Notes to Consolidated Condensed Financial
Statements (UNAUDITED)
September 30, 2016 and 2015
First Defiance Financial
Corp. (“First Defiance” or the “Company”) is a unitary thrift holding company that conducts business through
its three wholly owned subsidiaries, First Federal Bank of the Midwest (“First Federal”), First Insurance Group of
the Midwest, Inc. (“First Insurance”), and First Defiance Risk Management Inc. (“First Defiance Risk Management”).
All significant intercompany transactions and balances are eliminated in consolidation.
First Federal is primarily
engaged in attracting deposits from the general public through its offices and using those and other available sources of funds
to originate loans 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. In addition, First Federal invests in U.S.
Treasury and federal government agency obligations, obligations of the State of Ohio and its political subdivisions, mortgage-backed
securities that are issued by federal agencies, including real estate mortgage investment conduits (“REMICs”) and
collateralized mortgage obligations (“CMOs”), and corporate bonds. First Insurance is an insurance agency that conducts
business through offices located in the Defiance, Maumee, Oregon, Bryan, Lima and Bowling Green, Ohio areas. First Insurance offers
property and casualty insurance, life insurance and group health insurance. First Defiance Risk Management is a wholly-owned insurance
company subsidiary of the Company that insures 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, 2015 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, 2015.
The accompanying consolidated
condensed financial statements as of September 30, 2016 and for the three and nine month periods ended September 30, 2016 and
2015 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 2015 Annual Report on Form 10-K for the year ended December 31, 2015.
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 nine month periods ended September 30, 2016 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. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures
provided, and actual results could differ.
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 Issued Accounting Standards
In March 2016, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09:
Compensation
– Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. The amendments in ASU 2016-09
simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income
taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09
is effective for public companies for interim and annual reporting periods beginning after December 15, 2016, with early adoption
permitted. The Company elected to adopt ASU 2016-09 in the second quarter of 2016. As a result of adoption, net income for the
first quarter of 2016 was revised to reflect a $99,000 reduction to tax expense, which increased net income by $99,000 and a credit
to tax expense was recorded in the second quarter of 2016. Also as a result of adoption, the Company is accounting for forfeitures
as they occur and the amounts previously recorded in equity are prospectively being recorded as income tax benefits. The excess
income tax benefits are reflected in the operating activities in the Consolidated Condensed Statements of Cash Flows.
In February 2016,
FASB issued ASU 2016-02 (Topic 842):
Leases
. The main objective of ASU 2016-02 is to provide users with useful, transparent,
and complete information about leasing transactions. ASU 2016-02 requires the rights and obligations associated with leasing arrangements
be reflected on the balance sheet in order to increase transparency and comparability among organizations. Under the updated guidance,
lessees will be required to recognize a right-to-use asset and a liability to make a lease payment and disclose key information
about leasing arrangements. ASU 2016-02 is effective for public companies for interim and annual reporting periods beginning after
December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of ASU 2016-02 on its Consolidated
Financial Statements and disclosures.
In January 2016, FASB
issued ASU 2016-01:
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities
. The main objective of ASU 2016-01 is to enhance the reporting model for financial
instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 addresses certain
aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments
in ASU 2016-01 include the following: 1) Require equity investments (except those accounted
for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value
with changes in fair value recognized in net income; 2) Simplify the impairment assessment of equity investments without
readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) Require
an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability
resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value;
among others. For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the
effects of ASU 2016-01 on its Consolidated Financial Statements and disclosures.
In June 2016, the
FASB issued ASU 2016-13:
Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial
Instruments
. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting
date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and
other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation
techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount
of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate
for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and
purchased financial assets with credit deterioration. ASU 2016-13 is effective for public companies for annual periods beginning
after December 13, 2019, including interim periods within those fiscal years. Entities will apply the standard's provisions as
a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is
adopted. The Company has not yet determined the impact the adoption of ASU 2016-13 will have on the Consolidated Financial Statements
and disclosures.
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.
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 on the cost to replace the current
property. 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 investors 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
September 30, 2016
|
|
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
|
|
$
|
-
|
|
|
$
|
2,001
|
|
|
$
|
-
|
|
|
$
|
2,001
|
|
Mortgage-backed - residential
|
|
|
-
|
|
|
|
66,591
|
|
|
|
-
|
|
|
|
66,591
|
|
REMICs
|
|
|
-
|
|
|
|
1,409
|
|
|
|
-
|
|
|
|
1,409
|
|
Collateralized mortgage obligations
|
|
|
-
|
|
|
|
66,998
|
|
|
|
-
|
|
|
|
66,998
|
|
Preferred stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Corporate bonds
|
|
|
-
|
|
|
|
10,958
|
|
|
|
-
|
|
|
|
10,958
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
86,265
|
|
|
|
-
|
|
|
|
86,265
|
|
Mortgage banking derivative - asset
|
|
|
-
|
|
|
|
921
|
|
|
|
-
|
|
|
|
921
|
|
Mortgage banking derivative - liability
|
|
|
-
|
|
|
|
126
|
|
|
|
-
|
|
|
|
126
|
|
December 31, 2015
|
|
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
|
|
$
|
-
|
|
|
$
|
2,994
|
|
|
$
|
-
|
|
|
$
|
2,994
|
|
Mortgage-backed – residential
|
|
|
-
|
|
|
|
64,654
|
|
|
|
-
|
|
|
|
64,654
|
|
REMICs
|
|
|
-
|
|
|
|
1,620
|
|
|
|
-
|
|
|
|
1,620
|
|
Collateralized mortgage obligations-residential
|
|
|
-
|
|
|
|
71,799
|
|
|
|
-
|
|
|
|
71,799
|
|
Preferred stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Corporate bonds
|
|
|
-
|
|
|
|
4,977
|
|
|
|
-
|
|
|
|
4,977
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
90,390
|
|
|
|
|
|
|
|
90,390
|
|
Mortgage banking derivative - asset
|
|
|
-
|
|
|
|
558
|
|
|
|
-
|
|
|
|
558
|
|
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
September 30, 2016
|
|
Level 1 Inputs
|
|
|
Level 2 Inputs
|
|
|
Level 3 Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential Real Estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8
|
|
|
$
|
8
|
|
Multi Family Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
863
|
|
|
|
863
|
|
Commercial loans
|
|
|
-
|
|
|
|
-
|
|
|
|
111
|
|
|
|
111
|
|
Home Equity and Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Impaired loans
|
|
|
-
|
|
|
|
-
|
|
|
|
982
|
|
|
|
982
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
3,023
|
|
|
|
-
|
|
|
|
3,023
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE
|
|
|
-
|
|
|
|
-
|
|
|
|
377
|
|
|
|
377
|
|
December 31, 2015
|
|
Level 1 Inputs
|
|
|
Level 2 Inputs
|
|
|
Level
3 Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential Real Estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
398
|
|
|
$
|
398
|
|
Multi Family Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
91
|
|
|
|
91
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
4,575
|
|
|
|
4,575
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Home Equity and Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
82
|
|
Total impaired loans
|
|
|
-
|
|
|
|
-
|
|
|
|
5,146
|
|
|
|
5,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
872
|
|
|
|
-
|
|
|
|
872
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
280
|
|
|
|
280
|
|
For Level 3 assets
and liabilities measured at fair value on a recurring or nonrecurring basis as of September 30, 2016, 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
|
|
$
|
982
|
|
|
Appraisals which utilize sales comparison, net income and cost
approach
|
|
Discounts for collection issues and changes in market conditions
|
|
|
10-30%
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate held for sale – Applies to all classes
|
|
$
|
377
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for changes in market conditions
|
|
|
0-20%
|
|
|
|
7%
|
|
For Level 3 assets
and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2015, 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
|
|
$
|
5,146
|
|
|
Appraisals which utilize sales comparison, net income and cost
approach
|
|
Discounts for collection issues and changes in market conditions
|
|
|
10-30%
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate held for sale – Applies to all classes
|
|
$
|
280
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for changes in market conditions
|
|
|
30%
|
|
|
|
30%
|
|
Impaired loans, which
are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $982,000,
with a $19,000 valuation allowance and a fair value of $5.1 million, with an $8,000 valuation allowance at September 30, 2016 and
December 31, 2015, respectively. A provision recovery of $6,000 and a provision recovery of $204,000 for the three months and
nine months ended September 30, 2016 and a provision expense of $59,000 and a provision recovery of $659,000 for the three and
nine months ended September 30, 2015 was included in earnings.
Mortgage servicing
rights which are carried at the lower of cost or fair value had a fair value of $3.0 million with a valuation allowance of $763,000
and a fair value of $872,000 with a valuation allowance of $645,000 at September 30, 2016 and December 31, 2015, respectively.
A recovery of $7,000 and a charge of $118,000 for the three and nine months ended September 30, 2016 and a recovery of $24,000
and $191,000 for the three and nine months ended September 30, 2015, 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 and fixed assets transferred to real estate held for sale was $22,000 and $74,000 for the three
and nine months ended September 30, 2016, which was recorded directly as an adjustment to current earnings through non-interest
expense. The change in fair value of real estate held for sale was $19,000 and $724,000 for the three and nine months ended September
30, 2015.
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 September 30, 2016 and December 31, 2015.
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 of 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 September 30, 2016.
|
|
|
|
|
Fair
Value Measurements at September 30, 2016
(In
Thousands)
|
|
|
|
Carrying
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
104,797
|
|
|
$
|
104,797
|
|
|
$
|
104,797
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
234,414
|
|
|
|
234,416
|
|
|
|
1
|
|
|
|
234,415
|
|
|
|
-
|
|
Federal Home Loan Bank Stock
|
|
|
13,800
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net, including loans held for sale
|
|
|
1,909,610
|
|
|
|
1,920,543
|
|
|
|
-
|
|
|
|
10,515
|
|
|
|
1,910,028
|
|
Accrued interest receivable
|
|
|
7,452
|
|
|
|
7,452
|
|
|
|
-
|
|
|
|
1,291
|
|
|
|
6,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,927,686
|
|
|
$
|
1,933,607
|
|
|
$
|
443,321
|
|
|
$
|
1,490,286
|
|
|
$
|
-
|
|
Advances from Federal Home Loan Bank
|
|
|
114,184
|
|
|
|
114,572
|
|
|
|
-
|
|
|
|
114,572
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
50,493
|
|
|
|
50,493
|
|
|
|
-
|
|
|
|
50,493
|
|
|
|
-
|
|
Subordinated debentures
|
|
|
36,083
|
|
|
|
34,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,780
|
|
|
|
|
|
|
Fair
Value Measurements at December 31, 2015
(In
Thousands)
|
|
|
|
Carrying
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
79,769
|
|
|
$
|
79,769
|
|
|
$
|
79,769
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
236,678
|
|
|
|
236,680
|
|
|
|
1
|
|
|
|
236,679
|
|
|
|
-
|
|
Federal Home Loan Bank Stock
|
|
|
13,801
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net, including loans held for sale
|
|
|
1,782,358
|
|
|
|
1,784,998
|
|
|
|
-
|
|
|
|
5,899
|
|
|
|
1,779,099
|
|
Accrued interest receivable
|
|
|
6,171
|
|
|
|
6,171
|
|
|
|
7
|
|
|
|
846
|
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,836,137
|
|
|
$
|
1,840,464
|
|
|
$
|
420,691
|
|
|
$
|
1,419,773
|
|
|
$
|
-
|
|
Advances from Federal Home Loan Bank
|
|
|
59,902
|
|
|
|
59,653
|
|
|
|
-
|
|
|
|
59,653
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
57,188
|
|
|
|
57,188
|
|
|
|
-
|
|
|
|
57,188
|
|
|
|
-
|
|
Subordinated debentures
|
|
|
36,083
|
|
|
|
35,307
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,305
|
|
|
4.
|
Incentive
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 pre-existing plans. 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 September 30,
2016, 57,300 options are 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. 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 each of the years
2014-2016, the Company approved a Short-Term (“STIP”) Equity Incentive Plan and a Long-Term (“LTIP”) Equity
Incentive Plan for selected members of management.
Under the 2014 and
2015 STIPs, the participants could 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 2016 STIP allows participants to earn up to 10% 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 STIPs is determined as of December 31 of the same year and paid out in cash in the first quarter of
the following year. The participants are required to be employed on the day of payout in order to receive such payment.
Under each 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; 24,757; and 24,526 RSU’s
to the participants in the 2014, 2015 and 2016 LTIPs, respectively, effective January 1 in the year the award was made, which
represents the maximum target award. The amount of benefit under each LTIP will be determined individually at the end of the 36
month performance period ending December 31. The benefits earned under each LTIP will be paid out in equity in the first
quarter following the end of the performance period. The participants are required to be employed on the day of payout in order
to receive such payment.
A total of 7,011 RSU’s
were issued to the participants of the 2013 LTIP in the first quarter of 2016 for the three year performance period ended December
31, 2015.
In the nine months
ended September 30, 2016, the Company granted 3,894 restricted shares. 1,872 shares were issued to directors and 1,000 shares
were issued to employees that have a one-year vesting period. 1,022 shares were issued to an employee with a four year vesting
period.
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 stock. 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 nine months ended September 30, 2016 was determined at the date of grant using the Black-Scholes
stock option-pricing model and the following assumptions:
|
|
Nine Months Ended
|
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
Expected average risk-free rate
|
|
|
2.24%
|
|
|
|
2.04%
|
|
Expected average life
|
|
|
10.00
years
|
|
|
|
10.00
years
|
|
Expected volatility
|
|
|
41.00%
|
|
|
|
42.00%
|
|
Expected dividend yield
|
|
|
2.33%
|
|
|
|
2.10%
|
|
The weighted-average
fair value of options granted was $13.95 for the nine months ended September 30, 2016 and $13.13 for the nine months ended September
30, 2015.
Following is activity
under the plans during the nine months ended September 30, 2016:
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, 2016
|
|
|
86,220
|
|
|
$
|
20.27
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(35,420
|
)
|
|
|
20.59
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,500
|
|
|
|
37.78
|
|
|
|
|
|
|
|
|
|
Options outstanding, September 30, 2016
|
|
|
57,300
|
|
|
$
|
22.05
|
|
|
|
3.88
|
|
|
$
|
1,294
|
|
Vested or expected to vest at
September 30, 2016
|
|
|
57,300
|
|
|
$
|
22.05
|
|
|
|
3.88
|
|
|
$
|
1,294
|
|
Exercisable at September 30, 2016
|
|
|
39,500
|
|
|
$
|
17.30
|
|
|
|
1.87
|
|
|
$
|
1,080
|
|
Proceeds, related
tax benefits realized from options exercised and intrinsic value of options exercised were as follows (In Thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Proceeds of options exercised
|
|
$
|
175
|
|
|
$
|
154
|
|
|
$
|
667
|
|
|
$
|
1,559
|
|
Related tax benefit recognized
|
|
|
46
|
|
|
|
21
|
|
|
|
158
|
|
|
|
151
|
|
Intrinsic value of options exercised
|
|
|
196
|
|
|
|
121
|
|
|
|
684
|
|
|
|
941
|
|
As
of September 30, 2016, there was $185,000 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 3.43 years
.
At September 30, 2016,
75,468 RSU’s and 12,161 stock grants were outstanding. Compensation expense is recognized over the performance period based
on the achievements of targets as established with the plan documents. A total expense of $970,000 was recorded during the nine
months ended September 30, 2016 compared to an expense of $730,000 for the same period in 2015. There was approximately $541,000
included within other liabilities at September 30, 2016 related to the STIP.
|
|
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, 2016
|
|
|
74,545
|
|
|
$
|
25.86
|
|
|
|
10,927
|
|
|
$
|
30.98
|
|
Granted
|
|
|
24,526
|
|
|
|
39.30
|
|
|
|
10,905
|
|
|
|
23.39
|
|
Vested
|
|
|
(7,011
|
)
|
|
|
19.19
|
|
|
|
(9,171
|
)
|
|
|
22.50
|
|
Forfeited
|
|
|
(16,592
|
)
|
|
|
19.19
|
|
|
|
(500
|
)
|
|
|
32.00
|
|
Unvested at September 30, 2016
|
|
|
75,468
|
|
|
$
|
32.31
|
|
|
|
12,161
|
|
|
$
|
32.77
|
|
The maximum amount
of compensation expense that may be recorded for the 2016 STIP and the 2014, 2015 and 2016 LTIPs at September 30, 2016 is approximately
$3.6 million. However, the estimated expense expected to be recorded as of September 30, 2016; based on the performance measures
in the plans, is $2.3 million of which $917,000 is unrecognized at September 30, 2016 and will be recognized over the remaining
performance periods.
|
5.
|
Dividends on Common
Stock
|
First Defiance declared
and paid a $0.22 per common stock dividend in the first, second and third quarters of 2016. First Defiance declared and paid a
$0.175 common stock dividend in the first quarter and a $0.20 per common stock dividend in the second and third quarters of 2015.
|
6.
|
Earnings Per Common
Share
|
The following table
sets forth the computation of basic and diluted earnings per common share:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator for basic and diluted earnings
per common share – Net income
|
|
$
|
7,045
|
|
|
$
|
6,696
|
|
|
$
|
21,478
|
|
|
$
|
19,860
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share – weighted average common
shares, including participating securities
|
|
|
8,976
|
|
|
|
9,238
|
|
|
|
8,980
|
|
|
|
9,247
|
|
Effect of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99
|
|
Effect of employee stock options and restricted share
activity
|
|
|
74
|
|
|
|
84
|
|
|
|
70
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share share
|
|
|
9,050
|
|
|
|
9,322
|
|
|
|
9,050
|
|
|
|
9,430
|
|
Basic earnings per common share
|
|
$
|
0.78
|
|
|
$
|
0.72
|
|
|
$
|
2.39
|
|
|
$
|
2.15
|
|
Diluted earnings per common share
|
|
$
|
0.78
|
|
|
$
|
0.72
|
|
|
$
|
2.37
|
|
|
$
|
2.11
|
|
There were 7,300 and
12,550 shares under option granted to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive
for the three and nine months ended September 30, 2016, respectively. There were 6,250 and 16,750 shares under option granted
to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for the three and nine
months ended September 30, 2015, respectively.
The following is a
summary of available-for-sale and held-to-maturity securities:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
At September 30, 2016
|
|
(In Thousands)
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations
and agencies
|
|
$
|
2,000
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
2,001
|
|
Mortgage-backed securities – residential
|
|
|
64,600
|
|
|
|
1,996
|
|
|
|
(5
|
)
|
|
|
66,591
|
|
REMICs
|
|
|
1,382
|
|
|
|
27
|
|
|
|
-
|
|
|
|
1,409
|
|
Collateralized mortgage obligations
|
|
|
65,640
|
|
|
|
1,393
|
|
|
|
(35
|
)
|
|
|
66,998
|
|
Preferred stock
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Corporate bonds
|
|
|
10,910
|
|
|
|
53
|
|
|
|
(5
|
)
|
|
|
10,958
|
|
Obligations of state and political subdivisions
|
|
|
81,403
|
|
|
|
4,869
|
|
|
|
(7
|
)
|
|
|
86,265
|
|
Totals
|
|
$
|
225,935
|
|
|
$
|
8,340
|
|
|
$
|
(52
|
)
|
|
$
|
234,223
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrecognized
Gains
|
|
|
Gross
Unrecognized
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
Held-to-Maturity Securities*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates
|
|
$
|
12
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12
|
|
FNMA certificates
|
|
|
61
|
|
|
|
2
|
|
|
|
-
|
|
|
|
63
|
|
GNMA certificates
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Obligations of state and political subdivisions
|
|
|
93
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93
|
|
Totals
|
|
$
|
191
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
193
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
At December 31, 2015
|
|
(In Thousands)
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations
and agencies
|
|
$
|
3,000
|
|
|
$
|
1
|
|
|
$
|
(7
|
)
|
|
$
|
2,994
|
|
Mortgage-backed securities - residential
|
|
|
63,815
|
|
|
|
898
|
|
|
|
(59
|
)
|
|
|
64,654
|
|
REMICs
|
|
|
1,592
|
|
|
|
28
|
|
|
|
-
|
|
|
|
1,620
|
|
Collateralized mortgage obligations
|
|
|
71,176
|
|
|
|
976
|
|
|
|
(353
|
)
|
|
|
71,799
|
|
Preferred stock
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Corporate bonds
|
|
|
4,955
|
|
|
|
39
|
|
|
|
(17
|
)
|
|
|
4,977
|
|
Obligations of state and political
subdivisions
|
|
|
85,680
|
|
|
|
4,712
|
|
|
|
(2
|
)
|
|
|
90,390
|
|
Total Available-for-Sale
|
|
$
|
230,218
|
|
|
$
|
6,655
|
|
|
$
|
(438
|
)
|
|
$
|
236,435
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrecognized
|
|
Unrecognized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
(In Thousands)
|
Held-to-Maturity Securities*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14
|
|
FNMA certificates
|
|
|
74
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
75
|
|
GNMA certificates
|
|
|
31
|
|
|
|
1
|
|
|
|
—
|
|
|
|
32
|
|
Obligations of states and political subdivisions
|
|
|
124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
Total Held-to-Maturity
|
|
$
|
243
|
|
|
$
|
3
|
|
|
$
|
(1
|
)
|
|
$
|
245
|
|
* FHLMC, FNMA, and GNMA
certificates are residential mortgage-backed securities.
The amortized cost
and fair value of the investment securities portfolio at September 30, 2016 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”), collateralized
mortgage obligations (“CMO”) and REMICs, 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
|
|
$
|
752
|
|
|
$
|
756
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one year through five years
|
|
|
19,083
|
|
|
|
19,426
|
|
|
|
93
|
|
|
|
93
|
|
Due after five years through ten years
|
|
|
32,492
|
|
|
|
34,459
|
|
|
|
-
|
|
|
|
-
|
|
Due after ten years
|
|
|
41,986
|
|
|
|
44,584
|
|
|
|
-
|
|
|
|
-
|
|
MBS/CMO/REMICS
|
|
|
131,622
|
|
|
|
134,998
|
|
|
|
98
|
|
|
|
100
|
|
|
|
$
|
225,935
|
|
|
$
|
234,223
|
|
|
$
|
191
|
|
|
$
|
193
|
|
Investment securities
with a carrying amount of $149.8 million at September 30, 2016 were pledged as collateral on public deposits, securities sold
under repurchase agreements and Federal Reserve discount window.
As of September 30,
2016, the Company’s investment portfolio consisted of 358 securities, 13 of which were in an unrealized loss position.
The following tables
summarize First Defiance’s securities that were in an unrealized loss position at September 30, 2016 and December 31, 2015:
|
|
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 September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations
and agencies
|
|
$
|
2,048
|
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,048
|
|
|
$
|
(5
|
)
|
Collateralized mortgage obligations
|
|
|
4,092
|
|
|
|
(15
|
)
|
|
|
1,312
|
|
|
|
(20
|
)
|
|
|
5,404
|
|
|
|
(35
|
)
|
Obligations of state and political subdivisions
|
|
|
804
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
804
|
|
|
|
(7
|
)
|
Corporate bonds
|
|
|
2,010
|
|
|
|
(2
|
)
|
|
|
997
|
|
|
|
(3
|
)
|
|
|
3,007
|
|
|
|
(5
|
)
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC/FNMA certificates
|
|
|
13
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
Total temporarily impaired securities
|
|
$
|
8,967
|
|
|
$
|
(29
|
)
|
|
$
|
2,317
|
|
|
$
|
(23
|
)
|
|
$
|
11,284
|
|
|
$
|
(52
|
)
|
|
|
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, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. government corporations and agencies
|
|
$
|
993
|
|
|
$
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
993
|
|
|
$
|
(7
|
)
|
Collateralized mortgage
obligations
|
|
|
12,374
|
|
|
|
(150
|
)
|
|
|
8,158
|
|
|
|
(203
|
)
|
|
|
20,532
|
|
|
|
(353
|
)
|
Corporate bonds
|
|
|
983
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
983
|
|
|
|
(17
|
)
|
Obligations of state
and political subdivisions
|
|
|
-
|
|
|
|
-
|
|
|
|
433
|
|
|
|
(2
|
)
|
|
|
433
|
|
|
|
(2
|
)
|
Mortgage-backed securities-residential
|
|
|
12,525
|
|
|
|
(59
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
12,525
|
|
|
|
(59
|
)
|
Held to maturity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
certificates
|
|
|
13
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
(1
|
)
|
Total
temporarily impaired securities
|
|
$
|
26,888
|
|
|
$
|
(234
|
)
|
|
$
|
8,591
|
|
|
$
|
(205
|
)
|
|
$
|
35,479
|
|
|
$
|
(439
|
)
|
Realized gains from the
sales and calls of investment securities totaled $151,000 ($98,000 after tax) in the third quarter of 2016, while there were no
realized gains in the third quarter of 2015. There were realized gains from the sales and calls of investment securities totaling
$509,000 ($331,000 after tax) for the first nine months of 2016 compared to no realized gains for the first nine months of 2015.
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. Certain collateralized debt obligations (“CDOs”) are evaluated for OTTI under FASB ASC Topic 325, Investment
– Other.
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 shall be 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.
With the exception of
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 more than likely that the Company
will not be required to sell the investments before anticipated recovery.
During the first nine
months of 2016 and 2015, management determined there was no OTTI.
The proceeds from the sales and calls of securities
and the associated gains and losses are listed below:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Proceeds
|
|
$
|
6,356
|
|
|
$
|
-
|
|
|
$
|
14,871
|
|
|
$
|
-
|
|
Gross realized gains
|
|
|
151
|
|
|
|
-
|
|
|
|
509
|
|
|
|
-
|
|
Gross realized losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loans receivable consist
of the following:
|
|
September
30,
2016
|
|
|
December
31,
2015
|
|
|
|
(In Thousands)
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
$
|
209,097
|
|
|
$
|
205,330
|
|
Secured by multi-family residential
|
|
|
199,829
|
|
|
|
167,558
|
|
Secured by commercial real estate
|
|
|
843,991
|
|
|
|
780,870
|
|
Construction
|
|
|
177,075
|
|
|
|
163,877
|
|
|
|
|
1,429,992
|
|
|
|
1,317,635
|
|
Other Loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
456,099
|
|
|
|
419,349
|
|
Home equity and improvement
|
|
|
118,165
|
|
|
|
116,962
|
|
Consumer finance
|
|
|
17,251
|
|
|
|
16,281
|
|
|
|
|
591,515
|
|
|
|
552,592
|
|
Total loans
|
|
|
2,021,507
|
|
|
|
1,870,227
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Undisbursed loan funds
|
|
|
(94,552
|
)
|
|
|
(66,902
|
)
|
Net deferred loan origination fees and costs
|
|
|
(1,261
|
)
|
|
|
(1,108
|
)
|
Allowance for loan loss
|
|
|
(25,923
|
)
|
|
|
(25,382
|
)
|
Totals
|
|
$
|
1,899,771
|
|
|
$
|
1,776,835
|
|
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 September 30, 2016 and 2015 by portfolio segment (In Thousands):
Quarter Ended
September 30, 2016
|
|
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
|
|
$
|
2,839
|
|
|
$
|
2,365
|
|
|
$
|
10,904
|
|
|
$
|
633
|
|
|
$
|
6,740
|
|
|
$
|
2,278
|
|
|
$
|
189
|
|
|
$
|
25,948
|
|
Charge-Offs
|
|
|
(111
|
)
|
|
|
0
|
|
|
|
(79
|
)
|
|
|
0
|
|
|
|
(26
|
)
|
|
|
(74
|
)
|
|
|
(24
|
)
|
|
|
(314
|
)
|
Recoveries
|
|
|
3
|
|
|
|
0
|
|
|
|
62
|
|
|
|
0
|
|
|
|
159
|
|
|
|
40
|
|
|
|
10
|
|
|
|
274
|
|
Provisions
|
|
|
(299
|
)
|
|
|
(185
|
)
|
|
|
(280
|
)
|
|
|
(221
|
)
|
|
|
1,006
|
|
|
|
(47
|
)
|
|
|
41
|
|
|
|
15
|
|
Ending Allowance
|
|
$
|
2,432
|
|
|
$
|
2,180
|
|
|
$
|
10,607
|
|
|
$
|
412
|
|
|
$
|
7,879
|
|
|
$
|
2,197
|
|
|
$
|
216
|
|
|
$
|
25,923
|
|
Quarter Ended
September 30, 2015
|
|
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
|
|
$
|
2,877
|
|
|
$
|
2,269
|
|
|
$
|
12,096
|
|
|
$
|
308
|
|
|
$
|
5,567
|
|
|
$
|
2,107
|
|
|
$
|
160
|
|
|
$
|
25,384
|
|
Charge-Offs
|
|
|
(185
|
)
|
|
|
0
|
|
|
|
(64
|
)
|
|
|
0
|
|
|
|
(43
|
)
|
|
|
(110
|
)
|
|
|
(5
|
)
|
|
|
(407
|
)
|
Recoveries
|
|
|
105
|
|
|
|
0
|
|
|
|
25
|
|
|
|
0
|
|
|
|
42
|
|
|
|
76
|
|
|
|
11
|
|
|
|
259
|
|
Provisions
|
|
|
(18
|
)
|
|
|
(25
|
)
|
|
|
96
|
|
|
|
(69
|
)
|
|
|
(155
|
)
|
|
|
152
|
|
|
|
(8
|
)
|
|
|
(27
|
)
|
Ending Allowance
|
|
$
|
2,779
|
|
|
$
|
2,244
|
|
|
$
|
12,153
|
|
|
$
|
239
|
|
|
$
|
5,411
|
|
|
$
|
2,225
|
|
|
$
|
158
|
|
|
$
|
25,209
|
|
The following table discloses
allowance for loan loss activity for the year-to-date periods ended September 30, 2016 and September 30, 2015 by portfolio segment
and impairment method (In Thousands):
Year-to-date Period
Ended
September 30, 2016
|
|
1-4 Family
Residential
Real Estate
|
|
|
Multi-Family
Residential
Real Estate
|
|
|
Commercial
Real
Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home Equity
and
Improvement
|
|
|
Consumer
|
|
|
Total
|
|
Beginning Allowance
|
|
$
|
3,212
|
|
|
$
|
2,151
|
|
|
$
|
11,772
|
|
|
$
|
517
|
|
|
$
|
5,255
|
|
|
$
|
2,304
|
|
|
$
|
171
|
|
|
$
|
25,382
|
|
Charge-Offs
|
|
|
(203
|
)
|
|
|
0
|
|
|
|
(92
|
)
|
|
|
0
|
|
|
|
(381
|
)
|
|
|
(170
|
)
|
|
|
(41
|
)
|
|
|
(887
|
)
|
Recoveries
|
|
|
123
|
|
|
|
0
|
|
|
|
468
|
|
|
|
0
|
|
|
|
234
|
|
|
|
113
|
|
|
|
58
|
|
|
|
996
|
|
Provisions
|
|
|
(700
|
)
|
|
|
29
|
|
|
|
(1,541
|
)
|
|
|
(105
|
)
|
|
|
2,771
|
|
|
|
(50
|
)
|
|
|
28
|
|
|
|
432
|
|
Ending Allowance
|
|
$
|
2,432
|
|
|
$
|
2,180
|
|
|
$
|
10,607
|
|
|
$
|
412
|
|
|
$
|
7,879
|
|
|
$
|
2,197
|
|
|
$
|
216
|
|
|
$
|
25,923
|
|
Year-to-date Period
Ended
September 30, 2015
|
|
1-4 Family
Residential
Real Estate
|
|
|
Multi- Family
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Home Equity
and
Improvement
|
|
|
Consumer
|
|
|
Total
|
|
Beginning Allowance
|
|
$
|
2,494
|
|
|
$
|
2,453
|
|
|
$
|
11,268
|
|
|
$
|
221
|
|
|
$
|
6,509
|
|
|
$
|
1,704
|
|
|
$
|
117
|
|
|
$
|
24,766
|
|
Charge-Offs
|
|
|
(275
|
)
|
|
|
(114
|
)
|
|
|
(250
|
)
|
|
|
0
|
|
|
|
(68
|
)
|
|
|
(340
|
)
|
|
|
(21
|
)
|
|
|
(1,068
|
)
|
Recoveries
|
|
|
178
|
|
|
|
0
|
|
|
|
789
|
|
|
|
0
|
|
|
|
255
|
|
|
|
156
|
|
|
|
40
|
|
|
|
1,418
|
|
Provisions
|
|
|
382
|
|
|
|
(95
|
)
|
|
|
346
|
|
|
|
18
|
|
|
|
(1,285
|
)
|
|
|
705
|
|
|
|
22
|
|
|
|
93
|
|
Ending Allowance
|
|
$
|
2,779
|
|
|
$
|
2,244
|
|
|
$
|
12,153
|
|
|
$
|
239
|
|
|
$
|
5,411
|
|
|
$
|
2,225
|
|
|
$
|
158
|
|
|
$
|
25,209
|
|
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 September 30, 2016 (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
|
|
$
|
101
|
|
|
$
|
1
|
|
|
$
|
89
|
|
|
$
|
-
|
|
|
$
|
24
|
|
|
$
|
39
|
|
|
$
|
-
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
2,331
|
|
|
|
2,179
|
|
|
|
10,518
|
|
|
|
412
|
|
|
|
7,855
|
|
|
|
2,158
|
|
|
|
216
|
|
|
|
25,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated
credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance
balance
|
|
$
|
2,432
|
|
|
$
|
2,180
|
|
|
$
|
10,607
|
|
|
$
|
412
|
|
|
$
|
7,879
|
|
|
$
|
2,197
|
|
|
$
|
216
|
|
|
$
|
25,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
6,767
|
|
|
$
|
3,580
|
|
|
$
|
16,885
|
|
|
$
|
-
|
|
|
$
|
4,416
|
|
|
$
|
1,424
|
|
|
$
|
66
|
|
|
$
|
33,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
|
202,600
|
|
|
|
196,409
|
|
|
|
829,692
|
|
|
|
82,254
|
|
|
|
453,130
|
|
|
|
117,290
|
|
|
|
17,186
|
|
|
|
1,898,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated
credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
144
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
209,367
|
|
|
$
|
199,989
|
|
|
$
|
846,721
|
|
|
$
|
82,254
|
|
|
$
|
457,558
|
|
|
$
|
118,714
|
|
|
$
|
17,252
|
|
|
$
|
1,931,855
|
|
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, 2015 (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
|
|
$
|
201
|
|
|
$
|
-
|
|
|
$
|
139
|
|
|
$
|
-
|
|
|
$
|
63
|
|
|
$
|
34
|
|
|
$
|
-
|
|
|
$
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
3,011
|
|
|
|
2,151
|
|
|
|
11,633
|
|
|
|
517
|
|
|
|
5,192
|
|
|
|
2,270
|
|
|
|
171
|
|
|
|
24,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated
credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance
balance
|
|
$
|
3,212
|
|
|
$
|
2,151
|
|
|
$
|
11,772
|
|
|
$
|
517
|
|
|
$
|
5,255
|
|
|
$
|
2,304
|
|
|
$
|
171
|
|
|
$
|
25,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
7,574
|
|
|
$
|
3,313
|
|
|
$
|
23,493
|
|
|
$
|
-
|
|
|
$
|
6,107
|
|
|
$
|
1,491
|
|
|
$
|
71
|
|
|
$
|
42,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
|
198,106
|
|
|
|
164,382
|
|
|
|
759,281
|
|
|
|
96,845
|
|
|
|
414,527
|
|
|
|
115,977
|
|
|
|
16,199
|
|
|
|
1,765,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated
credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
153
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
205,680
|
|
|
$
|
167,695
|
|
|
$
|
782,927
|
|
|
$
|
96,845
|
|
|
$
|
420,650
|
|
|
$
|
117,468
|
|
|
$
|
16,270
|
|
|
$
|
1,807,535
|
|
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 September 30, 2016
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
Residential Owner Occupied
|
|
$
|
3,876
|
|
|
$
|
34
|
|
|
$
|
33
|
|
|
$
|
3,892
|
|
|
$
|
109
|
|
|
$
|
106
|
|
Residential Non Owner Occupied
|
|
|
2,935
|
|
|
|
29
|
|
|
|
29
|
|
|
|
3,234
|
|
|
|
95
|
|
|
|
94
|
|
Total Residential Real Estate
|
|
|
6,811
|
|
|
|
63
|
|
|
|
62
|
|
|
|
7,126
|
|
|
|
204
|
|
|
|
200
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multi-Family
|
|
|
3,607
|
|
|
|
14
|
|
|
|
14
|
|
|
|
4,087
|
|
|
|
68
|
|
|
|
68
|
|
CRE Owner Occupied
|
|
|
7,171
|
|
|
|
30
|
|
|
|
30
|
|
|
|
7,810
|
|
|
|
134
|
|
|
|
115
|
|
CRE Non Owner Occupied
|
|
|
6,341
|
|
|
|
73
|
|
|
|
73
|
|
|
|
5,220
|
|
|
|
178
|
|
|
|
175
|
|
Agriculture Land
|
|
|
1,851
|
|
|
|
16
|
|
|
|
2
|
|
|
|
2,427
|
|
|
|
66
|
|
|
|
16
|
|
Other CRE
|
|
|
1,570
|
|
|
|
13
|
|
|
|
13
|
|
|
|
1,556
|
|
|
|
31
|
|
|
|
31
|
|
Total Commercial Real Estate
|
|
|
16,933
|
|
|
|
132
|
|
|
|
118
|
|
|
|
17,013
|
|
|
|
409
|
|
|
|
337
|
|
Commercial Working Capital
|
|
|
2,259
|
|
|
|
26
|
|
|
|
11
|
|
|
|
1,769
|
|
|
|
56
|
|
|
|
33
|
|
Commercial Other
|
|
|
2,198
|
|
|
|
8
|
|
|
|
7
|
|
|
|
2,742
|
|
|
|
36
|
|
|
|
34
|
|
Total Commercial
|
|
|
4,457
|
|
|
|
34
|
|
|
|
18
|
|
|
|
4,511
|
|
|
|
92
|
|
|
|
67
|
|
Home Equity and Home Improvement
|
|
|
1,446
|
|
|
|
12
|
|
|
|
12
|
|
|
|
1,631
|
|
|
|
40
|
|
|
|
40
|
|
Consumer Finance
|
|
|
65
|
|
|
|
1
|
|
|
|
1
|
|
|
|
69
|
|
|
|
3
|
|
|
|
3
|
|
Total Impaired Loans
|
|
$
|
33,319
|
|
|
$
|
256
|
|
|
$
|
225
|
|
|
$
|
34,437
|
|
|
$
|
816
|
|
|
$
|
715
|
|
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 September 30, 2015
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
Residential Owner Occupied
|
|
$
|
5,750
|
|
|
$
|
67
|
|
|
$
|
66
|
|
|
$
|
5,854
|
|
|
$
|
203
|
|
|
$
|
201
|
|
Residential Non Owner Occupied
|
|
|
3,762
|
|
|
|
38
|
|
|
|
38
|
|
|
|
4,045
|
|
|
|
117
|
|
|
|
117
|
|
Total Residential Real Estate
|
|
|
9,512
|
|
|
|
105
|
|
|
|
104
|
|
|
|
9,899
|
|
|
|
320
|
|
|
|
318
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
|
|
2
|
|
|
|
2
|
|
Multi-Family
|
|
|
3,168
|
|
|
|
12
|
|
|
|
11
|
|
|
|
2,680
|
|
|
|
25
|
|
|
|
25
|
|
CRE Owner Occupied
|
|
|
6,475
|
|
|
|
39
|
|
|
|
39
|
|
|
|
6,566
|
|
|
|
117
|
|
|
|
117
|
|
CRE Non Owner Occupied
|
|
|
2,696
|
|
|
|
29
|
|
|
|
29
|
|
|
|
7,445
|
|
|
|
273
|
|
|
|
273
|
|
Agriculture Land
|
|
|
2,236
|
|
|
|
21
|
|
|
|
2
|
|
|
|
1,741
|
|
|
|
53
|
|
|
|
30
|
|
Other CRE
|
|
|
1,509
|
|
|
|
5
|
|
|
|
5
|
|
|
|
2,023
|
|
|
|
31
|
|
|
|
30
|
|
Total Commercial Real Estate
|
|
|
12,916
|
|
|
|
94
|
|
|
|
75
|
|
|
|
17,775
|
|
|
|
474
|
|
|
|
450
|
|
Commercial Working Capital
|
|
|
1,030
|
|
|
|
11
|
|
|
|
11
|
|
|
|
1,478
|
|
|
|
38
|
|
|
|
36
|
|
Commercial Other
|
|
|
2,989
|
|
|
|
7
|
|
|
|
6
|
|
|
|
3,483
|
|
|
|
33
|
|
|
|
41
|
|
Total Commercial
|
|
|
4,019
|
|
|
|
18
|
|
|
|
17
|
|
|
|
4,961
|
|
|
|
71
|
|
|
|
77
|
|
Home Equity and Home Improvement
|
|
|
2,160
|
|
|
|
19
|
|
|
|
19
|
|
|
|
2,257
|
|
|
|
60
|
|
|
|
60
|
|
Consumer Finance
|
|
|
58
|
|
|
|
1
|
|
|
|
2
|
|
|
|
55
|
|
|
|
2
|
|
|
|
3
|
|
Total Impaired Loans
|
|
$
|
31,833
|
|
|
$
|
249
|
|
|
$
|
228
|
|
|
$
|
37,677
|
|
|
$
|
954
|
|
|
$
|
935
|
|
The following table
presents loans individually evaluated for impairment by class of loans (In Thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
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
|
|
$
|
1,591
|
|
|
$
|
1,569
|
|
|
$
|
-
|
|
|
$
|
1,383
|
|
|
$
|
1,360
|
|
|
$
|
-
|
|
Residential Non Owner Occupied
|
|
|
2,486
|
|
|
|
2,478
|
|
|
|
-
|
|
|
|
2,147
|
|
|
|
2,141
|
|
|
|
-
|
|
Total 1-4 Family Residential Real Estate
|
|
|
4,077
|
|
|
|
4,047
|
|
|
|
-
|
|
|
|
3,530
|
|
|
|
3,501
|
|
|
|
-
|
|
Multi-Family Residential Real Estate
|
|
|
3,675
|
|
|
|
3,525
|
|
|
|
-
|
|
|
|
3,463
|
|
|
|
3,313
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
5,646
|
|
|
|
5,331
|
|
|
|
-
|
|
|
|
4,869
|
|
|
|
4,520
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
6,373
|
|
|
|
5,940
|
|
|
|
-
|
|
|
|
7,932
|
|
|
|
7,685
|
|
|
|
-
|
|
Agriculture Land
|
|
|
1,841
|
|
|
|
1,884
|
|
|
|
-
|
|
|
|
3,546
|
|
|
|
3,596
|
|
|
|
-
|
|
Other CRE
|
|
|
1,256
|
|
|
|
1,152
|
|
|
|
-
|
|
|
|
4,076
|
|
|
|
4,046
|
|
|
|
-
|
|
Total Commercial Real Estate
|
|
|
15,116
|
|
|
|
14,307
|
|
|
|
-
|
|
|
|
20,423
|
|
|
|
19,847
|
|
|
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
2,176
|
|
|
|
2,162
|
|
|
|
-
|
|
|
|
1,644
|
|
|
|
1,648
|
|
|
|
-
|
|
Commercial Other
|
|
|
2,005
|
|
|
|
1,917
|
|
|
|
-
|
|
|
|
3,573
|
|
|
|
3,607
|
|
|
|
-
|
|
Total Commercial
|
|
|
4,181
|
|
|
|
4,079
|
|
|
|
-
|
|
|
|
5,217
|
|
|
|
5,255
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
716
|
|
|
|
670
|
|
|
|
-
|
|
|
|
817
|
|
|
|
772
|
|
|
|
-
|
|
Consumer Finance
|
|
|
59
|
|
|
|
59
|
|
|
|
-
|
|
|
|
60
|
|
|
|
59
|
|
|
|
-
|
|
Total loans with no allowance
recorded
|
|
$
|
27,824
|
|
|
$
|
26,687
|
|
|
$
|
-
|
|
|
$
|
33,510
|
|
|
$
|
32,747
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
2,340
|
|
|
$
|
2,313
|
|
|
$
|
93
|
|
|
$
|
2,918
|
|
|
$
|
2,837
|
|
|
$
|
188
|
|
Residential Non Owner Occupied
|
|
|
415
|
|
|
|
407
|
|
|
|
8
|
|
|
|
1,231
|
|
|
|
1,236
|
|
|
|
13
|
|
Total 1-4 Family Residential Real Estate
|
|
|
2,755
|
|
|
|
2,720
|
|
|
|
101
|
|
|
|
4,149
|
|
|
|
4,073
|
|
|
|
201
|
|
Multi-Family Residential Real Estate
|
|
|
54
|
|
|
|
55
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
2,261
|
|
|
|
1,791
|
|
|
|
79
|
|
|
|
3,250
|
|
|
|
2,767
|
|
|
|
132
|
|
CRE Non Owner Occupied
|
|
|
340
|
|
|
|
341
|
|
|
|
4
|
|
|
|
385
|
|
|
|
308
|
|
|
|
2
|
|
Agriculture Land
|
|
|
46
|
|
|
|
47
|
|
|
|
1
|
|
|
|
68
|
|
|
|
69
|
|
|
|
2
|
|
Other CRE
|
|
|
822
|
|
|
|
399
|
|
|
|
5
|
|
|
|
926
|
|
|
|
502
|
|
|
|
3
|
|
Total Commercial Real Estate
|
|
|
3,469
|
|
|
|
2,578
|
|
|
|
89
|
|
|
|
4,629
|
|
|
|
3,646
|
|
|
|
139
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
107
|
|
|
|
107
|
|
|
|
2
|
|
|
|
594
|
|
|
|
596
|
|
|
|
62
|
|
Commercial Other
|
|
|
367
|
|
|
|
230
|
|
|
|
22
|
|
|
|
252
|
|
|
|
256
|
|
|
|
1
|
|
Total Commercial
|
|
|
474
|
|
|
|
337
|
|
|
|
24
|
|
|
|
846
|
|
|
|
852
|
|
|
|
63
|
|
Home Equity and Home Improvement
|
|
|
788
|
|
|
|
754
|
|
|
|
39
|
|
|
|
724
|
|
|
|
719
|
|
|
|
34
|
|
Consumer Finance
|
|
|
8
|
|
|
|
7
|
|
|
|
-
|
|
|
|
12
|
|
|
|
12
|
|
|
|
-
|
|
Total loans with an allowance
recorded
|
|
$
|
7,548
|
|
|
$
|
6,451
|
|
|
$
|
254
|
|
|
$
|
10,360
|
|
|
$
|
9,302
|
|
|
$
|
437
|
|
* Presented gross of charge offs
The following table presents
the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned
on the dates indicated:
|
|
September
30,
2016
|
|
|
December 31,
2015
|
|
|
|
(In Thousands)
|
|
Non-accrual loans
|
|
$
|
18,198
|
|
|
$
|
16,261
|
|
Loans over 90 days past due and still accruing
|
|
|
-
|
|
|
|
-
|
|
Total non-performing loans
|
|
|
18,198
|
|
|
|
16,261
|
|
Real estate and other assets held for sale
|
|
|
704
|
|
|
|
1,321
|
|
Total non-performing assets
|
|
$
|
18,902
|
|
|
$
|
17,582
|
|
Troubled debt restructuring, still accruing
|
|
$
|
9,113
|
|
|
$
|
11,178
|
|
The following table presents
the aging of the recorded investment in past due and non accrual loans as of September 30, 2016 by class of loans (In Thousands):
|
|
Current
|
|
|
30-59
days
|
|
|
60-89
days
|
|
|
90+
days
|
|
|
Total
Past Due
|
|
|
Total
Non
Accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
141,829
|
|
|
$
|
30
|
|
|
$
|
573
|
|
|
$
|
847
|
|
|
$
|
1,450
|
|
|
$
|
1,834
|
|
Residential Non Owner Occupied
|
|
|
65,410
|
|
|
|
481
|
|
|
|
78
|
|
|
|
119
|
|
|
|
678
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Residential Real Estate
|
|
|
207,239
|
|
|
|
511
|
|
|
|
651
|
|
|
|
966
|
|
|
|
2,128
|
|
|
|
2,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
199,989
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
348,245
|
|
|
|
134
|
|
|
|
1,128
|
|
|
|
1,678
|
|
|
|
2,940
|
|
|
|
4,972
|
|
CRE Non Owner Occupied
|
|
|
331,569
|
|
|
|
158
|
|
|
|
488
|
|
|
|
272
|
|
|
|
918
|
|
|
|
1,753
|
|
Agriculture Land
|
|
|
107,249
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53
|
|
|
|
857
|
|
Other Commercial Real Estate
|
|
|
55,498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
249
|
|
|
|
249
|
|
|
|
1,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
842,561
|
|
|
|
345
|
|
|
|
1,616
|
|
|
|
2,199
|
|
|
|
4,160
|
|
|
|
8,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
82,254
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
202,496
|
|
|
|
-
|
|
|
|
790
|
|
|
|
39
|
|
|
|
829
|
|
|
|
1,207
|
|
Commercial Other
|
|
|
252,800
|
|
|
|
188
|
|
|
|
17
|
|
|
|
1,228
|
|
|
|
1,433
|
|
|
|
2,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
455,296
|
|
|
|
188
|
|
|
|
807
|
|
|
|
1,267
|
|
|
|
2,262
|
|
|
|
3,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity/Home Improvement
|
|
|
117,737
|
|
|
|
657
|
|
|
|
162
|
|
|
|
158
|
|
|
|
977
|
|
|
|
719
|
|
Consumer Finance
|
|
|
17,057
|
|
|
|
131
|
|
|
|
64
|
|
|
|
-
|
|
|
|
195
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,922,133
|
|
|
$
|
1,832
|
|
|
$
|
3,300
|
|
|
$
|
4,590
|
|
|
$
|
9,722
|
|
|
$
|
18,212
|
|
The following table presents
the aging of the recorded investment in past due and non accrual loans as of December 31, 2015 by class of loans (In Thousands):
|
|
Current
|
|
|
30-59
days
|
|
|
60-89
days
|
|
|
90+
days
|
|
|
Total
Past Due
|
|
|
Total
Non
Accrual
|
|
Residential Owner Occupied
|
|
$
|
138,974
|
|
|
$
|
159
|
|
|
$
|
673
|
|
|
$
|
391
|
|
|
$
|
1,223
|
|
|
$
|
1,428
|
|
Residential Non Owner Occupied
|
|
|
64,577
|
|
|
|
324
|
|
|
|
356
|
|
|
|
226
|
|
|
|
906
|
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Residential Real Estate
|
|
|
203,551
|
|
|
|
483
|
|
|
|
1,029
|
|
|
|
617
|
|
|
|
2,129
|
|
|
|
2,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
165,671
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,024
|
|
|
|
2,024
|
|
|
|
2,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
322,940
|
|
|
|
772
|
|
|
|
1,218
|
|
|
|
1,266
|
|
|
|
3,256
|
|
|
|
4,141
|
|
CRE Non Owner Occupied
|
|
|
304,166
|
|
|
|
-
|
|
|
|
106
|
|
|
|
538
|
|
|
|
644
|
|
|
|
1,229
|
|
Agriculture Land
|
|
|
98,055
|
|
|
|
57
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57
|
|
|
|
695
|
|
Other Commercial Real Estate
|
|
|
53,494
|
|
|
|
-
|
|
|
|
-
|
|
|
|
315
|
|
|
|
315
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
778,655
|
|
|
|
829
|
|
|
|
1,324
|
|
|
|
2,119
|
|
|
|
4,272
|
|
|
|
7,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
96,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
168,938
|
|
|
|
16
|
|
|
|
-
|
|
|
|
154
|
|
|
|
170
|
|
|
|
251
|
|
Commercial Other
|
|
|
249,070
|
|
|
|
203
|
|
|
|
46
|
|
|
|
2,223
|
|
|
|
2,472
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
418,008
|
|
|
|
219
|
|
|
|
46
|
|
|
|
2,377
|
|
|
|
2,642
|
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
116,599
|
|
|
|
733
|
|
|
|
92
|
|
|
|
44
|
|
|
|
869
|
|
|
|
689
|
|
Consumer Finance
|
|
|
16,216
|
|
|
|
27
|
|
|
|
3
|
|
|
|
24
|
|
|
|
54
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,795,545
|
|
|
$
|
2,291
|
|
|
$
|
2,494
|
|
|
$
|
7,205
|
|
|
$
|
11,990
|
|
|
$
|
16,262
|
|
Troubled Debt Restructurings
As of September 30, 2016
and December 31, 2015, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $14.7 million
and $17.6 million, respectively. The Company allocated $254,000 and $335,000 of specific reserves to those loans at September
30, 2016 and December 31, 2015, and has committed to lend additional amounts totaling up to $10,000 and $48,000 at September 30,
2016 and December 31, 2015, 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, $5.5 million are on non-accrual status and partial charge-offs have in some cases been taken against the outstanding
balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan
is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine
if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance
is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective
interest rate.
The following table presents
loans by class modified as troubled debt restructurings that occurred during the three and nine month periods ending September
30, 2016 and September 30, 2015:
|
|
Loans
Modified as a TDR for the Three
Months Ended September 30, 2016
($ in thousands)
|
|
|
Loans
Modified as a TDR for the Nine
Months Ended September 30, 2016
($ in thousands)
|
|
Troubled Debt Restructurings
|
|
Number
of
Loans
|
|
|
Recorded
Investment
(as of period end)
|
|
|
Number
of
Loans
|
|
|
Recorded
Investment
(as of period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Owner Occupied
|
|
|
5
|
|
|
$
|
86
|
|
|
|
10
|
|
|
$
|
208
|
|
1-4 Family Non Owner Occupied
|
|
|
1
|
|
|
|
8
|
|
|
|
3
|
|
|
|
128
|
|
Multi Family
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
54
|
|
CRE Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
2
|
|
|
|
215
|
|
|
|
4
|
|
|
|
870
|
|
Agriculture Land
|
|
|
1
|
|
|
|
46
|
|
|
|
1
|
|
|
|
46
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
226
|
|
Commercial Other
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
590
|
|
Home Equity and Improvement
|
|
|
4
|
|
|
|
52
|
|
|
|
8
|
|
|
|
340
|
|
Consumer Finance
|
|
|
1
|
|
|
|
13
|
|
|
|
2
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14
|
|
|
$
|
420
|
|
|
|
31
|
|
|
$
|
2,478
|
|
The
loans described above increased the ALLL by $31,000 in the three month period ending September 30, 2016 and decreased the ALLL
by $9,000 in the nine month period ending September 30, 2016.
|
|
Loans
Modified as a TDR for the Three
Months Ended September 30, 2015
($ in thousands)
|
|
|
Loans
Modified as a TDR for the Nine
Months Ended September 30, 2015
($ in thousands)
|
|
Troubled Debt Restructurings
|
|
Number
of
Loans
|
|
|
Recorded
Investment
(as of period end)
|
|
|
Number
of
Loans
|
|
|
Recorded
Investment
(as of period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Owner Occupied
|
|
|
0
|
|
|
$
|
-
|
|
|
|
3
|
|
|
$
|
226
|
|
1-4 Family Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
4
|
|
|
|
63
|
|
CRE Owner Occupied
|
|
|
1
|
|
|
|
72
|
|
|
|
2
|
|
|
|
632
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
2
|
|
|
|
252
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
3
|
|
|
|
1,552
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
2
|
|
|
|
114
|
|
|
|
4
|
|
|
|
119
|
|
Commercial Other
|
|
|
1
|
|
|
|
19
|
|
|
|
2
|
|
|
|
73
|
|
Home Equity and Improvement
|
|
|
4
|
|
|
|
114
|
|
|
|
11
|
|
|
|
217
|
|
Consumer Finance
|
|
|
2
|
|
|
|
2
|
|
|
|
6
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10
|
|
|
$
|
321
|
|
|
|
37
|
|
|
$
|
3,171
|
|
The
loans described above decreased the ALLL by $3,000 in the three month period ending September 30, 2015 and $23,000 in the nine
month period ending September 30, 2015.
Of
the 2016 modifications, 10 were made TDRs due to the fact that the borrower has been in bankruptcy, 1 was made a TDR due to an
interest only period, 6 were made TDRs due to extending the maturity, 4 were made TDRs due to advancing funds to a watchlist credit,
1 was to term out a line of credit and 9 were made to refinance current debt for payment relief.
The following table presents
loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the
three and nine month periods ended September 30, 2016 and September 30, 2015:
|
|
Three
Months Ended September 30,
2016
($ in thousands)
|
|
|
Nine
Months Ended September 30,
2016
($ 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Owner Occupied
|
|
|
1
|
|
|
$
|
190
|
|
|
|
1
|
|
|
$
|
190
|
|
1-4 Family Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
11
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Working Capital or Other
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Other
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Home Equity and Improvement
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Consumer Finance
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
190
|
|
|
|
2
|
|
|
$
|
201
|
|
The
TDRs that subsequently defaulted described above had no effect on the allowance for loan losses for the three and nine month periods
ended September 30, 2016.
|
|
Three
Months Ended September 30,
2015
($ in thousands)
|
|
|
Nine
Months Ended September 30,
2015
($ 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Owner Occupied
|
|
|
0
|
|
|
$
|
-
|
|
|
|
0
|
|
|
$
|
-
|
|
1-4 Family Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
105
|
|
CRE Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Working Capital or Other
|
|
|
1
|
|
|
|
120
|
|
|
|
1
|
|
|
|
120
|
|
Commercial Other
|
|
|
5
|
|
|
|
1,829
|
|
|
|
5
|
|
|
|
1,829
|
|
Home Equity and Improvement
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
22
|
|
Consumer Finance
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6
|
|
|
$
|
1,949
|
|
|
|
8
|
|
|
$
|
2,076
|
|
The
TDRs that subsequently defaulted described above had no effect on the allowance for loan losses for the three and nine month periods
ended September 30, 2015.
The terms of certain other
loans were modified during the period ending September 30, 2016 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 81 loans were modified under this definition during the three month period ended September 30, 2016 and a total of 284 loans
were modified under this definition during the nine month period ended September 30, 2016.
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-homogeneous
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 September 30, 2016, 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
|
|
$
|
5,585
|
|
|
$
|
286
|
|
|
$
|
1,637
|
|
|
$
|
-
|
|
|
$
|
135,771
|
|
|
$
|
143,279
|
|
1-4 Family Non Owner Occupied
|
|
|
57,485
|
|
|
|
926
|
|
|
|
3,581
|
|
|
|
-
|
|
|
|
4,096
|
|
|
|
66,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Real Estate
|
|
|
63,070
|
|
|
|
1,212
|
|
|
|
5,218
|
|
|
|
-
|
|
|
|
139,867
|
|
|
|
209,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
195,606
|
|
|
|
310
|
|
|
|
3,958
|
|
|
|
-
|
|
|
|
115
|
|
|
|
199,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
319,942
|
|
|
|
23,239
|
|
|
|
7,564
|
|
|
|
-
|
|
|
|
440
|
|
|
|
351,185
|
|
CRE Non Owner Occupied
|
|
|
325,109
|
|
|
|
1,016
|
|
|
|
6,355
|
|
|
|
-
|
|
|
|
6
|
|
|
|
332,486
|
|
Agriculture Land
|
|
|
102,228
|
|
|
|
2,869
|
|
|
|
2,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107,303
|
|
Other CRE
|
|
|
52,585
|
|
|
|
-
|
|
|
|
2,420
|
|
|
|
-
|
|
|
|
742
|
|
|
|
55,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
799,864
|
|
|
|
27,124
|
|
|
|
18,545
|
|
|
|
-
|
|
|
|
1,188
|
|
|
|
846,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
63,927
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,327
|
|
|
|
82,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
189,208
|
|
|
|
11,509
|
|
|
|
2,608
|
|
|
|
-
|
|
|
|
-
|
|
|
|
203,325
|
|
Commercial Other
|
|
|
244,846
|
|
|
|
6,579
|
|
|
|
2,808
|
|
|
|
-
|
|
|
|
-
|
|
|
|
254,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
434,054
|
|
|
|
18,088
|
|
|
|
5,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
457,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
691
|
|
|
|
-
|
|
|
|
118,023
|
|
|
|
118,714
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
17,239
|
|
|
|
17,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,556,521
|
|
|
$
|
46,734
|
|
|
$
|
33,841
|
|
|
$
|
-
|
|
|
$
|
294,759
|
|
|
$
|
1,931,855
|
|
As
of December 31, 2015, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
5,828
|
|
|
$
|
123
|
|
|
$
|
2,427
|
|
|
$
|
-
|
|
|
$
|
131,820
|
|
|
$
|
140,198
|
|
Residential Non Owner Occupied
|
|
|
55,169
|
|
|
|
1,420
|
|
|
|
4,439
|
|
|
|
-
|
|
|
|
4,454
|
|
|
|
65,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Real Estate
|
|
|
60,997
|
|
|
|
1,543
|
|
|
|
6,866
|
|
|
|
-
|
|
|
|
136,274
|
|
|
|
205,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
163,405
|
|
|
|
498
|
|
|
|
3,675
|
|
|
|
-
|
|
|
|
117
|
|
|
|
167,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
297,856
|
|
|
|
17,896
|
|
|
|
9,730
|
|
|
|
-
|
|
|
|
714
|
|
|
|
326,196
|
|
CRE Non Owner Occupied
|
|
|
293,057
|
|
|
|
2,143
|
|
|
|
9,595
|
|
|
|
-
|
|
|
|
15
|
|
|
|
304,810
|
|
Agriculture Land
|
|
|
92,262
|
|
|
|
1,947
|
|
|
|
3,903
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,112
|
|
Other CRE
|
|
|
47,109
|
|
|
|
469
|
|
|
|
5,739
|
|
|
|
-
|
|
|
|
492
|
|
|
|
53,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
730,284
|
|
|
|
22,455
|
|
|
|
28,967
|
|
|
|
-
|
|
|
|
1,221
|
|
|
|
782,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
76,152
|
|
|
|
2,159
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,534
|
|
|
|
96,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
163,071
|
|
|
|
2,497
|
|
|
|
3,540
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,108
|
|
Commercial Other
|
|
|
243,308
|
|
|
|
2,706
|
|
|
|
5,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
251,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
406,379
|
|
|
|
5,203
|
|
|
|
9,068
|
|
|
|
-
|
|
|
|
-
|
|
|
|
420,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
689
|
|
|
|
-
|
|
|
|
116,779
|
|
|
|
117,468
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
16,255
|
|
|
|
16,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,437,217
|
|
|
$
|
31,858
|
|
|
$
|
49,280
|
|
|
$
|
-
|
|
|
$
|
289,180
|
|
|
$
|
1,807,535
|
|
Foreclosure Proceedings
Consumer mortgage loans
collateralized by residential real estate property that are in the process of foreclosure totaled $142,000 as of September 30,
2016.
Net
revenues from the sales and servicing of mortgage loans consisted of the following
:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Gain from sale of mortgage loans
|
|
$
|
1,683
|
|
|
$
|
1,197
|
|
|
$
|
4,103
|
|
|
$
|
3,728
|
|
Mortgage loans servicing revenue (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans servicing revenue
|
|
|
885
|
|
|
|
866
|
|
|
|
2,638
|
|
|
|
2,593
|
|
Amortization of mortgage servicing rights
|
|
|
(536
|
)
|
|
|
(407
|
)
|
|
|
(1,281
|
)
|
|
|
(1,264
|
)
|
Mortgage servicing rights valuation adjustments
|
|
|
7
|
|
|
|
24
|
|
|
|
(118
|
)
|
|
|
191
|
|
|
|
|
356
|
|
|
|
483
|
|
|
|
1,239
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue from sale and servicing of mortgage loans
|
|
$
|
2,039
|
|
|
$
|
1,680
|
|
|
$
|
5,342
|
|
|
$
|
5,248
|
|
The unpaid principal balance
of residential mortgage loans serviced for third parties was $1.37 billion at September 30, 2016 and $1.34 billion at December
31, 2015.
Activity for capitalized
mortgage servicing rights and the related valuation allowance follows for the three and nine months ended September 30, 2016 and
2015:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Mortgage servicing assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
9,906
|
|
|
$
|
9,872
|
|
|
$
|
9,893
|
|
|
$
|
9,923
|
|
Loans sold, servicing retained
|
|
|
701
|
|
|
|
449
|
|
|
|
1,459
|
|
|
|
1,255
|
|
Amortization
|
|
|
(536
|
)
|
|
|
(407
|
)
|
|
|
(1,281
|
)
|
|
|
(1,264
|
)
|
Carrying value before valuation allowance at end of period
|
|
|
10,071
|
|
|
|
9,914
|
|
|
|
10,071
|
|
|
|
9,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
(770
|
)
|
|
|
(744
|
)
|
|
|
(645
|
)
|
|
|
(911
|
)
|
Impairment recovery (charges)
|
|
|
7
|
|
|
|
24
|
|
|
|
(118
|
)
|
|
|
191
|
|
Balance at end of period
|
|
|
(763
|
)
|
|
|
(720
|
)
|
|
|
(763
|
)
|
|
|
(720
|
)
|
Net carrying value of MSRs at end of period
|
|
$
|
9,308
|
|
|
$
|
9,194
|
|
|
$
|
9,308
|
|
|
$
|
9,194
|
|
Fair value of MSRs at end of period
|
|
$
|
9,493
|
|
|
$
|
9,629
|
|
|
$
|
9,493
|
|
|
$
|
9,629
|
|
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 secondary market buy-back losses that resulted in a reversal of $131,000 for the first nine months of 2016. In
the first nine months of 2015, the Company reversed $84,000. The reversals are mainly due to no actual losses being recorded in
the first nine months of 2016 and 2015. There is approximately $83,000 and $226,000 accrued and included within other liabilities
at September 30, 2016 and 2015, respectively, for potential secondary market buy-back losses.
A summary of deposit balances
is as follows:
|
|
September
30,
2016
|
|
|
December
31,
2015
|
|
|
|
(In Thousands)
|
|
Non-interest-bearing checking accounts
|
|
$
|
443,321
|
|
|
$
|
420,691
|
|
Interest-bearing checking and money market accounts
|
|
|
810,393
|
|
|
|
767,201
|
|
Savings deposits
|
|
|
241,016
|
|
|
|
219,655
|
|
Retail certificates of deposit less than $250,000
|
|
|
399,749
|
|
|
|
403,902
|
|
Retail certificates of deposit greater than $250,000
|
|
|
33,207
|
|
|
|
24,688
|
|
|
|
$
|
1,927,686
|
|
|
$
|
1,836,137
|
|
First Defiance’s
FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:
|
|
September
30,
2016
|
|
|
December
31,
2015
|
|
|
|
(In Thousands)
|
|
FHLB Advances:
|
|
|
|
|
|
|
|
|
Single maturity fixed rate advances
|
|
$
|
72,000
|
|
|
$
|
47,000
|
|
Putable advances
|
|
|
5,000
|
|
|
|
5,000
|
|
Amortizable mortgage advances
|
|
|
7,184
|
|
|
|
7,902
|
|
Overnight advances
|
|
|
30,000
|
|
|
|
-
|
|
Total
|
|
$
|
114,184
|
|
|
$
|
59,902
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures
owed to unconsolidated subsidiary trusts
|
|
$
|
36,083
|
|
|
$
|
36,083
|
|
The putable advance can
be put back to the Company at the option of the FHLB on a quarterly basis. A $5.0 million putable advance with a weighted average
rate of 2.35% was not yet callable by the FHLB at September 30, 2016. The call date for this advance is December 12, 2016 and
the maturity date is 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 that trust. The Company is not considered the primary beneficiary of this Trust
(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 variable rate equal to the three-month
LIBOR rate plus 1.5%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 2.35% as of September
30, 2016 and 2.01% as of December 31, 2015.
The Trust Preferred Securities
issued by Trust Affiliate II are subject to mandatory redemption, in whole or part, upon repayment of the Subordinated Debentures.
The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to
the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature on June 15, 2037, but can be redeemed
at the Company’s option at any time now.
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 the trust. The Company is not considered the primary beneficiary of
this Trust (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 2.23% and 1.89%
on September 30, 2016 and December 31, 2015 respectively.
The
Trust Preferred Securities issued by Trust Affiliate I are subject to mandatory redemption, in whole or in part, upon repayment
of the Subordinated Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust
Preferred Securities subject to the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature
on December 15, 2035, but can be redeemed at the Company’s option at any time now.
The subordinated debentures
may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
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.
Repurchase Agreements
.
We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured
short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection
with the transaction. We monitor levels on a continuous basis. We may be required to provide additional collateral based on the
fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our
safekeeping agent.
The remaining contractual
maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of September 30, 2016 and
December 31, 2015 is presented in the following tables.
|
|
Overnight
and
Continuous
|
|
|
Up
to 30
Days
|
|
|
30-90
Days
|
|
|
Greater
than 90
Days
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
At September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities –
residential
|
|
$
|
26,433
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,433
|
|
Collateralized mortgage
obligations
|
|
|
24,060
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,060
|
|
Total borrowings
|
|
$
|
50,493
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
50,493
|
|
Gross amount of recognized
liabilities for repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,493
|
|
|
|
Overnight
and
Continuous
|
|
|
Up
to 30
Days
|
|
|
30-90
Days
|
|
|
Greater
than 90
Days
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities –
residential
|
|
$
|
23,998
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23,998
|
|
Collateralized mortgage
obligations
|
|
|
33,190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,190
|
|
Total borrowings
|
|
$
|
57,188
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
57,188
|
|
Gross amount of recognized
liabilities for repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,188
|
|
|
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):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
Commitments to make loans
|
|
$
|
51,486
|
|
|
$
|
120,932
|
|
|
$
|
80,862
|
|
|
$
|
76,253
|
|
Unused lines of credit
|
|
|
15,689
|
|
|
|
420,335
|
|
|
|
31,991
|
|
|
|
323,171
|
|
Standby letters of credit
|
|
|
-
|
|
|
|
9,891
|
|
|
|
-
|
|
|
|
19,632
|
|
Total
|
|
$
|
67,175
|
|
|
$
|
551,158
|
|
|
$
|
112,853
|
|
|
$
|
419,056
|
|
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
$38.1 million and $19.9 million of loans to Freddie Mac, Fannie Mae, Federal Home Loan Bank of Cincinnati or BB&T Mortgage
at September 30, 2016 and December 31, 2015, respectively.
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 2011. The Company currently operates primarily in the states of Ohio and Michigan, which
tax financial institutions based on their equity rather than their income. As a result of adopting ASU 2016-09, a $54,000 credit
to tax expense was recorded in the third quarter of 2016 and a $184,000 credit to tax expense was recorded for the first nine
months of 2016.
|
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 $19.9 million and $14.9
million of interest rate lock commitments at September 30, 2016 and December 31, 2015, respectively. There were $38.1 million
and $19.9 million of forward commitments for the future delivery of residential mortgage loans at September 30, 2016 and December
31, 2015, 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:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
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
|
|
$
|
921
|
|
|
$
|
(126
|
)
|
|
$
|
795
|
|
|
$
|
558
|
|
|
$
|
-
|
|
|
$
|
558
|
|
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In Thousands)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Derivatives – Gain (Loss)
|
|
$
|
(193
|
)
|
|
$
|
(94
|
)
|
|
$
|
237
|
|
|
$
|
311
|
|
The above amounts are
included in mortgage banking income with gain on sale of mortgage loans.
Note 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
|
|
|
|
(In Thousands)
|
|
Three months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) during the period
|
|
$
|
69
|
|
|
$
|
(24
|
)
|
|
$
|
45
|
|
Reclassification adjustment for net gains included
in net income
|
|
|
(151
|
)
|
|
|
53
|
|
|
|
(98
|
)
|
Total other comprehensive income (loss)
|
|
$
|
(82
|
)
|
|
$
|
29
|
|
|
$
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) during the period
|
|
$
|
2,579
|
|
|
$
|
(903
|
)
|
|
$
|
1,676
|
|
Reclassification adjustment for net gains included
in net income
|
|
|
(509
|
)
|
|
|
178
|
|
|
|
(331
|
)
|
Total other comprehensive income (loss)
|
|
$
|
2,070
|
|
|
$
|
(725
|
)
|
|
$
|
1,345
|
|
|
|
Before Tax
Amount
|
|
|
Tax Expense
(Benefit)
|
|
|
Net of Tax
Amount
|
|
|
|
(In Thousands)
|
|
Three months ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) during the period
|
|
$
|
2,024
|
|
|
$
|
709
|
|
|
$
|
1,315
|
|
Reclassification adjustment for net gains included
in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other comprehensive income (loss)
|
|
$
|
2,024
|
|
|
$
|
709
|
|
|
$
|
1,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale and transferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain (loss) during the period
|
|
$
|
(313
|
)
|
|
$
|
(108
|
)
|
|
$
|
(205
|
)
|
Reclassification adjustment for net gains included
in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other comprehensive income (loss)
|
|
$
|
(313
|
)
|
|
$
|
(108
|
)
|
|
$
|
(205
|
)
|
Activity in accumulated other comprehensive
income (loss), net of tax, was as follows:
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Securities
|
|
|
Post-
|
|
|
Other
|
|
|
|
Available
|
|
|
retirement
|
|
|
Comprehensive
|
|
|
|
For Sale
|
|
|
Benefit
|
|
|
Income
|
|
|
|
(In Thousands)
|
|
Balance January 1, 2016
|
|
$
|
4,042
|
|
|
$
|
(420
|
)
|
|
$
|
3,622
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
1,676
|
|
|
|
-
|
|
|
|
1,676
|
|
Amounts reclassified from accumulated
other comprehensive income
|
|
|
(331
|
)
|
|
|
-
|
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
during period
|
|
|
1,345
|
|
|
|
-
|
|
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2016
|
|
$
|
5,387
|
|
|
$
|
(420
|
)
|
|
$
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2015
|
|
$
|
4,697
|
|
|
$
|
(583
|
)
|
|
$
|
4,114
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(205
|
)
|
|
|
-
|
|
|
|
(205
|
)
|
Amounts reclassified from accumulated
other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
during period
|
|
|
(205
|
)
|
|
|
-
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2015
|
|
$
|
4,492
|
|
|
$
|
(583
|
)
|
|
$
|
3,909
|
|
Note 16 – Affordable Housing Projects
Tax Credit Partnership
The Company makes certain
equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax
Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve
a satisfactory return on capital, to facilitate the sale of affordable housing product offerings, and to assist in achieving goals
associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification,
development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of
investments are funded through a combination of debt and equity.
The Company is a limited
partner in each LIHTC Partnership. A separate unrelated third party is the general partner. Each limited partnership is managed
by the general partner, who exercises full control over the affairs of the limited partnership. The general partner has all the
rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership. Duties entrusted
to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company
expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and
refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections,
bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted
to consent to certain transactions, the limited partner(s) may not participate in the operation, management, or control of the
limited partnership’s business, transact any business in the limited partnership’s name or have any power to sign
documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s)
in the event the general partner fails to comply with the terms of the agreement or is negligent in performing its duties.
The general partner of
each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership
and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the
Company has determined that it is not the primary beneficiary of any LIHTC partnership. All of the LIHTC’s investments are
accounted for under the proportional amortization method, as there were no investments held prior to January of 2014. As of September
30, 2016 and December 31, 2015 the Company had $6.9 million and $4.3 million in qualified investments recorded in other assets
and $4.6 million and $2.4 million in unfunded commitments recorded in other liabilities, respectively.
Unfunded Commitments
As of September 30, 2016,
the expected payments for unfunded affordable housing commitments were as follows (In Thousands):
|
|
Amount
|
|
2016
|
|
$
|
1,089
|
|
2017
|
|
|
1,143
|
|
2018
|
|
|
1,137
|
|
2019
|
|
|
308
|
|
2020
|
|
|
179
|
|
Thereafter
|
|
|
778
|
|
Total Unfunded Commitments
|
|
$
|
4,634
|
|
The following table presents
tax credits and other tax benefits recognized and amortization expense related to affordable housing for the three and nine months
ended September 30, 2016 and 2015 (In Thousands):
|
|
Three Months Ended
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Proportional Amortization Method
|
|
|
|
|
|
|
|
|
Tax credits and other tax benefits recognized
|
|
$
|
170
|
|
|
$
|
118
|
|
Amortization expense in federal income taxes
|
|
|
130
|
|
|
|
89
|
|
|
|
Nine Months Ended
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Proportional Amortization Method
|
|
|
|
|
|
|
|
|
Tax credits and other tax benefits recognized
|
|
$
|
484
|
|
|
$
|
354
|
|
Amortization expense in federal income taxes
|
|
|
368
|
|
|
|
268
|
|
There were no impairment
losses of LIHTC investments for the three and nine months ended September 30, 2016 and 2015.
Note 17 – Acquisition
On August 23, 2016, First
Defiance announced the execution of a definitive agreement (the “Agreement”) to acquire Commercial Bancshares, Inc.
(“Commercial Bancshares”) and its wholly-owned subsidiary, Commercial Savings Bank (“CSB”). Each Commercial
Bancshares shareholder will receive 1.1808 shares of First Defiance common stock (“First Defiance Shares”) or $51.00
in cash, subject to total consideration being paid 80% in First Defiance Shares and 20% in cash as provided in the Agreement. Based
on the twenty-day average closing price of First Defiance Shares of $43.19 ending August 22, 2016, the transaction is valued at
approximately $63 million in the aggregate, including cash payment of approximately $1.5 million to cancel outstanding options.
On June 30, 2016, Commercial Bancshares had $342 million in assets, $298 million in loans and $301 million in deposits at its seven
banking offices. The transaction is expected to be completed in the first quarter of 2017, pending regulatory approvals, the approval
of shareholders of Commercial Bancshares and the completion of other customary closing conditions.