7.	Investment Securities

The following is a summary of available-for-sale and held-to-maturity securities:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
At 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.