467
|
)
|
|
|
18.71
|
|
|
|
-
|
|
|
|
-
|
|
Unvested at June 30, 2014
|
|
|
91,812
|
|
|
$
|
21.00
|
|
|
|
5,767
|
|
|
$
|
25.97
|
|
The maximum amount
of compensation expense that may be recorded for the 2014 STIP and the 2012, 2013 and 2014 LTIPs at June 30, 2014 is approximately
$3.8 million. However, the estimated expense expected to be recorded as of June 30, 2014 based on the performance measures in the
plans, is $2.0 million, of which $1.1 million is unrecognized at June 30, 2014 and will be recognized over the remaining performance
periods.
5. Dividends on Common Stock
First Defiance declared
and paid a $0.15 per share common stock dividend in the first and second quarters of 2014 and declared and paid a $0.10 per share
common stock dividend in the first and second quarters of 2013.
6. Earnings Per Common Share
The following table
sets forth the computation of basic and diluted earnings per common share (In Thousands except per share data):
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Numerator for basic and diluted earnings per common share – Net income
|
|
$
|
5,689
|
|
|
$
|
6,109
|
|
|
$
|
10,868
|
|
|
$
|
11,668
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share – weighted average common shares,
including participating securities
|
|
|
9,607
|
|
|
|
9,774
|
|
|
|
9,644
|
|
|
|
9,755
|
|
Effect of warrants
|
|
|
350
|
|
|
|
306
|
|
|
|
345
|
|
|
|
301
|
|
Effect of restricted stock units
|
|
|
56
|
|
|
|
27
|
|
|
|
54
|
|
|
|
23
|
|
Effect of employee stock options
|
|
|
53
|
|
|
|
49
|
|
|
|
53
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share share
|
|
|
10,066
|
|
|
|
10,156
|
|
|
|
10,096
|
|
|
|
10,130
|
|
Basic earnings per common share
|
|
$
|
0.59
|
|
|
$
|
0.63
|
|
|
$
|
1.13
|
|
|
$
|
1.20
|
|
Diluted earnings per common share
|
|
$
|
0.57
|
|
|
$
|
0.60
|
|
|
$
|
1.08
|
|
|
$
|
1.15
|
|
There were
1,000 and 35,000 shares under options granted to employees excluded from the diluted earnings per common share calculation as
they were anti-dilutive for the three and six months ended June 30, 2014, respectively. There were 143,350 shares under option granted
to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for both the three
and six months ended June 30, 2013.
7. Investment Securities
The following is a
summary of available-for-sale and held-to-maturity securities:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
At June 30, 2014
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations and agencies
|
|
$
|
5,000
|
|
|
$
|
24
|
|
|
$
|
(22
|
)
|
|
$
|
5,002
|
|
Mortgage-backed securities – residential
|
|
|
48,569
|
|
|
|
971
|
|
|
|
(349
|
)
|
|
|
49,191
|
|
Collateralized mortgage obligations
|
|
|
79,161
|
|
|
|
977
|
|
|
|
(684
|
)
|
|
|
79,454
|
|
REMICs
|
|
|
1,940
|
|
|
|
17
|
|
|
|
-
|
|
|
|
1,957
|
|
Corporate bonds
|
|
|
6,884
|
|
|
|
122
|
|
|
|
(16
|
)
|
|
|
6,990
|
|
Obligations of state and political subdivisions
|
|
|
85,347
|
|
|
|
4,508
|
|
|
|
(160
|
)
|
|
|
89,695
|
|
Totals
|
|
$
|
226,901
|
|
|
$
|
6,619
|
|
|
$
|
(1,231
|
)
|
|
$
|
232,289
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrecognized
Gains
|
|
|
Gross
Unrecognized
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
Held-to-Maturity Securities*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates
|
|
$
|
29
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29
|
|
FNMA certificates
|
|
|
102
|
|
|
|
2
|
|
|
|
-
|
|
|
|
104
|
|
GNMA certificates
|
|
|
44
|
|
|
|
1
|
|
|
|
-
|
|
|
|
45
|
|
Obligations of state and political subdivisions
|
|
|
155
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155
|
|
Totals
|
|
$
|
330
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
333
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
At December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations and agencies
|
|
$
|
5,000
|
|
|
$
|
-
|
|
|
$
|
(79
|
)
|
|
$
|
4,921
|
|
Mortgage-backed securities - residential
|
|
|
41,368
|
|
|
|
765
|
|
|
|
(841
|
)
|
|
|
41,292
|
|
Collateralized mortgage obligations
|
|
|
59,865
|
|
|
|
739
|
|
|
|
(763
|
)
|
|
|
59,841
|
|
Trust preferred stock and preferred stock
|
|
|
3,264
|
|
|
|
683
|
|
|
|
(993
|
)
|
|
|
2,954
|
|
Corporate bonds
|
|
|
8,854
|
|
|
|
129
|
|
|
|
(41
|
)
|
|
|
8,942
|
|
Obligations of state and political subdivisions
|
|
|
78,426
|
|
|
|
2,704
|
|
|
|
(910
|
)
|
|
|
80,220
|
|
Total Available-for-Sale
|
|
$
|
196,777
|
|
|
$
|
5,020
|
|
|
$
|
(3,627
|
)
|
|
$
|
198,170
|
|
|
|
Amortized Cost
|
|
|
Gross
Unrecognized
Gains
|
|
|
Gross
Unrecognized
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
Held-to-Maturity Securities*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates
|
|
$
|
31
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31
|
|
FNMA certificates
|
|
|
120
|
|
|
|
4
|
|
|
|
-
|
|
|
|
124
|
|
GNMA certificates
|
|
|
50
|
|
|
|
2
|
|
|
|
-
|
|
|
|
52
|
|
Obligations of states and political subdivisions
|
|
|
186
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186
|
|
Total Held-to-Maturity
|
|
$
|
387
|
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
393
|
|
* FHLMC, FNMA, and
GNMA certificates are residential mortgage-backed securities.
The amortized cost
and fair value of the investment securities portfolio at June 30, 2014 are shown below by contractual maturity. Expected maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. For purposes of the maturity table, mortgage-backed securities (“MBS”) and collateralized
mortgage obligations (“CMO”), which are not due at a single maturity date, have not been allocated over the maturity
groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Due in one year or less
|
|
$
|
1,007
|
|
|
$
|
1,017
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one year through five years
|
|
|
9,398
|
|
|
|
9,691
|
|
|
|
155
|
|
|
|
155
|
|
Due after five years through ten years
|
|
|
38,245
|
|
|
|
40,045
|
|
|
|
-
|
|
|
|
-
|
|
Due after ten years
|
|
|
48,581
|
|
|
|
50,934
|
|
|
|
-
|
|
|
|
-
|
|
MBS/CMO
|
|
|
129,670
|
|
|
|
130,602
|
|
|
|
175
|
|
|
|
178
|
|
|
|
$
|
226,901
|
|
|
$
|
232,289
|
|
|
$
|
330
|
|
|
$
|
333
|
|
Investment securities
with a carrying amount of $136.7 million at June 30, 2014 were pledged as collateral on public deposits, securities sold under
repurchase agreements, Federal Reserve discount window and FHLB advances.
As of June 30, 2014,
the Company’s investment portfolio consisted of 354 securities, 59 of which were in an unrealized loss position.
The following tables
summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2014 and December 31, 2013:
|
|
Duration
of Unrealized Loss Position
|
|
|
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loses
|
|
|
|
(In Thousands)
|
|
At June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. government corporations and agencies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
978
|
|
|
$
|
(22
|
)
|
|
$
|
978
|
|
|
$
|
(22
|
)
|
Mortgage-backed securities
- residential
|
|
|
5,723
|
|
|
|
(25
|
)
|
|
|
18,641
|
|
|
|
(324
|
)
|
|
|
24,364
|
|
|
|
(349
|
)
|
Collateralized mortgage
obligations
|
|
|
21,077
|
|
|
|
(321
|
)
|
|
|
12,646
|
|
|
|
(363
|
)
|
|
|
33,723
|
|
|
|
(684
|
)
|
Obligations of state and
political subdivisions
|
|
|
1,379
|
|
|
|
(29
|
)
|
|
|
8,798
|
|
|
|
(131
|
)
|
|
|
10,177
|
|
|
|
(160
|
)
|
Corporate
bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
984
|
|
|
|
(16
|
)
|
|
|
984
|
|
|
|
(16
|
)
|
Total
temporarily impaired securities
|
|
$
|
28,179
|
|
|
$
|
(375
|
)
|
|
$
|
42,047
|
|
|
$
|
(856
|
)
|
|
$
|
70,226
|
|
|
$
|
(1,231
|
)
|
|
|
Duration
of Unrealized Loss Position
|
|
|
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loses
|
|
|
|
(In Thousands)
|
|
At December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. government corporations and agencies
|
|
$
|
4,921
|
|
|
$
|
(79
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,921
|
|
|
$
|
(79
|
)
|
Mortgage-backed securities
- residential
|
|
|
24,846
|
|
|
|
(841
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24,846
|
|
|
|
(841
|
)
|
Collateralized mortgage
obligations
|
|
|
26,530
|
|
|
|
(763
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
26,530
|
|
|
|
(763
|
)
|
Corporate bonds
|
|
|
2,959
|
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,959
|
|
|
|
(41
|
)
|
Obligations of state and
political subdivisions
|
|
|
19,209
|
|
|
|
(871
|
)
|
|
|
375
|
|
|
|
(39
|
)
|
|
|
19,584
|
|
|
|
(910
|
)
|
Trust
preferred stock and preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
582
|
|
|
|
(993
|
)
|
|
|
582
|
|
|
|
(993
|
)
|
Total
temporarily impaired securities
|
|
$
|
78,465
|
|
|
$
|
(2,595
|
)
|
|
$
|
957
|
|
|
$
|
(1,032
|
)
|
|
$
|
79,422
|
|
|
$
|
(3,627
|
)
|
With the
exception of trust preferred securities and corporate bonds, the above securities all have fixed interest rates, and all securities have defined
maturities. Their fair value is sensitive to movements in market interest rates. First Defiance has the ability and intent to
hold these investments for a time necessary to recover the amortized cost without impacting its liquidity position, and it is
not more than likely that the Company will be required to sell the investments before anticipated recovery.
Realized gains from
the sales of investment securities totaled $471,000 ($330,000 after tax) in the second quarter of 2014 while there were realized
gains of $44,000 ($31,000 after tax) in the second quarter of 2013. Realized gains from the sales of investment securities totaled
$471,000 ($306,000 after tax) for the first six months of 2014 compared to realized gains of $97,000 ($68,000 after tax) for the
first six months of 2013.
Management evaluates
securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market
conditions warrant such an evaluation. The investment portfolio is evaluated for OTTI by segregating the portfolio into two general
segments. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under FASB
ASC Topic 320.
When OTTI occurs under
either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely
than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss.
If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost
basis less any current period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the
investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the
security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized
cost basis less any current period loss, the OTTI is separated into the amount representing the credit loss and the amount related
to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected
to be collected compared to the book value of the security and is recognized in earnings. The amount of OTTI related to other factors
shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized
in earnings shall become the new amortized cost basis of the investment.
For the first six months of 2014 and 2013, management determined there was no OTTI. The Company held eight
Collateralized Debt Obligations (“CDOs”) at December 31, 2013. Two of the eight securities were sold in January 2014
with no gain or loss associated with that transaction and three were sold in June 2014 for a loss of $329,000. The Company holds
three CDOs at June 30, 2014 with a zero value.
There was no OTTI recognized
in accumulated other comprehensive income (“AOCI”) at June 30, 2014. There was $645,000 recognized in AOCI at December
31, 2013.
The proceeds from the sales and calls of
securities and the associated gains are listed below:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In Thousands)
|
|
Proceeds
|
|
$
|
2,128
|
|
|
$
|
3,008
|
|
|
$
|
3,782
|
|
|
$
|
4,027
|
|
Gross realized gains
|
|
|
1,113
|
|
|
|
43
|
|
|
|
1,113
|
|
|
|
97
|
|
Gross realized losses
|
|
|
(642
|
)
|
|
|
-
|
|
|
|
(642
|
)
|
|
|
-
|
|
8. Loans
Loans receivable consist
of the following:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(In Thousands)
|
|
Real Estate:
|
|
|
|
Secured by 1-4 family residential
|
|
$
|
199,886
|
|
|
$
|
195,752
|
|
Secured by multi-family residential
|
|
|
151,008
|
|
|
|
148,952
|
|
Secured by commercial real estate
|
|
|
650,915
|
|
|
|
670,666
|
|
Construction
|
|
|
108,478
|
|
|
|
86,058
|
|
|
|
|
1,110,287
|
|
|
|
1,101,428
|
|
Other Loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
390,055
|
|
|
|
388,236
|
|
Home equity and improvement
|
|
|
108,460
|
|
|
|
106,930
|
|
Consumer Finance
|
|
|
15,800
|
|
|
|
16,902
|
|
|
|
|
514,315
|
|
|
|
512,068
|
|
Total loans
|
|
|
1,624,602
|
|
|
|
1,613,496
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Undisbursed loan funds
|
|
|
(41,874
|
)
|
|
|
(32,290
|
)
|
Net deferred loan origination fees and costs
|
|
|
(744
|
)
|
|
|
(758
|
)
|
Allowance for loan loss
|
|
|
(24,627
|
)
|
|
|
(24,950
|
)
|
Totals
|
|
$
|
1,557,357
|
|
|
$
|
1,555,498
|
|
Loan segments have
been identified by evaluating the portfolio based on collateral and credit risk characteristics.
The following
table discloses allowance for loan loss activity for the quarter ended June 30, 2014 and June 30, 2013 by portfolio segment
and impairment method (In Thousands):
Quarter Ended
June 30, 2014
|
|
1-4 Family
Residential
Real Estate
|
|
|
Multi- Family
Residential
Real Estate
|
|
|
Commercial
Real
Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home Equity
and
Improvement
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Beginning Allowance
|
|
$
|
2,639
|
|
|
$
|
2,615
|
|
|
$
|
11,987
|
|
|
$
|
138
|
|
|
$
|
5,610
|
|
|
$
|
1,647
|
|
|
$
|
147
|
|
|
$
|
24,783
|
|
Charge-Offs
|
|
|
(42
|
)
|
|
|
(0
|
)
|
|
|
(39
|
)
|
|
|
0
|
|
|
|
(973
|
)
|
|
|
(80
|
)
|
|
|
(12
|
)
|
|
|
(1,146
|
)
|
Recoveries
|
|
|
98
|
|
|
|
2
|
|
|
|
200
|
|
|
|
0
|
|
|
|
173
|
|
|
|
55
|
|
|
|
16
|
|
|
|
544
|
|
Provisions
|
|
|
(350
|
)
|
|
|
(137
|
)
|
|
|
(672
|
)
|
|
|
61
|
|
|
|
1,389
|
|
|
|
158
|
|
|
|
(3
|
)
|
|
|
446
|
|
Ending Allowance
|
|
$
|
2,345
|
|
|
$
|
2,480
|
|
|
$
|
11,476
|
|
|
$
|
199
|
|
|
$
|
6,199
|
|
|
$
|
1,780
|
|
|
$
|
148
|
|
|
$
|
24,627
|
|
Quarter Ended
June 30, 2013
|
|
1-4 Family
Residential
Real Estate
|
|
|
Multi- Family
Residential
Real Estate
|
|
|
Commercial
Real
Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home Equity
and
Improvement
|
|
|
Consumer
Finance
|
|
|
Total
|
|
Beginning Allowance
|
|
$
|
3,433
|
|
|
$
|
2,410
|
|
|
$
|
13,367
|
|
|
$
|
67
|
|
|
$
|
5,304
|
|
|
$
|
1,723
|
|
|
$
|
155
|
|
|
$
|
26,459
|
|
Charge-Offs
|
|
|
(184
|
)
|
|
|
(6
|
)
|
|
|
(277
|
)
|
|
|
0
|
|
|
|
(316
|
)
|
|
|
(170
|
)
|
|
|
(8
|
)
|
|
|
(961
|
)
|
Recoveries
|
|
|
33
|
|
|
|
0
|
|
|
|
167
|
|
|
|
0
|
|
|
|
57
|
|
|
|
38
|
|
|
|
29
|
|
|
|
324
|
|
Provisions
|
|
|
(85
|
)
|
|
|
21
|
|
|
|
(117
|
)
|
|
|
16
|
|
|
|
429
|
|
|
|
195
|
|
|
|
(11
|
)
|
|
|
448
|
|
Ending Allowance
|
|
$
|
3,197
|
|
|
$
|
2,425
|
|
|
$
|
13,140
|
|
|
$
|
83
|
|
|
$
|
5,474
|
|
|
$
|
1,786
|
|
|
$
|
165
|
|
|
$
|
26,270
|
|
The following
table discloses allowance for loan loss activity for the year-to-date ended June 30, 2014 and June 30, 2013 by portfolio
segment and impairment method (In Thousands):
Year-to-date
Ended June 30,
2014
|
|
1-4 Family
Residential
Real Estate
|
|
|
Multi- Family
Residential
Real Estate
|
|
|
Commercial
Real
Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home Equity
and
Improvement
|
|
|
Consumer
|
|
|
Total
|
|
Beginning Allowance
|
|
$
|
2,847
|
|
|
$
|
2,508
|
|
|
$
|
12,000
|
|
|
$
|
134
|
|
|
$
|
5,678
|
|
|
$
|
1,635
|
|
|
$
|
148
|
|
|
$
|
24,950
|
|
Charge-Offs
|
|
|
(270
|
)
|
|
|
(0
|
)
|
|
|
(267
|
)
|
|
|
0
|
|
|
|
(1,498
|
)
|
|
|
(264
|
)
|
|
|
(23
|
)
|
|
|
(2,322
|
)
|
Recoveries
|
|
|
154
|
|
|
|
5
|
|
|
|
922
|
|
|
|
0
|
|
|
|
249
|
|
|
|
86
|
|
|
|
34
|
|
|
|
1,450
|
|
Provisions
|
|
|
(386
|
)
|
|
|
(33
|
)
|
|
|
(1,179
|
)
|
|
|
65
|
|
|
|
1,770
|
|
|
|
323
|
|
|
|
(11
|
)
|
|
|
549
|
|
Ending Allowance
|
|
$
|
2,345
|
|
|
$
|
2,480
|
|
|
$
|
11,476
|
|
|
$
|
199
|
|
|
$
|
6,199
|
|
|
$
|
1,780
|
|
|
$
|
148
|
|
|
$
|
24,627
|
|
Year-to-date
Ended June 30,
2013
|
|
1-4 Family
Residential
Real Estate
|
|
|
Multi- Family
Residential
Real Estate
|
|
|
Commercial
Real
Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home Equity
and
Improvement
|
|
|
Consumer
|
|
|
Total
|
|
Beginning Allowance
|
|
$
|
3,506
|
|
|
$
|
2,197
|
|
|
$
|
12,702
|
|
|
$
|
75
|
|
|
$
|
6,325
|
|
|
$
|
1,759
|
|
|
$
|
147
|
|
|
$
|
26,711
|
|
Charge-Offs
|
|
|
(390
|
)
|
|
|
(6
|
)
|
|
|
(543
|
)
|
|
|
0
|
|
|
|
(521
|
)
|
|
|
(442
|
)
|
|
|
(54
|
)
|
|
|
(1,956
|
)
|
Recoveries
|
|
|
132
|
|
|
|
0
|
|
|
|
268
|
|
|
|
0
|
|
|
|
133
|
|
|
|
61
|
|
|
|
48
|
|
|
|
642
|
|
Provisions
|
|
|
(51
|
)
|
|
|
234
|
|
|
|
713
|
|
|
|
8
|
|
|
|
(463
|
)
|
|
|
408
|
|
|
|
24
|
|
|
|
873
|
|
Ending Allowance
|
|
$
|
3,197
|
|
|
$
|
2,425
|
|
|
$
|
13,140
|
|
|
$
|
83
|
|
|
$
|
5,474
|
|
|
$
|
1,786
|
|
|
$
|
165
|
|
|
$
|
26,270
|
|
The following table
presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment
method as of June 30, 2014: (In Thousands)
|
|
1-4 Family
|
|
|
Multi- Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
Consumer
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
& Improvement
|
|
|
Finance
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
182
|
|
|
$
|
-
|
|
|
$
|
1,129
|
|
|
$
|
-
|
|
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
-
|
|
|
$
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
2,163
|
|
|
|
2,480
|
|
|
|
10,347
|
|
|
|
199
|
|
|
|
6,176
|
|
|
|
1,756
|
|
|
|
148
|
|
|
|
23,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated
credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance
balance
|
|
$
|
2,345
|
|
|
$
|
2,480
|
|
|
$
|
11,476
|
|
|
$
|
199
|
|
|
$
|
6,199
|
|
|
$
|
1,780
|
|
|
$
|
148
|
|
|
$
|
24,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
9,796
|
|
|
$
|
358
|
|
|
$
|
29,630
|
|
|
$
|
262
|
|
|
$
|
7,385
|
|
|
$
|
2,099
|
|
|
$
|
47
|
|
|
$
|
49,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
|
190,502
|
|
|
|
150,782
|
|
|
|
623,996
|
|
|
|
66,312
|
|
|
|
383,031
|
|
|
|
106,760
|
|
|
|
15,739
|
|
|
|
1,537,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated
credit quality
|
|
|
1
|
|
|
|
-
|
|
|
|
169
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans
balance
|
|
$
|
200,299
|
|
|
$
|
151,140
|
|
|
$
|
653,795
|
|
|
$
|
66,574
|
|
|
$
|
390,440
|
|
|
$
|
108,859
|
|
|
$
|
15,786
|
|
|
$
|
1,586,893
|
|
The following table
presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment
method as of December 31, 2013: (In Thousands)
|
|
1-4 Family
|
|
|
Multi- Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
Consumer
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
& Improvement
|
|
|
Finance
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
220
|
|
|
$
|
-
|
|
|
$
|
1,121
|
|
|
$
|
-
|
|
|
$
|
6
|
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
2,627
|
|
|
|
2,508
|
|
|
|
10,879
|
|
|
|
134
|
|
|
|
5,672
|
|
|
|
1,590
|
|
|
|
148
|
|
|
|
23,558
|
|
Acquired with deteriorated
credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total ending allowance
balance
|
|
$
|
2,847
|
|
|
$
|
2,508
|
|
|
$
|
12,000
|
|
|
$
|
134
|
|
|
$
|
5,678
|
|
|
$
|
1,635
|
|
|
$
|
148
|
|
|
$
|
24,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
10,245
|
|
|
$
|
840
|
|
|
$
|
34,874
|
|
|
$
|
263
|
|
|
$
|
8,737
|
|
|
$
|
2,429
|
|
|
$
|
53
|
|
|
$
|
57,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
|
185,923
|
|
|
|
148,294
|
|
|
|
637,657
|
|
|
|
53,467
|
|
|
|
380,711
|
|
|
|
104,958
|
|
|
|
16,838
|
|
|
|
1,527,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated
credit quality
|
|
|
29
|
|
|
|
-
|
|
|
|
174
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
196,197
|
|
|
$
|
149,134
|
|
|
$
|
672,705
|
|
|
$
|
53,730
|
|
|
$
|
389,475
|
|
|
$
|
107,387
|
|
|
$
|
16,891
|
|
|
$
|
1,585,519
|
|
The following table
presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans.
(In Thousands)
|
|
Three Months Ended June 30, 2014
|
|
|
Six Months Ended June 30, 2014
|
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
Residential Owner Occupied
|
|
$
|
6,133
|
|
|
$
|
81
|
|
|
$
|
75
|
|
|
$
|
6,231
|
|
|
$
|
166
|
|
|
$
|
158
|
|
Residential Non Owner Occupied
|
|
|
3,715
|
|
|
|
32
|
|
|
|
33
|
|
|
|
3,900
|
|
|
|
70
|
|
|
|
71
|
|
Total Residential Real Estate
|
|
|
9,848
|
|
|
|
113
|
|
|
|
108
|
|
|
|
10,131
|
|
|
|
236
|
|
|
|
229
|
|
Construction
|
|
|
261
|
|
|
|
3
|
|
|
|
4
|
|
|
|
261
|
|
|
|
6
|
|
|
|
9
|
|
Multi-Family
|
|
|
369
|
|
|
|
1
|
|
|
|
1
|
|
|
|
378
|
|
|
|
2
|
|
|
|
2
|
|
CRE Owner Occupied
|
|
|
8,967
|
|
|
|
37
|
|
|
|
33
|
|
|
|
9,402
|
|
|
|
73
|
|
|
|
68
|
|
CRE Non Owner Occupied
|
|
|
18,469
|
|
|
|
201
|
|
|
|
204
|
|
|
|
18,912
|
|
|
|
405
|
|
|
|
408
|
|
Agriculture Land
|
|
|
683
|
|
|
|
5
|
|
|
|
3
|
|
|
|
685
|
|
|
|
8
|
|
|
|
5
|
|
Other CRE
|
|
|
1,788
|
|
|
|
5
|
|
|
|
6
|
|
|
|
1,825
|
|
|
|
10
|
|
|
|
11
|
|
Total Commercial Real Estate
|
|
|
29,907
|
|
|
|
248
|
|
|
|
246
|
|
|
|
30,824
|
|
|
|
496
|
|
|
|
492
|
|
Commercial Working Capital
|
|
|
3,286
|
|
|
|
8
|
|
|
|
8
|
|
|
|
3,105
|
|
|
|
11
|
|
|
|
11
|
|
Commercial Other
|
|
|
4,552
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4,756
|
|
|
|
4
|
|
|
|
3
|
|
Total Commercial
|
|
|
7,838
|
|
|
|
10
|
|
|
|
9
|
|
|
|
7,861
|
|
|
|
15
|
|
|
|
14
|
|
Home Equity and Home Improvement
|
|
|
2,095
|
|
|
|
25
|
|
|
|
25
|
|
|
|
2,267
|
|
|
|
50
|
|
|
|
50
|
|
Consumer
|
|
|
51
|
|
|
|
1
|
|
|
|
1
|
|
|
|
54
|
|
|
|
2
|
|
|
|
2
|
|
Total Impaired Loans
|
|
$
|
50,369
|
|
|
$
|
401
|
|
|
$
|
394
|
|
|
$
|
51,776
|
|
|
$
|
807
|
|
|
$
|
798
|
|
The following table
presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans:
(In Thousands)
|
|
Three Months Ended June 30, 2013
|
|
|
Six Months Ended June 30, 2013
|
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
Residential Owner Occupied
|
|
$
|
6,693
|
|
|
$
|
92
|
|
|
$
|
92
|
|
|
$
|
6,811
|
|
|
$
|
180
|
|
|
$
|
178
|
|
Residential Non Owner Occupied
|
|
|
4,443
|
|
|
|
43
|
|
|
|
44
|
|
|
|
4,583
|
|
|
|
79
|
|
|
|
79
|
|
Total Residential Real Estate
|
|
|
11,136
|
|
|
|
135
|
|
|
|
136
|
|
|
|
11,394
|
|
|
|
259
|
|
|
|
257
|
|
Construction
|
|
|
131
|
|
|
|
3
|
|
|
|
2
|
|
|
|
102
|
|
|
|
3
|
|
|
|
2
|
|
Multi-Family
|
|
|
1,277
|
|
|
|
5
|
|
|
|
6
|
|
|
|
1,393
|
|
|
|
11
|
|
|
|
13
|
|
CRE Owner Occupied
|
|
|
14,452
|
|
|
|
120
|
|
|
|
118
|
|
|
|
14,536
|
|
|
|
183
|
|
|
|
176
|
|
CRE Non Owner Occupied
|
|
|
23,692
|
|
|
|
236
|
|
|
|
230
|
|
|
|
24,080
|
|
|
|
439
|
|
|
|
423
|
|
Agriculture Land
|
|
|
889
|
|
|
|
8
|
|
|
|
3
|
|
|
|
886
|
|
|
|
17
|
|
|
|
10
|
|
Other CRE
|
|
|
4,526
|
|
|
|
12
|
|
|
|
8
|
|
|
|
4,783
|
|
|
|
14
|
|
|
|
9
|
|
Total Commercial Real Estate
|
|
|
43,559
|
|
|
|
376
|
|
|
|
359
|
|
|
|
44,285
|
|
|
|
653
|
|
|
|
618
|
|
Commercial Working Capital
|
|
|
1,346
|
|
|
|
17
|
|
|
|
17
|
|
|
|
1,593
|
|
|
|
20
|
|
|
|
22
|
|
Commercial Other
|
|
|
6,669
|
|
|
|
28
|
|
|
|
23
|
|
|
|
6,759
|
|
|
|
51
|
|
|
|
45
|
|
Total Commercial
|
|
|
8,015
|
|
|
|
45
|
|
|
|
40
|
|
|
|
8,352
|
|
|
|
71
|
|
|
|
67
|
|
Home Equity and Home Improvement
|
|
|
2,789
|
|
|
|
33
|
|
|
|
31
|
|
|
|
2,749
|
|
|
|
67
|
|
|
|
63
|
|
Consumer
|
|
|
82
|
|
|
|
1
|
|
|
|
1
|
|
|
|
96
|
|
|
|
3
|
|
|
|
3
|
|
Total Impaired Loans
|
|
$
|
66,989
|
|
|
$
|
598
|
|
|
$
|
575
|
|
|
$
|
68,371
|
|
|
$
|
1,067
|
|
|
$
|
1,023
|
|
The following table
presents loans individually evaluated for impairment by class of loans: (In Thousands)
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Unpaid
Principal
Balance*
|
|
|
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
|
Unpaid
Principal
Balance*
|
|
|
Recorded
Investment
|
|
|
Allowance
for Loan
Losses
Allocated
|
|
With no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
3,698
|
|
|
$
|
4,307
|
|
|
$
|
-
|
|
|
$
|
4,744
|
|
|
$
|
4,729
|
|
|
$
|
-
|
|
Residential Non Owner Occupied
|
|
|
4,416
|
|
|
|
3,602
|
|
|
|
-
|
|
|
|
4,844
|
|
|
|
4,329
|
|
|
|
-
|
|
Total 1-4 Family Residential Real Estate
|
|
|
8,114
|
|
|
|
7,909
|
|
|
|
-
|
|
|
|
9,588
|
|
|
|
9,058
|
|
|
|
-
|
|
Multi-Family Residential Real Estate
|
|
|
508
|
|
|
|
358
|
|
|
|
-
|
|
|
|
989
|
|
|
|
840
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
8,453
|
|
|
|
6,159
|
|
|
|
-
|
|
|
|
11,105
|
|
|
|
8,376
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
6,761
|
|
|
|
5,895
|
|
|
|
-
|
|
|
|
9,399
|
|
|
|
7,740
|
|
|
|
-
|
|
Agriculture Land
|
|
|
486
|
|
|
|
467
|
|
|
|
-
|
|
|
|
629
|
|
|
|
488
|
|
|
|
-
|
|
Other CRE
|
|
|
2,256
|
|
|
|
1,710
|
|
|
|
-
|
|
|
|
3,274
|
|
|
|
2,452
|
|
|
|
-
|
|
Total Commercial Real Estate
|
|
|
17,955
|
|
|
|
14,231
|
|
|
|
-
|
|
|
|
24,407
|
|
|
|
19,056
|
|
|
|
-
|
|
Construction
|
|
|
261
|
|
|
|
262
|
|
|
|
-
|
|
|
|
300
|
|
|
|
263
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
3,787
|
|
|
|
2,548
|
|
|
|
-
|
|
|
|
3,147
|
|
|
|
3,146
|
|
|
|
-
|
|
Commercial Other
|
|
|
4,923
|
|
|
|
4,280
|
|
|
|
-
|
|
|
|
6,063
|
|
|
|
5,415
|
|
|
|
-
|
|
Total Commercial
|
|
|
8,710
|
|
|
|
6,828
|
|
|
|
-
|
|
|
|
9,210
|
|
|
|
8,561
|
|
|
|
-
|
|
Home Equity and Home Improvement
|
|
|
1,997
|
|
|
|
1,947
|
|
|
|
-
|
|
|
|
1,985
|
|
|
|
1,992
|
|
|
|
-
|
|
Consumer Finance
|
|
|
48
|
|
|
|
47
|
|
|
|
-
|
|
|
|
53
|
|
|
|
53
|
|
|
|
-
|
|
Total loans with no allowance recorded
|
|
$
|
37,594
|
|
|
$
|
31,582
|
|
|
$
|
-
|
|
|
$
|
46,532
|
|
|
$
|
39,823
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
1,801
|
|
|
$
|
1,805
|
|
|
$
|
181
|
|
|
$
|
1,100
|
|
|
$
|
1,103
|
|
|
$
|
218
|
|
Residential Non Owner Occupied
|
|
|
82
|
|
|
|
82
|
|
|
|
1
|
|
|
|
84
|
|
|
|
84
|
|
|
|
2
|
|
Total 1-4 Family Residential Real Estate
|
|
|
1,883
|
|
|
|
1,887
|
|
|
|
182
|
|
|
|
1,184
|
|
|
|
1,187
|
|
|
|
220
|
|
Multi-Family Residential Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
3,101
|
|
|
|
2,659
|
|
|
|
157
|
|
|
|
3,212
|
|
|
|
2,765
|
|
|
|
166
|
|
CRE Non Owner Occupied
|
|
|
12,430
|
|
|
|
12,475
|
|
|
|
964
|
|
|
|
12,756
|
|
|
|
12,803
|
|
|
|
946
|
|
Agriculture Land
|
|
|
210
|
|
|
|
215
|
|
|
|
6
|
|
|
|
195
|
|
|
|
197
|
|
|
|
7
|
|
Other CRE
|
|
|
79
|
|
|
|
50
|
|
|
|
2
|
|
|
|
82
|
|
|
|
53
|
|
|
|
2
|
|
Total Commercial Real Estate
|
|
|
15,820
|
|
|
|
15,399
|
|
|
|
1,129
|
|
|
|
16,245
|
|
|
|
15,818
|
|
|
|
1,121
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
500
|
|
|
|
501
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Other
|
|
|
55
|
|
|
|
56
|
|
|
|
8
|
|
|
|
176
|
|
|
|
176
|
|
|
|
6
|
|
Total Commercial
|
|
|
555
|
|
|
|
557
|
|
|
|
23
|
|
|
|
176
|
|
|
|
176
|
|
|
|
6
|
|
Home Equity and Home Improvement
|
|
|
152
|
|
|
|
152
|
|
|
|
24
|
|
|
|
436
|
|
|
|
437
|
|
|
|
45
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total loans with an allowance recorded
|
|
$
|
18,410
|
|
|
$
|
17,995
|
|
|
$
|
1,358
|
|
|
$
|
18,041
|
|
|
$
|
17,618
|
|
|
$
|
1,392
|
|
*Presented gross of charge-offs
The following table presents the aggregate
amounts of non-performing assets, comprised of non-performing loans and real estate owned on the dates indicated:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(In Thousands)
|
|
Non-accrual loans
|
|
$
|
24,863
|
|
|
$
|
27,847
|
|
Loans over 90 days past due and still accruing
|
|
|
-
|
|
|
|
-
|
|
Total non-performing loans
|
|
|
24,863
|
|
|
|
27,847
|
|
Real estate and other assets held for sale
|
|
|
5,554
|
|
|
|
5,859
|
|
Total non-performing assets
|
|
$
|
30,417
|
|
|
$
|
33,706
|
|
The following table
presents the aging of the recorded investment in past due and non accrual loans as of June 30, 2014 by class of loans: (In Thousands)
|
|
Current
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90+ days
|
|
|
Total
Past Due
|
|
|
Total Non
Accrual
|
|
Residential Owner Occupied
|
|
$
|
134,417
|
|
|
$
|
429
|
|
|
$
|
297
|
|
|
$
|
790
|
|
|
$
|
1,516
|
|
|
$
|
1,085
|
|
Residential Non Owner Occupied
|
|
|
63,228
|
|
|
|
-
|
|
|
|
12
|
|
|
|
1,126
|
|
|
|
1,138
|
|
|
|
1,815
|
|
Total 1-4 Family Residential Real Estate
|
|
|
197,645
|
|
|
|
429
|
|
|
|
309
|
|
|
|
1,916
|
|
|
|
2,654
|
|
|
|
2,900
|
|
Multi-Family Residential Real Estate
|
|
|
151,140
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
297,739
|
|
|
|
41
|
|
|
|
-
|
|
|
|
1,812
|
|
|
|
1,853
|
|
|
|
7,041
|
|
CRE Non Owner Occupied
|
|
|
227,708
|
|
|
|
29
|
|
|
|
-
|
|
|
|
2,058
|
|
|
|
2,087
|
|
|
|
4,969
|
|
Agriculture Land
|
|
|
84,632
|
|
|
|
137
|
|
|
|
-
|
|
|
|
329
|
|
|
|
466
|
|
|
|
751
|
|
Other Commercial Real Estate
|
|
|
39,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
|
|
260
|
|
|
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
649,129
|
|
|
|
207
|
|
|
|
-
|
|
|
|
4,459
|
|
|
|
4,666
|
|
|
|
14,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
66,574
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
144,112
|
|
|
|
3
|
|
|
|
-
|
|
|
|
1,545
|
|
|
|
1,548
|
|
|
|
2,368
|
|
Commercial Other
|
|
|
241,199
|
|
|
|
94
|
|
|
|
-
|
|
|
|
3,487
|
|
|
|
3,581
|
|
|
|
4,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
385,311
|
|
|
|
97
|
|
|
|
-
|
|
|
|
5,032
|
|
|
|
5,129
|
|
|
|
7,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
15,696
|
|
|
|
84
|
|
|
|
6
|
|
|
|
-
|
|
|
|
90
|
|
|
|
-
|
|
Home Equity/Home Improvement
|
|
|
107,661
|
|
|
|
969
|
|
|
|
127
|
|
|
|
102
|
|
|
|
1,198
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,573,156
|
|
|
$
|
1,786
|
|
|
$
|
442
|
|
|
$
|
11,509
|
|
|
$
|
13,737
|
|
|
$
|
24,868
|
|
The following table
presents the aging of the recorded investment in past due and non accrual loans as of December 31, 2013 by class of loans: (In
Thousands)
|
|
Current
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90+ days
|
|
|
Total
Past Due
|
|
|
Total Non
Accrual
|
|
Residential Owner Occupied
|
|
$
|
126,855
|
|
|
$
|
1,530
|
|
|
$
|
191
|
|
|
$
|
1,009
|
|
|
$
|
2,730
|
|
|
$
|
1,329
|
|
Residential Non Owner Occupied
|
|
|
65,292
|
|
|
|
531
|
|
|
|
403
|
|
|
|
386
|
|
|
|
1,320
|
|
|
|
1,943
|
|
Total 1-4 Family Residential Real Estate
|
|
|
192,147
|
|
|
|
2,061
|
|
|
|
594
|
|
|
|
1,395
|
|
|
|
4,050
|
|
|
|
3,272
|
|
Multi-Family Residential Real Estate
|
|
|
149,134
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
311,253
|
|
|
|
334
|
|
|
|
495
|
|
|
|
3,671
|
|
|
|
4,500
|
|
|
|
7,492
|
|
CRE Non Owner Occupied
|
|
|
225,433
|
|
|
|
1,067
|
|
|
|
918
|
|
|
|
902
|
|
|
|
2,887
|
|
|
|
4,717
|
|
Agriculture Land
|
|
|
81,954
|
|
|
|
21
|
|
|
|
-
|
|
|
|
73
|
|
|
|
94
|
|
|
|
630
|
|
Other Commercial Real Estate
|
|
|
45,297
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,287
|
|
|
|
1,287
|
|
|
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
663,937
|
|
|
|
1,422
|
|
|
|
1,413
|
|
|
|
5,933
|
|
|
|
8,768
|
|
|
|
15,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
53,730
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
155,373
|
|
|
|
-
|
|
|
|
-
|
|
|
|
419
|
|
|
|
419
|
|
|
|
2,917
|
|
Commercial Other
|
|
|
230,054
|
|
|
|
37
|
|
|
|
26
|
|
|
|
3,566
|
|
|
|
3,629
|
|
|
|
5,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
385,427
|
|
|
|
37
|
|
|
|
26
|
|
|
|
3,985
|
|
|
|
4,048
|
|
|
|
8,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
|
|
16,759
|
|
|
|
131
|
|
|
|
|
|
|
|
-
|
|
|
|
131
|
|
|
|
-
|
|
Home Equity/Home Improvement
|
|
|
105,657
|
|
|
|
1,163
|
|
|
|
155
|
|
|
|
413
|
|
|
|
1,731
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,566,791
|
|
|
$
|
4,814
|
|
|
$
|
2,188
|
|
|
$
|
11,726
|
|
|
$
|
18,728
|
|
|
$
|
27,855
|
|
Troubled Debt Restructurings
As of June 30, 2014
and December 31, 2013, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $32.7 million
and $33.4 million, respectively. The Company allocated $1.2 million of specific reserves to those loans at each of June 30,
2014 and December 31, 2013, and committed to lend additional amounts totaling up to $28,000 and $300,000 at June 30, 2014
and December 31, 2013, respectively.
The Company offers
various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Each TDR is uniquely
designed to meet the specific needs of the borrower. Commercial and industrial loans modified in a TDR often involve temporary
interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral or an additional
guarantor is often requested when granting a concession. Commercial mortgage loans modified in a TDR often involve temporary interest-only
payments, re-amortization of remaining debt in order to lower payments, and sometimes reducing the interest rate lower than the
current market rate. Residential mortgage loans modified in a TDR are comprised of loans where monthly payments are lowered, either
through interest rate reductions or principal only payments for a period of time, to accommodate the borrowers’ financial
needs, interest is capitalized into principal, or the term and amortization are extended. Home equity modifications are made infrequently
and usually involve providing an interest rate that is lower than the borrower would be able to obtain due to credit issues. All
retail loans where the borrower is in bankruptcy are classified as TDRs regardless of whether or not a concession is made.
Of the loans modified
in a TDR, $5.6 million are on non-accrual status and partial charge-offs have in some cases been taken against the outstanding
balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan
is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine
if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance
is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective
interest rate.
The following table
presents loans by class modified as troubled debt restructurings that occurred during the three and six month periods ending June
30, 2014 and June 30, 2013:
|
|
Loans Modified as a TDR for the Three
Months Ended June 30, 2014
($ In Thousands)
|
|
|
Loans Modified as a TDR for the Six
Months Ended June 30, 2014
($ In Thousands)
|
|
Troubled Debt Restructurings
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
|
7
|
|
|
$
|
674
|
|
|
|
15
|
|
|
$
|
1,372
|
|
Residential Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
358
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial working capital or other
|
|
|
9
|
|
|
|
727
|
|
|
|
11
|
|
|
|
1,676
|
|
Home Equity / Improvement
|
|
|
4
|
|
|
|
82
|
|
|
|
7
|
|
|
|
167
|
|
Consumer Finance
|
|
|
1
|
|
|
|
17
|
|
|
|
2
|
|
|
|
19
|
|
Total
|
|
|
21
|
|
|
$
|
1,500
|
|
|
|
36
|
|
|
$
|
3,592
|
|
The loans
described above increased the allowance for loan loss by $65,000 in the three month period ending June 30, 2014 and
decreased the allowance for loan loss by $5,000 in the six month period ending June 30, 2014.
|
|
Loans Modified as a TDR for the Three
Months Ended June 30, 2013
($ In Thousands)
|
|
|
Loans Modified as a TDR for the Six
Months Ended June 30, 2013
($ In Thousands)
|
|
Troubled Debt Restructurings
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
|
3
|
|
|
$
|
316
|
|
|
|
8
|
|
|
$
|
752
|
|
Residential Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
194
|
|
CRE Owner Occupied
|
|
|
3
|
|
|
|
758
|
|
|
|
4
|
|
|
|
782
|
|
CRE Non Owner Occupied
|
|
|
1
|
|
|
|
1,374
|
|
|
|
1
|
|
|
|
1,374
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
217
|
|
Other CRE
|
|
|
1
|
|
|
|
32
|
|
|
|
1
|
|
|
|
32
|
|
Commercial working capital or other
|
|
|
1
|
|
|
|
47
|
|
|
|
1
|
|
|
|
47
|
|
Home Equity / Improvement
|
|
|
4
|
|
|
|
119
|
|
|
|
12
|
|
|
|
609
|
|
Consumer Finance
|
|
|
1
|
|
|
|
11
|
|
|
|
3
|
|
|
|
14
|
|
Total
|
|
|
14
|
|
|
$
|
2,657
|
|
|
|
32
|
|
|
$
|
4,021
|
|
The
loans described above increased the allowance for loan loss by $327,000 in the three month period ending June 30, 2013 and
$355,000 in the six month period ending June 30, 2013.
Of
the 2014 modifications, 11 were made TDRs due to the fact that the borrower has filed bankruptcy, 3 were made TDRs due to
a rate reduction, 1 was made a TDR due to an interest only period, 8 were made TDRs due to extending the amortization, 2 were
made TDRs due to a reduction in the payment, 5 were made TDRs due to advancing or renewing funds to a watchlist credit, 2
were made to term out line of credit, and 4 were made TDRs to refinance current debt for payment relief.
The following table
presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification
during the three and six month periods ending June 30, 2014 and June 30, 2013:
|
|
Three Months Ended June 30, 2014
($ In Thousands)
|
|
|
Six Months Ended June 30, 2014
($ In Thousands)
|
|
Troubled Debt Restructurings
That Subsequently Defaulted
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
|
1
|
|
|
$
|
67
|
|
|
|
1
|
|
|
$
|
67
|
|
Residential Non Owner Occupied
|
|
|
1
|
|
|
|
183
|
|
|
|
1
|
|
|
|
183
|
|
CRE Owner Occupied
|
|
|
4
|
|
|
|
153
|
|
|
|
4
|
|
|
|
153
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial working capital or other
|
|
|
3
|
|
|
|
387
|
|
|
|
3
|
|
|
|
387
|
|
Home Equity / Improvement
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Consumer Finance
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Total
|
|
|
8
|
|
|
$
|
790
|
|
|
|
9
|
|
|
$
|
790
|
|
The TDRs that subsequently defaulted described above decreased the allowance for loan losses by $2,000
for the three and six month period ended June 30, 2014.
A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days contractually
past due under the modified terms.
|
|
Three Months Ended June 30, 2013
($ In Thousands)
|
|
|
Six Months Ended June 30, 2013
($ In Thousands)
|
|
Troubled Debt Restructurings
That Subsequently Defaulted
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
Number of Loans
|
|
|
Recorded
Investment (as of
period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
|
4
|
|
|
$
|
303
|
|
|
|
4
|
|
|
$
|
303
|
|
Residential Non Owner Occupied
|
|
|
1
|
|
|
|
77
|
|
|
|
1
|
|
|
|
77
|
|
CRE Owner Occupied
|
|
|
1
|
|
|
|
169
|
|
|
|
2
|
|
|
|
837
|
|
CRE Non Owner Occupied
|
|
|
1
|
|
|
|
212
|
|
|
|
1
|
|
|
|
212
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial / Industrial
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Home Equity / Improvement
|
|
|
4
|
|
|
|
52
|
|
|
|
4
|
|
|
|
52
|
|
Consumer Finance
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Total
|
|
|
11
|
|
|
$
|
813
|
|
|
|
12
|
|
|
$
|
1,481
|
|
The
TDRs that subsequently defaulted described above decreased the allowance for loan losses by $10,000 for the three month period
ended June 30, 2013, and by $12,000 for the six month period ended June 30, 2013.
The terms of certain
other loans were modified during the period ending June 30, 2014 that did not meet the definition of a TDR. The modification of
these loans involved a modification of the terms of a loan to borrowers who were not experiencing financial difficulties. A total
of 54 loans were modified under this definition during the three month period ended June 30, 2014 and a total of 75 loans were
modified under this definition during the six month period ended June 30, 2014.
In
order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that
the borrower will be in payment default on any of its debt in the foreseeable future without the modification.
Credit Quality Indicators
Loans
are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as:
current financial information, historical payment experience, credit documentation, public information, and current economic trends,
among other factors. Loans are analyzed individually by classifying the loans as to credit risk. This analysis includes all non-homogenous
loans, such as commercial and commercial real estate loans and certain homogenous mortgage, home equity and consumer loans. This
analysis is performed on a quarterly basis. First Defiance uses the following definitions for risk ratings:
Special Mention.
Loans
classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these
potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position
at some future date.
Substandard.
Loans
classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They
are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans classified
as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses
make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable
and improbable.
Not
Graded.
Loans classified as not graded are generally smaller balance residential real estate, home equity and consumer installment
loans which are originated primarily by using an automated underwriting system. These loans are monitored based on their delinquency
status and are evaluated individually only if they are seriously delinquent.
Loans
not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass
rated loans. As of June 30, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans
is as follows (In Thousands):
Class
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Not
Graded
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Owner Occupied
|
|
$
|
4,229
|
|
|
$
|
3
|
|
|
$
|
1,905
|
|
|
$
|
748
|
|
|
$
|
129,047
|
|
|
$
|
135,932
|
|
1-4 Family Non Owner Occupied
|
|
|
51,624
|
|
|
|
1,721
|
|
|
|
5,016
|
|
|
|
-
|
|
|
|
6,006
|
|
|
|
64,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Real Estate
|
|
|
55,853
|
|
|
|
1,724
|
|
|
|
6,921
|
|
|
|
748
|
|
|
|
135,053
|
|
|
|
200,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
149,083
|
|
|
|
228
|
|
|
|
890
|
|
|
|
-
|
|
|
|
939
|
|
|
|
151,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
279,863
|
|
|
|
9,364
|
|
|
|
8,923
|
|
|
|
-
|
|
|
|
1,442
|
|
|
|
299,592
|
|
CRE Non Owner Occupied
|
|
|
204,659
|
|
|
|
9,081
|
|
|
|
16,020
|
|
|
|
-
|
|
|
|
35
|
|
|
|
229,795
|
|
Agriculture Land
|
|
|
81,931
|
|
|
|
2,020
|
|
|
|
1,147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85,098
|
|
Other CRE
|
|
|
35,692
|
|
|
|
63
|
|
|
|
2,875
|
|
|
|
-
|
|
|
|
680
|
|
|
|
39,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
602,145
|
|
|
|
20,528
|
|
|
|
28,965
|
|
|
|
-
|
|
|
|
2,157
|
|
|
|
653,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
55,920
|
|
|
|
-
|
|
|
|
262
|
|
|
|
-
|
|
|
|
10,392
|
|
|
|
66,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
137,596
|
|
|
|
5,046
|
|
|
|
3,017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,659
|
|
Commercial Other
|
|
|
231,850
|
|
|
|
7,288
|
|
|
|
5,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
244,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
369,446
|
|
|
|
12,334
|
|
|
|
8,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
390,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
1,096
|
|
|
|
102
|
|
|
|
107,661
|
|
|
|
108,859
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
90
|
|
|
|
-
|
|
|
|
15,696
|
|
|
|
15,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,232,447
|
|
|
$
|
34,814
|
|
|
$
|
46,884
|
|
|
$
|
850
|
|
|
$
|
271,898
|
|
|
$
|
1,586,893
|
|
As
of December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows
(In Thousands):
Class
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Not
Graded
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Owner Occupied
|
|
$
|
4,287
|
|
|
$
|
18
|
|
|
$
|
3,515
|
|
|
$
|
-
|
|
|
$
|
121,765
|
|
|
$
|
129,585
|
|
1-4 Family Non Owner Occupied
|
|
|
51,660
|
|
|
|
2,894
|
|
|
|
5,699
|
|
|
|
-
|
|
|
|
6,359
|
|
|
|
66,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Real Estate
|
|
|
55,947
|
|
|
|
2,912
|
|
|
|
9,214
|
|
|
|
-
|
|
|
|
128,124
|
|
|
|
196,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
145,407
|
|
|
|
875
|
|
|
|
1,888
|
|
|
|
-
|
|
|
|
964
|
|
|
|
149,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
291,770
|
|
|
|
10,584
|
|
|
|
11,665
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
315,753
|
|
CRE Non Owner Occupied
|
|
|
200,790
|
|
|
|
10,254
|
|
|
|
17,185
|
|
|
|
-
|
|
|
|
91
|
|
|
|
228,320
|
|
Agriculture Land
|
|
|
80,418
|
|
|
|
578
|
|
|
|
1,051
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,047
|
|
Other CRE
|
|
|
40,676
|
|
|
|
2,074
|
|
|
|
3,104
|
|
|
|
-
|
|
|
|
731
|
|
|
|
46,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
613,654
|
|
|
|
23,490
|
|
|
|
33,005
|
|
|
|
-
|
|
|
|
2,556
|
|
|
|
672,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
43,465
|
|
|
|
-
|
|
|
|
263
|
|
|
|
-
|
|
|
|
10,002
|
|
|
|
53,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
148,703
|
|
|
|
3,429
|
|
|
|
3,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,792
|
|
Commercial Other
|
|
|
219,790
|
|
|
|
6,994
|
|
|
|
6,899
|
|
|
|
-
|
|
|
|
-
|
|
|
|
233,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
368,493
|
|
|
|
10,423
|
|
|
|
10,559
|
|
|
|
-
|
|
|
|
-
|
|
|
|
389,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
755
|
|
|
|
45
|
|
|
|
106,587
|
|
|
|
107,387
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
|
|
16,860
|
|
|
|
16,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,226,966
|
|
|
$
|
37,700
|
|
|
$
|
55,715
|
|
|
$
|
45
|
|
|
$
|
265,093
|
|
|
$
|
1,585,519
|
|
9. Mortgage Banking
Net revenues from
the sales and servicing of mortgage loans consisted of the following:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In Thousands)
|
|
|
(In Thousands)
|
|
Gain from sale of mortgage loans
|
|
$
|
986
|
|
|
$
|
1,890
|
|
|
$
|
1,628
|
|
|
$
|
4,066
|
|
Mortgage loans servicing revenue (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans servicing revenue
|
|
|
878
|
|
|
|
875
|
|
|
|
1,782
|
|
|
|
1,745
|
|
Amortization of mortgage servicing rights
|
|
|
(368
|
)
|
|
|
(634
|
)
|
|
|
(660
|
)
|
|
|
(1,323
|
)
|
Mortgage servicing rights valuation adjustments
|
|
|
44
|
|
|
|
312
|
|
|
|
37
|
|
|
|
785
|
|
|
|
|
554
|
|
|
|
553
|
|
|
|
1,159
|
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue from sale and servicing of mortgage loans
|
|
$
|
1,540
|
|
|
$
|
2,443
|
|
|
$
|
2,787
|
|
|
$
|
5,273
|
|
The unpaid principal
balance of residential mortgage loans serviced for third parties was $1.4 billion at June 30, 2014 and December 31, 2013.
Activity for capitalized
mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2014 and 2013:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In Thousands)
|
|
|
(In Thousands)
|
|
Mortgage servicing assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
10,048
|
|
|
$
|
10,194
|
|
|
$
|
10,133
|
|
|
$
|
10,121
|
|
Loans sold, servicing retained
|
|
|
313
|
|
|
|
674
|
|
|
|
520
|
|
|
|
1,436
|
|
Amortization
|
|
|
(368
|
)
|
|
|
(634
|
)
|
|
|
(660
|
)
|
|
|
(1,323
|
)
|
Carrying value before valuation allowance at end of period
|
|
|
9,993
|
|
|
|
10,234
|
|
|
|
9,993
|
|
|
|
10,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
(1,034
|
)
|
|
|
(1,815
|
)
|
|
|
(1,027
|
)
|
|
|
(2,288
|
)
|
Impairment recovery (charges)
|
|
|
44
|
|
|
|
312
|
|
|
|
37
|
|
|
|
785
|
|
Balance at end of period
|
|
|
(990
|
)
|
|
|
(1,503
|
)
|
|
|
(990
|
)
|
|
|
(1,503
|
)
|
Net carrying value of MSRs at end of period
|
|
$
|
9,003
|
|
|
$
|
8,731
|
|
|
$
|
9,003
|
|
|
$
|
8,731
|
|
Fair value of MSRs at end of period
|
|
$
|
9,584
|
|
|
$
|
9,080
|
|
|
$
|
9,584
|
|
|
$
|
9,080
|
|
Amortization of mortgage
servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization
expense are not easily estimable
.
The Company established
an accrual for estimated secondary market buy-back losses beginning in 2014. An accrual for secondary market buy-backs was established
in the first and second quarters of 2014 totaling $184,000 for the first six months of 2014 which was partially offset by reversing
$67,000 of accrued expenses in the first quarter of 2014 related to the Freddie Mac post-foreclosure review that began in the
third quarter of 2013 and was reversed in 2014 with no losses resulting. This resulted in secondary market buy-back losses of
$117,000 for the first six months of 2014 compared to $642,000 of expense for the same period in 2013.
Included in the
first six months of 2013 was an accrual for estimated secondary market buy-back losses of $581,000. These losses were accrued
and expensed as of March 31, 2013 based on an estimated exposure to repurchase requests resulting from notifications received
from Fannie Mae’s post-foreclosure review process during the first quarter of 2013.
10. Deposits
A summary of deposit
balances is as follows:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(In Thousands)
|
|
Non-interest-bearing checking accounts
|
|
$
|
355,268
|
|
|
$
|
348,943
|
|
Interest-bearing checking and money market accounts
|
|
|
717,506
|
|
|
|
715,939
|
|
Savings accounts
|
|
|
200,626
|
|
|
|
185,121
|
|
Retail certificates of deposit less than $100,000
|
|
|
299,288
|
|
|
|
313,335
|
|
Retail certificates of deposit greater than $100,000
|
|
|
169,124
|
|
|
|
172,454
|
|
Brokered or national certificates of deposit
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,741,812
|
|
|
$
|
1,735,792
|
|
11. Borrowings
First Defiance’s
debt, FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(In Thousands)
|
|
FHLB Advances:
|
|
|
|
|
|
|
|
|
Putable advances
|
|
|
12,000
|
|
|
$
|
12,000
|
|
Amortizable mortgage advances
|
|
|
10,034
|
|
|
|
10,520
|
|
Total
|
|
$
|
22,034
|
|
|
$
|
22,520
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures owed to unconsolidated subsidiary trusts
|
|
$
|
36,083
|
|
|
$
|
36,083
|
|
The putable advances
can be put back to the Company at the option of the FHLB on a quarterly basis. At June 30, 2014, $12.0 million of the putable
advances with a weighted average rate of 2.72% were not yet callable by the FHLB. The call dates for these advances range from
July 14, 2014 to September 12, 2014 and the maturity dates range from January 14, 2015 to March 12, 2018. Putable advances are
callable at the option of the FHLB on a quarterly basis.
In
March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate
II”) that issued $15 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In
connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures
(“Subordinated Debentures”) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of
issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital
securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the
sole assets of Trust Affiliate II. The Company is not considered the primary beneficiary of Trust Affiliate II (variable interest entity),
therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures
are shown as a liability.
Distributions
on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a fixed rate equal to 6.441% for
the first five years and a floating interest rate based on three-month LIBOR plus 1.5%. The Coupon rate payable on the
Trust Preferred Securities issued by Trust Affiliate II was 1.73% as of June 30, 2014 and 1.75% as of December 31,
2013.
The
Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”), that issued
$20 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of
Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred
Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in
Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of Trust
Affiliate I. The Company is not considered the primary beneficiary of Trust Affiliate I (variable interest entity), therefore
the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown
as a liability.
Distributions
on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the
three-month LIBOR rate plus 1.38%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate
I was 1.61% and 1.63% on June 30, 2014 and December 31, 2013, respectively.
The
Trust Preferred Securities issued by Trust Affiliate I and Trust Affiliate II are subject to mandatory redemption, in whole
or part, upon repayment of the Subordinated Debentures. The Company has entered into agreements that fully and
unconditionally guarantee the Trust Preferred Securities subject to the terms of the guarantees. The Trust Preferred
Securities and Subordinated Debentures issued by Trust Affiliate I mature on December 15, 2035 but may be redeemed by the
issuer at par after October 28, 2010. The Trust Preferred Securities issued by Trust Affiliate II mature on June 15, 2037,
but may be redeemed at the Company’s option at any time on or after June 15, 2012, or at any time upon certain
events.
Interest on both issues of trust preferred
securities may be deferred for a period of up to five years at the option of the issuer.
12. Commitments, Guarantees and
Contingent Liabilities
Loan commitments are
made to accommodate the financial needs of First Federal’s customers; however, there are no long-term, fixed-rate loan commitments
that result in market risk. Standby letters of credit commit the Company to make payments on behalf of customers when certain
specified future events occur. They primarily are issued to facilitate customers’ trade transactions.
Both arrangements
have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Company’s
normal credit policies. Collateral (e.g., securities, receivables, inventory and equipment) is obtained based on management’s
credit assessment of the customer.
The Company’s
maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit
outstanding as of the periods stated below were as follows (In Thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
Commitments to make loans
|
|
$
|
47,963
|
|
|
$
|
94,050
|
|
|
$
|
57,914
|
|
|
$
|
59,632
|
|
Unused lines of credit
|
|
|
13,987
|
|
|
|
275,892
|
|
|
|
18,048
|
|
|
|
257,939
|
|
Standby letters of credit
|
|
|
-
|
|
|
|
17,800
|
|
|
|
-
|
|
|
|
17,680
|
|
Total
|
|
$
|
61,950
|
|
|
$
|
387,742
|
|
|
$
|
75,962
|
|
|
$
|
335,251
|
|
Commitments to make loans are generally
made for periods of 60 days or less.
In addition to the
above commitments, First Defiance had commitments to sell $17.8 million and $12.1 million of loans to Freddie Mac, Fannie Mae,
Federal Home Loan Bank of Cincinnati or BB&T Mortgage at June 30, 2014 and December 31, 2013, respectively.
13. Income Taxes
The
Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Indiana. The Company
is no longer subject to examination by taxing authorities for years before 2009. The Company currently operates primarily in the
states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.
14. Derivative Financial Instruments
Commitments to
fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future
delivery of mortgage loans to third party investors are considered derivatives. It is the Company’s practice to enter into
forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into
in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These
mortgage banking derivatives are not designated in hedge relationships. First Federal had approximately $6.6 million and $7.5
million of interest rate lock commitments at June 30, 2014 and December 31, 2013, respectively. There were $17.9 million and $12.1
million of forward commitments for the future delivery of residential mortgage loans at June 30, 2014 and December 31, 2013, respectively.
The
fair value of these mortgage banking derivatives are reflected by a derivative asset. The table below provides data about the
carrying values of these derivative instruments:
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Assets
|
|
|
(Liabilities)
|
|
|
|
|
|
Assets
|
|
|
(Liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Net Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Net Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
580
|
|
|
$
|
(
107
|
)
|
|
$
|
473
|
|
|
$
|
295
|
|
|
$
|
-
|
|
|
$
|
295
|
|
The table below
provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(In Thousands)
|
|
|
(In Thousands)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Derivatives – Gain (Loss)
|
|
$
|
128
|
|
|
$
|
(79
|
)
|
|
$
|
178
|
|
|
$
|
(240
|
)
|
The above amounts are included in mortgage banking income with gain on sale of mortgage loans. During
the first quarter of 2014, management determined that a group of loans, previously classified as held for sale, were no longer
sellable and transferred such loans back into the portfolio. As a result, a $5,000 loss related to a fair value adjustment on those
loans was recorded in the second quarter of 2014.
15. Other Comprehensive Income (Loss)
The before and after tax amounts allocated
to each component of other comprehensive income (loss) are presented in the table below. Reclassification adjustments related to
securities available for sale are included in gains on sale or call of securities in the accompanying consolidated condensed statements
of income.
|
|
Before Tax
Amount
|
|
|
Tax Expense
(Benefit)
|
|
|
Net of Tax
Amount
|
|
Three months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) during the period
|
|
$
|
2,743
|
|
|
$
|
936
|
|
|
$
|
1,807
|
|
Reclassification adjustment for net gains included in net income
|
|
|
(471
|
)
|
|
|
(141
|
)
|
|
|
(330
|
)
|
Total other comprehensive loss
|
|
$
|
2,272
|
|
|
$
|
795
|
|
|
$
|
1,477
|
|
|
|
Before Tax
Amount
|
|
|
Tax Expense
(Benefit)
|
|
|
Net of Tax
Amount
|
|
Six months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) during the period
|
|
$
|
4,465
|
|
|
$
|
1,538
|
|
|
$
|
2,927
|
|
Reclassification adjustment for net gains included in net income
|
|
|
(471
|
)
|
|
|
(141
|
)
|
|
|
(330
|
)
|
Total other comprehensive loss
|
|
$
|
3,994
|
|
|
$
|
1,397
|
|
|
$
|
2,597
|
|
|
|
Before Tax
Amount
|
|
|
Tax Expense
(Benefit)
|
|
|
Net of Tax
Amount
|
|
Three months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
(5,500
|
)
|
|
$
|
(1,927
|
)
|
|
$
|
(3,573
|
)
|
Reclassification adjustment for net gains included in net income
|
|
|
(44
|
)
|
|
|
(13
|
)
|
|
|
(31
|
)
|
Total other comprehensive loss
|
|
$
|
(5,544
|
)
|
|
$
|
(1,940
|
)
|
|
$
|
(3,604
|
)
|
|
|
Before Tax
Amount
|
|
|
Tax Expense
(Benefit)
|
|
|
Net of Tax
Amount
|
|
Six months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
(6,164
|
)
|
|
$
|
(2,162
|
)
|
|
$
|
(4,002
|
)
|
Reclassification adjustment for net gains included in net income
|
|
|
(97
|
)
|
|
|
(29
|
)
|
|
|
(68
|
)
|
Total other comprehensive loss
|
|
$
|
(6,261
|
)
|
|
$
|
(2,191
|
)
|
|
$
|
(4,070
|
)
|
Activity in accumulated other comprehensive
income (loss), net of tax, was as follows:
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Securities
|
|
|
Post-
|
|
|
Other
|
|
|
|
Available
|
|
|
retirement
|
|
|
Comprehensive
|
|
|
|
For Sale
|
|
|
Benefit
|
|
|
Income
|
|
Balance January 1, 2014
|
|
$
|
906
|
|
|
$
|
(361
|
)
|
|
$
|
545
|
|
Other comprehensive loss before reclassifications
|
|
|
2,927
|
|
|
|
-
|
|
|
|
2,927
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(330
|
)
|
|
|
-
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive loss during period
|
|
|
2,597
|
|
|
|
-
|
|
|
|
2,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2014
|
|
$
|
3,503
|
|
|
$
|
(361
|
)
|
|
$
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2013
|
|
$
|
4,851
|
|
|
$
|
(577
|
)
|
|
$
|
4,274
|
|
Other comprehensive loss before reclassifications
|
|
|
(4,002
|
)
|
|
|
-
|
|
|
|
(4,002
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
(68
|
)
|
|
|
-
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive loss during period
|
|
|
(4,070
|
)
|
|
|
-
|
|
|
|
(4,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2013
|
|
$
|
781
|
|
|
$
|
(577
|
)
|
|
$
|
204
|
|