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Investment Securities
 6 Months Ended
Jun. 30, 2018
Marketable Securities [Abstract]  
Investment [Text Block]
 
7.
Investment Securities
 
The following is a summary of available-for-sale and held-to-maturity securities:
 
 
 
Amortized

‎
Cost
 
 
Gross

‎
Unrealized

‎
Gains
 
 
Gross

‎
Unrealized

‎
Losses
 
 
Fair Value
 
 
 
(In Thousands)
 
At June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. federal government corporations and agencies
 
$
2,519
 
 
$
-
 
 
$
(31
)
 
$
2,488
 
Mortgage-backed securities – residential
 
 
69,610
 
 
 
31
 
 
 
(2,063
)
 
 
67,578
 
REMICs
 
 
2,964
 
 
 
-
 
 
 
(12
)
 
 
2,952
 
Collateralized mortgage obligations
 
 
101,272
 
 
 
28
 
 
 
(2,371
)
 
 
98,929
 
Corporate bonds
 
 
12,912
 
 
 
162
 
 
 
-
 
 
 
13,074
 
Obligations of state and political subdivisions
 
 
100,577
 
 
 
1,570
 
 
 
(818
)
 
 
101,329
 
Total Available-for-Sale
 
$
289,854
 
 
$
1,791
 
 
$
(5,295
)
 
$
286,350
 
 
 
 
Amortized

‎
Cost
 
 
Gross
‎
Unrecognized
‎
Gains
 
 
Gross
‎
Unrecognized
‎
Losses
 
 
Fair Value
 
 
 
(In Thousands)
 
Held-to-Maturity Securities*:
 
 
 
 
 
 
      
 
 
 
       
 
 
 
 
 
FHLMC certificates
 
$
9
 
 
$
-
 
 
$
-
 
 
$
9
 
FNMA certificates
 
 
35
 
 
 
-
 
 
 
-
 
 
 
35
 
GNMA certificates
 
 
14
 
 
 
-
 
 
 
-
 
 
 
14
 
Obligations of state and political subdivisions
 
 
549
 
 
 
-
 
 
 
-
 
 
 
549
 
Total Held-to Maturity
 
$
607
 
 
$
-
 
 
$
-
 
 
$
607
 
 
 
 
 
 
 
Gross
 
 
Gross
 
 
 
 
 
 
Amortized
 
 
Unrealized
 
 
Unrealized
 
 
Fair
 
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Value
 
 
 
(In Thousands)
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. federal 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 June 30, 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
 
 
$
1,417
 
 
$
-
 
 
$
-
 
Due after one year through

‎
five years
 
 
22,378
 
 
 
22,696
 
 
 
31
 
 
 
31
 
Due after five years through

‎
ten years
 
 
41,239
 
 
 
42,174
 
 
 
518
 
 
 
518
 
Due after ten years
 
 
50,983
 
 
 
50,604
 
 
 
-
 
 
 
-
 
MBS/CMO/REMIC
 
 
173,846
 
 
 
169,459
 
 
 
58
 
 
 
58
 
 
 
$
289,854
 
 
$
286,350
 
 
$
607
 
 
$
607
 
 
Investment securities with a carrying amount of $139.5 million at June 30, 2018, were pledged as collateral on public deposits, securities sold under repurchase agreements and the Federal Reserve discount window.
 
As of June 30, 2018, the Company’s investment portfolio consisted of 436 securities, 181 of which were in an unrealized loss position.
 
The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 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 June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of U.S. government corporations and agencies
 
$
1,990
 
 
$
(10
)
 
$
498
 
 
$
(21
)
 
$
2,488
 
 
$
(31
)
Mortgage-backed securities-residential
 
 
46,958
 
 
 
(1,093
)
 
 
17,413
 
 
 
(970
)
 
 
64,371
 
 
 
(2,063
)
REMICs
 
 
2,952
 
 
 
(12
)
 
 
-
 
 
 
-
 
 
 
2,952
 
 
 
(12
)
Collateralized mortgage obligations
 
 
79,785
 
 
 
(1,522
)
 
 
16,590
 
 
 
(849
)
 
 
96,375
 
 
 
(2,371
)
Obligations of state and political subdivisions
 
 
24,211
 
 
 
(615
)
 
 
3,296
 
 
 
(203
)
 
 
27,507
 
 
 
(818
)
Total temporarily impaired securities
 
$
155,896
 
 
$
(3,252
)
 
$
37,797
 
 
$
(2,043
)
 
$
193,693
 
 
$
(5,295
)
  
 
 
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 or losses from the sales and calls of investment securities in the second quarter of 2018 while there were net realized gains of $267,000 ($174,000 after tax) in the second 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, Investments-Debt and Equity Securities. 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 second quarter of 2018 and 2017, management determined there was no OTTI.
  
 
 
Three Months Ended
June 30,
 
 
Six Months Ended
June 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
(In Thousands)
 
Proceeds
 
$
-
 
 
$
7,727
 
 
$
-
 
 
$
7,727
 
Gross realized gains
 
 
-
 
 
 
271
 
 
 
-
 
 
 
271
 
Gross realized losses
 
 
-
 
 
 
(4
)
 
 
-
 
 
 
(4
)