(1) Amounts are included in gains on sale or call of securities
on the consolidated condensed statements of income. Income tax expense associated with the reclassification adjustments, included
in federal income taxes, for the three months ended March 31, 2018 and 2017 was $0 and $0, respectively.
Notes to Consolidated Condensed Financial
Statements (UNAUDITED)
March 31, 2018 and 2017
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” or the “Bank”),
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, Sylvania, Bryan, Lima, Archbold, Fostoria, Tiffin, Findlay 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, 2017, 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, 2017.
The accompanying consolidated
condensed financial statements as of March 31, 2018, and for the three month periods ended March 31, 2018 and 2017 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 2017 Annual Report on Form 10-K for the year ended December 31, 2017. 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 month period ended March 31, 2018 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, restricted stock awards and stock grants.
Goodwill and Other Intangibles
Goodwill resulting
from business combinations prior to January 1, 2009, represents the excess of the purchase price over the fair value of the net
assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as
the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree,
over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets
acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for
impairment at least annually. The Company has selected November 30 as the date to perform the annual impairment test. Intangible
assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill
is the only intangible asset with an indefinite life on First Defiance’s balance sheet.
Other intangible assets
consist of core deposit and acquired customer relationship intangible assets arising from whole bank, insurance and branch acquisitions.
They are initially recorded at fair value and then amortized on an accelerated basis over their estimated lives, which range from
five years for non-compete agreements to 10 to 20 years for core deposit and customer relationship intangibles.
Accounting Standards Adopted
in 2018
In May 2014, the FASB
issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The standard’s core principle is that a company
will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be
required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations
in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation. Subsequent to the issuance of ASU 2014-09, the FASB issued targeted updates to
clarify specific implementation issues including ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue
Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope
Improvements and Practical Expedients,” and ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606,
Revenue from Contracts with Customers.” For financial reporting purposes, the standard allows for either full retrospective
adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard
is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying
the standard recognized at the date of initial application. Since the guidance does not apply to revenue associated with financial
instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material
impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed
its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including trust and
asset management fees, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Based on
this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes
revenue for these revenue streams. The Company adopted ASU 2014-09 and its related amendments on its required effective date of
January 1, 2018, utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new
guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. See below for additional information
related to revenue generated from contracts with customers.
In January 2016,
the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”
This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by
making targeted improvements to GAAP as follows: (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. However, an entity may choose to measure equity investments that do not have readily
determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of
equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.
When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair
value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for
entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price
notion when measuring the fair value of financial instruments for disclosure purposes; (6) 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 in
accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and
financial liabilities by measurement category and form of financial asset (that is, securities or loans receivable) on the
balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need
for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the
entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on January 1, 2018, did not have a material impact
on the Company’s Consolidated Financial Statements. Also in conjunction with the adoption, our fair value measurement
of financial instruments will be based upon an exit price notion as required in ASU 2016-01. The guidance was applied on a
prospective approach resulting in prior-periods no longer being comparable.
In February 2018,
the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”
This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain
income tax effects stranded in AOCI as a result of the Tax Act. Consequently, the reclassification eliminates the stranded tax
effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users.
However, because the ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance
that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected.
The Company adopted ASU No. 2018-02 during the first quarter of 2018, and elected to reclassify the income tax effects of the
Tax Act from AOCI to retained earnings. The reclassification increased AOCI and decreased retained earnings by $47,000, with zero
net effect on total shareholders’ equity.
Accounting Standards Pending
Adoption
In February 2016,
the FASB issued ASU No. 2016-02 — Leases (Topic 842). The objective of the update is to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. Early adoption is permitted. The Company has not yet selected a transition method as
it is in the process of determining the effect of the ASU on its consolidated financial statements and disclosures. The Company
has several lease agreements, such as branch locations, which are currently considered operating leases, and therefore, not recognized
on the Company’s consolidated condensed statements of financial condition. The Company expects the new guidance will require
these lease agreements to now be recognized on the consolidated condensed statements of financial condition as a right-of-use
asset and a corresponding lease liability. Therefore, the Company’s preliminary evaluation indicates the provisions of ASU
No. 2016-02 are expected to impact the Company’s consolidated condensed statements of financial condition, along with our
regulatory capital ratios. However, the Company continues to evaluate the extent of potential impact the new guidance will have
on the Company’s consolidated financial statements. At March 31, 2018, the Company had contractual operating lease commitments
of approximately $11.0 million, before considering renewal options that are generally present.
In June 2016, the
FASB issued ASU No. 2016-13,
“Measurement of Credit Losses on Financial Instruments.”
This ASU significantly
changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured
at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays
recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected
loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1)
financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.
This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.
The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized
losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized
as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements
to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies
the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements
regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition,
entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated
by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15,
2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. 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 effective (i.e., modified retrospective approach). The Company has begun its implementation efforts
by establishing a Company-wide implementation committee along with engaging a third-party software vendor to assist in the implementation
process. The committee’s initial review indicates the Company has maintained sufficient historical loan data to support
the requirement of this pronouncement and is currently evaluating the various loss methodologies to determine their correlations
to the Company’s loan segments historical performance. Early adoption is permitted, however, the Company does not currently
plan to early adopt this ASU.
Revenue Recognition
Accounting Standards Codification ("ASC")
606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature,
amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.
The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount
that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as
performance obligations are satisfied.
The majority of our revenue-generating
transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of
credit, and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject
to other GAAP discussed elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the
scope of ASC 606, which are presented in our income statements as components of non-interest income are as follows:
|
·
|
Service
charges on deposit accounts - these represent general service fees for monthly account
maintenance and activity or transaction-based fees and consist of transaction-based revenue,
time-based revenue (service period), item-based revenue or some other individual attribute-based
revenue. Revenue is recognized when our performance obligation is completed which is
generally monthly for account maintenance services or when a transaction has been completed
(such as a wire transfer). Payment for such performance obligations are generally received
at the time the performance obligations are satisfied. Service charges on deposit accounts that are within the scope of ASC
606 were $2.1 million in the first quarter of 2018. Income
from services
charges on
deposit accounts is included in service fees and other charges in non-interest
income.
|
|
·
|
Interchange
income – this represents fees earned from debit cardholder transactions. Interchange
fees from cardholder transactions represent a percentage of the underlying transaction
value and are recognized daily, concurrent with the transaction processing services provided
to the cardholder. Interchange fees in the first quarter of 2018, which are reported net of network related charges,
was $982,000. Interchange
income is
included in
service fees and other charges in
non-interest
income.
|
|
·
|
Wealth
management and trust fee income - this represents monthly fees due from wealth management
customers as consideration for managing the customers' assets. Wealth management and
trust services include custody of assets, investment management, escrow services, fees
for trust services and similar fiduciary activities. Revenue is recognized when our performance
obligation is completed each month, which is generally the time that payment is received.
Also included are fees received from a third party broker-dealer as part of a revenue-sharing
agreement for fees earned from customers that we refer to the third party. These fees
are paid to us by the third party on a quarterly basis and recognized ratably throughout
the quarter as our performance obligation is satisfied. Revenue from wealth management and trust services were $214,000
and $551,000, respectively, in the first quarter of 2018. Income from
wealth
management services is included in other income in non-interest income.
|
|
·
|
Gain/loss
on sales of OREO – the Company records a gain or loss from the sale of OREO when
control of the property transfers to the buyer, which generally occurs at the time of
an executed deed. When the Company finances the sale of OREO to the buyer, the Company
assesses whether the buyer is committed to perform their obligations under the contract
and whether collectability of the transaction price is probable. Once these criteria
are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon
the transfer of control of the property to the buyer. In determining the gain or loss
on the sale, the Company adjusts the transaction price and related gain or loss on sale
if a significant financing component is present. Income from the gain/loss on sales of OREO was $7,000 in the first quarter
of 2018. Income
from the
gain or
loss on
sales of
OREO is
included in other income in non-interest income.
|
|
·
|
Insurance
commissions - this represents new commissions that are recognized when the Company sells
insurance policies to customers. The Company is also entitled to renewal commissions
and, in some cases, contingent commissions in the form of profit sharing which are recognized
in subsequent periods. The initial commission is recognized when the insurance policy
is sold to a customer. Renewal commission is variable consideration and is recognized
in subsequent periods when the uncertainty around variable consideration is subsequently
resolved (i.e., when customer renews the policy). Contingent commission is also a variable
consideration that is not recognized until the variability surrounding realization of
revenue is resolved. Another source of variability is the ability of the policy holder
to cancel the policy anytime and in such cases, the Company may be required, under the
terms of the contract, to return part of the commission received. The variability related
to cancellation of the policy is not deemed significant and thus, does not impact the
amount of revenue recognized. In the event the policyholder chooses to cancel the policy
at any time, the revenue for amounts which qualify for claw-back are reversed in the
period the cancellation occurs. Management views the income sources from insurance commissions in two categories: 1)
new/renewal commissions and 2) contingent commissions. Insurance commissions were $4.3 million in the first quarter of 2018
of which, $3.3 million were new/renewal commissions and $1.0 million were contingent commissions.
|
FASB ASC Topic 820
defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) 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.
The methods of determining
the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 22 of
the Company’s 2017 Form 10-K, except for the valuation of loans which was impacted by the adoption of ASU 2016-01. Prior
to adopting the amendments included in the standard, the Company was permitted to measure fair value under an entry price notion.
The entry price notion previously applied by the Company used a discounted cash flows technique to calculate the present value
of expected future cash flows for a financial instrument. The exit price notion uses the same approach, but also incorporates
other factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated
markets. As of March 31, 2018, the technique used by the Company to estimate the exit price of the loan portfolio consists of
similar procedures to those used as of December 31, 2017, but with added emphasis on both illiquidity risk and credit risk not
captured by the previously applied entry price notion. This credit risk assumption is intended to approximate the fair value that
a market participant would realize in a hypothetical orderly transaction. 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 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 30% 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
March 31, 2018
|
|
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
|
|
$
|
-
|
|
|
$
|
2,501
|
|
|
$
|
-
|
|
|
$
|
2,501
|
|
Mortgage-backed - residential
|
|
|
-
|
|
|
|
62,418
|
|
|
|
-
|
|
|
|
62,418
|
|
REMICs
|
|
|
-
|
|
|
|
1,020
|
|
|
|
-
|
|
|
|
1,020
|
|
Collateralized mortgage obligations- residential
|
|
|
-
|
|
|
|
95,192
|
|
|
|
-
|
|
|
|
95,192
|
|
Corporate bonds
|
|
|
-
|
|
|
|
13,042
|
|
|
|
-
|
|
|
|
13,042
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
95,937
|
|
|
|
-
|
|
|
|
95,937
|
|
Mortgage banking derivative - asset
|
|
|
-
|
|
|
|
652
|
|
|
|
-
|
|
|
|
652
|
|
Mortgage banking derivative -liability
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
December 31, 2017
|
|
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
|
|
$
|
-
|
|
|
$
|
508
|
|
|
$
|
-
|
|
|
$
|
508
|
|
Mortgage-backed - residential
|
|
|
-
|
|
|
|
59,269
|
|
|
|
-
|
|
|
|
59,269
|
|
REMICs
|
|
|
-
|
|
|
|
1,065
|
|
|
|
-
|
|
|
|
1,065
|
|
Collateralized mortgage obligations-residential
|
|
|
-
|
|
|
|
93,876
|
|
|
|
-
|
|
|
|
93,876
|
|
Preferred stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Corporate bonds
|
|
|
-
|
|
|
|
13,103
|
|
|
|
-
|
|
|
|
13,103
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
92,828
|
|
|
|
|
|
|
|
92,828
|
|
Mortgage banking derivative - asset
|
|
|
-
|
|
|
|
609
|
|
|
|
-
|
|
|
|
609
|
|
Mortgage banking derivative -liability
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
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
March 31, 2018
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Impaired loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
539
|
|
|
|
-
|
|
|
|
539
|
|
Real estate held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
705
|
|
|
|
705
|
|
Total Real Estate held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
705
|
|
|
|
705
|
|
December 31, 2017
|
|
Level 1
Inputs
|
|
|
Level 2
Inputs
|
|
|
Level 3
Inputs
|
|
|
Total Fair
Value
|
|
|
|
(In Thousands)
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
1,787
|
|
|
$
|
1,787
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
2,817
|
|
|
|
2,817
|
|
Total impaired loans
|
|
|
-
|
|
|
|
-
|
|
|
|
4,604
|
|
|
|
4,604
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
534
|
|
|
|
-
|
|
|
|
534
|
|
Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
227
|
|
|
|
227
|
|
Total Real Estate held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
227
|
|
|
|
227
|
|
For Level 3 assets
and liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2018, 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate held for sale – Applies to all classes
|
|
$
|
705
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for changes in market conditions
|
|
|
20
|
%
|
|
|
20
|
%
|
For Level 3 assets
and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2017, 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
|
|
$
|
4,604
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for collection issues and changes in market conditions
|
|
|
10-20%
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate held for sale – Applies to all classes
|
|
$
|
227
|
|
|
Appraisals which utilize sales comparison, net income and cost approach
|
|
Discounts for changes in market conditions
|
|
|
0
|
%
|
|
|
0
|
%
|
There were no impaired
loans which were measured for impairment using the fair value of collateral at March 31, 2018. Impaired loans, which are measured
for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $4.6 million, with a
no valuation allowance December 31, 2017. A provision expense of $134,000 for the three months ended March 31, 2018 and $208,000
for the three months ended March 31, 2017, were included in earnings.
Mortgage servicing
rights which are carried at the lower of cost or fair value, had a fair value of $539,000 with a valuation allowance of $395,000
and a fair value of $534,000 with a valuation allowance of $432,000 at March 31, 2018 and December 31, 2017, respectively. A recovery
of $37,000 and $33,000 for the three months ended March 31, 2018, and March 31, 2017, respectively, was included in earnings.
Real estate held for
sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair
value of real estate held for sale was $544,000 for the three months ended March 31, 2018, 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 not material for the
three months ended March 31, 2017.
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 March 31, 2018, and December 31, 2017.
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 and notes payable, 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 Company adopted
the amendments to ASU 2016-01 relating to the loan portfolio for the quarter ended March 31, 2018 and an exit price income approach
was used to determine the fair value. The loans were valued on an individual basis, with consideration given to the loans' underlying
characteristics, including account types, remaining terms (in months), annual interest rates or coupons, interest types, past
delinquencies, timing of principal and interest payments, current market rates, loss exposures, and
remaining balances. The model utilizes a discounted cash flow approach to estimate the fair value of the loans using assumptions
for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, losses given defaults, and estimates
of prevailing discount rates. The discounted cash flow approach models the credit losses directly in the projected cash flows.
The model applies various assumptions regarding credit, interest, and prepayment risks for the loans based on loan types, payment
types and fixed or variable classifications. As of December 31, 2017, the fair value was estimated by discounting the future cash
flows using the rates at which similar notes would be written for the same remaining maturities or an entry price income approach.
The market rates used were based on current rates the Company would impose for similar loans and reflect a market participant
assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local
economic and market conditions. For all periods presented, the estimated fair value of impaired loans is based on the fair value
of the collateral, less estimated cost to sell, or the present value of the loan’s expected future cash flows (discounted
at the loan’s effective interest rate). All impaired loans are classified as Level 3 and all other loans are classified
as Level 2 within the valuation hierarchy.
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 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 March 31, 2018.
|
|
|
|
|
Fair
Value Measurements at March 31, 2018
(In
Thousands)
|
|
|
|
Carrying
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
138,566
|
|
|
$
|
138,566
|
|
|
$
|
138,566
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
270,752
|
|
|
|
270,752
|
|
|
|
-
|
|
|
|
270,752
|
|
|
|
-
|
|
Federal Home Loan Bank Stock
|
|
|
15,989
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, including loans held for sale
|
|
|
2,369,596
|
|
|
|
2,318,895
|
|
|
|
-
|
|
|
|
11,674
|
|
|
|
2,307,221
|
|
Accrued interest receivable
|
|
|
9,359
|
|
|
|
9,359
|
|
|
|
9
|
|
|
|
1,510
|
|
|
|
7,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,491,801
|
|
|
$
|
2,483,228
|
|
|
$
|
550,742
|
|
|
$
|
1,932,486
|
|
|
$
|
-
|
|
Advances from Federal Home Loan Bank
|
|
|
71,001
|
|
|
|
69,665
|
|
|
|
-
|
|
|
|
69,665
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
9,321
|
|
|
|
9,321
|
|
|
|
-
|
|
|
|
9,321
|
|
|
|
-
|
|
Subordinated debentures
|
|
|
36,083
|
|
|
|
35,558
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,558
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017
(In Thousands)
|
|
|
|
Carrying
Value
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
113,693
|
|
|
$
|
113,693
|
|
|
$
|
113,693
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
261,298
|
|
|
|
261,299
|
|
|
|
1
|
|
|
|
261,298
|
|
|
|
-
|
|
Federal Home Loan Bank Stock
|
|
|
15,992
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans, net, including loans held for sale
|
|
|
2,332,465
|
|
|
|
2,315,791
|
|
|
|
-
|
|
|
|
10,830
|
|
|
|
2,304,961
|
|
Accrued interest receivable
|
|
|
8,706
|
|
|
|
8,706
|
|
|
|
13
|
|
|
|
917
|
|
|
|
7,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
2,437,656
|
|
|
$
|
2,444,683
|
|
|
$
|
571,360
|
|
|
$
|
1,873,323
|
|
|
$
|
-
|
|
Advances from Federal Home Loan Bank
|
|
|
84,279
|
|
|
|
83,261
|
|
|
|
-
|
|
|
|
83,261
|
|
|
|
-
|
|
Securities sold under repurchase agreements
|
|
|
26,019
|
|
|
|
26,019
|
|
|
|
-
|
|
|
|
26,019
|
|
|
|
-
|
|
Subordinated debentures
|
|
|
36,083
|
|
|
|
35,385
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,385
|
|
|
4.
|
Stock Compensation Plans
|
First Defiance has
established equity based compensation plans for its directors and employees. On March 15, 2010, the Board adopted, and the shareholders
approved at the 2010 Annual Shareholders Meeting, the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “2010
Equity Plan”). The 2010 Equity Plan replaced all existing plans although the Company’s former equity plans remain
in existence to the extent there were outstanding grants thereunder at the time the 2010 Equity Plan was approved. 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 March 31, 2018,
37,200 options remain outstanding at option prices based on the market value of the underlying shares on the date the options
were granted. Options granted 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.
Annually, the Company
approves a Short-Term (“STIP”) Equity Incentive Plan and a Long-Term (“LTIP”) Equity Incentive Plan for
selected members of management.
Under the 2017 and
2018 STIPs, the participants could 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 24,526, 20,657 and 20,838 RSU’s to
the participants in the 2016, 2017 and 2018 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 24,757
RSU’s were issued to the participants of the 2015 LTIP in the first quarter of 2018 for the three year performance period
ended December 31, 2017.
In the three months
ended March 31, 2018, the Company also granted to employees 7,578 restricted shares, of which 3,578 were restricted stock units
and 4,000 were restricted stock grants. The shares all have a three year vesting period. The fair value of all granted restricted
shares was determined by the stock price at the date of the grant.
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.
There were no options
granted during the three months ended March 31, 2018, or March 31, 2017.
Following is stock
option activity under the plans during the three months ended March 31, 2018:
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic
Value
(in 000’s)
|
|
Options outstanding, January 1, 2018
|
|
|
43,450
|
|
|
$
|
21.62
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,250
|
)
|
|
|
15.53
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2018
|
|
|
37,200
|
|
|
$
|
22.60
|
|
|
|
3.32
|
|
|
$
|
1,291
|
|
Vested or expected to vest at March 31, 2018
|
|
|
37,200
|
|
|
$
|
22.60
|
|
|
|
3.32
|
|
|
$
|
1,291
|
|
Exercisable at March 31, 2018
|
|
|
29,450
|
|
|
$
|
19.74
|
|
|
|
2.36
|
|
|
$
|
1,107
|
|
Proceeds, related tax benefits realized
from options exercised and intrinsic value of options exercised were as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Proceeds of options exercised
|
|
$
|
56
|
|
|
$
|
134
|
|
Related tax benefit recognized
|
|
|
21
|
|
|
|
44
|
|
Intrinsic value of options exercised
|
|
|
253
|
|
|
|
200
|
|
As of March 31, 2018,
there was $90,000 of total unrecognized compensation cost 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 2.1 years
.
At March 31, 2018,
72,197 RSU’s and 14,536 restricted stock grants were unvested. Compensation expense is recognized over the performance period
based on the achievements of targets as established under the plan documents. A total expense of $565,000 was recorded during
the three months ended March 31, 2018 compared to an expense of $849,000 for the three months ended March 31, 2017. There was
approximately $211,000 and $774,000 included within other liabilities at March 31, 2018 and December 31, 2017, respectively, 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, 2018
|
|
|
72,538
|
|
|
$
|
40.52
|
|
|
|
10,536
|
|
|
$
|
50.56
|
|
Granted
|
|
|
24,416
|
|
|
|
53.94
|
|
|
|
28,757
|
|
|
|
35.79
|
|
Vested
|
|
|
(24,757
|
)
|
|
|
32.30
|
|
|
|
(24,757
|
)
|
|
|
32.30
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unvested at March 31, 2018
|
|
|
72,197
|
|
|
$
|
47.87
|
|
|
|
14,536
|
|
|
$
|
52.44
|
|
The maximum amount
of compensation expense that may be recorded for the 2018 STIP and the 2016, 2017 and 2018 LTIPs at March 31, 2018, is approximately
$3.9 million. However, the estimated expense expected to be recorded as of March 31, 2018, based on the performance measures in
the plans, is $3.6 million of which $2.0 million is unrecognized at March 31, 2018 and will be recognized over the remaining performance
periods.
|
5.
|
Dividends on Common Stock
|
First Defiance declared
and paid a $0.30 per common stock dividend in the first quarter of 2018 and declared and paid a $0.25 per common stock dividend
in the first quarter of 2017.
|
6.
|
Earnings Per Common Share
|
Basic earnings per
share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per
share is calculated from common stock and participating securities according to dividends declared and participation rights in
undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities
and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable
rights to dividends are considered participating securities (i.e. unvested restricted stock), not subject to performance based
measures.
The following table sets forth the computation
of basic and diluted earnings per common share:
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands, except per
share data)
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
11,737
|
|
|
$
|
5,140
|
|
Less: Income allocated to participating securities
|
|
|
3
|
|
|
|
1
|
|
Net income allocated to common shareholders
|
|
|
11,734
|
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Including participating securities
|
|
|
10,176
|
|
|
|
9,446
|
|
Less: Participating securities
|
|
|
11
|
|
|
|
5
|
|
Average common shares
|
|
|
10,165
|
|
|
|
9,441
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.15
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
11,734
|
|
|
$
|
5,139
|
|
Weighted average common shares outstanding for basic earnings per common share
|
|
|
10,165
|
|
|
|
9,441
|
|
Add: Dilutive effects of stock options
|
|
|
54
|
|
|
|
56
|
|
Average shares and dilutive potential common shares
|
|
|
10,219
|
|
|
|
9,497
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.15
|
|
|
$
|
0.54
|
|
Shares
subject to issue upon exercise of options of 3,500 in 2018 and 4,569 in 2017 were excluded from the diluted earnings per common
share calculation as they were anti-dilutive.
The following is a
summary of available-for-sale and held-to-maturity securities:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
At March 31, 2018
|
|
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations and agencies
|
|
$
|
2,518
|
|
|
$
|
-
|
|
|
$
|
(17
|
)
|
|
$
|
2,501
|
|
Mortgage-backed securities – residential
|
|
|
64,093
|
|
|
|
57
|
|
|
|
(1,732
|
)
|
|
|
62,418
|
|
REMICs
|
|
|
1,025
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
1,020
|
|
Collateralized mortgage obligations
|
|
|
97,115
|
|
|
|
46
|
|
|
|
(1,969
|
)
|
|
|
95,192
|
|
Corporate bonds
|
|
|
12,913
|
|
|
|
129
|
|
|
|
-
|
|
|
|
13,042
|
|
Obligations of state and political subdivisions
|
|
|
95,080
|
|
|
|
1,711
|
|
|
|
(854
|
)
|
|
|
95,937
|
|
Total Available-for-Sale
|
|
$
|
272,744
|
|
|
$
|
1,943
|
|
|
$
|
(4,577
|
)
|
|
$
|
270,110
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrecognized
Gains
|
|
|
Gross
Unrecognized
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
Held-to-Maturity Securities*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9
|
|
FNMA certificates
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
GNMA certificates
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
Obligations of state and political subdivisions
|
|
|
580
|
|
|
|
-
|
|
|
|
-
|
|
|
|
580
|
|
Total Held-to Maturity
|
|
$
|
642
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
642
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations and agencies
|
|
$
|
518
|
|
|
$
|
-
|
|
|
$
|
(10
|
)
|
|
$
|
508
|
|
Mortgage-backed securities - residential
|
|
|
59,942
|
|
|
|
90
|
|
|
|
(763
|
)
|
|
|
59,269
|
|
REMICs
|
|
|
1,072
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
1,065
|
|
Collateralized mortgage obligations
|
|
|
94,588
|
|
|
|
180
|
|
|
|
(892
|
)
|
|
|
93,876
|
|
Preferred stock
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Corporate bonds
|
|
|
12,914
|
|
|
|
189
|
|
|
|
-
|
|
|
|
13,103
|
|
Obligations of state and political subdivisions
|
|
|
90,692
|
|
|
|
2,426
|
|
|
|
(290
|
)
|
|
|
92,828
|
|
Total Available-for-Sale
|
|
$
|
259,726
|
|
|
$
|
2,886
|
|
|
$
|
(1,962
|
)
|
|
$
|
260,650
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In Thousands)
|
|
Held-to-Maturity*
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC certificates
|
|
$
|
10
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10
|
|
FNMA certificates
|
|
|
41
|
|
|
|
1
|
|
|
|
-
|
|
|
|
42
|
|
GNMA certificates
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Obligations of states and political subdivisions
|
|
|
580
|
|
|
|
-
|
|
|
|
-
|
|
|
|
580
|
|
Total Held-to-Maturity
|
|
$
|
648
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
649
|
|
* FHLMC, FNMA, and GNMA
certificates are residential mortgage-backed securities.
The amortized cost
and fair value of the investment securities portfolio at March 31, 2018, 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
|
|
$
|
1,408
|
|
|
$
|
1,420
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due after one year through five years
|
|
|
22,370
|
|
|
|
22,694
|
|
|
|
62
|
|
|
|
62
|
|
Due after five years through ten years
|
|
|
38,284
|
|
|
|
39,267
|
|
|
|
518
|
|
|
|
518
|
|
Due after ten years
|
|
|
48,449
|
|
|
|
48,099
|
|
|
|
-
|
|
|
|
-
|
|
MBS/CMO/REMIC
|
|
|
162,233
|
|
|
|
158,630
|
|
|
|
62
|
|
|
|
62
|
|
|
|
$
|
272,744
|
|
|
$
|
270,110
|
|
|
$
|
642
|
|
|
$
|
642
|
|
Investment securities
with a carrying amount of $151.6 million at March 31, 2018, were pledged as collateral on public deposits, securities sold under
repurchase agreements and the Federal Reserve discount window.
As of March 31, 2018,
the Company’s investment portfolio consisted of 425 securities, 167 of which were in an unrealized loss position.
The following tables
summarize First Defiance’s securities that were in an unrealized loss position at March 31, 2018, and December 31, 2017:
|
|
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 March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations and agencies
|
|
$
|
501
|
|
|
$
|
(17
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
501
|
|
|
$
|
(17
|
)
|
Mortgage-backed securities-residential
|
|
|
36,935
|
|
|
|
(865
|
)
|
|
|
18,210
|
|
|
|
(867
|
)
|
|
|
55,145
|
|
|
|
(1,732
|
)
|
REMICs
|
|
|
1,020
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,020
|
|
|
|
(5
|
)
|
Collateralized mortgage obligations
|
|
|
73,810
|
|
|
|
(1,214
|
)
|
|
|
16,646
|
|
|
|
(755
|
)
|
|
|
90,456
|
|
|
|
(1,969
|
)
|
Obligations of state and political subdivisions
|
|
|
24,030
|
|
|
|
(641
|
)
|
|
|
3,285
|
|
|
|
(213
|
)
|
|
|
27,315
|
|
|
|
(854
|
)
|
Total temporarily impaired securities
|
|
$
|
136,296
|
|
|
$
|
(2,742
|
)
|
|
$
|
38,141
|
|
|
$
|
(1,835
|
)
|
|
$
|
174,437
|
|
|
$
|
(4,577
|
)
|
|
|
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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government corporations and agencies
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
508
|
|
|
$
|
(10
|
)
|
|
$
|
508
|
|
|
$
|
(10
|
)
|
Mortgage-backed securities-residential
|
|
|
27,881
|
|
|
|
(215
|
)
|
|
|
19,038
|
|
|
|
(548
|
)
|
|
|
46,919
|
|
|
|
(763
|
)
|
REMICs
|
|
|
1,065
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,065
|
|
|
|
(7
|
)
|
Collateralized mortgage obligations
|
|
|
49,107
|
|
|
|
(320
|
)
|
|
|
20,804
|
|
|
|
(572
|
)
|
|
|
69,911
|
|
|
|
(892
|
)
|
Obligations of state and political subdivisions
|
|
|
14,249
|
|
|
|
(163
|
)
|
|
|
3,370
|
|
|
|
(127
|
)
|
|
|
17,619
|
|
|
|
(290
|
)
|
Held to maturity securities:
|
|
|
12
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
Total temporarily impaired securities
|
|
$
|
92,314
|
|
|
$
|
(705
|
)
|
|
$
|
43,729
|
|
|
$
|
(1,257
|
)
|
|
$
|
136,043
|
|
|
$
|
(1,962
|
)
|
There were no realized
gains from the sales and calls of investment securities in the first quarter of 2018 or in the first quarter of 2017.
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 not more than likely that
the Company will be required to sell the investments before anticipated recovery.
In the first quarter
of 2018 and 2017, management determined there was no OTTI.
There were no sales or calls of securities
during the three months ended March 31, 2018 or 2017.
Loans receivable consist
of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
(In Thousands)
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family residential
|
|
$
|
275,547
|
|
|
$
|
274,862
|
|
Secured by multi-family residential
|
|
|
270,733
|
|
|
|
248,092
|
|
Secured by commercial real estate
|
|
|
1,011,294
|
|
|
|
987,129
|
|
Construction
|
|
|
251,944
|
|
|
|
265,476
|
|
|
|
|
1,809,518
|
|
|
|
1,775,559
|
|
Other Loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
500,496
|
|
|
|
526,142
|
|
Home equity and improvement
|
|
|
133,407
|
|
|
|
135,457
|
|
Consumer finance
|
|
|
28,035
|
|
|
|
29,109
|
|
|
|
|
661,938
|
|
|
|
690,708
|
|
Total loans
|
|
|
2,471,456
|
|
|
|
2,466,267
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Undisbursed loan funds
|
|
|
(111,450
|
)
|
|
|
(115,972
|
)
|
Net deferred loan origination fees and costs
|
|
|
(1,676
|
)
|
|
|
(1,582
|
)
|
Allowance for loan loss
|
|
|
(27,267
|
)
|
|
|
(26,683
|
)
|
Totals
|
|
$
|
2,331,063
|
|
|
$
|
2,322,030
|
|
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 quarters ended March 31, 2018 and 2017 by portfolio segment (In Thousands):
Quarter Ended March, 2018
|
|
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
|
|
$
|
2,532
|
|
|
$
|
2,702
|
|
|
$
|
10,354
|
|
|
$
|
647
|
|
|
$
|
7,965
|
|
|
$
|
2,255
|
|
|
$
|
228
|
|
|
$
|
26,683
|
|
Charge-Offs
|
|
|
(16
|
)
|
|
|
0
|
|
|
|
(55
|
)
|
|
|
0
|
|
|
|
(97
|
)
|
|
|
(117
|
)
|
|
|
(31
|
)
|
|
|
(316
|
)
|
Recoveries
|
|
|
24
|
|
|
|
0
|
|
|
|
184
|
|
|
|
0
|
|
|
|
1,757
|
|
|
|
28
|
|
|
|
2
|
|
|
|
1,995
|
|
Provisions
|
|
|
(6
|
)
|
|
|
281
|
|
|
|
290
|
|
|
|
20
|
|
|
|
(1,787
|
)
|
|
|
43
|
|
|
|
64
|
|
|
|
(1,095
|
)
|
Ending Allowance
|
|
$
|
2,534
|
|
|
$
|
2,983
|
|
|
$
|
10,773
|
|
|
$
|
667
|
|
|
$
|
7,838
|
|
|
$
|
2,209
|
|
|
$
|
263
|
|
|
$
|
27,267
|
|
Quarter Ended March 31, 2017
|
|
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
|
|
$
|
2,627
|
|
|
$
|
2,228
|
|
|
$
|
10,625
|
|
|
$
|
450
|
|
|
$
|
7,361
|
|
|
$
|
2,386
|
|
|
$
|
207
|
|
|
$
|
25,884
|
|
Charge-Offs
|
|
|
(49
|
)
|
|
|
0
|
|
|
|
(290
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(54
|
)
|
|
|
(71
|
)
|
|
|
(464
|
)
|
Recoveries
|
|
|
56
|
|
|
|
32
|
|
|
|
34
|
|
|
|
0
|
|
|
|
115
|
|
|
|
33
|
|
|
|
4
|
|
|
|
274
|
|
Provisions
|
|
|
(13
|
)
|
|
|
(138
|
)
|
|
|
(159
|
)
|
|
|
8
|
|
|
|
333
|
|
|
|
(65
|
)
|
|
|
89
|
|
|
|
55
|
|
Ending Allowance
|
|
$
|
2,621
|
|
|
$
|
2,122
|
|
|
$
|
10,210
|
|
|
$
|
458
|
|
|
$
|
7,809
|
|
|
$
|
2,300
|
|
|
$
|
229
|
|
|
$
|
25,749
|
|
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 March 31, 2018 (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
|
|
$
|
218
|
|
|
$
|
2
|
|
|
$
|
164
|
|
|
$
|
-
|
|
|
$
|
83
|
|
|
$
|
312
|
|
|
$
|
-
|
|
|
$
|
779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
2,316
|
|
|
|
2,981
|
|
|
|
10,609
|
|
|
|
667
|
|
|
|
7,755
|
|
|
|
1,897
|
|
|
|
263
|
|
|
|
26,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
2,534
|
|
|
$
|
2,983
|
|
|
$
|
10,773
|
|
|
$
|
667
|
|
|
$
|
7,838
|
|
|
$
|
2,209
|
|
|
$
|
263
|
|
|
$
|
27,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
7,117
|
|
|
$
|
2,042
|
|
|
$
|
30,070
|
|
|
$
|
-
|
|
|
$
|
10,328
|
|
|
$
|
1,463
|
|
|
$
|
36
|
|
|
$
|
51,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
|
267,814
|
|
|
|
268,745
|
|
|
|
982,263
|
|
|
|
140,221
|
|
|
|
491,616
|
|
|
|
132,707
|
|
|
|
28,062
|
|
|
|
2,311,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated credit quality
|
|
|
1,045
|
|
|
|
300
|
|
|
|
2,024
|
|
|
|
-
|
|
|
|
318
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
275,976
|
|
|
$
|
271,087
|
|
|
$
|
1,014,357
|
|
|
$
|
140,221
|
|
|
$
|
502,262
|
|
|
$
|
134,170
|
|
|
$
|
28,098
|
|
|
$
|
2,366,171
|
|
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, 2017 (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
|
|
$
|
167
|
|
|
$
|
7
|
|
|
$
|
118
|
|
|
$
|
-
|
|
|
$
|
187
|
|
|
$
|
279
|
|
|
$
|
-
|
|
|
$
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
2,365
|
|
|
|
2,695
|
|
|
|
10,236
|
|
|
|
647
|
|
|
|
7,778
|
|
|
|
1,976
|
|
|
|
228
|
|
|
|
25,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired with deteriorated credit quality
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
|
$
|
2,532
|
|
|
$
|
2,702
|
|
|
$
|
10,354
|
|
|
$
|
647
|
|
|
$
|
7,965
|
|
|
$
|
2,255
|
|
|
$
|
228
|
|
|
$
|
26,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
6,910
|
|
|
$
|
2,278
|
|
|
$
|
31,821
|
|
|
$
|
-
|
|
|
$
|
14,373
|
|
|
$
|
1,176
|
|
|
$
|
50
|
|
|
$
|
56,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
|
|
267,377
|
|
|
|
245,823
|
|
|
|
956,238
|
|
|
|
149,174
|
|
|
|
513,218
|
|
|
|
135,098
|
|
|
|
29,125
|
|
|
|
2,296,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans acquired with deteriorated credit quality
|
|
|
1,069
|
|
|
|
301
|
|
|
|
2,121
|
|
|
|
-
|
|
|
|
337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loans balance
|
|
$
|
275,356
|
|
|
$
|
248,402
|
|
|
$
|
990,180
|
|
|
$
|
149,174
|
|
|
$
|
527,928
|
|
|
$
|
136,274
|
|
|
$
|
29,175
|
|
|
$
|
2,356,489
|
|
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 March 31, 2018
|
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
Residential Owner Occupied
|
|
$
|
4,639
|
|
|
$
|
32
|
|
|
$
|
31
|
|
Residential Non Owner Occupied
|
|
|
2,509
|
|
|
|
44
|
|
|
|
41
|
|
Total Residential Real Estate
|
|
|
7,148
|
|
|
|
76
|
|
|
|
72
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multi-Family
|
|
|
2,049
|
|
|
|
27
|
|
|
|
26
|
|
CRE Owner Occupied
|
|
|
13,225
|
|
|
|
44
|
|
|
|
35
|
|
CRE Non Owner Occupied
|
|
|
3,482
|
|
|
|
34
|
|
|
|
34
|
|
Agriculture Land
|
|
|
11,516
|
|
|
|
95
|
|
|
|
42
|
|
Other CRE
|
|
|
1,486
|
|
|
|
25
|
|
|
|
20
|
|
Total Commercial Real Estate
|
|
|
29,709
|
|
|
|
198
|
|
|
|
131
|
|
Commercial Working Capital
|
|
|
5,208
|
|
|
|
24
|
|
|
|
24
|
|
Commercial Other
|
|
|
5,100
|
|
|
|
25
|
|
|
|
23
|
|
Total Commercial
|
|
|
10,308
|
|
|
|
49
|
|
|
|
47
|
|
Home Equity and Improvement
|
|
|
1,474
|
|
|
|
11
|
|
|
|
11
|
|
Consumer Finance
|
|
|
39
|
|
|
|
1
|
|
|
|
1
|
|
Total Impaired Loans
|
|
$
|
50,727
|
|
|
$
|
362
|
|
|
$
|
288
|
|
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 March 31, 2017
|
|
|
|
Average
Balance
|
|
|
Interest
Income
Recognized
|
|
|
Cash Basis
Income
Recognized
|
|
Residential Owner Occupied
|
|
$
|
2,820
|
|
|
$
|
28
|
|
|
$
|
28
|
|
Residential Non Owner Occupied
|
|
|
3,891
|
|
|
|
36
|
|
|
|
36
|
|
Total Residential Real Estate
|
|
|
6,711
|
|
|
|
64
|
|
|
|
64
|
|
Construction
|
|
|
3,374
|
|
|
|
10
|
|
|
|
10
|
|
Multi-Family
|
|
|
4,614
|
|
|
|
22
|
|
|
|
22
|
|
CRE Owner Occupied
|
|
|
4,499
|
|
|
|
42
|
|
|
|
39
|
|
CRE Non Owner Occupied
|
|
|
2,707
|
|
|
|
47
|
|
|
|
19
|
|
Agriculture Land
|
|
|
1,668
|
|
|
|
13
|
|
|
|
12
|
|
Other CRE
|
|
|
13,488
|
|
|
|
124
|
|
|
|
92
|
|
Total Commercial Real Estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
2,372
|
|
|
|
19
|
|
|
|
19
|
|
Commercial Other
|
|
|
1,722
|
|
|
|
21
|
|
|
|
16
|
|
Total Commercial
|
|
|
4,094
|
|
|
|
40
|
|
|
|
35
|
|
Home Equity and Improvement
|
|
|
1,254
|
|
|
|
10
|
|
|
|
10
|
|
Consumer Finance
|
|
|
74
|
|
|
|
1
|
|
|
|
1
|
|
Total Impaired Loans
|
|
$
|
28,995
|
|
|
$
|
249
|
|
|
$
|
212
|
|
The
following table presents loans individually evaluated for impairment by class of loans (In Thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
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
|
|
$
|
2,744
|
|
|
$
|
2,597
|
|
|
$
|
-
|
|
|
$
|
2,507
|
|
|
$
|
2,364
|
|
|
$
|
-
|
|
Residential Non Owner Occupied
|
|
|
1,468
|
|
|
|
1,464
|
|
|
|
-
|
|
|
|
1,711
|
|
|
|
1,708
|
|
|
|
-
|
|
Total 1-4 Family Residential Real Estate
|
|
|
4,212
|
|
|
|
4,061
|
|
|
|
-
|
|
|
|
4,218
|
|
|
|
4,072
|
|
|
|
-
|
|
Multi-Family Residential Real Estate
|
|
|
1,863
|
|
|
|
1,870
|
|
|
|
-
|
|
|
|
2,095
|
|
|
|
2,102
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
11,847
|
|
|
|
11,387
|
|
|
|
-
|
|
|
|
12,273
|
|
|
|
11,804
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
3,035
|
|
|
|
2,873
|
|
|
|
-
|
|
|
|
3,085
|
|
|
|
2,925
|
|
|
|
-
|
|
Agriculture Land
|
|
|
11,682
|
|
|
|
11,860
|
|
|
|
-
|
|
|
|
13,029
|
|
|
|
13,185
|
|
|
|
-
|
|
Other CRE
|
|
|
959
|
|
|
|
748
|
|
|
|
-
|
|
|
|
981
|
|
|
|
768
|
|
|
|
-
|
|
Total Commercial Real Estate
|
|
|
27,523
|
|
|
|
26,868
|
|
|
|
-
|
|
|
|
29,368
|
|
|
|
28,682
|
|
|
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
4,888
|
|
|
|
4,815
|
|
|
|
-
|
|
|
|
5,462
|
|
|
|
5,422
|
|
|
|
-
|
|
Commercial Other
|
|
|
4,744
|
|
|
|
4,757
|
|
|
|
-
|
|
|
|
9,916
|
|
|
|
7,644
|
|
|
|
-
|
|
Total Commercial
|
|
|
9,632
|
|
|
|
9,572
|
|
|
|
-
|
|
|
|
15,378
|
|
|
|
13,066
|
|
|
|
-
|
|
Home Equity and Home Improvement
|
|
|
614
|
|
|
|
569
|
|
|
|
-
|
|
|
|
630
|
|
|
|
584
|
|
|
|
-
|
|
Consumer Finance
|
|
|
36
|
|
|
|
36
|
|
|
|
-
|
|
|
|
42
|
|
|
|
42
|
|
|
|
-
|
|
Total loans with no allowance recorded
|
|
$
|
43,880
|
|
|
$
|
42,976
|
|
|
$
|
-
|
|
|
$
|
51,731
|
|
|
$
|
48,548
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
1,998
|
|
|
$
|
1,978
|
|
|
$
|
144
|
|
|
$
|
1,841
|
|
|
$
|
1,814
|
|
|
$
|
137
|
|
Residential Non Owner Occupied
|
|
|
1,076
|
|
|
|
1,078
|
|
|
|
74
|
|
|
|
1,031
|
|
|
|
1,024
|
|
|
|
30
|
|
Total 1-4 Family Residential Real Estate
|
|
|
3,074
|
|
|
|
3,056
|
|
|
|
218
|
|
|
|
2,872
|
|
|
|
2,838
|
|
|
|
167
|
|
Multi-Family Residential Real Estate
|
|
|
171
|
|
|
|
172
|
|
|
|
2
|
|
|
|
175
|
|
|
|
176
|
|
|
|
7
|
|
CRE Owner Occupied
|
|
|
2,077
|
|
|
|
1,616
|
|
|
|
50
|
|
|
|
2,007
|
|
|
|
1,546
|
|
|
|
44
|
|
CRE Non Owner Occupied
|
|
|
644
|
|
|
|
584
|
|
|
|
42
|
|
|
|
651
|
|
|
|
593
|
|
|
|
28
|
|
Agriculture Land
|
|
|
287
|
|
|
|
284
|
|
|
|
32
|
|
|
|
293
|
|
|
|
292
|
|
|
|
14
|
|
Other CRE
|
|
|
916
|
|
|
|
718
|
|
|
|
40
|
|
|
|
909
|
|
|
|
708
|
|
|
|
32
|
|
Total Commercial Real Estate
|
|
|
3,924
|
|
|
|
3,202
|
|
|
|
164
|
|
|
|
3,860
|
|
|
|
3,139
|
|
|
|
118
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
458
|
|
|
|
461
|
|
|
|
62
|
|
|
|
447
|
|
|
|
449
|
|
|
|
77
|
|
Commercial Other
|
|
|
293
|
|
|
|
295
|
|
|
|
21
|
|
|
|
854
|
|
|
|
858
|
|
|
|
110
|
|
Total Commercial
|
|
|
751
|
|
|
|
756
|
|
|
|
83
|
|
|
|
1,301
|
|
|
|
1,307
|
|
|
|
187
|
|
Home Equity and Home Improvement
|
|
|
898
|
|
|
|
894
|
|
|
|
312
|
|
|
|
596
|
|
|
|
592
|
|
|
|
279
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
8
|
|
|
|
-
|
|
Total loans with an allowance recorded
|
|
$
|
8,818
|
|
|
$
|
8,080
|
|
|
$
|
779
|
|
|
$
|
8,812
|
|
|
$
|
8,060
|
|
|
$
|
758
|
|
* 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:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
(In Thousands)
|
|
Non-accrual loans
|
|
$
|
27,925
|
|
|
$
|
30,715
|
|
Loans over 90 days past due and still accruing
|
|
|
-
|
|
|
|
-
|
|
Total non-performing loans
|
|
|
27,925
|
|
|
|
30,715
|
|
Real estate and other assets held for sale
|
|
|
1,440
|
|
|
|
1,532
|
|
Total non-performing assets
|
|
$
|
29,365
|
|
|
$
|
32,247
|
|
Troubled debt restructuring, still accruing
|
|
$
|
13,722
|
|
|
$
|
13,770
|
|
The following table
presents the aging of the recorded investment in past due and non- accrual loans as of March 31, 2018, by class of loans (In Thousands):
|
|
Current
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90+ days
|
|
|
Total
Past Due
|
|
|
Total
Non-
Accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
177,799
|
|
|
$
|
537
|
|
|
$
|
259
|
|
|
$
|
933
|
|
|
$
|
1,729
|
|
|
$
|
2,111
|
|
Residential Non Owner Occupied
|
|
|
96,275
|
|
|
|
76
|
|
|
|
-
|
|
|
|
97
|
|
|
|
173
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Residential Real Estate
|
|
|
274,074
|
|
|
|
613
|
|
|
|
259
|
|
|
|
1,030
|
|
|
|
1,902
|
|
|
|
2,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
271,087
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
407,019
|
|
|
|
592
|
|
|
|
76
|
|
|
|
847
|
|
|
|
1,515
|
|
|
|
10,170
|
|
CRE Non Owner Occupied
|
|
|
424,247
|
|
|
|
1,074
|
|
|
|
29
|
|
|
|
263
|
|
|
|
1,366
|
|
|
|
2,164
|
|
Agriculture Land
|
|
|
130,940
|
|
|
|
82
|
|
|
|
-
|
|
|
|
208
|
|
|
|
290
|
|
|
|
4,275
|
|
Other Commercial Real Estate
|
|
|
48,868
|
|
|
|
13
|
|
|
|
-
|
|
|
|
99
|
|
|
|
112
|
|
|
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
1,011,074
|
|
|
|
1,761
|
|
|
|
105
|
|
|
|
1,417
|
|
|
|
3,283
|
|
|
|
17,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
140,221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
229,844
|
|
|
|
209
|
|
|
|
-
|
|
|
|
100
|
|
|
|
309
|
|
|
|
3,550
|
|
Commercial Other
|
|
|
271,422
|
|
|
|
49
|
|
|
|
-
|
|
|
|
638
|
|
|
|
687
|
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
501,266
|
|
|
|
258
|
|
|
|
-
|
|
|
|
738
|
|
|
|
996
|
|
|
|
7,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity/Home Improvement
|
|
|
133,552
|
|
|
|
29
|
|
|
|
7
|
|
|
|
582
|
|
|
|
618
|
|
|
|
909
|
|
Consumer Finance
|
|
|
27,764
|
|
|
|
199
|
|
|
|
96
|
|
|
|
39
|
|
|
|
334
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
2,359,038
|
|
|
$
|
2,860
|
|
|
$
|
467
|
|
|
$
|
3,806
|
|
|
$
|
7,133
|
|
|
$
|
27,915
|
|
The following table
presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2017, by class of loans (In
Thousands):
|
|
Current
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90+ days
|
|
|
Total
Past Due
|
|
|
Total
Non-
Accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Owner Occupied
|
|
$
|
175,139
|
|
|
$
|
821
|
|
|
$
|
1,033
|
|
|
$
|
1,227
|
|
|
$
|
3,081
|
|
|
$
|
2,510
|
|
Residential Non Owner Occupied
|
|
|
96,400
|
|
|
|
495
|
|
|
|
8
|
|
|
|
233
|
|
|
|
736
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Residential Real Estate
|
|
|
271,539
|
|
|
|
1,316
|
|
|
|
1,041
|
|
|
|
1,460
|
|
|
|
3,817
|
|
|
|
3,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
247,980
|
|
|
|
422
|
|
|
|
-
|
|
|
|
-
|
|
|
|
422
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
393,125
|
|
|
|
195
|
|
|
|
188
|
|
|
|
1,268
|
|
|
|
1,651
|
|
|
|
10,775
|
|
CRE Non Owner Occupied
|
|
|
403,656
|
|
|
|
1
|
|
|
|
91
|
|
|
|
424
|
|
|
|
516
|
|
|
|
2,431
|
|
Agriculture Land
|
|
|
131,753
|
|
|
|
412
|
|
|
|
-
|
|
|
|
66
|
|
|
|
478
|
|
|
|
4,144
|
|
Other Commercial Real Estate
|
|
|
58,784
|
|
|
|
13
|
|
|
|
-
|
|
|
|
204
|
|
|
|
217
|
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
987,318
|
|
|
|
621
|
|
|
|
279
|
|
|
|
1,962
|
|
|
|
2,862
|
|
|
|
18,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
149,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
233,632
|
|
|
|
102
|
|
|
|
1,264
|
|
|
|
876
|
|
|
|
2,242
|
|
|
|
2,369
|
|
Commercial Other
|
|
|
291,455
|
|
|
|
82
|
|
|
|
-
|
|
|
|
517
|
|
|
|
599
|
|
|
|
6,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
525,087
|
|
|
|
184
|
|
|
|
1,264
|
|
|
|
1,393
|
|
|
|
2,841
|
|
|
|
8,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
133,144
|
|
|
|
2,490
|
|
|
|
434
|
|
|
|
206
|
|
|
|
3,130
|
|
|
|
591
|
|
Consumer Finance
|
|
|
28,800
|
|
|
|
293
|
|
|
|
80
|
|
|
|
2
|
|
|
|
375
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
2,343,042
|
|
|
$
|
5,326
|
|
|
$
|
3,098
|
|
|
$
|
5,023
|
|
|
$
|
13,447
|
|
|
$
|
30,703
|
|
Troubled Debt Restructurings
As of March 31, 2018,
and December 31, 2017, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $20.4 million
and $21.7 million, respectively. The Company allocated $686,000 and $751,000 of specific reserves to those loans at March 31,
2018, and December 31, 2017, and had committed to lend additional amounts totaling up to $769,000 and $242,000 at March 31, 2018,
and December 31, 2017, 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, as of March 31, 2018, $6.6 million were on non-accrual status and partial charge-offs have in some cases been taken
against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated
with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling
costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow
dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification
effective interest rate.
The following table present loans by class
modified as TDRs that occurred during the three month periods ending March 31, 2018, and March 31, 2017:
|
|
Loans Modified as a TDR for the Three
Months Ended March 31, 2018
($ in thousands)
|
|
|
Loans Modified as a TDR for the Three
Months Ended March 31, 2017
($ 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
|
|
|
3
|
|
|
$
|
145
|
|
|
|
4
|
|
|
$
|
100
|
|
1-4 Family Non Owner Occupied
|
|
|
1
|
|
|
|
69
|
|
|
|
2
|
|
|
|
84
|
|
Multi Family
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
2
|
|
|
|
650
|
|
|
|
1
|
|
|
|
119
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Working Capital
|
|
|
4
|
|
|
|
2,114
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Other
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
46
|
|
Home Equity and Improvement
|
|
|
0
|
|
|
|
-
|
|
|
|
1
|
|
|
|
25
|
|
Consumer Finance
|
|
|
0
|
|
|
|
-
|
|
|
|
2
|
|
|
|
15
|
|
Total
|
|
|
10
|
|
|
$
|
2,978
|
|
|
|
11
|
|
|
$
|
389
|
|
The
loans described above decreased the ALLL by $5,000 in the three month period ending March 31, 2018 and decreased the ALLL by $19,000
in the three month period ending March 31, 2017.
Of
the 2018 modifications, one was made a TDR due to terming out lines of credit, five were made TDR due to advancing or renewing
money to a watch list credit, one loan made a TDR due to an reduction of the interest rate, and three were made a TDR because
the current debt was refinanced due to maturity or for payment relief.
The following table
present loans by class modified as TDRs for which there was a payment default within twelve months following the modification
during the three month period ended March 31, 2018, and March 31, 2017:
|
|
Three Months Ended March 31, 2018
($ in thousands)
|
|
|
Three Months Ended March 31, 2017
($ 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
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
CRE Non Owner Occupied
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Agriculture Land
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Other CRE
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Working Capital or Other
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Commercial Other
|
|
|
1
|
|
|
|
197
|
|
|
|
0
|
|
|
|
-
|
|
Home Equity and Improvement
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Consumer Finance
|
|
|
0
|
|
|
|
-
|
|
|
|
0
|
|
|
|
-
|
|
Total
|
|
|
1
|
|
|
$
|
197
|
|
|
|
0
|
|
|
$
|
-
|
|
The TDRs that subsequently
defaulted described above had no effect on the allowance for loan losses for the three month period ended March 31, 2018.
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 March 31, 2018, 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
|
|
$
|
6,764
|
|
|
$
|
96
|
|
|
$
|
2,387
|
|
|
$
|
-
|
|
|
$
|
170,282
|
|
|
$
|
179,529
|
|
1-4 Family Non Owner Occupied
|
|
|
84,434
|
|
|
|
1,280
|
|
|
|
3,385
|
|
|
|
-
|
|
|
|
7,348
|
|
|
|
96,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Real Estate
|
|
|
91,198
|
|
|
|
1,376
|
|
|
|
5,772
|
|
|
|
-
|
|
|
|
177,630
|
|
|
|
275,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
266,216
|
|
|
|
2,063
|
|
|
|
2,698
|
|
|
|
-
|
|
|
|
110
|
|
|
|
271,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
384,271
|
|
|
|
11,521
|
|
|
|
13,100
|
|
|
|
-
|
|
|
|
125
|
|
|
|
409,017
|
|
CRE Non Owner Occupied
|
|
|
412,587
|
|
|
|
7,425
|
|
|
|
5,119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
425,131
|
|
Agriculture Land
|
|
|
109,860
|
|
|
|
7,896
|
|
|
|
13,473
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,229
|
|
Other CRE
|
|
|
46,014
|
|
|
|
159
|
|
|
|
1,664
|
|
|
|
-
|
|
|
|
1,143
|
|
|
|
48,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
952,732
|
|
|
|
27,001
|
|
|
|
33,356
|
|
|
|
-
|
|
|
|
1,268
|
|
|
|
1,014,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
119,950
|
|
|
|
1,153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,118
|
|
|
|
140,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
206,697
|
|
|
|
18,428
|
|
|
|
5,028
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230,153
|
|
Commercial Other
|
|
|
263,830
|
|
|
|
2,831
|
|
|
|
5,448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
272,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
470,527
|
|
|
|
21,259
|
|
|
|
10,476
|
|
|
|
-
|
|
|
|
-
|
|
|
|
502,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
931
|
|
|
|
-
|
|
|
|
133,239
|
|
|
|
134,170
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
-
|
|
|
|
27,970
|
|
|
|
28,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,900,623
|
|
|
$
|
52,852
|
|
|
$
|
53,361
|
|
|
$
|
-
|
|
|
$
|
359,335
|
|
|
$
|
2,366,171
|
|
As
of December 31, 2017, 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
|
|
$
|
7,534
|
|
|
$
|
99
|
|
|
$
|
2,367
|
|
|
$
|
-
|
|
|
$
|
168,220
|
|
|
$
|
178,220
|
|
Residential Non Owner Occupied
|
|
|
85,802
|
|
|
|
935
|
|
|
|
3,835
|
|
|
|
-
|
|
|
|
6,564
|
|
|
|
97,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1-4 Family Real Estate
|
|
|
93,336
|
|
|
|
1,034
|
|
|
|
6,202
|
|
|
|
-
|
|
|
|
174,784
|
|
|
|
275,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family Residential Real Estate
|
|
|
242,969
|
|
|
|
2,503
|
|
|
|
2,819
|
|
|
|
-
|
|
|
|
111
|
|
|
|
248,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE Owner Occupied
|
|
|
370,613
|
|
|
|
10,432
|
|
|
|
13,575
|
|
|
|
-
|
|
|
|
156
|
|
|
|
394,776
|
|
CRE Non Owner Occupied
|
|
|
395,264
|
|
|
|
3,464
|
|
|
|
5,444
|
|
|
|
-
|
|
|
|
-
|
|
|
|
404,172
|
|
Agriculture Land
|
|
|
114,776
|
|
|
|
2,639
|
|
|
|
14,816
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,231
|
|
Other CRE
|
|
|
56,133
|
|
|
|
165
|
|
|
|
1,788
|
|
|
|
-
|
|
|
|
915
|
|
|
|
59,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Real Estate
|
|
|
936,786
|
|
|
|
16,700
|
|
|
|
35,623
|
|
|
|
-
|
|
|
|
1,071
|
|
|
|
990,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
125,519
|
|
|
|
1,254
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,401
|
|
|
|
149,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Working Capital
|
|
|
222,526
|
|
|
|
7,605
|
|
|
|
5,743
|
|
|
|
-
|
|
|
|
-
|
|
|
|
235,874
|
|
Commercial Other
|
|
|
280,013
|
|
|
|
3,443
|
|
|
|
8,598
|
|
|
|
-
|
|
|
|
-
|
|
|
|
292,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
502,539
|
|
|
|
11,048
|
|
|
|
14,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
527,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity and Home Improvement
|
|
|
-
|
|
|
|
-
|
|
|
|
600
|
|
|
|
-
|
|
|
|
135,674
|
|
|
|
136,274
|
|
Consumer Finance
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
-
|
|
|
|
29,093
|
|
|
|
29,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,901,149
|
|
|
$
|
32,539
|
|
|
$
|
59,667
|
|
|
$
|
-
|
|
|
$
|
363,134
|
|
|
$
|
2,356,489
|
|
The Company
has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it
was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance of those
loans is as follows (In Thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
1-4 Family Residential Real Estate
|
|
$
|
1,124
|
|
|
$
|
1,154
|
|
Multi-Family Residential Real Estate
|
|
|
307
|
|
|
|
309
|
|
Commercial Real Estate Loans
|
|
|
2,833
|
|
|
|
2,921
|
|
Commercial
|
|
|
389
|
|
|
|
407
|
|
Consumer
|
|
|
1
|
|
|
|
2
|
|
Total Outstanding Balance
|
|
$
|
4,654
|
|
|
$
|
4,793
|
|
Recorded Investment, net of allowance of $0
|
|
$
|
3,687
|
|
|
$
|
3,828
|
|
Accretable yield, or income expected to be collected, is as
follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
804
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
New Loans Purchased
|
|
|
-
|
|
|
|
1,034
|
|
Accretion of Income
|
|
|
(15
|
)
|
|
|
-
|
|
Reclassification from Non-accretable
|
|
|
-
|
|
|
|
-
|
|
Charge-off of Accretable Yield
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31
|
|
$
|
789
|
|
|
$
|
1,034
|
|
For those
purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three months ended March
31, 2018 or 2017. No allowances for loan losses were reversed during the same period.
Contractually
required payments receivable of loans purchased with evidence of credit deterioration during the period ended March 31, 2017,
using information as of the date of acquisition are included in the table below. There were no such loans purchased during the
period ended March 31, 2018. (In Thousands)
1-4 Family Residential Real Estate
|
|
$
|
1,720
|
|
Commercial Real Estate
|
|
|
4,724
|
|
Commercial
|
|
|
785
|
|
Consumer
|
|
|
4
|
|
Total
|
|
$
|
7,233
|
|
Cash Flows Expected to be Collected at Acquisition
$ 5,721
Fair Value of Acquired Loans
at Acquisition $ 4,703
Foreclosure Proceedings
Consumer mortgage loans collateralized
by residential real estate property that are in the process of foreclosure totaled $741,000 as of March 31, 2018.
Net
revenues from the sales and servicing of mortgage loans consisted of the following
:
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands)
|
|
Gain from sale of mortgage loans
|
|
$
|
1,080
|
|
|
$
|
1,083
|
|
Mortgage loans servicing revenue (expense):
|
|
|
|
|
|
|
|
|
Mortgage loans servicing revenue
|
|
|
944
|
|
|
|
934
|
|
Amortization of mortgage servicing rights
|
|
|
(319
|
)
|
|
|
(312
|
)
|
Mortgage servicing rights valuation adjustments
|
|
|
37
|
|
|
|
33
|
|
|
|
|
662
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
Net revenue from sale and servicing of mortgage loans
|
|
$
|
1,742
|
|
|
$
|
1,738
|
|
The unpaid principal
balance of residential mortgage loans serviced for third parties was $1.39 billion at March 31, 2018, and $1.39 billion at December
31, 2017.
Activity for capitalized
mortgage servicing rights and the related valuation allowance follows for the three months ended March 31, 2018 and 2017:
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
(In Thousands)
|
|
Mortgage servicing assets:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
10,240
|
|
|
$
|
10,117
|
|
Loans sold, servicing retained
|
|
|
324
|
|
|
|
356
|
|
Amortization
|
|
|
(319
|
)
|
|
|
(312
|
)
|
Carrying value before valuation allowance at end of period
|
|
|
10,245
|
|
|
|
10,161
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
(432
|
)
|
|
|
(522
|
)
|
Impairment (expense) recovery
|
|
|
37
|
|
|
|
33
|
|
Balance at end of period
|
|
|
(395
|
)
|
|
|
(489
|
)
|
Net carrying value of MSRs at end of period
|
|
$
|
9,850
|
|
|
$
|
9,672
|
|
Fair value of MSRs at end of period
|
|
$
|
10,280
|
|
|
$
|
10,013
|
|
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 has established
an accrual for secondary market buy-back activity. A liability of $43,000 was accrued at both March 31, 2018, and December 31,
2017, respectively. There was no accrual recorded in the first quarter 2018 while a credit was recognized related to the accrual
of $28,000 in the first quarter 2017. The activity in the first quarters of 2018 and 2017 was due to no actual losses being recorded.
A summary of deposit
balances is as follows:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
(In Thousands)
|
|
Non-interest-bearing checking accounts
|
|
$
|
550,742
|
|
|
$
|
571,360
|
|
Interest-bearing checking and money market accounts
|
|
|
1,055,416
|
|
|
|
1,005,519
|
|
Savings deposits
|
|
|
306,510
|
|
|
|
302,022
|
|
Retail certificates of deposit less than $250,000
|
|
|
512,746
|
|
|
|
504,912
|
|
Retail certificates of deposit greater than $250,000
|
|
|
66,387
|
|
|
|
53,843
|
|
|
|
$
|
2,491,801
|
|
|
$
|
2,437,656
|
|
First Defiance’s
debt, FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
(In Thousands)
|
|
FHLB Advances:
|
|
|
|
|
|
|
|
|
Single maturity fixed rate advances
|
|
$
|
64,000
|
|
|
$
|
92,000
|
|
Putable advances
|
|
|
-
|
|
|
|
5,000
|
|
Amortizable mortgage advances
|
|
|
7,027
|
|
|
|
6,943
|
|
Fair value adjustment on acquired balances
|
|
|
(26
|
)
|
|
|
-
|
|
Total
|
|
$
|
71,001
|
|
|
$
|
103,943
|
|
Junior subordinated debentures owed to unconsolidated subsidiary trusts
|
|
$
|
36,083
|
|
|
$
|
36,083
|
|
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 3.62% as of March 31, 2018, and 3.09% as of December 31, 2017.
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 3.50% and 2.97% on March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December
31, 2017, is presented in the following tables.
|
|
Overnight and
Continuous
|
|
|
Up to 30
Days
|
|
|
30-90 Days
|
|
|
Greater
than 90
Days
|
|
|
Total
|
|
|
|
|
|
|
(In Thousands)
|
|
At March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential
|
|
$
|
3,645
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,645
|
|
Collateralized mortgage obligations
|
|
|
5,676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,676
|
|
Total borrowings
|
|
$
|
9,321
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,321
|
|
Gross amount of recognized liabilities for repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,321
|
|
|
|
Overnight and
Continuous
|
|
|
Up to 30
Days
|
|
|
30-90 Days
|
|
|
Greater
than 90
Days
|
|
|
Total
|
|
|
|
|
|
|
(In Thousands)
|
|
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities – residential
|
|
$
|
6,599
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,599
|
|
Collateralized mortgage obligations
|
|
|
19,420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,420
|
|
Total borrowings
|
|
$
|
26,019
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,019
|
|
Gross amount of recognized liabilities for repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,019
|
|
|
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):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
Commitments to make loans
|
|
$
|
53,556
|
|
|
$
|
174,401
|
|
|
$
|
42,458
|
|
|
$
|
161,778
|
|
Unused lines of credit
|
|
|
9,799
|
|
|
|
468,512
|
|
|
|
6,245
|
|
|
|
408,831
|
|
Standby letters of credit
|
|
|
-
|
|
|
|
7,882
|
|
|
|
-
|
|
|
|
7,605
|
|
Total
|
|
$
|
63,355
|
|
|
$
|
650,795
|
|
|
$
|
48,703
|
|
|
$
|
578,214
|
|
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 $16.8 million and $14.9 million of loans to Freddie Mac, Fannie Mae, Federal Home Loan
Bank of Cincinnati or BB&T Mortgage at March 31, 2018, and December 31, 2017, 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 2013. The Company currently operates primarily in the states of Ohio and
Michigan, which tax financial institutions based on their equity rather than their income.
Public law No. 115-97,
known as the Tax Cuts and Jobs Act ("Tax Act"), enacted on December 22, 2017, reduced the U.S. federal corporate tax
rate from 35% to 21% effective January 1, 2018.
|
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 $25.0 million and $14.8
million of interest rate lock commitments at March 31, 2018, and December 31, 2017, respectively. There were $16.7 million and
$23.2 million of forward commitments for the future delivery of residential mortgage loans at March 31, 2018, and December 31,
2017, respectively.
The
fair value of these mortgage banking derivatives are reflected by a derivative asset recorded in other assets in the Consolidated
Statements of Condition. The table below provides data about the carrying values of these derivative instruments:
|
|
March 31
, 2018
|
|
|
December 31, 2017
|
|
|
|
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
|
|
$
|
652
|
|
|
$
|
12
|
|
|
$
|
640
|
|
|
$
|
609
|
|
|
$
|
11
|
|
|
$
|
598
|
|
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
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Derivatives – Gain (Loss)
|
|
$
|
42
|
|
|
$
|
65
|
|
The above amounts
are included in mortgage banking income with gain on sale of mortgage loans.
|
15.
|
Other Comprehensive Income
|
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 March 31, 2018:
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
(3,557
|
)
|
|
$
|
747
|
|
|
$
|
(2,810
|
)
|
Reclassification adjustment for net gains included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other comprehensive loss
|
|
$
|
(3,557
|
)
|
|
$
|
747
|
|
|
$
|
(2,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain/loss during the period
|
|
$
|
1,580
|
|
|
$
|
(553
|
)
|
|
$
|
1,027
|
|
Reclassification adjustment for net gains included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other comprehensive income
|
|
$
|
1,580
|
|
|
$
|
(553
|
)
|
|
$
|
1,027
|
|
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, 2018
|
|
$
|
601
|
|
|
$
|
(384
|
)
|
|
$
|
217
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(2,810
|
)
|
|
|
-
|
|
|
|
(2,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) during period
|
|
|
(2,810
|
)
|
|
|
-
|
|
|
|
(2,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment upon
adoption of ASU 2018-02
|
|
|
129
|
|
|
|
(82
|
)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2018
|
|
$
|
(2,080
|
)
|
|
$
|
(466
|
)
|
|
$
|
(2,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2017
|
|
$
|
504
|
|
|
$
|
(289
|
)
|
|
$
|
215
|
|
Other comprehensive income before reclassifications
|
|
|
1,027
|
|
|
|
-
|
|
|
|
1,027
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income during period
|
|
|
1,027
|
|
|
|
-
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2017
|
|
$
|
1,531
|
|
|
$
|
(289
|
)
|
|
$
|
1,242
|
|
|
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. In January of 2014, the FASB issued
ASU 2014-01
“Accounting for Investments in Qualified Affordable Housing Projects.”
The pronouncement permitted
reporting entities to make an accounting policy election to account for these investments using the proportional amortization
method if certain conditions exist. Under the proportional amortization method, an entity amortizes the initial cost of the investment
in proportion to the tax credits and other tax benefits received, and will recognize the net investment performance in the income
statement as a component of income tax expense (benefit). The Company utilized the proportional amortization method for all of
its instruments. As of March 31, 2018, and December 31, 2017, the Company had $9.0 million and $9.2 million in qualified investments
recorded in other assets and $5.4 million and $6.2 million in unfunded commitments recorded in other liabilities, respectively.
Unfunded Commitments
As of March 31, 2018, the expected payments
for unfunded affordable housing commitments were as follows:
(dollars in thousands)
|
|
Amount
|
|
2018
|
|
$
|
2,149
|
|
2019
|
|
|
1,351
|
|
2020
|
|
|
392
|
|
2021
|
|
|
368
|
|
2022
|
|
|
240
|
|
Thereafter
|
|
|
883
|
|
Total Unfunded Commitments
|
|
$
|
5,383
|
|
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 March
31, 2018 and 2017.
|
|
Three Months Ended March 31,
|
|
(dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Proportional Amortization Method
|
|
|
|
|
|
|
|
|
Tax credits and other tax benefits recognized
|
|
$
|
254
|
|
|
$
|
211
|
|
Amortization expense in federal income taxes
|
|
|
234
|
|
|
|
165
|
|
There were no impairment
losses of LIHTC investments for the three months ended March 31, 2018 and 2017.
|
17.
|
Business Combinations
|
Effective
February 24, 2017, the Company acquired Commercial Bancshares, Inc. (“Commercial Bancshares”) and its subsidiary,
The Commercial Savings Bank (“CSB”), pursuant to an Agreement and Plan of Merger (“merger agreement”),
dated August 23, 2016. The acquisition was accomplished by the merger of Commercial Bancshares into First Defiance, immediately
followed by the merger of CSB into First Federal. CSB operated 7 full-service banking offices in northwest and north central,
Ohio and 1 commercial loan production office in central Ohio. Commercial Bancshares’ consolidated assets and equity (unaudited)
as of February 24, 2017, totaled $348.4 million and $37.5 million, respectively. The Company accounted for the transaction under
the acquisition method of accounting which means that the acquired assets and liabilities were recorded at fair value at the date
of acquisition. The fair value included in these financial statements is based on final valuations.
In
accordance with ASC 805, the Company expensed approximately $3.7 million of direct acquisition costs, of which $2.8 million was
to settle employment and benefit agreements and for personnel expenses related to operating the new Commercial Bancshares locations.
The Company recorded $28.9 million of goodwill and $4.9 million of intangible assets. Goodwill represents the future economic
benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to
synergies expected to be derived from the combination of the two entities. The acquisition was consistent with the Company’s
strategy to enhance and expand its presence in northwestern and north central Ohio. The acquisition offers the Company the opportunity
to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers
in the expanded market area. The intangible assets are related to core deposits and are being amortized over 10 years on an accelerated
basis. For tax purposes, goodwill totaling $28.9 million is non-deductible. Goodwill is evaluated annually for impairment. The
following table summarizes the fair value of the total consideration transferred as part of the Commercial Bancshares acquisition
as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction
|
|
February 24, 2017
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Cash Consideration
|
|
$
|
12,340
|
|
Equity – Dollar Value of Issued Shares
|
|
|
56,532
|
|
Fair Value of Total Consideration Transferred
|
|
|
68,872
|
|
|
|
|
|
|
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
35,411
|
|
Federal Funds Sold
|
|
|
2,769
|
|
Securities
|
|
|
4,338
|
|
Loans
|
|
|
285,448
|
|
FHLB Stock of Cincinnati and Other Stock
|
|
|
2,194
|
|
Office Properties and Equipment
|
|
|
5,256
|
|
Intangible Assets
|
|
|
4,900
|
|
Bank-Owned Life Insurance
|
|
|
8,168
|
|
Accrued Interest Receivable and Other Assets
|
|
|
3,606
|
|
Deposits – Non-Interest Bearing
|
|
|
(56,061
|
)
|
Deposits – Interest Bearing
|
|
|
(251,931
|
)
|
Advances from FHLB
|
|
|
(1,403
|
)
|
Accrued Interest Payable and Other Liabilities
|
|
|
(2,717
|
)
|
Total Identifiable Net Assets
|
|
|
39,978
|
|
|
|
|
|
|
Goodwill
|
|
$
|
28,894
|
|
Under
the terms of the merger agreement, Commercial Bancshares common shareholders had the opportunity to elect to receive 1.1808 shares
of common stock of the Company or cash in the amount of $51.00 for each share of Commercial Bancshares common stock, subject to
adjustment as provided for in the merger agreement. Total consideration for Commercial Bancshares common shares outstanding was
paid 80% in Company stock and 20% in cash. The Company issued 1,139,502 shares of its common stock and paid $12.3 million in cash
to the former shareholders of Commercial Bancshares.
On April 13, 2017,
First Defiance and Corporate One Benefits Agency, Inc. (“Corporate One”) jointly announced the acquisition of Corporate
One’s business by First Defiance. The total purchase price paid in cash was made up of the following: $6.5 million was paid
at closing, $500,000 is due in July 2018, and $2.3 million at the end of a three-year earn-out based on the compound annual growth
rate of net revenue over the performance period of Corporate One, for a total purchase price of $9.3 million. The recorded fair
value of the $2.3 million earn-out was $1.8 million at December 31, 2017. As of December 31, 2017, total Company recorded goodwill
of $7.9 million as well as identifiable intangible assets of $756,000 consisting of customer relationship intangible of $564,000
and a non-compete intangible of $192,000. The fair value included in these financial statements is based on final valuation. Corporate
One was a full-service employee benefits consulting organization founded in 1996 with offices located in Archbold, Findlay, Fostoria
and Tiffin, Ohio. Corporate One consulted employers to better manage their employee benefit programs to effectively lead them
into the future. It is anticipated that the transaction will enhance employee benefit offerings and expand First Insurance’s
presence into adjacent markets in northwest Ohio.