10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2018
or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-26850

FIRST DEFIANCE FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

OHIO	34-1803915
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
601 Clinton Street, Defiance, Ohio	43512
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (419) 782-5015

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par Value $0.01 Per Share	The NASDAQ Stock Market
(Title of Class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the average bid and ask price of such stock as of June 30, 2018, was approximately $675.1 million.

As of January 31, 2019, there were issued and outstanding 20,067,268 shares of the registrant’s common stock.

Documents Incorporated by Reference

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for the 2019 Annual Meeting of the registrant’s shareholders.

First Defiance Financial Corp.

Annual Report on Form 10-K

Table of Contents

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	25
Item 1B.	Unresolved Staff Comments	33
Item 2.	Properties	33
Item 3.	Legal Proceedings	34
Item 4.	Mine Safety Disclosures	34
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	34
Item 6.	Selected Financial Data	36
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 8.	Financial Statements and Supplementary Data	59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	130
Item 9A.	Controls and Procedures	131
Item 9B.	Other Information	131
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	131
Item 11.	Executive Compensation	131
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	132
Item 13.	Certain Relationships and Related Transactions, and Director Independence	132
Item 14.	Principal Accounting Fees and Services	132
PART IV
Item 15.	Exhibits, Financial Statement Schedules	133
Item 16.	Form 10-K Summary	133
SIGNATURES		134

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PART I

Item 1. Business

First Defiance Financial Corp. (“First Defiance” or “the Company”) is a unitary thrift holding company that, through its subsidiaries, First Federal Bank of the Midwest (“First Federal” or “the Bank”), First Insurance Group of the Midwest, Inc. (“First Insurance”), and First Defiance Risk Management Inc. (collectively, “the Subsidiaries”), focuses on traditional banking and property, casualty, life and group health insurance products.

The Company’s philosophy is to grow and prosper, building long-term relationships based on top quality service, high ethical standards, and safe and sound assets. The Company operates as a locally- oriented, community-based financial services organization, augmented by experienced, centralized support in select critical areas. The Company’s local market orientation is reflected in its market area management and local advisory boards, which are comprised of local business persons, professionals and other community representatives that assist area management in responding to local banking needs.

The Company’s operating objectives include expansion, diversification within its markets, growth of its fee-based income, and growth organically and through acquisitions of financial institutions, branches and financial services businesses. The Company seeks merger or acquisition partners that are culturally similar, have experienced management and possess either significant market area presence or have the potential for improved profitability through financial management, economies of scale and expanded services. The Company regularly evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of premiums over book and market values and, therefore, some dilution of the Company’s tangible book value and net income per common share may occur in any future transaction.

At December 31, 2018, the Company had consolidated assets of $3.2 billion, consolidated deposits of $2.6 billion, and consolidated stockholders’ equity of $399.6 million. The Company was incorporated in Ohio in June of 1995. Its principal executive offices are located at 601 Clinton Street, Defiance, Ohio 43512, and its telephone number is (419) 782-5015.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of two common shares for each outstanding common share. The stock split was distributed on July 12, 2018, to shareholders of record as of July 2, 2018. All share and per share data in this Form 10-K have been adjusted and are reflective of the stock split.

First Defiance's website, www.fdef.com, contains a hyperlink under the Investor Relations section to EDGAR, where the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after First Defiance has filed the report with the United States Securities and Exchange Commission (“SEC”).

The Subsidiaries

The Company’s core business operations are conducted through its subsidiaries:

First Federal Bank of the Midwest: First Federal is a federally chartered stock savings bank headquartered in Defiance, Ohio. It conducts operations through thirty-six full-service banking center offices in Allen, Defiance, Fulton, Hancock, Henry, Lucas, Marion, Ottawa, Paulding, Putnam, Seneca, Williams, Wood, and Wyandot counties in northwest and central Ohio, three full-service banking center offices in Allen County in northeast Indiana, five full-service banking center offices in Lenawee County in southeast Michigan and one commercial loan production office in Ann Arbor, Michigan, that was opened late in the fourth quarter of 2017.

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First Federal is primarily engaged in community banking. It attracts deposits from the general public through its offices and website, and uses those and other available sources of funds to originate residential real estate loans, commercial real estate loans, commercial loans, home improvement and home equity loans and consumer loans. 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 residential collateralized mortgage obligations (“CMOs”), and corporate bonds. First Federal’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). First Federal is a member of the Federal Home Loan Bank (“FHLB”) System.

First Insurance Group of the Midwest: First Insurance is a wholly owned subsidiary of First Defiance. First Insurance is an insurance agency that conducts business throughout First Federal’s Markets. The Maumee and Oregon, Ohio, offices were consolidated into a new office in Sylvania, Ohio, in January 2018. First Insurance offers property and casualty insurance, life insurance and group health insurance.

First Defiance Risk Management: First Defiance Risk Management was incorporated on December 20, 2012, as a wholly-owned insurance company subsidiary of the Company to insure the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

Business Strategy

First Defiance’s primary objective is to be a high-performing, community-focused financial institution, well regarded in its market areas. First Defiance accomplishes this through emphasis on local decision making and empowering its employees with tools and knowledge to serve its customers’ needs. First Defiance believes in a “Customer First” philosophy that is strengthened by its Mission & Vision and Core Values initiatives. First Defiance also has a tagline of “Better Together” as an indication of its commitment to local, responsive, personalized service. First Defiance believes this strategy results in greater customer loyalty and profitability through core relationships. First Defiance is focused on diversification of revenue sources and increased market penetration in areas where the growth potential exists for a balance between acquisition and organic growth. The primary elements of First Defiance’s business strategy are commercial banking, consumer banking, including the origination and sale of single-family residential loans, enhancement of fee income, wealth management and insurance sales, each united by a strong customer service culture throughout the organization. In the later part of 2017, the Company recognized the need to adapt its organization structure to meet certain future strategic objectives and to continue its past success. The Company believes that fully utilizing the strengths of its leadership team and a structure that supports strategic initiatives will enhance its ability to achieve even more objectives in the future. As such, the Company redefined its market areas to support strategies to enhance processes and efficiencies to support overall growth. The new structure includes three metro markets; Toledo, Ohio, Fort Wayne, Indiana, and Columbus, Ohio, and two legacy markets; Southern Market Area and Northern Market Area.

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Commercial and Commercial Real Estate Lending - Commercial and commercial real estate lending have been an ongoing focus and a major component of First Federal’s success. First Federal provides primarily commercial real estate and commercial business loans with an emphasis on owner- occupied commercial real estate and commercial business lending, including a focus on the deposit balances that accompany these relationships. First Federal’s client base tends to be small to middle market customers with annual gross revenues generally between $1 million and $50 million. First Federal’s focus is also on securing multiple guarantors in addition to collateral where possible. These customers require First Federal to have a high degree of knowledge and understanding of their business in order to provide them with solutions to their financial needs. First Federal’s “Customer First” philosophy and culture complements this need of its clients. First Federal believes this personal service model differentiates First Federal from its competitors, particularly the larger regional institutions. First Federal offers a wide variety of products to support commercial clients including remote deposit capture and other cash management services. First Federal also believes that the small business customer is a strong market for First Federal. First Federal participates in many of the Small Business Administration lending programs. Maintaining a diversified portfolio with an emphasis on monitoring industry concentrations and reacting to changes in the credit characteristics of industries is an ongoing focus.

Consumer Banking - First Federal offers customers a full range of deposit and investment products including demand, checking, money market, certificates of deposits, Certificate of Deposit Account Registry Service (“CDARS”) and savings accounts. First Federal offers a full range of investment products through the wealth management department and a wide variety of consumer loan products, including residential mortgage loans, home equity loans, and installment loans. First Federal also offers online banking services, which include mobile banking, People Pay (“P2P”), online bill pay, and online account opening as well as the MoneyPass ATM Network offering access to our customers to over 32,000 ATMs nationwide without a surcharge fee.

Fee Income Development - Generation of fee income and the diversification of revenue sources are accomplished through the mortgage banking operation, First Insurance and the wealth management department as First Defiance seeks to reduce reliance on retail transaction fee income.

Deposit Growth - First Federal’s focus has been to grow core deposits with an emphasis on total relationship banking for both our retail and commercial customers. First Federal’s pricing strategy considers the whole relationship of the customer. First Federal continues to focus on increasing its market share in the communities it serves by providing quality products with extraordinary customer service, business development strategies and branch expansion. First Federal will look to grow its footprint in areas believed to further complement its overall market share and complement its strategy of being a high-performing community bank.

Asset Quality - Maintaining a strong credit culture is of the utmost importance to First Federal. First Federal has maintained a strong credit approval and review process that has allowed the Company to maintain a credit quality standard that balances the return with the risks of industry concentrations and loan types. First Federal is primarily a collateral lender with an emphasis on cash flow performance, while obtaining additional support from personal guarantees and secondary sources of repayment. First Federal has directed its attention to loan types and markets that it knows well and in which it has historically been successful. First Federal strives to have loan relationships that are well diversified in both size and industry, and monitors the overall trends in the portfolio to maintain its industry and loan type concentration targets. First Federal maintains a problem loan remediation process that focuses on detection and resolution. First Federal maintains a strong process of internal control that subjects the loan portfolio to periodic internal reviews as well as independent third-party loan review.

Expansion Opportunities - First Defiance believes it is well positioned to take advantage of acquisitions or other business opportunities in its market areas. First Defiance believes it has a track record of successfully accomplishing both acquisitions and de novo branching in its market area. This track record puts the Company in a solid position to enter or expand its business. First Defiance will continue to be disciplined as well as opportunistic in its approach to future acquisitions and de novo branching with a focus on its primary geographic market area, which it knows well, and has been competing in for a long period of time, as well as surrounding market areas.

Securities

First Defiance’s securities portfolio is managed in accordance with a written policy adopted by the Board of Directors and administered by the Investment Committee. The Chief Financial Officer, Controller, and the Chief Executive Officer can each approve transactions up to $3.0 million. Two of the three officers are required to approve transactions between $3.0 million and $5.0 million. All transactions in excess of $5.0 million must be approved by the Board of Directors.

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First Defiance’s investment portfolio includes 86 CMO issues totaling $101.5 million, all of which are fully amortizing securities. Management does not believe the risks associated with any of its CMO investments are significantly different from risks associated with other pass-through mortgage-backed securities. First Defiance did not have any off-balance sheet derivative securities at December 31, 2018.

First Defiance’s securities portfolio is classified as either “available-for-sale” or “held-to-maturity.”  Securities classified as “available-for-sale” may be sold prior to maturity due to changes in interest rates, prepayment risks, and availability of alternative investments, or to meet the Company’s liquidity needs.

The carrying value of securities at December 31, 2018, by contractual maturity is shown below. Expected maturities will differ from contractual maturities because issuers 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, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

	Contractually Maturing																Total
			Weighted				Weighted				Weighted				Weighted
	Under 1		Average		1 - 5		Average		6-10		Average		Over 10		Average
	Year		Rate %		Years		Rate %		Years		Rate %		Years		Rate %		Amount			Yield
	(Dollars in Thousands)
Mortgage-backed securities	$	10,089		3.22	$	31,531		3.20	$	22,882		3.15	$	11,715		3.15	$	76,217			3.12
CMOs - residential		15,941		3.29		51,402		3.29		32,464		3.25		4,618		3.31		104,425			3.12
U.S. government and federal agency obligations		-		-		519		2.00		2,000		3.00		-		-		2,519			2.00
Obligations of states and political subdivisions (1)		802		4.07		9,528		3.31		32,689		3.61		56,805		3.38		99,824			3.55
Corporate bonds		-		-		12,910		3.48		-		-		-		-		12,910			2.36
Total	$	26,832			$	105,890			$	90,035			$	73,138			$	295,895
Unamortized premiums/ (discounts)																		1,312
Unrealized gain on securities available for sale and unrecognized gain on held to maturity																		(2,605	)
Total																	$	294,602

(1) Tax exempt yield based on effective tax rate of 21%. Actual coupon rate is approximately equal to the weighted average rate disclosed in the table times 79%.

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The carrying value of investment securities is as follows:

	December 31
	2018		2017		2016
	(In Thousands)
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	2,503	$	508	$	3,915
Obligations of state and political subdivisions		99,887		92,828		88,043
CMOs - residential, REMICS and mortgage-backed securities		178,880		154,210		146,019
Trust preferred stock and preferred stock		-		1		2
Corporate bonds		12,806		13,103		13,013
Total	$	294,076	$	260,650	$	250,992
Held-to-maturity securities:
Mortgage-backed securities	$	51	$	68	$	91
Obligations of state and political subdivisions		475		580		93
Total	$	526	$	648	$	184

For additional information regarding First Defiance’s investment portfolio, refer to Note 5 – Investment Securities to the Consolidated Financial Statements.

Interest-Bearing Deposits

The Company had $43.0 million and $55.0 million in overnight investments at the Federal Reserve at December 31, 2018 and 2017, respectively, which amount is included in interest-bearing deposits. First Defiance had interest-earning deposits at the FHLB of Cincinnati and other financial institutions amounting to $1.7 million and $2.0 million at December 31, 2018 and 2017, respectively.

Residential Loan Servicing Activities

Servicing mortgage loans for investors involves a contractual right to receive a fee for processing and administering loan payments on mortgage loans that are not owned by the Company and are not included on the Company’s balance sheet. This processing involves collecting monthly mortgage payments on behalf of investors, reporting information to those investors on a monthly basis and maintaining custodial escrow accounts for the payment of principal and interest to investors and property taxes and insurance premiums on behalf of borrowers. At December 31, 2018, First Federal serviced 14,606 loans totaling $1.41 billion of principal. The vast majority of the loans serviced for others are fixed rate conventional mortgage loans. The Company primarily sells its loans to, and then services for, Freddie Mac, Fannie Mae and FHLB. At December 31, 2018, 66.40%, 32.70% and 0.85% of the Company’s sold loans were to Freddie Mac, Fannie Mae and FHLB, respectively.

As compensation for its mortgage servicing activities, the Company receives servicing fees, usually approximating 0.25% per annum of the loan balances serviced, plus any late charges collected from delinquent borrowers and other fees incidental to the services provided. In the event of a default by the borrower, the Company receives no servicing fees until the default is cured.

The following table sets forth certain information regarding the number and aggregate principal balance of the mortgage loans serviced by the Company, including both fixed and adjustable rate loans, at various interest rates:

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	December 31
	2018							2017							2016
					Percentage							Percentage							Percentage
	Number		Aggregate		of Aggregate			Number		Aggregate		of Aggregate			Number		Aggregate		of Aggregate
	of		Principal		Principal			of		Principal		Principal			of		Principal		Principal
Rate	Loans		Balance		Balance			Loans		Balance		Balance			Loans		Balance		Balance
	(Dollars in Thousands)
Less than 3.00%		1,843	$	158,038		11.19	%		2,024	$	189,700		13.69	%		2,191	$	225,328		16.42	%
3.00% -3.99%		6,218		647,182		45.85			6,598		710,084		51.22			6,279		682,157		49.72
4.00% -4.99%		4,746		495,217		35.08			3,919		377,821		27.26			3,551		332,023		24.20
5.00% - 5.99%		1,096		77,154		5.46			1,122		68,423		4.94			1,405		83,775		6.11
6.00% - 6.99%		557		28,672		2.03			626		33,658		2.43			749		41,055		2.99
7.00% and over		146		5,570		0.39			158		6,382		0.46			175		7,680		0.56
Total		14,606	$	1,411,833		100.00	%		14,447	$	1,386,068		100.00	%		14,350	$	1,372,018		100.00	%

Loan servicing fees decrease as the principal balance on the outstanding loan decreases and as the remaining time to maturity of the loan shortens.

The following table sets forth certain information regarding the remaining maturity of the mortgage loans serviced by the Company as of the dates shown.

											December 31
	2018										2017										2016
Maturity	Number of Loans		% of Number  of Loans			Unpaid Principal Amount		% of Unpaid Principal Amount			Number of Loans		% of Number of Loans			Unpaid Principal Amount		% of Unpaid Principal Amount			Number of Loans		% of Number of Loans			Unpaid Principal Amount		% of Unpaid Principal Amount
	(Dollars in Thousands)
1–5 years		439		3.01	%	$	10,212		0.72	%		444		3.07	%	$	8,346		0.60	%		529		3.69	%	$	7,432		0.54	%
6–10 years		2,777		19.01			172,130		12.19			2,557		17.70			162,190		11.70			1,784		12.43			102,132		7.44
11–15 years		2,707		18.53			249,274		17.66			3,012		20.85			278,655		20.10			3,671		25.58			343,750		25.05
16–20 years		1,049		7.18			93,775		6.64			1,258		8.71			109,300		7.89			1,526		10.63			135,540		9.88
21–25 years		2,915		19.96			299,815		21.24			2,460		17.03			248,919		17.96			1,846		12.86			169,496		12.35
More than 25 years		4,719		32.31			586,627		41.55			4,716		32.64			578,658		41.75			4,994		34.81			613,668		44.74
Total		14,606		100.00	%	$	1,411,833		100.00	%		14,447		100.00	%	$	1,386,068		100.00	%		14,350		100.00	%	$	1,372,018		100.00	%

Lending Activities

General – A savings bank generally may not make loans to one borrower and related entities in an amount which exceeds 15% of its unimpaired capital and surplus, although loans in an amount equal to an additional 10% of unimpaired capital and surplus may be made to a borrower if the loans are fully secured by readily marketable collateral. Real estate is not considered “readily marketable collateral.” Certain types of loans are not subject to these limits. In applying these limits, loans to certain borrowers may be aggregated. Notwithstanding the specified limits, a savings bank may lend to one borrower up to $500,000 “for any purpose.” At December 31, 2018, First Federal’s limit on loans-to-one borrower was $52.6 million and its five largest loans (including available lines of credit) or groups of loans to one borrower, including related entities, were $30.5 million, $28.4 million, $28.2 million, $26.8 million and $26.6 million. All of these loans or groups of loans were performing in accordance with their terms at December 31, 2018.

Loan Portfolio Composition – The net increase in net loans receivable over the prior year was $189.7 million, $407.4 million (including $285.4 million acquired from CSB) and $137.8 million at December 31, 2018, 2017, and 2016, respectively. The loan portfolio contains no foreign loans. The Company’s loan portfolio is concentrated geographically in the northwest and central Ohio, northeast Indiana, and southeast Michigan market areas. Management has identified lending for income generating rental properties as an industry concentration. Total loans for income generating rental property totaled $982.5 million at December 31, 2018, which represents 37.9% of the Company’s loan portfolio.

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The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.

	December 31
	2018					2017					2016					2015					2014
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(Dollars in Thousands)
Real estate:
1-4 family residential	$	322,686		12.1	%	$	274,862		11.1	%	$	207,550		10.2	%	$	205,330		11.0	%	$	206,437		12.2	%
Multi-family residential		278,358		10.4			248,092		10.1			196,983		9.7			167,558		9.0			156,530		9.3
Commercial real estate		1,126,452		42.3			987,129		40.0			843,579		41.5			780,870		41.8			683,958		40.6
Construction		265,772		10.0			265,476		10.8			182,886		9.0			163,877		8.7			112,385		6.7
Total real estate loans		1,993,268		74.8			1,775,559		72.0			1,430,998		70.4			1,317,635		70.5			1,159,310		68.8
Other:
Commercial		509,577		19.1			526,142		21.3			469,055		23.0			419,349		22.4			399,730		23.7
Home equity and improvement		128,152		4.8			135,457		5.5			118,429		5.8			116,962		6.2			111,813		6.6
Consumer finance		34,405		1.3			29,109		1.2			16,680		0.8			16,281		0.9			15,466		0.9
		672,134		25.2			690,708		28.0			604,164		29.6			552,592		29.5			527,009		31.2
Total loans		2,665,402		100.0	%		2,466,267		100.0	%		2,035,162		100.0	%		1,870,227		100.0	%		1,686,319		100.0	%
Less:
Undisbursed loan funds		123,293					115,972					93,355					66,902					38,653
Net deferred loan origination fees		2,070					1,582					1,320					1,108					880
Allowance for loan losses		28,331					26,683					25,884					25,382					24,766
Net loans	$	2,511,708				$	2,322,030				$	1,914,603				$	1,776,835				$	1,622,020

In addition to the loans reported above, First Defiance had $6.6 million, $10.4 million, $9.6 million, $5.5 million, and $4.5 million in loans classified as held for sale at December 31, 2018, 2017, 2016, 2015 and 2014, respectively. The fair value of such loans, which are all single-family residential mortgage loans, approximated their carrying value for all years presented.

Contractual Principal, Repayments and Interest Rates – The following table sets forth certain information at December 31, 2018, regarding the dollar amount of gross loans maturing in First Defiance’s portfolio, based on the contractual terms to maturity. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

	Years After December 31, 2018
	Due Less than 1		Due 1-2			Due 3-5	Due 5-10			Due 10-15		Due 15+		Total
	(In Thousands)
Real estate	$	559,270	$	241,509	$	902,900		$	141,645	$	56,473	$	91,471	$	1,993,268
Other loans:
Commercial		342,026		60,473		100,384			4,714		900		1,080		509,577
Home equity and improvement		113,673		2,455		5,921			2,924		1,373		1,806		128,152
Consumer finance		17,194		6,183		9,887			1,141		-		-		34,405
Total	$	1,032,163	$	310,620	$	1,019,092		$	150,424	$	58,746	$	94,357	$	2,665,402

The schedule above does not reflect the actual life of the Company’s loan portfolio. The average life of loans is substantially less than their contractual terms because of prepayments and due-on-sale clauses, which give First Defiance the right to declare a conventional loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid.

The following table sets forth the dollar amount of gross loans due after one year from December 31, 2018, which has fixed interest rates or which have floating or adjustable interest rates.

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			Floating or
	Fixed		Adjustable
	Rates		Rates		Total
	(In Thousands)
Real estate	$	483,202	$	950,796	$	1,433,998
Commercial		105,171		62,380		167,551
Other		30,189		1,501		31,690
	$	618,562	$	1,014,677	$	1,633,239

Originations, Purchases and Sales of Loans – The lending activities of First Federal are subject to the written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors and management. Loan originations are obtained from a variety of sources, including referrals from existing customers, real estate brokers, developers and builders, newspaper, internet and radio advertising and walk-in customers.

First Federal’s loan approval process for all types of loans is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the value of the collateral that will secure the loan.

A commercial loan application is first reviewed by a commercial lender and underwritten by a commercial credit analyst. All loan requests must be presented for review or approval to a Regional Credit Officer. Loans which exceed $1,000,000 must then be presented to the Chief Credit Officer or Credit Administration Officer for approval. These two positions can also approve loans up to $2,000,000 individually or $4,000,000 when using their authority concurrently. Any loan in excess of these limits must be presented for approval to the Executive Loan Committee.

Residential mortgage applications are accepted by retail lenders or branch managers, who utilize an automated underwriting system to review the loan request. First Federal also receives mortgage applications via an online residential mortgage origination system. A final approval of all residential mortgage applications is made by a member of a centralized underwriting staff within their designated lending limits. Loan requests in excess or outside an individual underwriter’s limit are approved by a Regional or Chief Credit Officer and, if necessary, by the Executive Loan Committee.

Retail lenders and branch managers are authorized to originate and approve direct consumer loan requests that are within policy guidelines and within the lender’s approved lending limit. Loans in excess of the lender’s approved lending limit may be approved by retail lending managers up to their approved lending limit. Loans in excess of the retail lending manager’s authorized lending limit or outside of policy must be approved by a Regional or Chief Credit Officer and, if necessary, by the Executive Loan Committee.

First Federal offers adjustable-rate loans in order to decrease the vulnerability of its operations to changes in interest rates. The demand for adjustable-rate loans in First Federal’s primary market area has been a function of several factors, including customer preference, the level of interest rates, the expectations of changes in the level of interest rates and the difference between the interest rates offered for fixed-rate loans and adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate residential loans that can be originated at any time is largely determined by the demand for each in a competitive environment.

Adjustable-rate loans represented 22.0% of First Federal’s total originations of one-to-four family residential mortgage loans in 2018 compared to 9.9% and 10.8% during 2017 and 2016, respectively.

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Adjustable-rate loans decrease the risks associated with changes in interest rates, but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates.

The following table shows total loans originated, loan reductions, and the net increase in First Federal’s total loans and loans held for sale during the periods indicated:

	Years Ended December 31
	2018		2017		2016
	(In Thousands)
Loan originations:
1-4 family residential	$	282,109	$	240,921	$	294,307
Multi-family residential		70,665		74,342		59,957
Commercial real estate		279,251		181,289		166,437
Construction		184,631		205,088		138,553
Commercial		186,943		219,588		389,037
Home equity and improvement		58,918		68,856		56,816
Consumer finance		22,260		15,185		10,426
Total loans originated		1,084,777		1,005,269		1,115,533
Loans acquired in acquisitions:		-		285,448		-
Loans purchased:		-		11,476		822
Loan reductions:
Loan pay-offs		335,738		350,971		232,302
Loans sold		236,598		231,073		282,589
Periodic principal repayments		317,128		288,215		432,445
		889,464		870,259		947,336
Net increase in total loans and loans held for sale	$	195,313	$	431,934	$	169,019

Asset Quality

First Defiance’s credit policy establishes guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to ensure sound credit decisions. First Defiance’s credit policies and review procedures are meant to minimize the risk and uncertainties inherent in lending. In following the policies and procedures, management must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur because of changing economic conditions.

Delinquent Loans — The following table sets forth information concerning delinquent loans at December 31, 2018, in dollar amount and as a percentage of First Defiance’s total loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts that are past due.

	30 to 59 Days					60 to 89 Days					90 Days and Over					Total
	Amount		Percentage			Amount		Percentage			Amount		Percentage			Amount		Percentage
	(Dollars in Thousands)
1-4 family residential real estate	$	946		0.04	%	$	993		0.04	%	$	1,571		0.06	%	$	3,510		0.14	%
Multi- family residential		-		0.00			-		0.00			-		0.00			-		0.00
Commercial real estate		130		0.00			417		0.02			3,008		0.11			3,555		0.13
Construction		-		0.00			-		0.00			-		0.00			-		0.00
Commercial		297		0.01			53		0.00			4,073		0.15			4,423		0.16
Home equity and improvement		1,427		0.05			144		0.01			90		0.00			1,661		0.06
Consumer finance		133		0.00			76		0.00			96		0.00			305		0.01
Total	$	2,933		0.10	%	$	1,683		0.07	%	$	8,838		0.32	%	$	13,454		0.50	%

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Overall, the level of delinquencies at December 31, 2018, declined slightly from the levels at December 31, 2017, when First Defiance reported that 0.53% of its outstanding loans were at least 30 days delinquent. The level of total loans 90 or more days delinquent has increased to 0.32% at December 31, 2018, from 0.20% at December 31, 2017. The level of total loans 60-89 days delinquent decreased to 0.07% at December 31, 2018, from 0.12% at December 31, 2017. The level of loans that were 30 to 59 days past due decreased to 0.10% at December 31, 2018, from 0.21% at December 31, 2017. Management has assessed the collectability of all loans that are 90 days or more delinquent as part of its procedures in establishing the allowance for loan losses.

Non-performing Assets – All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collectability of additional interest is not expected. Generally, First Defiance places all loans more than 90 days past due on non-accrual status. First Defiance also places loans on non-accrual status when the loan is paying as agreed but the Company believes the financial condition of the borrower is such that this classification is warranted. When a loan is placed on non-accrual status, total unpaid interest accrued to date is reversed. Subsequent payments are generally applied to the outstanding principal balance but may be recorded as interest income, depending on the assessment of the ultimate collectability of the loan. First Defiance considers that a loan is impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement. First Defiance measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if collateral dependent. If the estimated recoverability of the impaired loan is less than the recorded investment, First Defiance will recognize impairment by allocating a portion of the allowance for loan losses on cash flow dependent loans and by charging off the deficiency on collateral dependent loans.

Loans originated by First Federal having principal balances of $45.8 million, $56.3 million and $27.4 million were considered impaired as of December 31, 2018, 2017 and 2016, respectively. These amounts of impaired loans exclude large groups of small-balance homogeneous loans that are collectively evaluated for impairment such as residential mortgage, consumer installment and credit card loans, except for those classified as troubled debt restructurings. There was $1.8 million of interest received and recorded in income during 2018 related to impaired loans. There was $1.4 million and $1.7 million recorded in 2017 and 2016, respectively. Unrecorded interest income based on the loan’s contractual terms on these impaired loans and all non-performing loans in 2018, 2017 and 2016 was $1.1 million, $1.1 million, and $1.2 million, respectively. The average recorded investment in impaired loans during 2018, 2017 and 2016 (excluding loans accounted for under FASB ASC Topic 310 Subtopic 30) was $49.2 million, $47.4 million and $32.8 million, respectively. The total allowance for loan losses related to these loans was $0.6 million, $0.8 million, and $0.8 million at December 31, 2018, 2017 and 2016, respectively.

Real estate acquired by foreclosure is classified as real estate owned until such time as it is sold. First Defiance also repossesses other assets securing loans, consisting primarily of automobiles. When such property is acquired it is recorded at fair value less cost to sell. Costs relating to development and improvement of property are capitalized, whereas costs relating to holding the property are expensed. Valuations are periodically performed by management and a write-down of the value is recorded with a corresponding charge to operations if it is determined that the carrying value of property exceeds its estimated net realizable value. During 2018, First Defiance recognized $552,000 of expense related to write-downs in value of real estate acquired by foreclosure or acquisition. The balance of real estate owned at December 31, 2018, was $1.2 million. During 2017, there was $20,000 of expense related to write-downs in fair value of real estate acquired by foreclosure or acquisition. The balance of real estate owned at December 31, 2017 was $1.5 million.

As of December 31, 2018, First Defiance’s total non-performing loans amounted to $19.0 million or 0.75% of total loans (net of undisbursed loan funds and deferred fees and costs), compared to $30.7 million or 1.31% of total loans, at December 31, 2017. Non-performing loans are loans which are more than 90 days past due or on non-accrual. The non-performing loan balance for 2018 includes $16.3 million of loans that were originated by First Federal and also considered impaired, compared to $25.5 million for 2017.

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The following table sets forth the amounts and categories of First Defiance’s non-performing assets (excluding impaired loans not considered non-performing) and troubled debt restructurings at the dates indicated.

	December 31
	2018			2017			2016			2015			2014
	(Dollars in Thousands)
Non-performing loans:
1-4 family residential real estate	$	3,640		$	3,037		$	2,928		$	2,610		$	3,332
Multi-family residential real estate		102			128			2,639			2,419			2,539
Commercial real estate		10,255			18,091			6,953			7,429			12,635
Commercial		4,500			8,841			1,007			3,078			4,993
Home equity and improvement		393			590			730			689			619
Consumer finance		126			28			91			36			12
Total non-performing loans		19,016			30,715			14,348			16,261			24,130
Real estate owned		1,205			1,532			455			1,321			6,181
Total repossessed assets		1,205			1,532			455			1,321			6,181
Total non-performing assets	$	20,221		$	32,247		$	14,803		$	17,582		$	30,311
Restructured loans, accruing	$	11,573		$	13,770		$	10,544		$	11,178		$	24,686
Total non-performing assets as a percentage of total assets		0.64	%		1.08	%		0.60	%		0.77	%		1.39	%
Total non-performing loans as a percentage of total loans*		0.75	%		1.31	%		0.74	%		0.90	%		1.47	%
Total non-performing assets as a percentage of total loans plus OREO*		0.80	%		1.37	%		0.76	%		0.97	%		1.83	%
Allowance for loan losses as a percent of total non-performing assets		140.11	%		82.75	%		174.86	%		144.36	%		81.71	%

* Total loans are net of undisbursed loan funds and deferred fees and costs.

Allowance for Loan Losses – First Defiance maintains an allowance for loan losses to absorb probable incurred credit losses in the loan portfolio. The allowance for loan loss is made up of two components. The first is a general reserve, which is used to record loan loss reserves for groups of homogenous loans in which the Company estimates the losses incurred in the portfolio based on quantitative and qualitative factors.

The second component of the allowance for loan loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual credits. In evaluating the adequacy of its allowance each quarter, management grades all loans in the commercial portfolio. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for Loan Losses” for further discussion on management’s evaluation of the allowance for loan losses.

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Loans are charged against the allowance when such loans meet the Company’s established policy on loan charge-offs and the allowance itself is adjusted quarterly by recording a provision for loan losses. As such, actual losses and losses provided for should be approximately the same if the overall quality, composition and size of the portfolio remained static along with a static loan environment. To the extent that the portfolio grows at a rapid rate or overall quality or the loan environment deteriorates, the provision generally will exceed charge-offs. However, in certain circumstances, net charge-offs may exceed the provision for loan losses when management determines that loans previously provided for in the allowance for loan losses are uncollectible and should be charged-off or as overall credit or the loan environment improves. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowances may be necessary, and net earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations.

At December 31, 2018, First Defiance’s allowance for loan losses totaled $28.3 million compared to $26.7 million at December 31, 2017. The following table sets forth the activity in First Defiance’s allowance for loan losses during the periods indicated.

	Years Ended December 31
	2018			2017			2016			2015			2014
	(Dollars in Thousands)
Allowance at beginning of year	$	26,683		$	25,884		$	25,382		$	24,766		$	24,950
Provision for credit losses		1,176			2,949			283			136			1,117
Charge-offs:
1-4 family residential real estate		(261	)		(279	)		(350	)		(282	)		(426	)
Commercial real estate and multi-family		(1,387	)		(429	)		(92	)		(468	)		(1,018	)
Commercial		(724	)		(2,301	)		(615	)		(68	)		(2,982	)
Consumer finance		(233	)		(139	)		(94	)		(53	)		(41	)
Home equity and improvement		(269	)		(301	)		(268	)		(350	)		(392	)
Total charge-offs		(2,874	)		(3,449	)		(1,419	)		(1,221	)		(4,859	)
Recoveries		3,346			1,299			1,638			1,701			3,558
Net (charge-offs) recoveries		472			(2,150	)		219			480			(1,301	)
Ending allowance	$	28,331			$ 2 6,683		$	25,884		$	25,382		$	24,766
Allowance for loan losses to total non-performing loans at end of year		148.99	%		86.87	%		180.40	%		156.09	%		102.64	%
Allowance for loan losses to total loans at end of year*		1.12	%		1.14	%		1.33	%		1.41	%		1.50	%
Net charge-offs (recoveries) for the year to average loans		-0.02	%		0.10	%		-0.01	%		-0.03	%		0.08	%

* Total loans are net of undisbursed loan funds and deferred fees and costs.

The provision for credit losses decreased in 2018 from the previous year despite growth in the loan portfolio due to a decrease in net charge-offs and improving credit quality. Management feels that the level of the allowance for loan losses at December 31, 2018, is sufficient to cover the estimated losses incurred but not yet recognized in the loan portfolio.

The following table sets forth information concerning the allocation of First Defiance’s allowance for loan losses by loan categories at the dates indicated. For information about the percent of total loans in each category to total loans, see “Lending Activities-Loan Portfolio Composition” above.

	December 31
	2018					2017					2016					2015					2014
			Percent of					Percent of					Percent of					Percent of					Percent of
			total loans					total loans					total loans					total loans					total loans
	Amount		by category			Amount		by category			Amount		by category			Amount		by category			Amount		by category
	(Dollars in Thousands)
1-4 family residential	$	2,881		12.1	%	$	2,532		11.1	%	$	2,627		10.2	%	$	3,212		11.0	%	$	2,494		12.2	%
Multi-family residential real estate		3,101		10.4			2,702		10.1			2,228		9.7			2,151		9.0			2,453		9.3
Commercial real estate		12,041		42.3			10,354		40.0			10,625		41.5			11,772		41.8			11,268		40.6
Construction		682		10.0			647		10.8			450		9.0			1          517		8.7			221		6.7
Commercial loans		7,281		19.1			7,965		21.3			7,361		23.0			5,192		22.4			6,509		23.7
Home equity and improvement loans		2,026		4.8			2,255		5.5			2,386		5.8			2,270		6.2			1,704		6.6
Consumer loans		319		1.3			228		1.2			207		0.8			171		0.9			117		0.9
	$	28,331		100.0	%	$	26,683		100.0	%	$	25,884		100.0	%	$	25,382		100.0	%	$	24,766		100.0	%

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Sources of Funds

General – Deposits are the primary source of First Defiance’s funds for lending and other investment purposes. In addition to deposits, First Defiance derives funds from loan principal repayments. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings from the FHLB may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They may also be used on a longer-term basis for general business purposes. During 2007, First Defiance issued $15.0 million of trust preferred securities through an unconsolidated affiliated trust. Proceeds from the offering were used for general corporate purposes including funding of dividends and stock buybacks as well as bolstering regulatory capital at the First Federal level. First Defiance also issued $20.0 million of similar trust preferred securities in 2005.

Deposits – First Defiance’s deposits are attracted principally from within First Defiance’s primary market area through the offering of a broad selection of deposit instruments, including checking accounts, money market accounts, savings accounts, and term certificate accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit, and the interest rate.

To supplement its funding needs, First Defiance also has the ability to utilize the national market for certificates of deposit. First Defiance has used these deposits in the past and could in the future if necessary. First Defiance has no national market certificates of deposit as of December 31, 2018 or 2017.

Average balances and average rates paid on deposits are as follows:

	Years Ended December 31
	2018					2017					2016
	Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in Thousands)
Noninterest-bearing demand deposits	$	562,439		-		$	528,926		-		$	441,731		-
Interest-bearing demand deposits		1,026,383		0.27	%		955,248		0.18	%		798,266		0.17	%
Savings deposits		297,492		0.04			284,814		0.04			235,137		0.04
Time deposits		621,239		1.78			530,414		1.33			430,487		1.12
Totals	$	2,507,553		0.56	%	$	2,299,402		0.38	%	$	1,905,621		0.33	%

The following table sets forth the maturities of First Defiance’s retail certificates of deposit having principal amounts $250,000 or greater at December 31, 2018 (In Thousands):

Retail certificates of deposit maturing in quarter ending:
March 31, 2019	$	24,347
June 30, 2019		20,481
September 30, 2019		8,791
December 31, 2019		6,865
After December 31, 2019		29,328
Total retail certificates of deposit with balances $250,000 or greater	$	89,812

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The following table details the deposit accrued interest payable as of December 31:

	2018		2017
	(In Thousands)
Interest-bearing demand deposits and money market accounts	$	52	$	29
Certificates of deposit		314		68
	$	366	$	97

For additional information regarding First Defiance’s deposits see Note 11 to the Consolidated Financial Statements.

Borrowings – First Defiance may obtain advances from the FHLB of Cincinnati by pledging certain of its residential mortgage loans, commercial real estate loans, multi-family loans, home equity loans and investment securities provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities.

The following table sets forth certain information as to First Defiance’s FHLB advances and other borrowings at the dates indicated.

	Years Ended December 31
	2018			2017			2016
	(Dollars in Thousands)
Long-term:
FHLB advances	$	60,189		$	84,279		$	103,943
Weighted average interest rate		1.68	%		1.55	%		1.42	%
Short-term:
FHLB advances	$	25,000		$	-		$	-
Weighted average interest rate		2.45	%		-			-
Securities sold under  agreement to repurchase	$	5,741		$	26,019		$	31,816
Weighted average interest rate		0.31	%		0.20	%		0.22	%

The following table sets forth the maximum month-end balance and average balance of First Defiance’s long-term FHLB advances and other borrowings during the periods indicated.

	Years Ended December 31
	2018			2017			2016
	(Dollars in Thousands)
Long-term:
FHLB advances:
Maximum balance	$	84,306		$	105,214		$	103,943
Average balance		67,365			102,115			84,944
Weighted average interest rate		1.75	%		1.44	%		1.42	%

The following table sets forth the maximum month-end balance and average balance of First Defiance’s short-term FHLB advances and other borrowings during the periods indicated.

	Years Ended December 31
	2018			2017			2016
	(Dollars in Thousands)
Short-term:
FHLB advances:
Maximum balance	$	40,000		$	-		$	30,000
Average balance		6,082			44			861
Weighted average interest rate		1.33	%		0.80	%		0.39	%
Securities sold under agreement to repurchase:
Maximum balance	$	5,741		$	26,019		$	57,984
Average balance		8,911			23,337			52,821
Weighted average interest rate		0.26	%		0.23	%		0.26	%

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First Defiance borrows funds under a variety of programs at the FHLB. As of December 31, 2018, there was $85.2 million outstanding under various FHLB advance programs. First Defiance utilizes short-term advances from the FHLB to meet cash flow needs and for short-term investment purposes. At December 31, 2018 and 2017, no outstanding balances existed under First Defiance’s short-term Cash Management Advance Line of Credit. The total available under the Cash Management Advance Line is $15.0 million. In addition, First Defiance has a $100.0 million REPO Advance line of credit available, under which $25.0 million was drawn at December 31, 2018. There were no borrowings against this line at December 31, 2017. Amounts are generally borrowed under these lines on an overnight basis. First Defiance’s total borrowing capacity at the FHLB is limited by various collateral requirements. Eligible collateral includes mortgage loans, home equity loans, non-mortgage loans, cash, and investment securities. At December 31, 2018, other than amounts available on the REPO and Cash Management line, First Defiance had additional borrowing capacity with the FHLB of $447.4 million as a result of these collateral requirements.

As a member of the FHLB of Cincinnati, First Federal must maintain a minimum investment in the capital stock of that FHLB in an amount defined in the FHLB’s regulations. First Federal is permitted to own stock in excess of the minimum requirement and was in compliance with the minimum requirement with an investment in stock of the FHLB of Cincinnati of $14.2 million at December 31, 2018, and $16.0 million at December 31, 2017. First Federal held stock of the FHLB of Indianapolis of $2,500 at December 31, 2018, and $5,000 at December 31, 2017.

Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the Community Reinvestment Act and its record of lending to first-time homebuyers.

For additional information regarding First Defiance’s FHLB advances and other debt see Notes 12 and 14 to the Consolidated Financial Statements.

Subordinated Debentures – In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $15.0 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with the transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) to Trust Affiliate II. Trust Affiliate II 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 Subordinated Debentures held by Trust Affiliate II are the sole assets of the trust. 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 4.29% and 3.09% as of December 31, 2018 and 2017, respectively.

The Trust Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures. The Company 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.

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In October 2005, the Company formed an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”) that issued $20.0 million of Trust Preferred Securities. In connection with the 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 Subordinated Debentures held by Trust Affiliate I are the sole assets of the trust. 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%, or 4.17% and 2.97% as of December 31, 2018 and 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 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 by the Company at any time now.

Employees

First Defiance had 696 employees at December 31, 2018. None of these employees are represented by a collective bargaining agent, and First Defiance believes that it maintains good relationships with its personnel.

Competition

Competition in originating commercial real estate and commercial loans comes mainly from commercial banks with banking center offices in the Company’s market area. Competition for the origination of mortgage loans arises mainly from savings associations, commercial banks, and mortgage companies. The distinction among market participants is based on a combination of price, the quality of customer service and name recognition. The Company competes for loans by offering competitive interest rates and product types and by seeking to provide a higher level of personal service to borrowers than is furnished by competitors. First Federal has a significant market share of the lending markets in which it conducts operations, except for central Ohio.

Management believes that First Federal’s most direct competition for deposits comes from local financial institutions. The distinction among market participants is based on price and the quality of customer service and name recognition. First Federal’s cost of funds fluctuates with general market interest rates. During certain interest rate environments, additional significant competition for deposits may be expected from corporate and governmental debt securities, as well as from money market mutual funds. First Federal competes for conventional deposits by emphasizing quality of service, extensive product lines and competitive pricing.

Regulation

General – First Defiance is subject to regulation examination and oversight by the Federal Reserve Board (“Federal Reserve”). First Federal is subject to regulation, examination and oversight by the Office of the Comptroller of the Currency (“OCC”). Because the FDIC insures First Federal’s deposits, First Federal is also subject to examination and regulation by the FDIC. In addition, First Federal is subject to regulations of the Consumer Financial Protection Bureau (the “CFPB”) which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations. First Defiance and First Federal must file periodic reports with the Federal Reserve and the OCC and examinations are conducted periodically by the Federal Reserve, the OCC and the FDIC to determine whether First Defiance and First Federal are in compliance with various regulatory requirements and are operating in a safe and sound manner.

First Defiance is also subject to various Ohio laws which restrict takeover bids, tender offers and control-share acquisitions involving public companies which have significant ties to Ohio.

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Economic Growth, Regulatory Relief and Consumer Protection Act

On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was signed into law. The Regulatory Relief Act was designed to provide regulatory relief for banking organizations, particularly for all but the very largest, those with assets in excess of $250 billion. Bank holding companies with assets of less than $100 billion are no longer subject to enhanced prudential standards, and those with assets between $100 billion and $250 billion will be relieved of those requirements in 18 months, unless the Federal Reserve Board takes action to maintain those standards. Certain regulatory requirements applied only to banks with assets in excess of $50 billion and so did not apply to First Federal even before the enactment of the Regulatory Relief Act.

The Regulatory Relief Act also provides that the banking regulators must adopt regulations implementing the provision that banking organizations with assets of less than $10 billion are permitted to satisfy capital standards and be considered “well capitalized” under the prompt corrective action framework if their leverage ratios of tangible assets to average consolidated assets is between 8% and 10%, unless the bank’s federal banking agency determines that the organization’s risk profile warrants a more stringent leverage ratio. The Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board and the FDIC have proposed for comment the leverage ratio framework for any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9%. The community bank leverage ratio would be calculated as the ratio of tangible equity capital divided by average total consolidated assets. Tangible equity capital would be defined as total bank equity capital or total holding company equity capital, as applicable, prior to including minority interests, and excluding accumulated other comprehensive income, deferred tax assets arising from net operating loss and tax credit carry forwards, goodwill and other intangible assets (other than mortgage servicing assets). Average total assets would be calculated in a manner similar to the current tier 1 leverage ratio denominator in that amounts deducted from the community bank leverage ratio numerator would also be excluded from the community bank leverage ratio denominator.

The OCC, the Federal Reserve Board and the FDIC also adopted a rule providing banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of new current expected credit loss methodology accounting under U. S. generally accepted accounting principles (“GAAP”).

The Regulatory Relief Act also relieves bank holding companies and banks with assets of less than $100 billion in assets from certain record-keeping, reporting and disclosure requirements.

Holding Company Regulation – First Defiance is a unitary thrift holding company and is subject to the Federal Reserve regulations, examination, supervision and reporting requirements. Federal law generally prohibits a thrift holding company from controlling any other savings association or thrift holding company, without prior approval of the Federal Reserve, or from acquiring or retaining more than 5% of the voting shares of a savings association or holding company thereof, which is not a subsidiary.

Regulatory Capital Requirements and Prompt Corrective Action – The federal banking regulators have adopted risk-based capital guidelines for financial institutions and their holding companies, designed to absorb losses. The guidelines provide a systematic analytical framework, which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

In July 2013, the federal banking regulators issued final new capital rules applicable to smaller banking organizations which also implement certain provisions of the Dodd-Frank Act. The new minimum capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016, through January 1, 2019.

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The rules include (a) a minimum common equity Tier 1 (“CET1”) capital ratio of 4.5%, (b) a minimum Tier 1 capital ratio of 6.0%, (c) a minimum total capital ratio of 8.0%, and (d) a minimum leverage ratio of 4%.

Common equity for the CET1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the CET1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses (“ALLL”), subject to new eligibility criteria, less applicable deductions.

The deductions from CET1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of CET1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The capital conservation buffer was fully phased in effective January 1, 2019 at 2.5%.

The federal banking agencies have established a system of “prompt corrective action” to resolve certain problems of undercapitalized banks. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank's capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after it becomes "critically undercapitalized" unless the bank's primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank's capital category. For example, a bank that is not "well capitalized" generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank's capital plan for the plan to be acceptable.

Effective January 1, 2015, in order to be “well-capitalized,” a financial institution must have a CET1 capital ratio of 6.5%, a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital of at least 8% and a leverage ratio of at least 5%, and the institution must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. As of December 31, 2018, First Federal met the ratio requirements in effect to be deemed "well-capitalized." See Note 17 of the Notes to the Consolidated Financial Statements which is incorporated herein by reference.

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The following table sets forth the amounts and percentage levels of regulatory capital of First Defiance and First Federal, the minimum amounts required for each of First Defiance and First Federal, and the amounts required for First Federal to be deemed well capitalized under the prompt corrective action system, all as of December 21, 2018. (Dollars in Thousands):

	Actual					Minimum Required for Adequately Capitalized					Minimum Required to be Well Capitalized for Prompt Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	303,860		11.00	%	$	124,339		4.5	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	124,225		4.5	%	$	179,436		6.5	%
Tier 1 Capital (2)
Consolidated	$	338,860		11.14	%	$	121,716		4.0	%		N/A		N/A
First Federal	$	322,520		10.62	%	$	121,461		4.0	%	$	151,827		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	338,860		12.26	%	$	165,786		6.0	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	165,633		6.0	%	$	220,844		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	367,191		13.29	%	$	221,048		8.0	%		N/A		N/A
First Federal	$	350,851		12,71	%	$	220,844		8.0	%	$	276,055		10.0	%

(1) Excludes capital conservation buffer of 1.875% as of December 31, 2018.

(2) Core capital is computed as a percentage of adjusted total assets of $3.04 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.76 billion for consolidated and for the Bank.

In September 2017, the Federal Reserve, along with other bank regulatory agencies, proposed amendments to its capital requirements to simplify various aspects of the capital rules for community banks, including First Federal, in an attempt to reduce the regulatory burden for such smaller financial institutions. In November 2017, the federal banking agencies extended, for the community banks, the existing capital requirements for certain items that were scheduled to change effective January 1, 2018, in light of the simplification amendments being considered. As described above, the bank regulatory agencies have proposed revised capital requirements under the Regulatory Relief Act.

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Dividends – Dividends paid by First Federal to First Defiance are subject to various regulatory restrictions. First Federal paid $22.0 million in dividends to First Defiance in 2018 and $13.0 million in 2017. Generally, First Federal may not pay dividends to First Defiance in excess of its net profits (as defined by statute) for the last two fiscal years, plus any year-to-date net profits without the approval of the OCC. First Insurance paid $1.6 million in dividends to First Defiance in 2018 and $1.8 million in dividends in 2017. First Defiance Risk Management paid $950,000 in dividends to First Defiance in 2018 and $1.0 million in dividends in 2017.

First Defiance’s ability to pay dividends to its shareholders is primarily dependent on its receipt of dividends from the Subsidiaries. The Federal Reserve expects First Defiance to serve as a source of strength for First Federal and may require First Defiance to retain capital for further investment in First Federal, rather than pay dividends to First Defiance shareholders. Payment of dividends by First Defiance or First Federal may be restricted at any time at the discretion of its applicable regulatory authorities if they deem such dividends to constitute an unsafe or unsound practice. These provisions could have the effect of limiting First Defiance's ability to pay dividends on its common shares.

Transactions with Insiders and Affiliates – Loans to executive officers, directors and principal shareholders and their related interests must conform to the lending limits. Most loans to directors, executive officers and principal shareholders must be approved in advance by a majority of the “disinterested” members of board of directors of the association with any “interested” director not participating. All loans to directors, executive officers and principal shareholders must be made on terms substantially the same as offered in comparable transactions with the general public or as offered to all employees in a company-wide benefit program. Loans to executive officers are subject to additional restrictions. All transactions between savings associations and their affiliates must comply with Sections 23A and 23B of the Federal Reserve Act (“FRA”) and the Federal Reserve’s Regulation W. An affiliate of a savings association is any company or entity that controls, is controlled by, or is under common control with the savings association. First Defiance, First Defiance Risk Management and First Insurance are affiliates of First Federal.

Deposit Insurance – The FDIC maintains the Deposit Insurance Fund (“DIF’), which insures the deposit accounts of First Federal to the maximum amount provided by law. The general insurance limit is $250,000 per separately insured depositor. This insurance is backed by the full faith and credit of the United States government.

The FDIC assesses deposit insurance premiums on each insured institution quarterly based on risk characteristics of the institution. The FDIC may also impose a special assessment in an emergency situation.

Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), which is the ratio of the DIF to insured deposits of the total industry. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. The FDIC’s rules reduced assessment rates on all banks but imposed a surcharge on banks with assets of $10 billion or more until the DRR reaches 1.35% and provide assessment credits to banks with assets of less than $10 billion for the portion of their assessments that contribute to the increase of the DRR to 1.35%. The DRR reached 1.36% at September 30, 2018. The credits will be applied when the reserve ratio is at least 1.38%. The rules also changed the method to determine risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than less risky banks.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize a predecessor to the DIF. These assessments will continue until the Financing Corporation bonds mature in September 2019. The Financing Corporation has projected that the last assessment will be collected on the March 29, 2019 FDIC invoice.

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As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, federally-insured institutions. It also may prohibit any federally-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take enforcement actions against insured institutions. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC.

Consumer Protection Laws and Regulations – Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations. Potential penalties under these laws include, but are not limited to, fines. The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services. The CFPB has adopted numerous rules with respect to consumer protection laws, amending some existing regulations and adopting new ones, and has commenced enforcement actions. The following are just some of the consumer protection laws applicable to First Federal:

•      Community Reinvestment Act of 1977 (“CRA”): imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income neighborhoods.

•      Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.

•      Truth in Lending Act: requires that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably.

•      Fair Housing Act: makes it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of any of certain criteria.

•      Home Mortgage Disclosure Act: requires financial institutions to collect data that enables regulatory agencies to determine whether the financial institutions are serving the housing credit needs of the communities in which they are located.

•      Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs.

•      Privacy provisions of the Gramm-Leach-Bliley Act: requires financial institutions to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer information from unauthorized access.

The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of specific banking or consumer finance law.

In October 2017, the CFPB issued a final rule (the “Payday Rule”) with respect to certain consumer loans to be effective on January 16, 2018, although compliance with most sections is required starting on August 19, 2019. The first major part of the rule makes it an unfair and abusive practice for a lender to make short-term and longer-term loans with balloon payments (with certain exceptions) without reasonably determining that the borrower has the ability to repay the loan. The second major part of the rule applies to the same types of loans as well as certain other longer-term loans that are repaid directly from the borrower's account. The rule states that it is an unfair and abusive practice for the lender to withdraw payment from the borrower's account after two consecutive payment attempts have failed, unless the lender obtains the consumer's new and specific authorization to make further withdrawals from the account. The rule also requires lenders to provide certain notices to the borrower before attempting to withdraw payment on a covered loan from the borrower’s account.

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On February 6, 2019, the CFPB issued two proposals with respect to the Payday Rule. First, the CFPB proposed to delay the compliance date for the mandatory underwriting provisions of the Payday Rule to November 19, 2020. It has requested comments on the proposed delay to be made within 30 days. Second, the CFPB proposed to rescind provisions of the Payday Rule that (1) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan without reasonably determining that the consumer has the ability to repay the loan according to its terms; (2) prescribe mandatory underwriting requirements for making the ability-to-repay determination; (3) provide exemptions of certain loans from the mandatory underwriting requirements; and (4) provide related definitions, reporting and recordkeeping requirements. The CFPB has requested comments to be made within 90 days on this proposal. These proposals do not change the provisions of the Payday Rule that address lender payment practices with respect to covered loans. The CFPB also stated that it will be considering other changes to the Payday Rule in response to requests received for exemptions of certain types of lenders or loan products and may commence separate additional rulemaking initiatives.

CRA - Under the CRA, every FDIC-insured institution is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA requires the appropriate federal banking regulator, in connection with the examination of an insured institution, to assess the institution’s record of meeting the credit needs of its community and to consider this record in its evaluation of certain applications to banking regulators, such as an application for approval of a merger or the establishment of a branch. An unsatisfactory rating may be used as the basis for the denial of an application to acquire another financial institution or open a new branch. As of its last examination, First Federal received a CRA rating of “satisfactory.”

In June 2010, the Federal Reserve, the OCC and the FDIC issued joint interagency guidance on incentive compensation policies (the Joint Guidance) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The Joint Guidance made incentive compensation part of the regulatory agencies’ examination process, with the findings of the supervisory initiatives included in reports of examination and enforcement actions possible.

In May 2016, the federal bank regulatory agencies approved a joint notice of proposed rules (the “Proposed Joint Rules”) designed to prohibit incentive-based compensation arrangements that encourage inappropriate risks at financial institutions. The Proposed Joint Rules would apply to covered financial institutions with total assets of $1 billion or more. For all covered institutions, including Level 3 institutions like First Defiance, the proposed rule would:

•      prohibit incentive-based compensation arrangements that are “excessive” or “could lead to material financial loss;”

•      require incentive based compensation that is consistent with a balance of risk and reward, effective management and control of risk, and effective governance; and

•      require board oversight, recordkeeping and disclosure to the appropriate regulatory agency.

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Further, as stock exchanges impose additional listing requirements under the Dodd-Frank Act, public companies will be required to implement “clawback” procedures for incentive compensation payments and to disclose the details of the procedures, which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within a three-year look-back window of the restatement and would cover all executives who received incentive awards.

Patriot Act – In response to the terrorist events of September 11, 2001, the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the Patriot Act) was signed into law in October 2001. The Patriot Act gives the United States government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Among other requirements, Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. First Federal has established policies and procedures that it considers to be in compliance with the requirements of the Patriot Act.

Volcker Rule – The Volcker Rule under the Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds. The Volcker Rule, which became effective in July 2015, does not impact the operations of First Defiance or its subsidiaries, as the Company does not engage in the businesses prohibited by the Volcker Rule and banks under $10.0 billion in assets are exempted from the Volcker Rule provisions.

Item 1A. Risk Factors

The risks listed below present risks that could have a material impact on the Company’s financial condition, results of operations, or business. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair the Company’s business operations.

Economic, political and financial market conditions may adversely affect First Defiance’s operations and financial condition.

First Defiance’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services First Defiance offers, is highly dependent upon the business environment in the markets where the Company operates, mainly in the State of Ohio, Northeast Indiana and Southeast Michigan. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters; or a combination of these or other factors. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy and other factors beyond First Defiance’s control may adversely affect its deposit levels and cost/composition, demand for loans, the ability of its borrowers to repay their loans and the value of the collateral securing the loans it makes. Because First Defiance has a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and First Defiance’s ability to sell the collateral upon foreclosure.

The election of a new United States President in 2016 has resulted in substantial changes in economic and political conditions for the United States and the remainder of the world. Economic turmoil in Europe and Asia and changes in oil production in the Middle East affect the economy and stock prices in the United States. The timing and circumstances of the United Kingdom leaving the European Union (Brexit) and their effects on the United States are unknown. While these changes do not have a direct, immediate impact on First Defiance’s financial performance, we cannot predict how the change in the political climate will affect the economy and First Defiance’s performance in the future.

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First Defiance’s loan portfolio includes a concentration of commercial real estate loans and commercial loans, which involve risks specific to real estate value and the successful operations of these businesses.

At December 31, 2018, First Federal’s portfolio of commercial real estate loans totaled $1.4 billion, or approximately 52.2% of total loans. First Federal’s commercial real estate loans typically have higher principal amounts than residential real estate loans, and many of our commercial real estate borrowers have more than one loan outstanding. As a result, an adverse development on one loan can expose First Defiance to greater risk of loss on other loans. Additionally, repayment of the loans is generally dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic conditions and events outside of the control of the borrower or lender could negatively impact the future cash flows and market values of the affected properties.

At December 31, 2018, First Federal’s portfolio of commercial loans totaled $509.6 million, or approximately 19.1% of total loans. Commercial loans generally expose First Defiance to a greater risk of nonpayment and loss than commercial real estate or residential real estate loans since repayment of such loans often depends on the successful operations and income stream of the borrowers. First Federal’s commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower such as accounts receivable, inventory, machinery or real estate. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists.

First Defiance targets its business lending towards small- and medium-sized businesses, many of which have fewer financial resources than larger companies and may be more susceptible to economic downturns. If general economic conditions negatively impact these businesses, First Defiance’s results of operations and financial condition may be adversely affected.

If First Defiance's actual loan losses exceed its allowance for loan losses, First Defiance's net income will decrease.

In accordance with GAAP, First Defiance must maintain an allowance for loan losses to provide for loan defaults and non-performance, which when combined, are referred to as the allowance for loan losses. First Defiance's allowance for loan losses is based upon a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets and classified loans, current economic conditions in the primary lending area, prior experience, possible losses arising from specific problem loans, and management's evaluation of the risks in the current portfolio. However, there are many factors that can result in actual loan losses exceeding the allowance.

For instance, in deciding whether to extend credit or enter into other transactions with customers and counterparties, First Defiance may rely on information provided to us by customers and counterparties, including financial statements and other financial information. First Defiance may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. Such information may not turn out to be accurate. Further, First Defiance's loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. As a result, First Defiance may experience significant loan losses, which could have a material adverse effect on its operating results.

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The amount of future losses also is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond management's control, and these losses may exceed current estimates. Further, federal regulatory agencies, as an integral part of their examination process, review First Defiance's loans and allowance for loan losses and may require that First Defiance increase its allowance. Moreover, the Financial Accounting Standards Board (“FASB”) has changed its requirements for establishing the allowance, which will be effective for First Defiance in the first quarter of 2020. That accounting change exposes First Defiance to increased risk of failure to establish a sufficient allowance and the possibility that First Defiance will need to increase its allowance substantially through an increase to the provision for loan losses, which will adversely affect First Defiance's net income.

As a result of any of the above factors, First Defiance's allowance for loan losses may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material adverse effect on First Defiance's operating results. There is no assurance that First Defiance will not further increase the allowance for loan losses. Either of these occurrences could have a material adverse effect on First Defiance's financial condition and results of operations.

Changes in interest rates can adversely affect First Defiance’s profitability.

First Defiance’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities, and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond First Defiance’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee. Changes in monetary policy, including changes in interest rates, could influence not only the interest First Defiance receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) First Defiance’s ability to originate loans and obtain deposits, (ii) the fair value of First Defiance’s financial assets and liabilities, and (iii) the average duration of certain assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, First Defiance’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. While we generally invest in securities with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages. All investment securities are subject to changes in market value due to changing interest rates and implied credit spreads. Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on First Defiance’s results of operations and financial condition.

First Federal originates a significant amount of residential mortgage loans that it sells in the secondary market. The origination of residential mortgage loans is highly dependent on the local real estate market and the current interest rates. Increasing interest rates tend to reduce the origination of loans for sale and consequently fee income, which First Defiance reports as mortgage banking income. Conversely, decreasing interest rates have the effect of causing clients to refinance mortgage loans faster than anticipated. This causes the value of mortgage servicing rights on the loans sold to be lower than originally anticipated. If this happens, First Defiance may be required to write down the value of its mortgage servicing rights faster than anticipated, which will increase expense and lower earnings. Accelerated repayments on loans and mortgage backed securities could result in the reinvestment of funds at lower rates than the loans or securities were paying.

Laws, regulations and periodic regulatory reviews may affect First Defiance’s results of operations.

The earnings of financial institutions are affected by the regulations and policies of various regulatory authorities, including the Federal Reserve, the OCC, the FDIC and the CFPB. The Federal Reserve has extensive supervisory authority over the Company, affecting a comprehensive range of matters relating to ownership and control of First Defiance’s shares, First Defiance’s acquisition of other companies and businesses, permissible activities for the Company to engage in, maintenance of adequate capital levels and other aspects of operations. These supervisory and regulatory powers are intended primarily for the protection of First Defiance’s depositors and borrowers and the DIF, rather than First Defiance’s shareholders.

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As discussed above, in October 2017, the CFPB issued the Payday Rule with respect to certain consumer loans to be effective on January 16, 2018, although compliance with most sections is required starting on August 19, 2019. Then, on February 6, 2019, the CFPB issued two proposals with respect to the Payday Rule regarding the underwriting provisions. These proposals do not change the provisions of the Payday Rule that address lender payment practices with respect to covered loans. The CFPB also stated that it will be considering other changes to the Payday Rule in response to requests received for exemptions of certain types of lenders or loan products and may commence separate additional rulemaking initiatives. First Defiance is currently assessing the expected effect of this new rule on First Defiance's lending businesses and on First Defiance’s financial condition and results of operations. The costs of complying with this regulation or a determination to discontinue certain types of consumer lending in light of the expense of compliance could have an adverse effect on the financial conditions and results of operations of the Company.

Changes in tax laws could adversely affect First Defiance's financial condition and results of operations.

First Defiance is subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to the tax laws could have a material adverse effect on First Defiance's results of operations. In addition, First Defiance's customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by customers, including changes in the deductibility of mortgage loan related expenses, may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for First Defiance's loans and deposit products. In addition, such negative effects on First Defiance's customers could result in defaults on the loans already made and decrease the value of mortgage-backed securities in which First Defiance has invested.

On December 22, 2017, H.R.1, formally known as the “Tax Cuts and Jobs Act,” was enacted into law. This new tax legislation, among other changes, limits the amount of state, federal and local taxes that taxpayers are permitted to deduct on their individual tax returns and eliminates other deductions in their entirety. Such limits and eliminations may result in customer defaults on loans already made and decrease the value of mortgage-backed securities in which First Defiance has invested.

The laws and regulations applicable to the banking industry could change at any time. The potential exists for new laws and regulations, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations. Increased regulation could increase First Defiance’s cost of compliance and reduce its income to the extent that they limit the manner in which First Defiance may conduct business, including its ability to offer new products, charge fees for specific products and services, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads.

First Defiance’s ability to meet cash flow needs on a timely basis at a reasonable cost may adversely affect net income.

First Defiance’s principal sources of liquidity are local deposits and wholesale funding sources such as FHLB advances, Federal Funds purchased, securities sold under repurchase agreements, and brokered or other out-of-market certificate of deposit purchases. Also, First Defiance maintains a portfolio of securities that can be used as a secondary source of liquidity. First Defiance’s access to funding sources in amounts adequate to finance or capitalize its activities or on terms that are acceptable could be impaired by factors that affect First Defiance directly or the financial services industry or economy in general, such as further disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

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Other possible sources of liquidity include the sale or securitization of loans, the issuance of additional collateralized borrowings beyond those currently utilized with the FHLB, the issuance of debt securities and the issuance of preferred or common securities in public or private transactions, or borrowings from a commercial bank. First Defiance does not currently have any borrowings from a commercial bank, but it has used them in the past.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to First Defiance’s shareholders, or fulfill obligations such as repaying First Defiance’s borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition.

Competition affects First Defiance’s earnings.

First Defiance’s continued profitability depends on its ability to continue to effectively compete to originate loans and attract and retain deposits. Competition for both loans and deposits is intense in the financial services industry. The Company competes in its market area by offering superior service and competitive rates and products. The type of institutions First Defiance competes with include large regional commercial banks, smaller community banks, savings institutions, mortgage banking firms, credit unions, finance companies, brokerage firms, insurance agencies and mutual funds. As a result of their size and ability to achieve economies of scale, certain of First Defiance’s competitors can offer a broader range of products and services than the Company can offer. In addition, the OCC has recently announced that it will start accepting applications for bank charters from nondepository financial technology companies engaged in banking activities, which will add to the number of parties with whom the Company competes. Further, technological advances allow consumers to pay bills and transfer funds electronically without banks. Consumers can also shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches. To stay competitive in its market area, First Defiance may need to adjust the interest rates on its products to match rates of its competition, which could have a negative impact on net interest margin.

The increasing complexity of First Defiance’s operations presents varied risks that could affect its earnings and financial condition.

First Defiance processes a large volume of transactions on a daily basis and is exposed to numerous types of risks related to internal processes, people and systems. These risks include, but are not limited to, the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, breaches of data security and our internal control system and compliance with a complex array of consumer and safety and soundness regulations. First Defiance could also experience additional loss as a result of potential legal actions that could arise as a result of operational deficiencies or as a result of noncompliance with applicable laws and regulations.

First Defiance has established and maintains a system of internal controls that provides management with information on a timely basis and allows for the monitoring of compliance with operational standards. These systems have been designed to manage operational risks at an appropriate, cost effective level. Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed. Losses from operational risks may still occur, however, including losses from the effects of operational errors.

Unauthorized disclosure of sensitive or confidential client or customer information or confidential trade secrets, whether through a breach of the Company’s computer systems or otherwise, could severely harm its business.

Potential misuse of funds or information by First Defiance’s employees or by third parties could result in damage to First Defiance’s customers for which First Defiance could be held liable, subject First Defiance to regulatory sanctions and otherwise adversely affect First Defiance’s financial condition and results of operations.

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First Defiance’s employees handle a significant amount of funds, as well as financial and personal information. First Defiance also depends upon third-party vendors who have access to funds and personal information about customers. Cybersecurity breaches of other companies, such as the breach of the systems of a credit bureau, may result in criminals using personal information obtained from such other source to impersonate a customer of First Defiance and obtain funds from customer accounts. Further, First Defiance may be affected by data breaches at retailers and other third parties who participate in data interchanges with First Defiance’s customers that involve the theft of customer credit and debit card data, which may include the theft of debit card personal identification numbers (“PIN”) and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in First Defiance incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on First Defiance’s results of operations.

Although First Defiance has implemented systems to minimize the risk of fraudulent taking or misuse of funds or information, there can be no assurance that such systems will be adequate or that a taking or misuse of funds or information by employees, by third parties who have authorized access to funds or information, or by third parties who are able to access funds or information without authorization will never occur. First Defiance could be held liable for such an event and could also be subject to regulatory sanctions. First Defiance could also incur the expense of developing additional controls and investing in additional equipment or contracts to prevent future such occurrences. Although First Defiance has insurance to cover such potential losses, First Defiance cannot provide assurance that such insurance will be adequate to meet any liability, and insurance premiums may rise substantially if First Defiance suffers such an event. In addition, any loss of trust or confidence placed in First Defiance by our customers could result in a loss of business, which could adversely affect our financial condition and results of operations, or result in a loss of investor confidence, hurting First Defiance’s stock price and ability to acquire capital in the future. First Defiance could also lose revenue by the wrongful appropriation of confidential information about its business operations by competitors who use the information to compete with First Defiance.

First Defiance could suffer a material adverse impact from interruptions in the effective operation of, or security breaches affecting, First Defiance’s computer systems.

First Defiance relies heavily on its own information systems and those of vendors to conduct business and to process, record, and monitor transactions. Risks to the system could result from a variety of factors, including the potential for bad acts on the part of hackers, criminals, employees and others. As one example, some banks have experienced denial of service attacks in which individuals or organizations flood the bank’s website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. Other businesses have been victims of a ransomware attack in which a business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information. First Defiance is also at risk for the impact of natural disasters, terrorism and international hostilities on its systems or for the effects of outages or other failures involving power or communications systems operated by others. These risks also arise from the same types of threats to businesses with which First Defiance deals.

Potential adverse consequences of attacks on First Defiance’s computer systems or other threats include damage to First Defiance’s reputation, loss of customer business, costs of incentives to customers or business partners in order to maintain their relationships, loss of investor confidence and a reduction in First Defiance’s stock price, litigation, increased regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity (such as obtaining additional technology, making organizational changes, deploying additional personnel, training personnel and engaging consultants), and increased insurance premiums, all of which could result in financial loss and material adverse effects on First Defiance’s results of operations and financial condition.

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If First Defiance forecloses on collateral property resulting in First Defiance’s ownership of the underlying real estate, First Defiance may be subject to the increased costs associated with the ownership of real property, resulting in reduced income.

A significant portion of First Defiance’s loan portfolio is secured by real property. During the ordinary course of business, First Defiance may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, First Defiance may be liable for remediation costs, as well as for personal injury and property damage.

In addition, when First Defiance forecloses on real property, the amount First Defiance realizes after a default is dependent upon factors outside of First Defiance’s control, including, but not limited to, economic conditions, neighborhood real estate values, interest rates, real estate taxes, operating expenses of the mortgaged properties, zoning laws, governmental rules, regulations and fiscal policies, and acts of God. Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating real property may exceed the rental income earned from such property, and First Defiance may have to sell the property at a loss. The foregoing expenditures could adversely affect First Defiance’s financial condition and results of operations.

First Defiance’s business strategy focuses on planned growth, including strategic acquisitions, and its financial condition and results of operations could be negatively affected if First Defiance fails to grow or fails to manage its growth effectively.

First Defiance’s ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, its ability to integrate mergers and other acquisitions and manage growth and First Defiance’s ability to raise capital. There can be no assurance that growth opportunities will be available.

First Defiance may acquire other financial institutions or parts of institutions in the future, open new branches, and consider new lines of business and new products or services. Expansions of its business would involve a number of expenses and risks, including:

· the time and costs associated with identifying and evaluating potential acquisitions or expansions into new markets;

· the potential inaccuracy of estimates and judgments used to evaluate the business and risks with respect to target institutions;

· the time and costs of hiring local management and opening new offices;

· the delay between commencing making acquisitions or engaging in new activities and the generation of profits from the expansion;

· First Defiance’s ability to finance an expansion and the possible dilution to existing shareholders;

· the diversion of management’s attention to the expansion;

· management’s lack of familiarity with new market areas;

· the integration of new products and services and new personnel into First Defiance’s existing business;

· the incurrence and possible impairment of goodwill associated with an acquisition and effects on First Defiance’s results of operations; and

· the risk of loss of key employees and customers.

If First Defiance’s growth involves the acquisition of companies through mergers or other acquisitions, the success of such acquisitions will depend on, among other things, First Defiance’s ability to combine the businesses in a manner that permits growth opportunities and cost efficiencies, and does not cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of First Defiance to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisitions.

Failure to manage First Defiance’s growth effectively could have a material adverse effect on its business, future prospects, financial condition or results of operations and could adversely affect First Defiance’s ability to successfully implement its business strategy.

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First Defiance’s ability to pay dividends is subject to regulatory limitations which, to the extent First Defiance requires such dividends in the future, may affect its ability to pay dividends or repurchase its stock.

As a unitary thrift holding company, First Defiance is a separate legal entity from First Federal and does not have significant operations of its own. Dividends from First Federal provide a significant source of capital for First Defiance. The availability of dividends from First Federal is limited by various statutes and regulations. The federal banking regulators require that insured financial institutions and their holding companies should generally only pay dividends out of current operating earnings. It is possible, depending upon the financial condition of First Federal and other factors, that the OCC, as First Federal’s primary regulator, could assert that the payment of dividends or other payments by First Federal are an unsafe or unsound practice. In the event First Federal is unable to pay dividends to First Defiance, First Defiance may not be able to pay its obligations as they become due, repurchase its stock, or pay dividends on its common stock. Consequently, the potential inability to receive dividends from First Federal could adversely affect First Defiance’s business, financial condition, results of operations or prospects.

Failure to integrate or adopt new technology may undermine First Defiance’s ability to meet customer demands, leading to adverse effects on First Defiance’s financial condition and results of operations.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. First Defiance’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. First Defiance may not be able to effectively implement or have the resources to implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could adversely affect First Defiance’s business, financial condition, or results of operations.

A transition away from LIBOR as a reference rate for financial contracts could negatively affect First Defiance’s income and expenses and the value of various financial contracts.

LIBOR is used extensively in the U.S. and globally as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such information after 2021. It is uncertain at this time whether LIBOR will change or cease to exist or the extent to which those entering into financial contracts will transition to any other particular benchmark. Other benchmarks may perform differently than LIBOR or alternative benchmarks have performed in the past or have other consequences that cannot currently be anticipated. It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist.

First Defiance may be the subject of litigation, which would result in legal liability and damage to its business and reputation.

From time to time, First Defiance may be subject to claims or legal action from customers, employees or others. Financial institutions like First Defiance are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. First Defiance is also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding its businesses. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other financial institutions, First Defiance is also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against First Defiance could materially adversely affect its business, financial condition or results of operations and/or cause significant reputational harm to its business.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

At December 31, 2018, First Federal conducted its business from its main office at 601 Clinton St., Defiance, Ohio, and 43 other full-service banking centers in northwest and central Ohio, northeast Indiana and southeast Michigan as well as a loan production office in southeast Michigan. First Insurance conducted its business primarily from nine offices in northwest Ohio.

In October 2018, First Federal opened a branch located at 203 E. Berry St., Fort Wayne, Indiana. This office is leased.

First Defiance maintains its headquarters in the main office of First Federal at 601 Clinton St., Defiance, Ohio. Back-office operation departments, including information technology, loan processing and underwriting, deposit processing, accounting and risk management are headquartered in an operations center located at 25600 Elliott Rd., Defiance, Ohio.

The following table sets forth certain information with respect to the offices and other properties of the Company at December 31, 2018. See Note 9 to the Consolidated Financial Statements.

	Leased/	Net Book Value
Description/address	Owned	of Property		Deposits
		(In Thousands)
First Federal
Main Office - 601 Clinton St., Defiance, OH	Owned	$	2,908	$	268,657
Operations Center - 25600 Elliott Rd., Defiance, OH	Owned		4,495		N/A
Branch Offices, First Federal
204 E. High St., Bryan, OH	Owned		490		160,615
211 S. Fulton St., Wauseon, OH	Owned		282		75,492
625 Scott St., Napoleon, OH	Owned		778		97,500
1050 E. Main St., Montpelier, OH	Owned		216		52,327
1800 Scott St., Napoleon, OH	Owned		1,030		42,728
1177 N. Clinton St., Defiance, OH	Owned, Land Lease Leased		634		45,905
905 N. Williams St., Paulding, OH	Owned		593		92,873
201 E. High St., Hicksville, OH	Owned		250		36,928
3900 N. Main St., Findlay, OH	Owned		731		64,763
1694 N. Countyline St., Fostoria, OH	Owned		510		61,838
1226 W. Wooster St., Bowling Green, OH	Owned		810		129,991
301 S. Main St., Findlay, OH	Owned		669		107,898
405 E. Main St., Ottawa, OH	Owned		250		97,812
124 E. Main St., McComb, OH	Owned		142		22,156
7591 Patriot Dr., Findlay, OH	Owned		972		55,377
417 W. Dussel Dr., Maumee, OH	Owned, Land Lease		624		101,954
230 E. Second St., Delphos, OH	Owned		777		108,086
105 S. Greenlawn Ave., Elida, OH	Owned		276		44,050
2600 Allentown Rd., Lima, OH	Owned		866		51,231
22020 W. State Rt. 51, Genoa, OH	Owned		674		37,187
3426 Navarre Ave., Oregon, OH	Owned		744		42,202
1077 Louisiana Ave., Perrysburg, OH	Owned		477		50,288
2565 Shawnee Rd., Lima, OH	Owned		1,151		44,475
1595 W. Dupont Rd., Fort Wayne, IN	Leased		-		33,692
135 S. Main St., Glandorf, OH	Leased		-		19,395

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300 N. Main St., Adrian, MI	Owned		646		85,995
1701 W. Maumee St., Adrian, MI	Owned		178		50,110
211 W. Main St., Morenci, MI	Owned		150		36,192
539 S. Meridian Hwy., Hudson, MI	Owned		453		49,559
1449 W. Chicago Blvd., Tecumseh, MI	Owned		1,325		64,201
1200 N. Main St., Bowling Green OH	Owned		1,508		14,884
9909 Illinois Rd, Fort Wayne, IN	Owned		1,859		56,102
4501 Cemetery Rd, Hilliard, OH	Owned		928		9,970
2920 W. Central Ave., Toledo, OH	Owned		158		2,073
118 S. Sandusky Ave., Upper Sandusky, OH	Owned		1,106		121,574
112 E. Liberty St., Arlington, OH	Owned		83		20,610
128 S. Vance St., Carey, OH	Owned		167		54,926
17480 Cherokee St., Harpster, OH	Owned		132		12,662
279 Jamesway Dr., Marion, OH	Owned		686		36,909
195 Barks Rd. West, Marion, OH	Owned		613		41,947
1707 Cherry St., Toledo, OH	Owned		56		9,145
1995 Highland Dr., Suite A, Ann Arbor, MI	Leased		-		-
5520 Monroe St., Sylvania, OH	Leased		16		7,669
203 E. Berry St., Fort Wayne, IN	Leased		26		934
First Insurance Group
511 Fifth St., Defiance, OH	Leased		409		N/A
209 W. Poe Rd., Bowling Green, OH	Leased		-		N/A
204 E. High St., Bryan, OH	Leased		-		N/A
2600 Allentown Rd., Lima, OH	Leased		-		N/A
107 Ditto St., Suite 400, Archbold, OH	Leased		-		N/A
101 W. Sandusky St., Suite 306, Findlay, OH	Leased		-		N/A
1650 N. Countyline St., Suite 200, Fostoria, OH	Leased		-		N/A
643 Miami St., Suite 5, Tiffin, OH	Leased		-		N/A
5520 Monroe St., Suite A, Sylvania, OH	Leased		-		N/A
		$	31,848	$	2,620,882

Item 3. Legal Proceedings

First Defiance is involved in routine legal proceedings that are incidental to and occur in the ordinary course of business which, in the aggregate, are believed by management to be immaterial to the financial condition of First Defiance.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common shares trade on The NASDAQ Global Select Market under the symbol “FDEF.” As of January 31, 2019, the Company had approximately 2,347 shareholders of record.

The line graph below compares the yearly percentage change in cumulative total shareholder return on First Defiance common shares and the cumulative total return of the NASDAQ Composite Index, the SNL NASDAQ Bank Index and the SNL Midwest Thrift Index. An investment of $100 on December 31, 2013, and the reinvestment of all dividends are assumed. The performance graph represents past performance and should not be considered to be an indication of future performance.

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			Period Ending
Index	12/31/13		12/31/14		12/31/15		12/31/16		12/31/17		12/31/18
First Defiance Financial Corp.		100.00		134.08		151.90		208.51		217.83		210.01
NASDAQ Composite		100.00		114.75		122.74		133.62		173.22		168.30
SNL Bank NASDAQ		100.00		103.57		111.80		155.02		163.20		137.56
SNL Midwest Thrift		100.00		114.29		139.95		168.52		160.27		146.29

The following table provides information regarding First Defiance’s purchases of its common shares during the fourth quarter period ended December 31, 2018:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (1)
October 1 – October 31, 2018		-	$	-		-		755,000
November 1 – November 30, 2018		145,422		27.63		145,422		609,578
December 1 – December 31, 2018		85,738		26.96		85,738		523,840
Total		231,160	$	27.38		231,160		523,840

(1) On January 29, 2016, the Company announced that its Board of Directors authorized a program for the repurchase of up to 5% of the outstanding common shares or 900,000 shares. There is no expiration date for the new repurchase program.

The information set forth under the caption “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters - Equity Compensation Plans” of this Form 10-K is incorporated herein by reference.

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Item 6. Selected Financial Data

The following table is derived from the Company’s audited financial statements as of and for the five years ended December 31, 2018. The following consolidated selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere in this Form 10-K. The operating results of acquired companies are included with the Company’s results of operations since their respective dates of acquisition.

	As of and For the Year Ended December 31
	2018			2017			2016			2015			2014
	(Dollars and Shares in Thousands, Except Per Share Data)
Financial Condition:
Total assets	$	3,182,376		$	2,993,403		$	2,477,597		$	2,297,676		$	2,178,952
Investment securities		294,602			261,298			251,176			236,678			239,634
Loans receivable, net		2,511,708			2,322,030			1,914,603			1,776,835			1,622,020
Allowance for loan losses		28,331			26,683			25,884			25,382			24,766
Non-performing assets (1)		20,221			32,247			14,803			17,582			30,311
Deposits and borrowers’ escrow balances		2,624,534			2,440,581			1,984,278			1,838,811			1,763,122
FHLB advances		85,189			84,279			103,943			59,902			21,544
Stockholders’ equity		399,589			373,286			293,018			280,197			279,505
Share Information:
Basic earnings per share	$	2.27		$	1.62		$	1.61		$	1.44		$	1.28
Diluted earnings per share		2.26			1.61			1.60			1.41			1.22
Book value per common share		19.81			18.38			16.31			15.39			15.09
Tangible book value per common share (2)		14.71			13.24			12.80			11.89			11.62
Cash dividends per common share		0.64			0.50			0.44			0.39			0.31
Dividend payout ratio		28.19	%		30.96	%		27.41	%		27.00	%		24.51	%
Weighted average diluted shares outstanding		20,468			20,056			18,070			18,742			19,938
Shares outstanding end of period		20,171			20,312			17,966			18,204			18,470
Operations:
Interest income	$	124,717		$	108,102		$	87,383		$	80,836		$	76,248
Interest expense		16,462			11,431			8,440			6,781			6,559
Net interest income		108,255			96,671			78,943			74,055			69,689
Provision for loan losses		1,176			2,949			283			136			1,117
Noninterest income		39,208			40,081			34,030			31,803			31,641
Noninterest expense		89,412			85,351			71,093			67,889			66,758
Income before tax		56,875			48,452			41,597			37,833			33,455
Federal income tax		10,626			16,184			12,754			11,410			9,163
Net Income		46,249			32,268			28,843			26,423			24,292
Performance Ratios:
Return on average assets		1.52	%		1.13	%		1.20	%		1.19	%		1.12	%
Return on average equity		12.03	%		9.19	%		10.10	%		9.52	%		8.78	%
Interest rate spread (2)		3.79	%		3.74	%		3.61	%		3.71	%		3.57	%
Net interest margin (2)		3.98	%		3.88	%		3.74	%		3.81	%		3.68	%
Ratio of operating expense to average total assets		2.93	%		2.99	%		2.97	%		3.05	%		3.09	%
Efficiency ratio (2)		60.29	%		61.81	%		62.20	%		63.01	%		65.32	%
Other Ratios:
Equity to total assets at end of period		12.56	%		12.47	%		11.83	%		12.19	%		12.83	%
Average equity to average assets		12.61	%		12.32	%		11.91	%		12.49	%		12.79	%
Asset Quality Ratios:
Non-performing assets to total assets at end of period (1)		0.64	%		1.08	%		0.60	%		0.77	%		1.39	%
Allowance for loan losses to total loans*		1.12	%		1.14	%		1.33	%		1.41	%		1.50	%
Net charge-offs (recoveries) to average loans		-0.02	%		0.10	%		-0.01	%		-0.03	%		0.08	%

(1) Non-performing assets include non-accrual loans that are contractually past due 90 days or more and real estate, mobile homes and other assets acquired by foreclosure or deed-in-lieu thereof.

(2) Refer to Non-GAAP Financial Measures in Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

* Total loans are net of undisbursed loan funds and deferred fees and costs.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Company’s future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Corporation that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per common share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of First Defiance or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

· Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.

· Volatility and disruption in national and international financial markets.

· Government intervention in the U.S. financial system.

· Changes in the level of non-performing assets and charge-offs.

· Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

· The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve.

· Inflation, interest rate, securities market and monetary fluctuations.

· Political instability.

· Acts of God or of war or terrorism.

· The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

· Changes in consumer spending, borrowing and saving habits.

· Changes in the financial performance and/or condition of the Company’s borrowers or customers.

· Technological changes including core system conversions.

· Acquisitions and integration of acquired businesses.

· The ability to increase market share and control expenses.

· Changes in the competitive environment among financial holding companies and other financial service providers.

· The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply.

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· The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board (“PCAOB”), the Financial Accounting Standards Board (“FASB”) and other accounting standard setters.

· The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews.

· Greater than expected costs or difficulties related to the integration of new products and lines of business.

· The Company’s success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

This Item 7 presents information to assess the financial condition and results of operations of First Defiance. This item should be read in conjunction with the Consolidated Financial Statements and the supplemental financial data contained elsewhere in this Annual Report on Form 10-K.

Non-GAAP Financial Measures

This Annual Report on Form 10-K contains GAAP financial measures and certain non-GAAP financial measures. Management believes that these measures are helpful in understanding the Company’s results of operations or financial position. Fully taxable-equivalent (“FTE”) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis. The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures at December 31, 2018 and 2017.

Non-GAAP Financial Measures – Net Interest Income on an

FTE basis, Net Interest Margin and Efficiency Ratio

(In Thousands)	December 31, 2018			December 31, 2017
Net interest income (GAAP)	$	108,255		$	96,671
Add:  FTE adjustment		1,004			1,914
Net interest income on a FTE basis (1)	$	109,259		$	98,585
Noninterest income – less securities gains/(losses) (2)	$	39,035		$	39,497
Noninterest expense (3)		89,412			85,351
Average interest-earning assets less average unrealized gains/(losses) on securities(4)		2,744,752			2,542,129
Average interest-earning assets		2,741,215			2,545,261
Average unrealized gains/losses on securities		(3,537	)		3,132
Ratios:
Net interest margin (1) / (4)		3.98	%		3.88	%
Efficiency ratio (3) / (1) + (2)		60.29	%		61.81	%

Non-GAAP Financial Measures – Tangible Book Value

(In Thousands, except per share data)	December 31, 2018			December 31, 2017
Total Shareholders’ Equity (GAAP)	$	399,589		$	373,286
Less:     Goodwill		(98,569	)		(98,569	)
Intangible assets		(4,391	)		(5,703	)
Tangible common equity (1)	$	296,629		$	269,014
Common shares outstanding (2)		20,171			20,312
Tangible book value per share (1) / (2)	$	14.71		$	13.24

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Overview

First Defiance is a unitary thrift holding company that conducts business through its wholly-owned subsidiaries, First Federal, First Insurance and First Defiance Risk Management.

First Federal is a federally chartered stock savings bank that provides financial services to communities based in northwest Ohio, northeast Indiana, and southeastern Michigan where it operates 44 full service banking centers in fourteen northwest and central Ohio counties, one northeast Indiana county, and one southeastern Michigan county. First Federal operates one loan production office in Ann Arbor, Michigan, which is located in Washtenaw County.

First Federal provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network.

First Insurance sells a variety of property and casualty, group health and life and individual health and life insurance products. First Insurance is an insurance agency that conducts business throughout First Federal’s Markets. The previous Maumee and Oregon, Ohio offices were consolidated into a new office in Sylvania, Ohio, in January 2018.

First Defiance Risk Management is a wholly owned insurance company subsidiary of the Company to insure the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. First Defiance Risk Management was incorporated on December 20, 2012.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of two common shares for each outstanding common share. The stock split was distributed on July 12, 2018, to shareholders of record as of July 2, 2018. All share and per share data in this Form 10-K have been adjusted and are reflective of the stock split.

Financial Condition

Assets at December 31, 2018, totaled $3.18 billion compared to $2.99 billion at December 31, 2017, an increase of $188.3 million or 6.3%. The increase in assets was primarily due to an increase in loans receivable, net of undisbursed loan funds and deferred fees and costs, of $191.3 million, and an increase in securities of $33.3 million. These increases were funded primarily by an increase in total deposits of $183.2 million.

Securities

The securities portfolio increased $33.3 million to $294.6 million at December 31, 2018. The 2018 activity in the portfolio included $76.6 million of purchases, which were partially offset by $1.2 million of amortization, $32.7 million of principal pay-downs and maturities, and $5.5 million of securities being sold. There was a net loss of $3.5 million in the market value of available-for-sale securities. For additional information regarding First Defiance’s investment securities see Note 5 to the Consolidated Financial Statements.

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Loans

Loans receivable, net of undisbursed loan funds and deferred fees and costs, increased $191.3 million to $2.54 billion at December 31, 2018. For more details on the loan balances, see Note 7 – Loans Receivable to the Consolidated Financial Statements.

The majority of First Defiance’s commercial real estate and commercial loans are to small- and mid-sized businesses. The combined commercial, commercial real estate and multi-family real estate loan portfolios totaled $1.85 billion and $1.76 billion at December 31, 2018 and 2017, respectively, and accounted for approximately 71.8% and 71.4% of First Defiance’s loan portfolio at the end of those respective periods. First Defiance believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients.

The 1-4 family residential portfolio totaled $322.7 million at December 31, 2018, compared with $274.9 million at the end of 2017. At the end of 2018, those loans comprised 12.1% of the total loan portfolio, up from 11.1% at December 31, 2017.

Construction loans, which include one-to-four family and commercial real estate properties, increased to $265.8 million at December 31, 2018, compared to $265.5 million at December 31, 2017. These loans accounted for approximately 10.0% and 10.8% of the total loan portfolio at December 31, 2018 and 2017, respectively.

Home equity and home improvement loans decreased to $128.2 million at December 31, 2018, from $135.5 million at the end of 2017. At the end of 2018, those loans comprised 4.8% of the total loan portfolio, down from 5.5% at December 31, 2017.

Consumer finance and mobile home loans were $34.4 million at December 31, 2018 up from $29.1 million at the end of 2017. These loans accounted for approximately 1.3% and 1.2% of the total loan portfolio at December 31, 2018 and 2017, respectively.

In order to properly assess the collateral dependent loans included in its loan portfolio, the Company has established policies regarding the monitoring of the collateral underlying such loans. The Company requires an appraisal that is less than one year old for all new collateral dependent real estate loans, and all renewed collateral dependent real estate loans where significant new money is extended. The appraisal process is handled by the Credit Department, which selects the appraiser and orders the appraisal. First Defiance’s loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making a determination of value.

First Federal generally does not require updated appraisals for performing loans unless significant new money is requested by the borrower.

When a collateral dependent loan is downgraded to classified status, First Federal reviews the most current appraisal on file and if appropriate, based on First Federal’s assessment of the appraisal, such as age, market, etc. First Federal will discount the appraisal amount to a more appropriate current value based on inputs from lenders and realtors. This amount may then be discounted further by First Federal’s estimation of the selling costs. In most instances, if the appraisal is more than twelve to fifteen months old, a new appraisal may be required. Finally, First Federal assesses whether there is any collateral short fall, taking into consideration guarantor support and liquidity, and determines if a charge-off is necessary.

All loans over 90 days past due and/or on non-accrual are classified as non-performing loans. Non-performing status automatically occurs in the month in which the 90-day delinquency occurs. When a collateral dependent loan moves to non-performing status, First Federal generally gets a new third party appraisal and charges the loan down appropriately based upon the new appraisal and an estimate of costs to liquidate the collateral. All properties that are moved into the Other Real Estate Owned (“OREO”) category are supported by current appraisals, and the OREO is carried at the lower of cost or fair value, which is determined based on appraised value less First Federal’s estimate of the liquidation costs.

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First Federal does not adjust any appraisals upward without written documentation of this valuation change from the appraiser. When setting reserves and charge-offs on classified loans, appraisal values may be discounted downward based upon First Federal’s experience with liquidating similar properties.

Appraisals are received within approximately 60 days after they are requested. The First Federal Loan Loss Reserve Committee reviews the amount of each new appraisal and makes any necessary charge-off decisions at its meeting prior to the end of each quarter.

Any partially charged-off collateral dependent loans are considered non-performing, and as such, would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before First Federal will consider an upgrade to performing status. First Federal may consider moving the loan to accruing status after approximately six months of satisfactory payment performance.

First Federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge-offs. Based on these results, changes may occur in the processes used.

Loan modifications constitute a troubled debt restructuring (“TDR”) if First Federal, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. For loans that are considered TDRs and the balance is over $250,000, First Federal either computes the present value of expected future cash flows discounted at the original loan’s effective interest rate or it may measure impairment based on the fair value of the collateral. For those loans measured for impairment utilizing the present value of future cash flows method, any discount is carried as a specific reserve in the allowance for loan and lease losses. For those loans measured for impairment utilizing the fair value of the collateral, any shortfall is charged-off. For loans that are considered TDRs and the balance is under $250,000 a specific reserve is carried in the allowance for loan and lease losses based on a general reserve analysis. As of December 31, 2018, and December 31, 2017, First Federal had $11.6 million and $13.8 million, respectively, of loans that were still performing and which were classified as TDRs.

Allowance for Loan Losses

The allowance for loan losses represents management’s assessment of the estimated probable incurred credit losses in the loan portfolio at each balance sheet date. Management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrower’s ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships. The goal is to have approximately 55% to 60% of the portfolio reviewed annually. This includes all relationships over $5.0 million with new exposure greater than $2.0 million and a sample of other relationships greater than $5.0 million; loan relationships between $1.0 million and $5.0 million with new exposure greater than $750,000 and a sample of other relationships between $1.0 million and $5.0 million; and a sample of relationships less than $1.0 million. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the allowance for loan losses associated with these types of loans.

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The allowance for loan loss is made up of two basic components. The first component of the allowance for loan loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual impaired credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. For loans that are considered impaired and the balance is over $250,000, First Federal either computes the present value of expected future cash flows discounted at the original loan’s effective interest rate or it may measure impairment based on the fair value of the collateral. For those loans measured for impairment utilizing the present value of future cash flows method, any discount is carried as a specific reserve in the allowance for loan and lease losses. For those loans measured for impairment utilizing the fair value of the collateral, any shortfall is usually charged-off. For loans that are considered impaired and the balance is under $250,000 a specific reserve is carried in the allowance for loan and lease losses based on a general reserve analysis. The Company also considers the impacts of any Small Business Association or Farm Service Agency guarantees. The specific reserve was $595,000 at December 31, 2018, and $758,000 at December 31, 2017.

The second component is a general reserve, which is used to record loan loss reserves for groups of homogenous loans in which the Company estimates the losses incurred in the portfolio based on quantitative and qualitative factors. For purposes of the general reserve analysis, the loan portfolio is stratified into nine different loan pools based on loan type to allocate historic loss experience. The loss experience factor is then applied to the non-impaired loan portfolio. The Company utilizes loss migration measurement for each loan portfolio segment with differentiation between loan risk grades in calculating the general reserve component for non-impaired loans. Beginning December 31, 2016, the historical loss calculation was changed from using a an average of four (4) four-year loss migration periods to using an average of all four-year loss migration periods to the present beginning with data from the second quarter 2011. Management believes this enhancement is consistent with the rationale of the previous measurement but provides a more precise calculation of historical losses by incorporating more data points for the average loss ratio and including periods that provide a more complete coverage of the full business cycle. Management believes that capturing the risk grade changes and cumulative losses over the life cycle of a loan more accurately depicts management’s estimate of historical losses as well as being more reflective of the ongoing risks in the loan portfolio.

The quantitative general allowance remained steady at $5.9 million at December 31, 2018, from $6.0 million at December 31, 2017, due to relatively small changes in the historical loss rates from the migration analysis.

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on the non-impaired loan portfolio for various factors. The overall qualitative factors are based on nine sub-factors. The nine sub-factors have been aggregated into three qualitative factors: economic, environment and risk.

ECONOMIC

1) Changes in international, national and local economic business conditions and developments, including the condition of various market segments.

2) Changes in the value of underlying collateral for collateral dependent loans.

ENVIRONMENT

3) Changes in the nature and volume in the loan portfolio.

4) The existence and effect of any concentrations of credit and changes in the level of such concentrations.

5) Changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.

6) Changes in the quality and breadth of the loan review process.

7) Changes in the experience, ability and depth of lending management and staff.

RISK

8) Changes in the trends of the volume and severity of delinquent and classified loans, and changes in the volume of non-accrual loans, trouble debt restructuring, and other loan modifications.

9) Changes in the political and regulatory environment.

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The qualitative analysis at December 31, 2018, indicated a general reserve of $21.8 million compared with $20.0 million at December 31, 2017, an increase of $1.8 million. Management reviews the overall economic, environmental and risk factors quarterly and determines appropriate adjustments to these sub-factors based on that review.

The economic factors for all loan segments decreased in 2018 primarily due to strengthening trends in the U.S. economy, particularly unemployment rates, which decreased in all markets.

The environmental factors increased in 2018 for all loan segments. This is principally due to an increase in credit concentrations and an increase in the mix of lending in First Federal’s defined metro markets.

The risk factors decreased in 2018 in most loan segments with the largest decrease being in commercial. This is due to favorable trends in the levels of non-performing loans and classified assets.

First Defiance’s general reserve percentages for main loan segments not otherwise classified ranged from 0.48% for construction loans to 1.50% for home equity and improvement loans.

As a result of the quantitative and qualitative analysis, along with the change in specific reserves, the Company’s provision for loan losses for 2018 was $1.2 million compared to $2.9 million for 2017. The allowance for loan losses was $28.3 million at December 31, 2018, and $26.7 million at December 31, 2017, and represented 1.12% and 1.14% of loans, net of undisbursed loan funds and deferred fees and costs, respectively. The provision was offset by charge-offs of $2.9 million and recoveries of $3.3 million resulting in an increase to the overall allowance for loan loss of $1.6 million. In management’s opinion, the overall allowance for loan losses of $28.3 million as of December 31, 2018, is adequate.

Management also assesses the value of OREO as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In 2018, First Defiance recorded OREO write-downs that totaled $552,000. These amounts were included in other noninterest expense. Management believes that the values recorded at December 31, 2018, for OREO and repossessed assets represent the realizable value of such assets.

Total classified loans decreased from $59.4 million at December 31, 2017 to $50.8 million at December 31, 2018, a reduction of $8.6 million, due to payoffs and an upgrade of a large classified relationship during 2018.

First Defiance’s ratio of allowance for loan losses to non-performing loans was 149.0% at December 31, 2018, compared with 86.9% at December 31, 2017. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for those loans at December 31, 2018, are appropriate.

At December 31, 2018, First Defiance had total non-performing assets of $20.2 million, compared to $32.2 million at December 31, 2017. Non-performing assets include loans that are 90 days past due, OREO and other assets held for sale.

The decrease in non-performing assets between December 31, 2018, and December 31, 2017, is primarily in commercial loans and commercial real estate loans. The balance of commercial non-performing loans was $4.3 million lower at December 31, 2018, compared to December 31, 2017. The balance of commercial real estate loans was $7.9 million lower at December 31, 2018, compared to December 31, 2017.

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Non-performing loans in the 1-4 family residential, commercial real estate and commercial loan categories represent 1.13%, 0.74% and 0.88% of the total loans in those categories respectively at December 31, 2018, compared to 1.10%, 1.47% and 1.68% respectively for the same categories at December 31, 2017. Management believes that the current allowance for loan losses is appropriate and that the provision for loan losses recorded in 2018 is consistent with both charge-off experience and the risk inherent in the overall credits in the portfolio.

First Federal’s Asset Review Committee meets monthly to review the status of work-out strategies for all criticized relationships, which include all non-accrual loans. Based on such factors as anticipated collateral values in liquidation scenarios, cash flow projections, assessment of net worth of guarantors and all other factors which may mitigate risk of loss, the Asset Review Committee makes recommendations regarding proposed charge-offs which are approved by the Loan Loss Reserve Committee.

The net charge-offs and non-accrual loan balances as a percentage of total are presented in the table below at December 31, 2018 and 2017.

Table 1 – Net Charge-offs and Non-accruals by Loan Type

	For the Twelve Months Ended December 31, 2018						As of December 31, 2018
	Net			% of Total Net
	Charge-offs			Charge-offs			Non-accrual		% of Total Non-
	(Recoveries)			(Recoveries)			Loans		Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	130			27.54	%	$	3,640		19.14	%
Construction		-			0.00	%		-		0.00	%
Commercial real estate		610			129.24	%		10,357		54.47	%
Commercial		(1,497	)		(317.16	)%		4,500		23.66	%
Consumer finance		207			43.85	%		126		0.66	%
Home equity and improvement		78			16.53	%		393		2.07	%
Total	$	(472	)		100.00	%	$	19,016		100.00	%

	For the Twelve Months Ended December 31, 2017						As of December 31, 2017
	Net			% of Total Net
	Charge-offs			Charge-offs			Non-accrual		% of Total Non-
	(Recoveries)			(Recoveries)			Loans		Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	164			7.63	%	$	3,037		9.89	%
Construction		-			0.00	%		-		0.00	%
Commercial real estate		(260	)		(12.09	)%		18,219		59.32	%
Commercial		2,058			95.77	%		8,841		28.78	%
Consumer finance		54			2.46	%		28		0.09	%
Home equity and improvement		134			6.23	%		590		1.92	%
Total	$	2,150			100.00	%	$	30,715		100.00	%

The following table sets forth information concerning the allocation of First Defiance’s allowance for loan losses by loan categories at December 31, 2018 and 2017.

Table 2 – Allowance for Loan Loss Allocation by Loan Category

	December 31, 2018					December 31, 2017
			Percent of					Percent of
			total loans					total loans
	Amount		by category			Amount		by category
	(Dollars in Thousands)
1-4 family residential	$	2,881		12.1	%	$	2,532		11.1	%
Multi-family  residential real estate		3,101		10.4			2,702		10.1
Commercial real estate		12,041		42.3			10,354		40.0
Construction		682		10.0			647		10.8
Commercial loans		7,281		19.1			7,965		21.3
Home equity and improvement loans		2,026		4.8			2,255		5.5
Consumer loans		319		1.3			228		1.2
	$	28,331		100.0	%	$	26,683		100.0	%

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Loans Acquired with Impairment

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.

As of December 31, 2018, the total contractual receivable for those loans was $2.5 million and the recorded value was $2.3 million.

High Loan-to-Value Mortgage Loans

The majority of First Defiance’s mortgage loans are collateralized by one-to-four-family residential real estate, have loan-to-value ratios of 80% or less, and are made to borrowers in good credit standing. First Federal usually requires residential mortgage loan borrowers whose loan-to-value is greater than 80% to purchase private mortgage insurance (“PMI”). Management also periodically reviews and monitors the financial viability of its PMI providers.

First Federal originates and retains a limited number of residential mortgage loans with loan-to-value ratios that exceed 80% where PMI is not required if the borrower possesses other demonstrable strengths. The loan-to-value ratios on these loans are generally limited to 85% and exceptions must be approved by First Federal’s Chief Credit Officer. Management monitors the balance of one-to-four family residential loans, including home equity loans and committed lines of credit that exceed certain loan to value standards (90% for owner occupied residences, 85% for non-owner occupied residences and one-to-four family construction loans, 75% for developed land and 65% for raw land). Total loans that exceed those standards described above at December 31, 2018, totaled $53.0 million, compared to $50.8 million at December 31, 2017. These loans are generally paying as agreed.

First Defiance does not make interest-only, first-mortgage residential loans, nor does it have residential mortgage loan products or other consumer products that allow negative amortization.

Goodwill and Intangible Assets

Goodwill was $98.6 million at December 31, 2018, and December 31, 2017. Core deposit intangibles and other intangible assets decreased to $4.4 million at December 31, 2018, compared to $5.7 million at December 31, 2017. During 2018, changes to the core deposit intangibles and other intangibles were due to the recognition of $1.3 million of amortization expense. No impairment of goodwill was recorded in 2018 or 2017.

Deposits

Total deposits at December 31, 2018, were $2.62 billion compared to $2.44 billion at December 31, 2017, an increase of $183.2 million or 7.5%. Noninterest-bearing checking accounts grew by $35.8 million, interest-bearing checking accounts and money markets grew by $35.0 million, savings decreased by $9.2 million and retail certificates of deposit grew by $121.6 million. Management can utilize the national market for certificates of deposit to supplement its funding needs if necessary. For more details on the deposit balances in general see Note 11 – Deposits to the Consolidated Financial Statements.

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Borrowings

FHLB advances totaled $85.2 million at December 31, 2018, compared to $84.3 million at December 31, 2017. The balance at the end of 2018 includes thirteen fixed-rate advances totaling $59.0 million with rates ranging from 1.14% to 2.50%, one amortizing advance of $1.2 million with a rate of 2.14% and one overnight advance of $25.0 million with a rate of 2.45%.

At December 31, 2018, First Defiance also had $5.7 million of securities that were sold with agreements to repurchase, compared to $26.0 million at December 31, 2017.

Equity

Total stockholders’ equity increased $26.3 million to $399.6 million at December 31, 2018, compared to $373.3 million at December 31, 2017. The increase in stockholders’ equity was the result of recording net income of $46.2 million. This was partially offset by the payment of $13.0 million of common stock dividends, the repurchase of 231,160 shares of common stock totaling $6.3 million and other comprehensive loss of $2.4 million.

Results of Operations

Summary

First Defiance reported net income of $46.2 million for the year ended December 31, 2018, compared to $32.3 million and $28.8 million for the years ended December 31, 2017 and 2016, respectively. On a diluted per common share basis, First Defiance earned $2.26 in 2018, $1.61 in 2017 and $1.60 in 2016.

Net Interest Income

First Defiance’s net interest income is determined by its interest rate spread (i.e. the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.

Net interest income was $108.3 million for the year ended December 31, 2018, compared to $96.7 million and $78.9 million for the years ended December 31, 2017 and 2016, respectively. The tax-equivalent net interest margin was 3.98%, 3.88% and 3.74% for the years ended December 31, 2018, 2017 and 2016, respectively. The margin increased 10 basis points between 2017 and 2018. The increase in margin in 2018 was primarily due to the increase in interest rates as the federal rate hikes impacted asset yields more favorably than deposit costs as well as the mix of our noninterest-bearing balances. Interest-earning asset yields increased 26 basis points (to 4.59% in 2018 from 4.33% in 2017) and the cost of interest- bearing liabilities between the two periods increased 21 basis points (to 0.80% in 2018 from 0.59% in 2017).

Total interest income increased by $16.6 million or 15.4% to $124.7 million for the year ended December 31, 2018, from $108.1 million for the year ended December 31, 2017. This is due to solid loan growth, the increase in interest rates and a more profitable earning asset mix. Interest income from loans increased to $114.4 million for 2018 compared to $99.5 million in 2017, which represents an increase of 14.9%. The average balance of loans receivable increased $184.3 million to $2.4 billion at December 31, 2018, from $2.2 billion at December 31, 2017.

During the same period, the average balance of investment securities increased to $280.0 million in 2018 from $258.8 million for the year ended December 31, 2017. Interest income from investment securities increased to $8.1 million in 2018 compared to $6.9 million in 2017, which represents an increase of 17.1%. The overall duration of investments increased to 4.29 years at December 31, 2018, from 3.40 years at December 31, 2017.

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Interest expense increased by $5.0 million in 2018 compared to 2017, to $16.5 million from $11.4 million. This increase was mainly due to a 21 basis point increase in the average cost of interest-bearing liabilities in 2018 and a $127.5 million increase in the average balance of interest-bearing liabilities. The average balance of interest-bearing deposits increased $175.3 million to $1.95 billion at December 31, 2018, from $1.77 billion at December 31, 2017. Interest expense related to interest-bearing deposits was $13.9 million in 2018 compared to $8.8 million in 2017.

Interest expenses on FHLB advances and other interest-bearing funding sources were $1.3 million and $23,000 respectively, in 2018 and $1.5 million and $208,000 respectively in 2017. The decrease in FHLB advance expense was due to a $28.7 million decrease in the average balance of FHLB advances to $73.4 million at December 31, 2018, compared to $102.2 million at December 31, 2017. The decrease in average balances of FHLB advances offset an increase in the rate paid on FHLB advances as it increased to 1.72% at December 31, 2018, from 1.44% at December 31, 2017. Interest expense recognized by the Company related to subordinated debentures was $1.3 million in 2018 and $935,000 in 2017 due to rising rates.

Total interest income increased by $20.7 million or 23.7% to $108.1 million for the year ended December 31, 2017, from $87.4 million for the year ended December 31, 2016. This is primarily due to continued loan growth, the CSB acquisition, the increase in interest rates and a more profitable earning asset mix. Interest income from loans increased to $99.5 million for 2017 compared to $80.2 million in 2016, which represents an increase of 24.1%. The average balance of loans receivable increased $345.2 million to $2.2 billion at December 31, 2017, from $1.9 billion at December 31, 2016, due primarily to the CSB acquisition.

During the same period, the average balance of investment securities increased to $258.8 million in 2017 from $233.4 million for the year ended December 31, 2016. Interest income from investment securities increased to $6.9 million in 2017 compared to $6.2 million in 2016, which represents an increase of 11.1%. The overall duration of investments increased to 3.40 years at December 31, 2017, from 3.38 years at December 31, 2016.

Interest expense increased by $3.0 million in 2017 compared to 2016, to $11.4 million from $8.4 million. This increase was mainly due to a seven basis point increase in the average cost of interest-bearing liabilities in 2017 and a $297.3 million increase in the average balance of interest-bearing liabilities. The average balance of interest-bearing deposits increased $305.9 million to $1.77 billion at December 31, 2017, from $1.46 billion at December 31, 2016, primarily due to the CSB acquisition. Interest expense related to interest-bearing deposits was $8.8 million in 2017 compared to $6.3 million in 2016.

Interest expenses on FHLB advances and other interest-bearing funding sources were $1.5 million and $208,000 respectively, in 2017 and $1.3 million and $138,000 respectively in 2016. The increase in FHLB advance expense was primarily due to rising interest rates and a $16.3 million increase in the average balance of FHLB advances to $102.2 million at December 31, 2017, compared to $85.9 million at December 31, 2016. Interest expense recognized by the Company related to subordinated debentures was $935,000 in 2017 and $753,000 in 2016 due to rising rates.

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The following table shows an analysis of net interest margin on a tax equivalent basis for the years ended December 31, 2018, 2017 and 2016:

Table 3 – Net Interest Margin

	Year Ended December 31
								(In Thousands)
	2018							2017							2016
	Average Balance		Interest (1)		Yield/ Rate (2)			Average Balance		Interest (1)		Yield/ Rate			Average Balance		Interest (1)		Yield/ Rate
Interest-Earning Assets:
Loans receivable (5)	$	2,382,941	$	114,500		4.80	%	$	2,198,639	$	99,742		4.54	%	$	1,853,419	$	80,423		4.34	%
Securities (6)		279,867		9,036		3.23	%		258,775		8,654		3.39	%		233,407		7,871		3.48	%
Interest-earning deposits		63,261		1,270		2.01	%		72,215		836		1.16	%		67,420		367		0.54	%
FHLB stock		15,146		915		6.04	%		15,632		784		5.02	%		13,800		552		4.00	%
Total interest-earning assets		2,741,215		125,721		4.59	%		2,545,261		110,016		4.33	%		2,168,046		89,213		4.13	%
Noninterest-earning assets		307,310							306,270							229,393
Total Assets	$	3,048,525						$	2,851,531						$	2,397,439
Interest-Bearing Liabilities:
Interest-bearing deposits	$	1,945,114	$	13,897		0.71	%	$	1,769,786	$	8,818		0.50	%	$	1,463,890	$	6,261		0.43	%
FHLB advances		73,421		1,261		1.72	%		102,155		1,470		1.44	%		85,856		1,288		1.50	%
Subordinated debentures		36,083		1,281		3.55	%		36,156		935		2.58	%		36,141		753		2.09	%
Other borrowings		8,947		23		0.26	%		27,929		208		0.74	%		52,826		138		0.26	%
Total interest-bearing liabilities		2,063,565		16,462		0.80	%		1,936,026		11,431		0.59	%		1,638,713		8,440		0.52	%
Noninterest-bearing demand deposits		562,439		-					528,926		-					441,731		-
Total including non- interest- bearing demand deposits		2,626,004		16,462		0.63	%		2,464,952		11,431		0.46	%		2,080,444		8,440		0.41	%
Other noninterest liabilities		38,216							35,343							31,361
Total Liabilities		2,664,220							2,500,295							2,111,805
Stockholders’ equity		384,305							351,236							285,634
Total liabilities and stockholders’ equity	$	3,048,525						$	2,851,531						$	2,397,439
Net interest income; interest  rate spread (3)			$	109,259		3.79	%			$	98,585		3.74	%			$	80,773		3.61	%
Net interest margin (4)						3.98	%						3.88	%						3.74	%
Average interest-earning assets to average interest-bearing liabilities						132.8	%						131.5	%						132.3	%

(1) Interest on certain tax exempt loans (amounting to $380,000, $375,000 and $383,000 in 2018, 2017 and 2016, respectively) and tax-exempt securities ($3.4 million, $3.2 million and $3.0 million in 2018, 2017, and 2016, respectively) is not taxable for Federal income tax purposes. The average balance of such loans was $10.5 million, $11.5 million and $11.8 million in 2018, 2017, and 2016, respectively, while the average balance of such securities was $98.2 million, $91.2 million and $83.4 million in 2018, 2017, and 2016, respectively. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21% for 2018 and 35% for 2017 and 2016.

(2) At December 31, 2018, the yields earned and rates paid were as follows: loans receivable, 4.80%; securities, 3.32%; FHLB stock, 6.00%; total interest-earning assets, 4.66%; deposits, 0.57%; FHLB advances, 1.88%; other borrowings, 0.26%, subordinated debentures, 4.22%; total including non- interest-bearing liabilities, 0.66%; and interest rate spread, 3.99%.

(3) Interest rate spread is the difference in the yield on interest-earning assets and the cost of interest-bearing liabilities.

(4) Net interest margin is net interest income divided by average interest-earning assets excluding average unrealized gains/losses. See Non-GAAP Financial Measure discussion for further details.

(5) For the purpose of the computation for loans, non-accrual loans are included in the average loans outstanding.

(6) Securities yield = annualized interest income divided by the average balance of securities, excluding average unrealized gains/losses.

See Non-GAAP Financial Measure discussion for further details.

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The following table describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected First Defiance’s tax-equivalent interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) change in rate (change in rate multiplied by prior year volume), and (iii) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

Table 4 – Changes in Interest Rates and Volumes (1)

	Year Ended December 31
	(In Thousands)
	2018 vs. 2017									2017 vs. 2016
	Increase (decrease) due to rate			Increase (decrease) due to volume			Total increase (decrease)			Increase (decrease) due to rate			Increase (decrease) due to volume			Total increase (decrease)
Interest-Earning Assets
Loans	$	6,107		$	8,651		$	14,758		$	3,792		$	15,527		$	19,319
Securities		(306	)		688			382			(66	)		849			783
Interest-earning deposits		549			(115	)		434			441			28			469
FHLB stock		156			(25	)		131			152			80			232
Total interest-earning assets	$	6,506		$	9,199		$	15,705		$	4,319		$	16,484		$	20,803
Interest-Bearing Liabilities
Deposits	$	4,135		$	944		$	5,079		$	1,128		$	1,429		$	2,557
FHLB advances		252			(461	)		(209	)		(54	)		236			182
Subordinated Debentures		348			(2	)		346			182			-			182
Notes Payable		(91	)		(94	)		(185	)		159			(89	)		70
Total interest- bearing liabilities	$	4,644		$	387		$	5,031		$	1,415		$	1,576		$	2,991
Increase in net interest income							$	10,674								$	17,812

(1) The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.

Provision for Loan Losses – First Defiance’s provision for loan losses was $1.2 million for the year ended December 31, 2018, compared to $2.9 million for December 31, 2017, and $283,000 for December 31, 2016.

Provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level deemed appropriate by management to absorb probable losses incurred in the loan portfolio. Factors considered by management include identifiable risk in the portfolios, historical experience, the volume and type of lending conducted by First Defiance, the amount of non-performing loans (including loans which meet the FASB ASC Topic 310 definition of impaired), the amount of loans graded by management as substandard, doubtful, or loss, general economic conditions (particularly as they relate to First Defiance’s market areas) and other factors related to the collectability of First Defiance’s loan portfolio. See also Allowance for Loan Losses in this Management’s Discussion and Analysis and Note 7 to the Consolidated Financial Statements.

Noninterest Income – Noninterest income decreased by $873,000 or (2.2%) in 2018 to $39.2 million from $40.1 million for the year ended December 31, 2017. That followed an increase of $6.1 million or 17.8% in 2017 from $34.0 million in 2016.

Service fees and other charges increased to $13.1 million for the year ended December 31, 2018, from $12.1 million for 2017 and increased from $10.9 million for 2016. The increase in service fees and other charges in 2018 and 2017 from 2016 is primarily due to increased number of deposit accounts and the CSB acquisition in 2017.

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First Federal’s overdraft privilege program generally provides for the automatic payment of modest overdraft limits on all accounts deemed to be in good standing when the account is accessed using paper-based check processing, a teller withdrawal, a point-of-sale terminal, an automated clearing house (“ACH”) transaction, an online banking or voice-response transfer, or an automated teller machine (“ATM”). To be in good standing, an account must be brought to a positive balance within a 30-day period and have not excessively used the overdraft privilege program. Overdraft limits are established for all customers without discrimination using a risk assessment approach for each account classification. The approach includes a systematic review and evaluation of the normal deposit flows made to each account classification to establish reasonable and prudent negative balance limits that would be routinely repaid by normal, expected and reoccurring deposits. The risk assessment by portfolio approach assumes a minimal degree of undetermined credit risk associated with unidentified individual accounts that are overdrawn for 30 or more days. Consumer accounts overdrawn for more than 60 days are automatically charged off. Fees are charged as a one-time fee per occurrence, up to five charges per day, and the fee charged for an item that is paid is equal to the fee charged for a non-sufficient fund item that is returned.

Overdrawn balances, net of allowance for losses, are reflected as loans on First Defiance’s balance sheet. The fees charged for this service are established based both on the return of processing costs plus a profit, and on the level of fees charged by competitors in the Company’s market area for similar services. These fees are considered to be compensation for providing a service to the customer and therefore deemed to be noninterest income rather than interest income. Fee income recorded for the years ending December 31, 2018 and 2017, related to the overdraft privilege product, net of adjustments to the allowance for uncollectible overdrafts, were both $2.8 million, respectively. Accounts charged-off are included in noninterest expense. The allowance for uncollectible overdrafts was $34,000 at December 31, 2018, and $24,000 at December 31, 2017.

Noninterest income also includes gains, losses and impairment on investment securities. In 2018, First Defiance realized a $173,000 gain on sale of securities. In 2017, a $584,000 gain was recognized compared to a $509,000 gain in 2016.

Mortgage banking income includes gains from the sale of mortgage loans, fees for servicing mortgage loans for others, an offset for amortization of mortgage servicing rights, and adjustments for impairment in the value of mortgage servicing rights. Mortgage banking income totaled $7.1 million, $7.0 million and $7.3 million in 2018, 2017 and 2016, respectively. The $73,000 increase in 2018 from 2017 is attributable to a decrease of $123,000 in mortgage servicing rights amortization expense along with a $70,000 increase in servicing revenue and a $42,000 positive change in the valuation adjustments on mortgage servicing rights. This was partially offset by a $162,000 decrease in the gain on sale of loans. First Defiance originated $205.9 million of residential mortgages for sale into the secondary market in 2018 compared with $213.5 million in 2017. The balance of the mortgage servicing right valuation allowance was $300,000 at the end of 2018.

The $266,000 decrease in 2017 from 2016 is attributable to a $647,000 decrease in the gain on sale of loans, along with a $33,000 negative change in the valuation adjustments on mortgage servicing rights. These were partially offset by a decrease of $260,000 in mortgage servicing rights amortization expense along with a $154,000 increase in servicing revenue. First Defiance originated $213.5 million of residential mortgages for sale into the secondary market in 2017 compared with $263.7 million in 2016. The balance of the mortgage servicing right valuation allowance was $432,000 at the end of 2017. See Note 8 to the Consolidated Financial Statements.

Gains on the sale of non-mortgage loans, which include SBA and FSA loans, totaled $317,000 in 2018 compared to $217,000 in 2017 and $753,000 in 2016. The volume of eligible SBA loans decreased in 2018 and 2017 from levels in 2016.

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Insurance commission income increased $1.2 million or 9.5% to $14.1 million in 2018 from $12.9 million in 2017 mainly due to having a full year results of the Corporate One acquisition and an increase in general production in the property and casualty and group employee benefits lines of business. Insurance commission income increased $2.4 million or 23.2% to $12.9 million in 2017 from $10.4 million in 2016 mainly due to the acquisition of Corporate One.

Income from bank owned life insurance decreased $1.3 million in 2018 to $1.8 million from $3.1 million in 2017. In 2017, the Company surrendered an underperforming BOLI policy and recorded a tax penalty of $1.7 million (recorded in income tax expense) and purchased a new BOLI policy receiving a $1.5 million enhancement value gain. The increase to $3.1 million in 2017 from $909,000 in 2016 is also due to the enhancement value gain.

Trust income decreased $241,000 to $2.1 million in 2018 from $2.3 million in 2017 and $1.7 million. The decrease in 2018 is due to a $428,000 positive accrual adjustment recorded in 2017 to bring trust fees to an accrual basis of accounting.

Other income decreased $1.3 million to $598,000 in 2018 compared to $1.9 million in 2017 and $1.5 million in 2016. The $1.3 million decrease in 2018 included a $388,000 decrease in deferred compensation plan assets compared to a $377,000 increase for the same period in 2017 due to stock market performance in 2018. The $316,000 increase in 2017 is due mainly to group benefit referral fees.

Noninterest Expense – Total noninterest expense for 2018 was $89.4 million compared to $85.4 million for the year ended December 31, 2017, and $71.1 million for the year ended December 31, 2016.

Compensation and benefits increased $2.8 million or 5.5% to $52.6 million from $49.8 million in 2017. The increase is mainly related to merit increases and investing some of the benefits of lower tax rates in support of our metro market growth strategies. Occupancy expense increased $934,000, to $8.6 million in 2018 compared to $7.7 million in 2017 and data processing expense increased $818,000 to $8.6 million in 2018 from $7.7 million in 2017 both increases primarily related to our metro market growth initiatives. Other noninterest expenses decreased $181,000 to $18.6 million in 2018 from $18.8 million in 2017. This decrease is due to an $806,000 benefit from the deferred compensation accounting correction as well as a $1.2 million reduction year over year due to the decline in the liabilities of the deferred compensation plan as a result of the stock market performance in the fourth quarter of 2018. See Note 19 to the Consolidation Financial Statements for further details.

Compensation and benefits increased $9.7 million or 24.0% to $49.8 million from $40.2 million in 2016. The increase is mainly related to personnel expenses both from certain benefit payouts associated with the CSB merger as well as operating the new CSB and Corporate One locations, merit increases and other new staff for growth strategies. Other noninterest expenses increased $2.8 million or 17.5% to $18.8 million in 2017 from $16.0 million in 2016. This is due mainly to $2.1 million increase in expenses associated with the acquisition of CSB and Corporate One, as well as an increase in the amortization of intangibles of $754,000. Occupancy expense increased $289,000, to $7.7 million in 2017 compared to $7.4 million in 2016 and data processing expense increased $1.4 million to $7.7 million in 2017 from $6.4 million in 2016.

Income Taxes – Income taxes totaled $10.6 million in 2018 compared to $16.2 million in 2017 and $12.8 million in 2016. The effective tax rates for those years were 18.7%, 33.4%, and 30.7%, respectively. The tax rate is lower than the statutory 21% and 35% tax rate for the Company mainly because of investments in tax-exempt securities. The increase in the effective tax rate in 2017 primarily relates to the surrender of a bank-owned life insurance policy which added $1.7 million to income tax expense. The earnings on tax-exempt securities are not subject to federal income tax. See Note 18 – Income Taxes to the Consolidated Financial Statements for further details.

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Concentrations of Credit Risk

Financial institutions such as First Defiance generate income primarily through lending and investing activities. The risk of loss from lending and investing activities includes the possibility that losses may occur from the failure of another party to perform according to the terms of the loan or investment agreement. This possibility is known as credit risk.

Lending or investing activities that concentrate assets in a way that exposes the Company to a material loss from any single occurrence or group of occurrences increases credit risk. Diversifying loans and investments to prevent concentrations of risks is one way a financial institution can reduce potential losses due to credit risk. Examples of asset concentrations would include multiple loans made to a single borrower and loans of inappropriate size relative to the total capitalization of the institution. Management believes adherence to its loan and investment policies allows it to control its exposure to concentrations of credit risk at acceptable levels. First Defiance’s loan portfolio is concentrated geographically in its northwest and central Ohio, northeast Indiana, and southeast Michigan market areas. Management has also identified lending for income-generating rental properties as an industry concentration. Total loans for income-generating rental property totaled $982.5 million at December 31, 2018, which represents 37.9% of the Company’s loan portfolio. Management believes it has the skill and experience to manage any risks associated with this type of lending. Loans in this category are generally paying as agreed without any unusual or unexpected levels of delinquency. The delinquency rate in this category, which is any loan 30 days or more past due, was 0.03% at December 31, 2018. There are no other industry concentrations that exceed 10% of the Company’s loan portfolio.

Liquidity and Capital Resources

The Company’s primary source of liquidity is its core deposit base, raised through First Federal’s branch network, along with wholesale sources of funding and its capital base. These funds, along with investment securities, provide the ability to meet the needs of depositors while funding new loan demand and existing commitments.

Cash generated from operating activities was $53.1 million, $36.0 million and $27.0 million in 2018, 2017 and 2016, respectively. The adjustments to reconcile net income to cash provided by or used in operations during the periods presented consist primarily of proceeds from the sale of loans (less the origination of loans held for sale), the provision for loan losses, depreciation expense, the origination, amortization and impairment of mortgage servicing rights and increases and decreases in other assets and liabilities.

The primary investing activity of First Defiance is lending, which is funded with cash provided from operating and financing activities, as well as proceeds from payment on existing loans and proceeds from maturities of investment securities. In 2017 and 2016, the Company purchased $11.5 million and $822,000, respectively, in portfolio residential home loans. There were no purchases in 2018.

In considering the more typical investing activities, during 2018, $32.6 million and $5.5 million was generated from the combination of maturity or pay-downs and the sale or call of available-for-sale investment securities, respectively, and $220.0 million was used by an increase in loans while $76.6 million was used to purchase available-for-sale investment securities. During 2017, $32.7 million and $34.2 million was generated from the combination of maturity or pay-downs and the sale or call of available-for-sale investment securities, respectively, and $133.4 million was used by an increase in loans while $73.0 million was used to purchase available-for-sale investment securities. During 2016, $36.4 million and $14.9 million was generated from the combination of maturity or pay-downs and the sale or call of available-for-sale investment securities, respectively, and $158.1 million was used by an increase in loans while $71.3 million was used to purchase available-for-sale investment securities.

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Principal financing activities include the gathering of deposits, the utilization of FHLB advances, and the sale of securities under agreements to repurchase such securities and borrowings from other banks. In 2018, total deposits increased by $183.2 million. Securities sold under repurchase arrangements decreased by $20.3 million in 2018. Also in 2018, the Company paid $13.0 million in common stock dividends and $6.3 million in common stock purchases. In 2017, total deposits increased by $148.1 million. Securities sold under repurchase arrangements decreased by $5.8 million in 2017. Also in 2017, the Company paid $9.9 million in common stock dividends. In 2016, total deposits increased by $145.5 million. Securities sold under repurchase arrangements decreased by $25.4 million in 2016. Also in 2016, the Company paid $7.9 million in common stock dividends and $6.3 million in common stock repurchases. For additional information about cash flows from First Defiance’s operating, investing and financing activities, see the Consolidated Statements of Cash Flows included in the Consolidated Financial Statements.

At December 31, 2018, First Defiance had the following commitments to fund deposit, advance, borrowing obligations and post-retirement benefits:

Table 5 – Contractual Obligations

	Maturity Dates by Period at December 31, 2018
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In Thousands)
Certificates of deposit	$	680,384	$	417,562	$	216,319	$	46,503		-
FHLB fixed advances including interest (1)		86,747		45,926		36,870		3,388		563
Subordinated debentures		36,083		-		-		-		36,083
Securities sold under repurchase agreements		5,741		5,741		-		-		-
Lease obligations		12,279		967		1,727		1,507		8,078
Post-retirement benefits		1,903		168		376		390		969
Total contractual obligations	$	823,137	$	470,364	$	255,292	$	51,788	$	45,693

(1) Includes principal payments of $85,189, interest payments of $1,534 and fair value adj. on acquired balances of $24.

At December 31, 2018, First Defiance had the following commitments to fund loan or line of credit obligations:

Table 6 – Commitments

	Total		Amount of Commitment Expiration by Period
Commitments	Amounts Committed		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In Thousands)
Fixed commitments to make loans	$	44,352	$	15,811	$	5,228	$	8,465	$	14,848
Variable commitments to make loans		114,308		8,876		14,914		31,197		59,321
Fixed unused lines of credit		7,523		4,150		1,777		1,164		432
Variable unused lines of credit		382,189		162,724		4,349		7,018		208,098
Total loan commitments		548,372		191,561		26,268		47,844		282,699
Standby letters of credit		7,239		7,209		30		-		-
Total Commitments	$	555,611	$	198,770	$	26,298	$	47,844	$	282,699

In addition to the above commitments, at December 31, 2018, First Defiance had commitments to sell $8.6 million of loans to Freddie Mac, Fannie Mae, or FHLB of Cincinnati.

To meet its obligations management can adjust the rate of savings certificates to retain deposits in changing interest rate environments; it can sell or securitize mortgage and non-mortgage loans; and it can turn to other sources of financing including FHLB advances, the Federal Reserve, and brokered certificates of deposit. At December 31, 2018, First Defiance had additional borrowing capacity of $447.4 million under its agreements with the FHLB.

- 53 -

First Federal is subject to various capital requirements of the OCC. At December 31, 2018, First Federal had capital ratios that exceeded the standard to be considered “well capitalized.” For additional information about First Defiance and First Federal’s capital requirements, see Note 17 – Regulatory Matters to the Consolidated Financial Statements.

Critical Accounting Policies and Estimates

First Defiance has established various accounting policies that govern the application of accounting principles generally accepted in the United States (“GAAP”) in the preparation of its Consolidated Financial Statements. The significant accounting policies of First Defiance are described in the footnotes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying value of assets and liabilities and the results of operations of First Defiance.

Allowance for Loan Losses - First Defiance believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its Consolidated Financial Statements. In determining the appropriate estimate for the allowance for loan losses, management considers a number of factors relative to both specific credits in the loan portfolio and macro-economic factors relative to the economy of the United States as a whole and the economy of the northwest and central Ohio, northeast Indiana and southeast Michigan regions in which the Company does business.

Factors relative to specific credits that are considered include a customer’s payment history, a customer’s recent financial performance, an assessment of the value of collateral held, knowledge of the customer’s character, the financial strength and commitment of any guarantors, the existence of any customer or industry concentrations, changes in a customer’s competitive environment and any other issues that may impact a customer’s ability to meet his obligations.

Economic factors that are considered include levels of unemployment and inflation, specific plant or business closings in the Company’s market area, the impact of strikes or other work stoppages, the impact of weather or environmental conditions, especially relative to agricultural borrowers, and other matters that may have an impact on the economy as a whole.

In addition to the identification of specific customers who may be potential credit problems, management considers its historical losses, the results of independent loan reviews, an assessment of the adherence to underwriting standards, and other factors in providing for loan losses that have not been specifically classified. Management believes that the level of its allowance for loan loss is sufficient to cover the estimates loss incurred but not yet recognized on the loan portfolio. Refer to Allowance for Loan Losses in this Management’s Discussion and Analysis and Note 2 - Statement of Accounting Policies for a further description of the Company’s estimation process and methodology related to the allowance for loan losses.

Valuation of Mortgage Servicing Rights - First Defiance believes the valuation of mortgage servicing rights is a critical accounting policy that requires significant estimates in preparation of its Consolidated Financial Statements. First Defiance recognizes as separate assets the value of mortgage servicing rights, which are acquired through loan origination activities. First Defiance does not purchase any mortgage servicing rights.

- 54 -

Key assumptions made by management relative to the valuation of mortgage servicing rights include the stratification policy used in valuing servicing, assumptions relative to future prepayments of mortgages, the potential value of any escrow deposits maintained or ancillary income received as a result of the servicing activity and discount rates used to value the present value of a future cash flow stream. In assessing the value of the mortgage servicing rights portfolio, management utilizes a third party that specializes in valuing servicing portfolios. That third party reviews key assumptions with management prior to completing the valuation. Prepayment speeds are determined based on projected median prepayment speeds for 15 and 30 year mortgage backed securities. Those speeds are then adjusted up or down based on the size of the loan. The discount rate used in this analysis is the pretax yield generally required by purchasers of bulk servicing rights as of the valuation date. The value of mortgage servicing rights is especially vulnerable in a falling interest rate environment. Refer also to the section entitled Mortgage Servicing Rights in this Management’s Discussion and Analysis and Note 2 - Statement of Accounting Policies and Note 8 - Mortgage Banking to the Consolidated Financial Statements, for a further description of First Defiance’s valuation process, methodology and assumptions along with sensitivity analyses.

Goodwill and Intangibles - First Defiance has two reporting units: First Federal and First Insurance. At December 31, 2018, First Defiance had goodwill of $98.6 million, including $80.0 million in First Federal, representing 81% of total goodwill and $18.6 million in First Insurance, representing 19% of total goodwill. The carrying value of goodwill is tested annually for impairment or more frequently if it is determined appropriate. The evaluation for impairment involves comparing the current estimated fair value of each reporting unit to its carrying value, including goodwill. If the current estimated fair value of a reporting unit exceeds its carrying value, no additional testing is required and impairment loss is not recorded. If the estimated fair value of a reporting unit is less than the carrying value, further valuation procedures are performed and could result in impairment of goodwill being recorded. Further valuation procedures would include allocating the estimated fair value to all assets and liabilities of the reporting unit to determine an implied goodwill value. If the implied value of goodwill of a reporting unit is less than the carrying amount of that goodwill, an impairment loss is recognized in an amount equal to that excess.

If, for any future period First Defiance determines that there has been impairment in the carrying value of goodwill balances, First Defiance will record a charge to earnings, which could have a material adverse effect on net income, but not risk-based capital ratios.

First Defiance has core deposit and other intangible assets resulting from acquisitions which are subject to amortization. First Defiance determines the amount of identifiable intangible assets based upon independent core deposit and customer relationship analyses at the time of the acquisition. Intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. No events or changes in circumstances that would indicate that the carrying amount of any identifiable intangible assets may not be recoverable had occurred during the years ended December 31, 2018 and 2017.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

A significant portion of the Company’s revenues and net income is derived from net interest income and, accordingly, the Company strives to manage its interest-earning assets and interest-bearing liabilities to generate an appropriate contribution from net interest income. Asset and liability management seeks to control the volatility of the Company’s performance due to changes in interest rates. The Company attempts to achieve an appropriate relationship between rate sensitive assets and rate sensitive liabilities. First Defiance does not presently use off-balance sheet derivatives for risk management.

First Defiance monitors interest rate risk on a monthly basis through simulation analysis that measures the impact changes in interest rates can have on net interest income. The simulation technique analyzes the effect of a presumed 100 basis point shift in interest rates (which is consistent with management’s estimate of the range of potential interest rate fluctuations) and takes into account prepayment speeds on amortizing financial instruments, loan and deposit volumes and rates, non-maturity deposit assumptions and capital requirements. At December 31, 2018, the results of the simulation indicate that in an environment where interest rates rise 100 basis points over a 24 month period, First Defiance’s net interest income would increase by 2.88% over the base case scenario. It should be noted that other areas of First Defiance’s income statement, such as gains from sales of mortgage loans and amortization of mortgage servicing rights are also impacted by fluctuations in interest rates, but are not considered in the simulation of net interest income.

The majority of First Federal’s lending activities are in commercial real estate and commercial loan areas. In addition to carrying higher credit risk than residential mortgage lending, such loans tend to be more rate sensitive than residential mortgage loans. The balance of First Federal’s commercial real estate and multi-family real estate loan portfolio was $1.40 billion, which was split between $181.7 million of fixed-rate loans and $1.22 billion of adjustable-rate loans, at December 31, 2018. The commercial loan portfolio decreased to $509.6 million, which was split between $165.8 million of fixed-rate loans and $343.8 million of adjustable-rate loans, at December 31, 2018. Certain loans classified as adjustable have fixed rates for an initial term that may be as long as five years. The maturities on fixed-rate loans are generally less than seven years. First Federal also has $128.2 million of home equity and improvement loans at December 31, 2018, of which $116.8 million fluctuate with changes in the prime lending rate and $11.3 million have fixed rates. First Federal also has $34.4 million of consumer loans at December 31, 2018, which tend to have a shorter duration than residential mortgage loans. Also, to limit its interest rate risk, as well as to provide liquidity, First Federal sells a majority of its fixed-rate mortgage originations into the secondary market.

The table below presents, for the twelve months subsequent to December 31, 2018, and December 31, 2017, an estimate of the change in net interest income that would result from a gradual (ramp) and immediate (shock) change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Based on our net interest income simulation as of December 31, 2018, net interest income sensitivity to changes in interest rates for the twelve months subsequent to December 31, 2018, was slightly less liability sensitive for the ramp and shock compared to the sensitivity profile for the twelve months subsequent to December 31, 2017. The Company did not complete an earnings at risk analysis for the down 200 basis point change in rates as of December 31, 2017. Management noted the likelihood of a decrease beyond 100 basis points as of December 31, 2017, was considered to be unlikely given the interest rate levels at that time and therefore was not included in this analysis.

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Table 7 – Net Interest Income Sensitivity Profile

	Impact on Future Annual Net Interest Income
(dollars in thousands)	December 31, 2018					December 31, 2017
Gradual Change in Interest Rates
+200	$	1,910		1.61	%	$	2,354		2.18	%
+100		981		0.83	%		1,200		1.11	%
-100		(2,025	)	-1.71	%		(3,033	)	-2.81	%
-200		(6,236	)	-5.27	%		-		-
Immediate Change in Interest Rates
+200	$	3,424		2.89	%	$	4,821		4.47	%
+100		1,865		1.57	%		2,463		2.28	%
-100		(5,057	)	-4.27	%		(6,223	)	-5.77	%
-200		(14,455	)	-12.21	%		-		-

To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. These non-parallel interest rate scenarios indicate that net interest income may decrease from the base case scenario should the yield curve flatten or become inverted. Conversely, if the yield curve should steepen, net interest income may increase.

The results of all the simulation scenarios are within the Board mandated guidelines as of December 31, 2018, except for the down 200 basis points over the first twelve months in a static and dynamic-shock balance sheet as well as in the down 200 basis points for a cumulative twenty-four months in a Static and dynamic ramp balance sheet. Management is reviewing the Board policy limits in all scenarios to determine if they are adequate and if so, any measures to be taken to bring the current results back into alignment with Board mandated guidelines.

In addition to the simulation analysis, First Federal also prepares an “economic value of equity” (“EVE”) analysis. This analysis generally calculates the net present value of First Federal’s assets and liabilities in rate shock environments that range from –400 basis points to +400 basis points. However, the likelihood of a decrease in interest rates beyond 200 basis points as of December 31, 2018, was considered to be unlikely given the current interest rate levels and therefore was not included in this analysis. The results of this analysis are reflected in the following table.

Table 8 – Economic Value of Equity Analysis

December 31, 2018
									Economic Value of Equity as % of
	Economic Value of Equity								Present Value of Assets
Change in Rates	$ Amount		$ Change			% Change			Ratio			Change
(Dollars in Thousands)
+ 400 bp		751,259		66,752			9.75	%		25.96	%		404  bp
+ 300 bp		741,404		56,897			8.31	%		25.13	%		322  bp
+ 200 bp		729,505		44,998			6.57	%		24.25	%		233  bp
+ 100 bp		710,688		26,181			3.82	%		23.18	%		126  bp
0 bp		684,507		-			-			21.92	%		–
- 100 bp		642,625		(41,882	)		(6.12	)%		20.26	%		(165) bp
- 200 bp		578,124		(106,383	)		(15.54	)%		18.04	%		(387) bp

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December 31, 2017
									Economic Value of Equity as % of
	Economic Value of Equity								Present Value of Assets
Change in Rates	$ Amount		$ Change			% Change			Ratio			Change
(Dollars in Thousands)
+ 400 bp		700,563		80,544			12.99	%		25.63	%		462  bp
+ 300 bp		685,883		65,864			10.62	%		24.63	%		362  bp
+ 200 bp		668,127		48,108			7.76	%		23.53	%		252  bp
+ 100 bp		647,439		27,420			4.42	%		22.36	%		135  bp
0 bp		620,019		-			-			21.01	%		–
- 100 bp		585,967		(34,052	)		(5.49	)%		19.52	%		(149) bp

Based on the above analysis, in the event of a 200 basis point increase in interest rates as of December 31, 2018, First Federal would experience a 6.57% increase in its economic value of equity. During periods of rising rates, the value of monetary assets declines. Conversely, during periods of falling rates, the value of monetary assets increases. It should be noted that the amount of change in value of specific assets and liabilities due to changes in rates is not the same in a rising rate environment as in a falling rate environment. Based on the EVE analysis, the change in the economic value of equity in both rising and falling rate environments is relatively low because both its assets and liabilities have relatively short durations. The average duration of its assets at December 31, 2018, was 1.75 years while the average duration of its liabilities was 3.52 years.

In evaluating First Federal’s exposure to interest rate risk, certain shortcomings inherent in each of the methods of analysis presented must be considered. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates while interest rates on other types of financial instruments may lag behind current changes in market rates. Furthermore, in the event of changes in rates, prepayments and early withdrawal levels could differ significantly from the assumptions in calculating the table and the results therefore may differ from those presented.

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Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control Over Financial Reporting

The management of First Defiance Financial Corp. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of our principal executive and principal financial officers and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Based on our evaluation under the framework in the 2013 Internal Control – Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2018.

Crowe LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued a report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, is included in this Item 8.

Donald P. Hileman	Kevin T. Thompson
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer

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Report of Independent Registered Public Accounting Firm

Stockholders and the Board of Directors of

First Defiance Financial Corp.

Defiance, Ohio

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial condition of First Defiance Financial Corp. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have served as the Company’s independent registered public accounting firm since 2005.

/s/ Crowe LLP

Crowe LLP

South Bend, Indiana

February 28, 2019

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First Defiance Financial Corp.
Consolidated Statements of Financial Condition
(Dollars in Thousands, except per share data)
	December 31
	2018		2017
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	55,962	$	58,693
Federal funds sold		43,000		55,000
		98,962		113,693
Securities available-for-sale, carried at fair value		294,076		260,650
Securities held-to-maturity, carried at amortized cost (fair value $526 and $649 at December 31, 2018 and 2017, respectively)		526		648
		294,602		261,298
Loans held for sale		6,613		10,435
Loans receivable, net of allowance of $28,331 and $26,683 at December 31, 2018 and 2017, respectively		2,511,708		2,322,030
Mortgage servicing rights		10,119		9,808
Accrued interest receivable		9,641		8,706
Federal Home Loan Bank (FHLB) stock		14,217		15,992
Bank owned life insurance		67,660		66,230
Premises and equipment		40,670		40,217
Real estate and other assets held for sale (OREO)		1,205		1,532
Goodwill		98,569		98,569
Core deposit and other intangibles		4,391		5,703
Deferred taxes		-		231
Other assets		23,365		38,959
Total assets	$	3,181,722	$	2,993,403

continued

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First Defiance Financial Corp
Consolidated Statements of Financial Condition (continued)
(Dollars in Thousands, except per share data)
	December 31
	2018			2017
Liabilities and stockholders’ equity
Liabilities:
Deposits:
Noninterest-bearing	$	607,198		$	571,360
Interest-bearing		2,013,684			1,866,296
Total		2,620,882			2,437,656
Advances from the Federal Home Loan Bank		85,189			84,279
Securities sold under agreements to repurchase		5,741			26,019
Subordinated debentures		36,083			36,083
Advance payments by borrowers		3,652			2,925
Deferred taxes		264			-
Other liabilities		30,322			33,155
Total liabilities		2,782,133			2,620,117
Commitments and Contingent Liabilities (Note 6)
Stockholders’ equity:
Preferred stock, $.01 par value per share: 37,000 shares authorized; no shares issued		–			–
Preferred stock, $.01 par value per share:
4,963,000 shares authorized; no shares issued		–			–
Common stock, $.01 par value per share:
50,000,000 shares authorized; 25,398,992 and 25,425,682 shares issued and 20,171,392 and 20,312,082 shares outstanding, respectively(1)		127			127
Additional paid-in capital		161,593			160,940
Accumulated other comprehensive income, net of tax of $(468) and $117, respectively		(2,148	)		217
Retained earnings		295,588			262,900
Treasury stock, at cost, 5,227,600 and 5,113,600 shares respectively(1)		(55,571	)		(50,898	)
Total stockholders’ equity		399,589			373,286
Total liabilities and stockholders’ equity	$	3,181,722		$	2,993,403

(1) Share data has been adjusted to reflect a 2-for-1 stock split on July 12, 2018.

See accompanying notes

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FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statements of Income

(Dollar Amounts in Thousands, except per share data)

	Years Ended December 31
	2018		2017		2016
Interest Income
Loans	$	114,398	$	99,540	$	80,217
Investment securities:
Taxable		4,738		3,762		3,231
Tax-exempt		3,396		3,180		3,016
Interest-bearing deposits		1,270		836		367
FHLB stock dividends		915		784		552
Total interest income		124,717		108,102		87,383
Interest Expense
Deposits		13,897		8,818		6,261
Federal Home Loan Bank advances and other		1,261		1,470		1,288
Subordinated debentures		1,281		935		753
Securities sold under agreement to repurchase		23		208		138
Total interest expense		16,462		11,431		8,440
Net interest income		108,255		96,671		78,943
Provision for loan losses		1,176		2,949		283
Net interest income after provision for loan losses		107,079		93,722		78,660
Noninterest Income
Service fees and other charges		13,100		12,139		10,909
Mortgage banking income		7,077		7,004		7,270
Insurance commissions		14,085		12,866		10,441
Gain on sale of non-mortgage loans		317		217		753
Gain  on sale or call of securities		173		584		509
Trust income		2,091		2,332		1,701
Income from bank owned life insurance		1,767		3,085		909
Other noninterest income		598		1,854		1,538
Total noninterest income		39,208		40,081		34,030
Noninterest Expense
Compensation and benefits		52,566		49,847		40,187
Occupancy		8,641		7,707		7,418
FDIC insurance		1,021		1,250		1,169
Data processing		8,555		7,737		6,367
Other noninterest expense		18,629		18,810		15,952
Total noninterest expense		89,412		85,351		71,093
Income before income taxes		56,875		48,452		41,597
Federal income taxes		10,626		16,184		12,754
Net Income	$	46,249	$	32,268	$	28,843
Earnings per common share (Note 4)
Basic	$	2.27	$	1.62	$	1.61
Diluted	$	2.26	$	1.61	$	1.60
Dividends declared per common share	$	0.64	$	0.50	$	0.44

See accompanying notes

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FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Dollar Amounts in Thousands)

	For the Years Ended December 31
	2018			2017			2016
Net income	$	46,249		$	32,268		$	28,843
Change in securities available-for-sale (AFS):
Unrealized holding gains (losses) on available-for-sale securities arising during the period		(3,356	)		732			(4,933	)
Reclassification adjustment for (gains) losses realized in income		(173	)		(584	)		(509	)
Net unrealized gains (losses)		(3,529	)		148			(5,442	)
Income tax effect		742			(51	)		1,904
Net of tax amount		(2,787	)		97			(3,538	)
Change in unrealized gain/(loss) on postretirement benefit:
Net gain (loss) on defined benefit postretirement medical plan realized during the period		560			(166	)		172
Net amortization and deferral		18			20			30
Net gain (loss) activity during the period		578			(146	)		202
Income tax effect		(203	)		51			(71	)
Net of tax amount		375			(95	)		131
Total other comprehensive income  (loss)		(2,412	)		2			(3,407	)
Comprehensive income	$	43,837		$	32,270		$	25,436

See accompanying notes

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FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollar Amounts In Thousands, except number of shares)

													Accumulated
			Common					Common		Additional			Other									Total
	Preferred		Stock			Common		Stock		Paid-In			Comprehensive			Retained			Treasury			Stockholder’s
	Stock		Shares(1)			Stock		Warrant		Capital			Income (Loss)			Earnings			Stock			Equity
Balance at January 1, 2016	$	-		18,205,662		$	127	$	-	$	125,734		$	3,622		$	219,737		$	(69,023	)	$	280,197
Net income																	28,843						28,843
Other comprehensive loss														(3,407	)								(3,407	)
Stock based compensation expenses											274												274
Shares issued under stock option plan, net of 3,224 repurchased and retired				72,716							(21	)					(26	)		761			714
Restricted share activity under stock incentive plans				20,810							370						(72	)		219			517
Shares issued from direct stock sales				2,960							33									30			63
Shares repurchased				(335,736	)															(6,293	)		(6,293	)
Common stock dividends declared																	(7,890	)					(7,890	)
Balance at December 31, 2016	$	-		17,966,412		$	127	$	-	$	126,390		$	215		$	240,592		$	(74,306	)	$	293,018
Net income																	32,268						32,268
Other comprehensive income														2									2
Stock based compensation expenses											215												215
Shares issued under stock option plan, net of 15,014 repurchased and retired				8,088							51						(83	)		231			199
Capital stock issuance				2,279,004							33,792									22,740			56,532
Restricted share activity under stock incentive plans				55,754							447						(18	)		409			838
Shares issued from direct stock sales				2,824							45									28			73
Common stock dividends declared																	(9,859	)					(9,859	)
Balance at December 31, 2017	$	-		20,312,082		$	127	$	-	$	160,940		$	217		$	262,900		$	(50,898	)	$	373,286
Net income																	46,249						46,249
Other comprehensive loss														(2,412	)								(2,412	)
Adoption of ASU 2018-02 – See Note 2														47			(47	)					-
Deferred compensation plan																				636			636
Stock based compensation expenses											420												420
Shares issued under stock option plan, net of 8,872 repurchased and retired				38,628							(93	)					(270	)		474			111
Restricted share activity under stock incentive plans net of 17,818 repurchased and retired				48,300							258						(201	)		511			568
Shares issued from direct stock sales				3,542							68									36			104
Shares repurchased				(231,160	)															(6,330	)		(6,330	)
Common stock dividends declared																	(13,043	)					(13,043	)
Balance at December 31, 2018	$	-		20,171,392		$	127	$	-	$	161,593		$	(2,148	)	$	295,588		$	(55,571	)	$	399,589

See accompanying notes

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FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Dollar Amounts in Thousands)

	Years Ended December 31
	2018			2017			2016
Operating Activities
Net income	$	46,249		$	32,268		$	28,843
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,176			2,949			283
Provision for depreciation		3,688			3,567			3,356
Net amortization of premium and discounts on loans,
securities, deposits and debt obligations		861			740			1,128
Amortization of mortgage servicing rights		1,341			1,464			1,724
Net recovery of mortgage servicing rights		(132	)		(89	)		(123	)
Amortization of intangibles		1,312			1,289			535
Gain on sale of loans		(4,819	)		(4,881	)		(6,064	)
Loss on sale or disposals or write-downs of property, plant and equipment		13			48			-
(Gain) loss on sale or write-down of OREO		581			(56	)		(300	)
Gain on sale or call of securities		(173	)		(584	)		(509	)
Change in deferred taxes		881			1,261			(615	)
Proceeds from sale of loans held for sale		212,688			215,727			262,958
Origination of loans held for sale		(205,884	)		(213,479	)		(263,679	)
Stock  based compensation expenses		420			215			274
Restricted stock unit expense		568			838			517
Excess tax benefit (expense) on stock compensation plans		(154	)		(171	)		(192	)
Income from bank owned life insurance		(1,767	)		(3,085	)		(909	)
Change in interest receivable and other assets		(2,878	)		(3,591	)		(4,121	)
Change in accrued interest and other liabilities		(916	)		1,527			3,878
Net cash provided by operating activities		53,055			35,957			26,984
Investing Activities
Proceeds from maturities, calls and paydowns of held-to-maturity securities		122			128			59
Proceeds from maturities, calls and paydowns of available-for-sale securities		32,620			32,687			36,390
Proceeds from sale of available-for-sale securities		5,503			34,248			14,871
Proceeds from sale of OREO		887			554			1,705
Proceeds from sale of office properties and equipment		14			849			1
Purchases of available-for-sale securities		(76,647	)		(73,007	)		(71,276	)
Purchases of office properties and equipment		(4,168	)		(3,263	)		(2,106	)
Investment in bank owned life insurance		-			(20,000	)		-
Proceeds from bank owned life insurance death benefit		337			-			-
Proceeds from sale of bank owned life insurance		17,689			-			-
Proceeds from FHLB stock redemption		1,775			-			3
Net cash received (paid) in acquisitions		-			19,359			-
Purchase of portfolio mortgage loans		-			(11,476	)		(822	)
Proceeds from sale of non-mortgage loans		28,729			20,227			20,816
Net increase in loans receivable		(219,885	)		(133,184	)		(158,121	)
Net cash used in investing activities		(213,024	)		(132,878	)		(158,480	)

Continued

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FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statements of Cash Flows (continued)

(Dollar Amounts in Thousands)

	Years Ended December 31
	2018			2017			2016
Financing Activities
Net increase in deposits and advance payments by borrowers		183,764			148,065			145,467
Repayment of Federal Home Loan Bank advances		(34,090	)		(31,070	)		(959	)
Proceeds from Federal Home Loan Bank advances		35,000			10,000			45,000
Decrease in securities sold under repurchase agreements		(20,278	)		(5,797	)		(25,372	)
Cash dividends paid on common stock		(13,043	)		(9,859	)		(7,890	)
Net cash paid for repurchase of common stock		(6,330	)		-			(6,293	)
Proceeds from exercise of stock options		111			199			714
Proceeds from direct treasury stock sales		104			73			63
Net cash  provided by financing activities		145,238			111,611			150,730
Increase (decrease) in cash and cash equivalents		(14,731	)		14,690			19,234
Cash and cash equivalents at beginning of period		113,693			99,003			79,769
Cash and cash equivalents at end of period	$	98,962		$	113,693		$	99,003
Supplemental cash flow information:
Interest paid	$	16,198		$	11,382		$	8,370
Income taxes paid		7,950			14,350			12,700
Transfer from other liability to equity		636			-			-
Transfers from loans to other real estate owned and other assets held for sale		1,141			705			583
Transfer from (to) property and equipment to real estate and other assets held for sale		-			(130	)		(44	)
Sale of bank owned life insurance not yet settled		-			17,840			-
Securities traded but not yet settled		-			548			357

See accompanying notes.

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Notes to the Consolidated Financial Statements

1. Basis of Presentation

First Defiance Financial Corp. (“First Defiance” or the “Company”) is a unitary thrift holding company that conducts business through its three wholly owned subsidiaries, First Federal Bank of the Midwest (“First Federal”), First Insurance Group of the Midwest, Inc. (“First Insurance”), and First Defiance Risk Management, Inc. All significant intercompany transactions and balances are eliminated in consolidation.

First Federal is primarily engaged in attracting deposits from the general public through its branches 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, commercial and consumer loans and providing a broad range of depository, trust and wealth management services.

First Insurance is an insurance agency that conducts business (throughout First Federal’s Market) offering property and casualty, and group health and life insurance products.

First Defiance Risk Management was incorporated on December 20, 2012, as a wholly owned insurance company subsidiary of the Company to insure the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of two common shares for each outstanding common share. The stock split was distributed on July 12, 2018, to shareholders of record as of July 2, 2018. All share and per share data in this Form 10-K have been adjusted and are reflective of the stock split.

2. Statement of Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 applicable to common shares (net income less dividend requirements for preferred stock, accretion of preferred stock discount and redemption of preferred stock) 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 includes the dilutive effect of additional potential common shares issuable under stock options, warrants, restricted stock awards and stock grants. See also Note 4.

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Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on available-for-sale securities and the net unrecognized actuarial losses and unrecognized prior service costs associated with the Company’s Defined Benefit Postretirement Medical Plan. All items included in other comprehensive income are reported net of tax. See also Notes 5, 16 and 25 and the Consolidated Statements of Comprehensive Income.

Cash Flows

Cash and cash equivalents include amounts due from banks and overnight investments with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve. Cash and amounts due from depository institutions include required balances on hand or on deposit at the FHLB and Federal Reserve of approximately $1,723,000 and $1,048,000, respectively, at December 31, 2018, to meet regulatory reserve and clearing requirements. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions and repurchase agreements.

Investment Securities

Securities are classified as held-to-maturity when First Defiance has the positive intent and ability to hold the securities to maturity and are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

Securities available-for-sale consists of those securities which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income (loss) until realized. Realized gains and losses are included in gains (losses) on securities or other-than-temporary impairment losses on securities. Realized gains and losses on securities sold are recognized on the trade date based on the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Premiums and discounts are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are expected. Securities with unrealized losses are reviewed quarterly to determine if value impairment is other–than-temporary. In performing this review management considers the length of time and extent that fair value has been less than cost, the financial condition of the issuer, the impact of changes in market interest rates on market value and whether the Company intends to sell or it would be more than likely required to sell the securities prior to their anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) other-than-temporary impairment (“OTTI”) related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

FHLB Stock

First Federal is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. At December 31, 2018, the Company held $14.2 million at the FHLB of Cincinnati and $2,500 at the FHLB of Indianapolis.

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Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of deferred loan fees and costs, purchase premiums and discounts and the allowance for loan losses. Deferred fees net of deferred incremental loan origination costs, are amortized to interest income generally over the contractual life of the loan using the interest method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable, unamortized premiums and discounts, and net deferred fees and costs and undisbursed loan amounts.

Mortgage loans originated and intended for sale in the secondary market are classified as loans held for sale and are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains or losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

The Company may incur losses pertaining to loans sold to Fannie Mae and Freddie Mac but repurchased due to underwriting issues. Repurchase losses are recognized when the Company determines they are probable and estimable.

Interest receivable is accrued on loans and credited to income as earned. The accrual of interest on loans 90 days delinquent or those loans considered impaired is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. For these loans, interest accrual is only to the extent cash payments are received. The accrual of interest on these loans is generally resumed after a pattern of repayment has been established and the collection of principal and interest is reasonably assured.

Purchased Credit Impaired Loans

The Company acquires loans individually and in groups or portfolios. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that it will be unable to collect all amounts due according to the loan’s contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (credit score, loan type and date of origination). The Company considers expected prepayments, and estimates the amount and timing of undiscounted expected principal, interest, and other cash flows (expected at acquisition) for each loan and subsequently aggregated pool of loans.

The Company determines the excess of the loan’s or pool’s scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount—representing the excess of the loan’s cash flows expected to be collected over the amount paid—is accreted into interest income over the remaining life of the loan or pool (accretable yield).

Over the life of the loan or pool, the Company continues to estimate cash flows expected to be collected, and evaluates whether the present value of its loans determined using the effective interest rates has decreased and, if so, recognizes a loss. Valuation allowances for all acquired loans subject to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310 reflect only those losses incurred after acquisition—that is, the present value of cash flows expected at acquisition that are not expected to be collected. The present value of any subsequent increase in the loan’s or pool’s actual cash flows or cash flows expected to be collected is used first to reverse any existing valuation allowance for that loan or pool. For any remaining increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.

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Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans, actual loss experience, current economic events in specific industries and geographical areas and other pertinent factors, including general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of economic trends, all of which may be susceptible to significant change. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

Loan losses are charged-off against the allowance when in management’s estimation it is unlikely that the loan will be collected, while recoveries of amounts previously charged-off are credited to the allowance. A provision for loan loss is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors in order to maintain the allowance for loan losses at the level deemed adequate by management. The determination of whether a loan is considered past due or delinquent is based on the contractual payment terms. Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. All loans are placed on non-accrual status at 90 days past due unless the loan is adequately secured and is in process of collection. Any loan in the portfolio may be placed on non-accrual status prior to becoming 90 days past due when collection of principal or interest is in doubt.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Impaired loans have been recognized in conformity with FASB ASC Topic 310.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loans agreement. Loans, for which terms have been modified and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. When a loan is considered impaired, an analysis of the net present value of estimated cash flows is performed and an allowance may be established based on the outcome of that analysis, or if the loan is deemed to be collateral dependent an allowance is established based on the fair value of collateral. All modifications are reviewed by the First Federal’s Chief Credit Officer or Credit Administration Officer to determine whether or not the modification constitutes a troubled debt restructure. Commercial and commercial real estate loan relationships greater than $250,000 are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net of the allowance allocation which is determined based on the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Impaired loan relationships less than $250,000 are aggregated by loan segment and risk level and given a specific reserve based on the general reserve factor for that loan segment and risk level. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

The following portfolio segments have been identified:

Commercial Real Estate Loans (consisting of multi-family residential and non-residential): Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

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Commercial Loans: Commercial credit is extended primarily to middle market customers. Such credits are typically comprised of working capital loans, loans for physical asset expansion, asset acquisition loans and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses' principal owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types.

Consumer Finance Loans: Consumer finance loans are generally made to borrowers for a specific consumer purchase and are made based on their ability to repay with their current debt to income as well as the underlying collateral value of the item being purchased. Credit scores are part of the decision process of whether or not credit is extended. Minimum standards and underwriting guidelines have been established for all consumer loan types.

1-4 Family Residential Real Estate Loans: 1-4 family residential real estate loans can be categorized two different ways. One part of this portfolio is owner occupied and loans are made based primarily on the ability of the individual borrower to support the payments as well as the payments of any other debt the borrower may have outstanding at the time the loan is made. The other part of this portfolio is non-owner occupied income producing property and loans are made primarily based on the cash flow stream from rental income as well as the cash flow support from the borrower’s unrelated cash flow. Both types of loans have a secondary repayment source of the underlying collateral and generally the loans are not extended at higher than an 80% loan-to-value (“LTV”). Minimum standards and underwriting guidelines have been established for all 1-4 family residential real estate loan types.

Construction Loans: The Company defines construction loans as loans where the loan proceeds are controlled by the Company and used exclusively for the improvement of real estate in which the Company holds a mortgage.

Home Equity and Improvement Loans: Home Equity and Improvement loans are made to borrowers based on their ability to repay with their current debt to income as well as the underlying collateral value of the real estate taken as security. Minimum standards and underwriting guidelines have been established for all home equity and improvement loan types.

Consumer finance, 1-4 family residential real estate (including construction) and home equity and improvement loans are subject to adverse employment conditions in the local economy which could increase the default rate on loans.

Servicing Rights

Servicing rights are recognized separately when they are acquired through sales of loans. Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans, driven, generally, by changes in market interest rates.

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Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with mortgage banking income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement with mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $3.8 million, $3.7 million and $3.6 million for the years ended December 31, 2018, 2017 and 2016. Late fees and ancillary fees related to loan servicing are not material. See Note 8.

Bank Owned Life Insurance

The Company has purchased life insurance policies for certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Premises and Equipment and Long Lived Assets

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

Buildings and improvements	20 to 50 years
Furniture, fixtures and equipment	3 to 15 years

Long-lived assets to be held and those to be disposed of and certain intangibles are periodically evaluated for impairment. See Note 9.

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 non-controlling 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. See Note 10.

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Real Estate and Other Assets Held for Sale

Real estate and other assets held for sale are comprised of properties or other assets acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Losses arising from the acquisition of such property are charged against the allowance for loan losses at the time of acquisition. These properties are carried at the lower of cost or fair value, less estimated costs to dispose. If fair value declines subsequent to foreclosure, the property is written down against expense. Costs after acquisition are expensed.

Stock Compensation Plans

Compensation cost is recognized for stock options and restricted share awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Restricted shares awards are valued at the market value of Company stock at the date of the grant. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. See Note 20.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 22. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in fair values of these derivatives are included in mortgage banking income.

Operating Segments

Management considers the following factors in determining the need to disclose separate operating segments: (1) the nature of products and services, which are all financial in nature; (2) the type and class of customer for the products and services; in First Defiance’s case retail customers for retail bank and insurance products and commercial customers for commercial loan, deposit, life, health and property and casualty insurance needs; (3) the methods used to distribute products or provide services; such services are delivered through banking and insurance offices and through bank and insurance customer contact representatives. Retail and commercial customers are frequently targets for both banking and insurance products; (4) the nature of the regulatory environment; both banking and insurance entities are subject to various regulatory bodies and a number of specific regulations.

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Quantitative thresholds as stated in FASB ASC Topic 280, Segment Reporting are monitored. For the year ended December 31, 2018, the reported revenue for First Insurance was 8.6% of total revenue for First Defiance. Total revenue includes interest income plus noninterest income. Net income for First Insurance for the year ended December 31, 2018 was 4.5% of consolidated net income. Total assets of First Insurance at December 31, 2018, were 0.7% of total assets. First Insurance does not meet any of the quantitative thresholds of FASB ASC Topic 280. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by First Federal to First Defiance. See Note 17 for further details on restrictions.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

In December 2017, a law was enacted which changed the corporate federal income tax rate from 35% to 21%, beginning January 1, 2018. Accordingly, the Company’s deferred tax assets and liabilities were re-measured at December 31, 2017, using the 21% corporate federal income tax rate resulting in a net tax expense of $154,000. An effective tax rate of 21% is used to determine after-tax components of other comprehensive income (loss) included in the statements of stockholders’ equity. See Note 18.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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Retirement Plans

Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. See Note 16 and 19.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation which did not result in any changes to net income or equity.

Accounting Standards Updates

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This 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, this 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 “Revenue Recognition” below for additional information related to revenue generated from contracts with customers.

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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, the Company’s fair value measurement of financial instruments was 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 public law No. 115-97, known as the Tax Cuts and Jobs Act (“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.

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 elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. The Company also expect to elect certain optional practical expedients. The Company has implemented a third party software solution to assist with the accounting under the new standard. The Company’s operating leases relate primarily to office space and bank branches. Upon adoption of ASU 2016-02 on January 1, 2019, the Company expects to recognize right-to-use assets and related lease liabilities totaling approximately $8.8 million and $9.3 million, respectively.

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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 continues its implementation efforts through its established Company-wide implementation committee along with a third-party software vendor to assist in the implementation process. The committee’s 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 adopt this ASU early.

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 the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in the Company’s statement of income as components of noninterest 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 $7.6 million in 2018. Income from services charges on deposit accounts is included in service fees and other charges in noninterest income.

· Interchange income - this represents fees earned from debit and credit 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 were $4.1 million in 2018, which are reported net of network related charges. Interchange income is included in service fees and other charges in noninterest 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, and 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 $821,000 and $2.1 million, respectively, in 2018. Income from wealth management services is included in other noninterest income in total noninterest income. Trust fees are reported separately in total noninterest income.

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· Gain/loss on sales of other real estate owned (“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 a loss of $28,000 in 2018. Income from the gain or loss on sales of OREO is included in other noninterest income in total noninterest 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: (i) new/renewal commissions and (ii) contingent commissions. Insurance commissions were $14.1 million for 2018, of which, $13.1 million were new/renewal commissions and $1.0 million were contingent commissions.

3. 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 seven full-service banking offices in northwest and north central, Ohio and one 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.

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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 central Ohio. The acquisition offered 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 were 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 – NonInterest-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 2.3616 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 2,279,004 shares of its common stock and paid $12.3 million in cash to the former shareholders of Commercial Bancshares.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2016, after giving effect to certain adjustments. The unaudited pro forma information for the twelve months ended December 31, 2017, and December 31, 2016, includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

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	Pro Forma Twelve		Pro Forma Twelve
	Months Ended		Months Ended
	December 31, 2017		December 31, 2016
	(In Thousands, except per share data)
Net Interest Income	$	98,856	$	90,452
Provision for loan losses		2,949		753
Noninterest Income		40,338		35,496
Noninterest Expense		82,597		76,393
Income Before Income Taxes		53,648		48,802
Income Tax Expense		17,780		15,276
Net Income	$	35,868	$	33,526
Diluted Earnings Per Share	$	3.51	$	3.29

The above pro forma financial information includes approximately $4.6 million of net income related to the operations of Commercial Bancshares during the twelve months of 2017. The above pro forma financial information related to 2017 excludes merger related costs that totaled $3.7 million on a pre-tax basis.

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 was due and paid the second quarter of 2018, and up to $2.3 million may be due 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 maximum 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, the Company recorded goodwill of $7.9 million as well as identifiable intangible assets of $756,000 consisting of a 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. The transaction enhanced employee benefit offerings and expanded First Insurance’s presence into adjacent markets in northwest Ohio.

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4. Earnings Per Common Share

Basic earnings per share is 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 for the years ended December 31:

	2018		2017		2016
	(In Thousands, Except Per Share Amounts)
Basic Earnings Per Share: Net income available to common shareholders	$	46,249	$	32,268	$	28,843
Less: Income allocated to participating securities		16		5		39
Net income allocated to common shareholders	$	46,233	$	32,263	$	28,804
Weighted average common shares outstanding Including participating securities		20,358		19,950		17,960
Less: Participating securities		9		18		22
Average common shares		20,349		19,932		17,938
Basic earnings per common share	$	2.27	$	1.62	$	1.61
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	46,233	$	32,263	$	28,804
Weighted average common shares outstanding for basic earnings per common share		20,349		19,932		17,938
Add: Dilutive effects of stock options		119		124		132
Average shares and dilutive potential common shares		20,468		20,056		18,070
Diluted earnings per common share	$	2.26	$	1.61	$	1.60

Shares subject to issue upon exercise of options of 10,500 in 2018, zero in 2017 and 25,100 in 2016 were excluded from the diluted earnings per common share calculation as they were anti-dilutive.

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5. Investment Securities

The following tables summarize the amortized cost and fair value of available-for-sale securities and held-to-maturity investment securities at December 31, 2018 and 2017, and the corresponding amounts of gross unrealized and unrecognized gains and losses:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
2018
Available-for-sale
Obligations of U.S. government corporations and agencies	$	2,519	$	2	$	(18	)	$	2,503
Mortgage-backed securities - residential		76,165		111		(1,566	)		74,710
REMICs		2,712		4		(7	)		2,709
Collateralized mortgage obligations - residential		103,026		124		(1,689	)		101,461
Corporate bonds		12,910		44		(148	)		12,806
Obligations of state and political subdivisions		99,349		1,258		(720	)		99,887
Total Available-for-Sale	$	296,681	$	1,543	$	(4,148	)	$	294,076

			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Held-to-Maturity
FHLMC certificates	$	8	$	-	$	-	$	8
FNMA certificates		31		-		-		31
GNMA certificates		12		-		-		12
Obligations of states and political subdivisions		475		-		-		475
Total Held-to-Maturity	$	526	$	-	$	-	$	526

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
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 - residential		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

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			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

The amortized cost and fair value of the investment securities portfolio at December 31, 2018, is shown below by contractual maturity. Expected maturities will differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity tables below, mortgage-backed securities and collateralized mortgage obligations, which are not due at a single maturity date, have not been allocated over maturity groupings.

	Available-for-Sale
	Amortized		Fair
	Cost		Value
	(In Thousands)
2018
Available-for-sale
Due in one year or less	$	771	$	773
Due after one year through five years		22,957		22,969
Due after five years through ten years		34,245		34,904
Due after ten years		56,805		56,550
MBS/CMO/REMIC		181,903		178,880
Total	$	296,681	$	294,076
Held-to-maturity
Due in one year or less	$	31	$	31
Due after five years through ten years		444		444
MBS		51		51
Total	$	526	$	526

Securities pledged at year-end 2018 and 2017 had a carrying amount of $143.9 million and $135.4 million, respectively, and were pledged to secure public deposits, securities sold under repurchase agreements and FHLB advances.

As of December 31, 2018, the Company’s investment portfolio consisted of 438 securities, 177 of which were in an unrealized loss position. The Company did not hold any single security that was greater than 10% of the Company’s equity at December 31, 2018.

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The following table summarizes First Defiance’s securities that were in an unrealized loss position at December 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 December 31, 2018
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	-	$	-		$	500	$	(18	)	$	500	$	(18	)
Mortgage-backed securities-residential		11,589		(71	)		48,665		(1,495	)		60,254		(1,566	)
REMIC’s		-		-			857		(7	)		857		(7	)
Collateralized mortgage obligations		11,613		(53	)		70,585		(1,636	)		82,198		(1,689	)
Corporate Bonds		5,752		(148	)		-		-			5,752		(148	)
Obligations of state and political subdivisions		11,974		(69	)		16,492		(651	)		28,466		(720	)
Held to maturity securities:		8		-			26		-			34		-
Total temporarily impaired securities	$	40,936	$	(341	)	$	137,125	$	(3,807	)	$	178,061	$	(4,148	)
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	)
REMIC’s		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	)

Management evaluates securities for OTTI on at least a quarterly basis, 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 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.

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In 2018, 2017 and 2016, management determined there was no OTTI.

There were no credit losses relating to debt securities recognized in earnings for the years ended December 31, 2018, 2017 and 2016.

Realized gains from the sales and calls of investment securities totaled $173,000 ($136,000 after tax) in 2018 while there were realized gains of $584,000 ($380,000 after tax) and $509,000 ($331,000 after tax) in 2017 and 2016, respectively.

The proceeds from sales and calls of securities and the associated gains and losses for the years ended December 31 are listed below:

	2018			2017			2016
	(In Thousands)
Proceeds	$	5,503		$	34,248		$	14,871
Gross realized gains		178			665			509
Gross realized losses		(5	)		(81	)		-

6. Commitments and Contingent Liabilities

Loan Commitments

Loan commitments are made to accommodate the financial needs of First Federal’s customers. 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 on December 31 was as follows (In Thousands):

	2018				2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	44,352	$	114,308	$	42,458	$	161,778
Unused lines of credit		7,523		382,189		6,245		408,831
Standby letters of credit		-		7,239		-		7,605
Total	$	51,875	$	503,736	$	48,703	$	578,214

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments at December 31, 2018, had interest rates ranging from 3.25% to 18.00% and maturities ranging from less than one year to 30 years.

In addition to the above commitments, at December 31, 2018, First Defiance had commitments to sell $8.6 million of loans to Freddie Mac, Fannie Mae, or FHLB of Cincinnati.

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7. Loans

Loans receivable consist of the following:

	December 31, 2018			December 31, 2017
	(In Thousands)
Real Estate:
Secured by 1-4 family residential	$	322,686		$	274,862
Secured by multi-family residential		278,358			248,092
Secured by commercial real estate		1,126,452			987,129
Construction		265,772			265,476
		1,993,268			1,775,559
Other Loans:
Commercial		509,577			526,142
Home equity and improvement		128,152			135,457
Consumer Finance		34,405			29,109
		672,134			690,708
Total loans		2,665,402			2,466,267
Deduct:
Undisbursed loan funds		(123,293	)		(115,972	)
Net deferred loan origination fees and costs		(2,070	)		(1,582	)
Allowance for loan loss		(28,331	)		(26,683	)
Totals	$	2,511,708		$	2,322,030

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.

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The following table discloses the year-to-date activity in the allowance for loan loss for the dates indicated by portfolio segment (In Thousands):

Year to Date December 31, 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		(261	)		-		(1,387	)		-		(724	)		(269	)		(233	)		(2,874	)
Recoveries		131			57		720			-		2,221			191			26			3,346
Provisions		479			342		2,354			35		(2,181	)		(151	)		298			1,176
Ending Allowance	$	2,881		$	3,101	$	12,041		$	682	$	7,281		$	2,026		$	319		$	28,331

Year to Date December 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		(279	)		-		(429	)		-		(2,301	)		(301	)		(139	)		(3,449	)
Recoveries		115			32		657			-		243			167			85			1,299
Provisions		69			442		(499	)		197		2,662			3			75			2,949
Ending Allowance	$	2,532		$	2,702	$	10,354		$	647	$	7,965		$	2,255		$	228		$	26,683

Year to Date December 31, 2016	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate		Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$3,212			$2,151		$11,772			$517			$5,255			$2,304			$171			$25,382
Charge-Offs		(350	)		-		(92	)		-			(615	)		(268	)		(94	)		(1,419	)
Recoveries		166			-		923			-			335			150			64			1,638
Provisions		(401	)		77		(1,978	)		(67	)		2,386			200			66			283
Ending Allowance	$	2,627		$	2,228	$	10,625		$	450		$	7,361		$	2,386		$	207		$	25,884

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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, 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	$	175	$	3	$	95	$	-	$	79	$	242	$	1	$	595
Collectively evaluated for impairment		2,706		3,098		11,946		682		7,202		1,784		318		27,736
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	2,881	$	3,101	$	12,041	$	682	$	7,281	$	2,026	$	319	$	28,331
Loans:
Loans individually evaluated for impairment	$	6,774	$	1,347	$	26,334	$	-	$	10,477	$	963	$	45	$	45,940
Loans collectively evaluated for impairment		315,385		277,105		1,102,355		142,096		500,730		128,065		34,486		2,500,222
Loans acquired with deteriorated credit quality		1,012		296		846		-		177		-		-		2,331
Total ending loans balance	$	323,171	$	278,748	$	1,129,535	$	142,096	$	511,384	$	129,028	$	34,531	$	2,548,493

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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

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The following tables presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the years ended December 31, 2018, 2017 and 2016

(In Thousands):

	Twelve Months Ended December 31, 2018
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,704	$	151	$	150
Residential Non Owner Occupied		2,354		133		126
Total 1-4 Family Residential Real Estate		7,058		284		276
Multi-Family Residential Real Estate		1,644		90		89
CRE Owner Occupied		9,992		234		221
CRE Non Owner Occupied		2,620		94		93
Agriculture Land		13,827		575		575
Other CRE		1,304		106		106
Total Commercial Real Estate		27,743		1,009		995
Construction		-		-		-
Commercial Working Capital		8,047		256		245
Commercial Other		3,501		119		119
Total Commercial		11,548		375		364
Home Equity and Home Improvement		1,150		38		38
Consumer Finance		39		4		4
Total Impaired Loans	$	49,182	$	1,800	$	1,766

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	Twelve Months Ended December 31, 2017
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,811	$	138	$	138
Residential Non Owner Occupied		3,038		138		138
Total 1-4 Family Residential Real Estate		6,849		276		276
Multi-Family Residential Real Estate		2,471		58		58
CRE Owner Occupied		10,592		110		109
CRE Non Owner Occupied		3,768		140		133
Agriculture Land		9,667		472		229
Other CRE		1,603		76		70
Total Commercial Real Estate		25,630		798		541
Construction		-		-		-
Commercial Working Capital		5,235		129		123
Commercial Other		5,940		109		79
Total Commercial		11,175		238		202
Home Equity and Home Improvement		1,217		43		43
Consumer Finance		59		4		4
Total Impaired Loans	$	47,401	$	1,417	$	1,124

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	Twelve Months Ended December 31, 2016
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,954	$	244	$	237
Residential Non Owner Occupied		3,133		211		210
Total 1-4 Family Residential Real Estate		7,087		455		447
Multi-Family Residential Real Estate		3,946		124		123
CRE Owner Occupied		6,925		203		183
CRE Non Owner Occupied		5,351		411		407
Agriculture Land		2,283		128		68
Other CRE		1,632		71		70
Total Commercial Real Estate		16,191		813		728
Construction		-		-		-
Commercial Working Capital		1,606		109		90
Commercial Other		2,393		81		79
Total Commercial		3,999		190		169
Home Equity and Home Improvement		1,543		85		83
Consumer Finance		67		8		8
Total Impaired Loans	$	32,833	$	1,675	$	1,558

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The following table presents loans individually evaluated for impairment by class of loans (In Thousands):

	December 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	$	901	$	775	$	-	$	2,507	$	2,364	$	-
Residential Non Owner Occupied		950		955		-		1,711		1,708		-
Total 1-4 Family Residential Real Estate		1,851		1,730		-		4,218		4,072		-
Multi-Family Residential Real Estate		1,296		1,302		-		2,095		2,102		-
CRE Owner Occupied		7,464		6,202		-		12,273		11,804		-
CRE Non Owner Occupied		1,824		1,659		-		3,085		2,925		-
Agriculture Land		14,915		14,994		-		13,029		13,185		-
Other CRE		464		462		-		981		768		-
Total Commercial Real Estate		24,667		23,317		-		29,368		28,682		-
Construction		-		-		-		-		-		-
Commercial Working Capital		7,569		7,498		-		5,462		5,422		-
Commercial Other		2,095		2,100		-		9,916		7,644		-
Total Commercial		9,664		9,598		-		15,378		13,066		-
Home Equity and Home Improvement		-		-		-		630		584		-
Consumer Finance		-		-		-		42		42		-
Total loans with no allowance recorded	$	37,478	$	35,947	$	-	$	51,731	$	48,548	$	-
With an allowance recorded:
Residential Owner Occupied	$	3,926	$	3,884	$	148	$	1,841	$	1,814	$	137
Residential Non Owner Occupied		1,152		1,160		27		1,031		1,024		30
Total 1-4 Family Residential Real Estate		5,078		5,044		175		2,872		2,838		167
Multi-Family Residential Real Estate		44		44		3		175		176		7
CRE Owner Occupied		2,419		1,935		38		2,007		1,546		44
CRE Non Owner Occupied		350		353		16		651		593		28
Agriculture Land		37		38		2		293		292		14
Other CRE		1,107		691		39		909		708		32
Total Commercial Real Estate		3,913		3,017		95		3,860		3,139		118
Construction		-		-		-		-		-		-
Commercial Working Capital		525		528		55		447		449		77
Commercial Other		560		352		24		854		858		110
Total Commercial		1,085		880		79		1,301		1,307		187
Home Equity and Home Improvement		1,013		963		242		596		592		279
Consumer Finance		45		45		1		8		8		-
Total loans with an allowance recorded	$	11,178	$	9,993	$	595	$	8,812	$	8,060	$	758

* Presented gross of charge offs

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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:

	December 31, 2018		December 31, 2017
	(In Thousands)
Non-accrual loans	$	19,016	$	30,715
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		19,016		30,715
Real estate and other assets held for sale		1,205		1,532
Total non-performing assets	$	20,221	$	32,247
Troubled debt restructuring, still accruing	$	11,573	$	13,770

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 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	$	199,664	$	887	$	821	$	1,402	$	3,110	$	3,266
Residential Non Owner Occupied		119,988		64		180		165		409		363
Total 1-4 Family Residential Real Estate		319,652		951		1,001		1,567		3,519		3,629
Multi-Family Residential Real Estate		278,748		-		-		-		-		102
CRE Owner Occupied		416,879		52		300		138		490		4,377
CRE Non Owner Occupied		534,823		6		119		-		125		620
Agriculture Land		129,040		66		-		2,869		2,935		5,253
Other Commercial Real Estate		45,232		11		-		-		11		-
Total Commercial Real Estate		1,125,974		135		419		3,007		3,561		10,250
Construction		142,096		-		-		-		-		-
Commercial Working Capital		217,832		268		-		3,838		4,106		4,021
Commercial Other		289,125		32		54		235		321		480
Total Commercial		506,957		300		54		4,073		4,427		4,501
Home Equity and Home Improvement		127,346		1,446		146		90		1,682		394
Consumer Finance		34,224		134		77		96		307		126
Total Loans	$	2,534,997	$	2,966	$	1,697	$	8,833	$	13,496	$	19,002

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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 December 31, 2018 and 2017, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $19.2 million and $21.7 million, respectively. The Company allocated $581,000 and $751,000, of specific reserves to those loans at December 31, 2018 and 2017, and committed to lend additional amounts totaling up to $169,000 and $242,000 at December 31, 2018 and 2017.

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 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 real estate 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.

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Of the loans modified in a TDR, $7.6 million are on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following table presents loans by class modified as TDRs that occurred during the years indicated (Dollars in Thousands):

	Loans Modified as a TDR for the Twelve Months Ended   December 31, 2018				Loans Modified as a TDR for the Twelve Months Ended   December 31, 2017				Loans Modified as a TDR for the Twelve Months Ended   December 31, 2016
TDRs	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Residential Owner Occupied		18	$	980		24	$	982		17	$	778
Residential  Non Owner Occupied		4		189		5		193		5		494
Multi Family		-		-		-		-		2		1,885
CRE Owner Occupied		12		1,639		2		149		-		-
CRE Non Owner Occupied		1		42		1		262		5		974
Agriculture Land		-		-		5		1,700		1		45
Other CRE		-		-		2		153		1		348
Commercial Working Capital		5		2,898		7		1,475		1		226
Commercial Other		1		44		7		3,833		1		587
Home Equity and Home Improvement		7		89		6		152		9		281
Consumer Finance		8		29		5		14		2		14
Total		56	$	5,910		64	$	8,913		44	$	5,632

The loans described above increased the allowance for loan losses (“ALLL”) by $110,000 for the year ended December 31, 2018, decreased the ALLL by $104,000 for the year ended December 31, 2017, and increased the ALLL by $413,000 for the year ended December 31, 2016.

Of the 2018 modifications, four were made a TDR due to terming out lines of credit, 18 were made a TDR due to advancing or renewing money to a watch list credit, one loan was made a TDR due to a reduction of the interest rate, five were made a TDR due to extending the maturity, 18 were made a TDR due to bankruptcy and 10 were made a TDR because the current debt was refinanced due to maturity or for payment relief.

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The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the indicated:

	Twelve Months Ended December 31, 2018  ($ in thousands)				Twelve Months Ended December 31, 2017  ($ in thousands)				Twelve Months Ended December 31, 2016  ($ in thousands)
TDRs That Subsequently Defaulted:	Number of Loans		Recorded Investment (as of Period End)		Number of Loans		Recorded Investment (as of Period End)		Number of Loans		Recorded Investment (as of Period End)
Residential Owner Occupied		1	$	76		-	$	-		-	$	-
Residential Non Owner Occupied		1		45		-		-		-		-
CRE Owner Occupied		-		-		-		-		-		-
CRE Non Owner Occupied		-		-		-		-		1		205
Agriculture Land		-		-		-		-		-		-
Other CRE		-		-		-		-		-		-
Commercial Working Capital		3		2,644		-		-		-		-
Commercial  Other		1		30		-		-		-		-
Home Equity and  Home  Improvement		1		61		-		-		-		-
Consumer		-		-		-		-		-		-
Total		7	$	2,856		-	$	-		1	$	205

The TDRs that subsequently defaulted described above increased the ALLL by $17,000 for the year ended December 31, 2018, and had no effect on the ALLL for the years ended December 31, 2017 and 2016.

A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed regarding 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.

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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 December 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
Residential Owner Occupied	$	9,419	$	91	$	3,130	$	-	$	190,134	$	202,774
Residential Non Owner Occupied		109,885		700		3,087		-		6,725		120,397
Total 1-4 Family Real Estate		119,304		791		6,217		-		196,859		323,171
Multi-Family Residential Real Estate		276,594		-		2,047		-		107		278,748
CRE Owner Occupied		402,008		5,724		9,547		-		89		417,368
CRE Non Owner Occupied		529,842		2,807		2,297		-		-		534,946
Agriculture Land		111,595		4,023		16,358		-		-		131,976
Other CRE		42,189		730		1,244		-		1,082		45,245
Total Commercial Real Estate		1,085,634		13,284		29,446		-		1,171		1,129,535
Construction		122,775		219		-		-		19,102		142,096
Commercial Working Capital		205,903		6,546		9,489		-		-		221,938
Commercial Other		279,234		7,011		3,201		-		-		289,446
Total Commercial		485,137		13,557		12,690		-		-		511,384
Home Equity and Home Improvement		-		-		434		-		128,594		129,028
Consumer Finance		-		-		206		-		34,325		34,531
Total Loans	$	2,089,444	$	27,851	$	51,040	$	-	$	380,158	$	2,548,493

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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

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Certain loans acquired had evidence that the credit quality of the loan had deteriorated since its origination and in management’s assessment at the acquisition date it was probable that First Defiance would be unable to collect all contractually required payments due. In accordance with FASB ASC Topic 310 Subtopic 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, these loans have been recorded based on management’s estimate of the fair value of the loans. The outstanding balance of those loans by segment is as follows (In thousands):

	December 31, 2018		December 31, 2017
1-4 Family Residential Real Estate	$	1,045	$	1,154
Multi-Family Residential Real Estate		300		309
Commercial Real Estate Loans		899		2,921
Commercial		227		407
Consumer		-		2
Total Outstanding Balance	$	2,471	$	4,793
Recorded Investment, net of allowance of $0	$	2,331	$	3,828

Accretable yield, or income expected to be collected, is as follows:

	2018			2017
Balance at January 1	$	804		$	-
New Loans Purchased		-			1,018
Accretion of Income		(139	)		(163	)
Reclassification from Non-accretable		-			-
Charge-off of Accretable Yield		(197	)		(8	)
Balance at December 31	$	468		$	847

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the twelve months ended December 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 December 31, 2017, using information as of the date of acquisition are included in the table below. There were no such loans purchased during the year ended December 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

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Loans to executive officers, directors, and their affiliates are as follows:

	Years Ended December 31,
	2018			2017
	(In Thousands)
Beginning balance	$	16,728		$	16,199
New loans		10,806			5,857
Effect of changes in composition of related parties		(217	)		-
Repayments		(5,754	)		(5,328	)
Ending Balance	$	21,563		$	16,728

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $796,000 as of December 31, 2018.

8. Mortgage Banking

Net revenues from the sales and servicing of mortgage loans consisted of the following:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Gain from sale of mortgage loans	$	4,502		$	4,664		$	5,311
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		3,784			3,714			3,560
Amortization of mortgage servicing rights		(1,341	)		(1,464	)		(1,724	)
Mortgage servicing rights valuation adjustments		132			90			123
		2,575			2,340			1,959
Net mortgage banking income	$	7,077		$	7,004		$	7,270

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.41 billion at December 31, 2018, and $1.39 billion at December 31, 2017.

Activity for capitalized mortgage servicing rights (“MSRs”) and the related valuation allowance is as follows:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,240		$	10,117		$	9,893
Loans sold, servicing retained		1,520			1,587			1,948
Amortization		(1,341	)		(1,464	)		(1,724	)
Carrying value before valuation allowance at end of period		10,419			10,240			10,117
Valuation allowance:
Balance at beginning of period		(432	)		(522	)		(645	)
Impairment recovery (charges)		132			90			123
Balance at end of period		(300	)		(432	)		(522	)
Net carrying value of MSRs at end of period	$	10,119		$	9,808		$	9,595
Fair value of MSRs at end of period	$	10,656		$	9,930		$	9,770

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Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced.

The Company had no actual losses from secondary market buy-backs in 2018, 2017 or 2016. Based on management’s estimate of potential losses from secondary market buyback activity, a liability of $43,000 was accrued at both December 31, 2018 and 2017, and is reflected in other liabilities in the Consolidated Statements of Financial Condition. Expense (credit) recognized related to the accrual was $0, $(36,000) and $(135,000) for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company’s servicing portfolio is comprised of the following:

	December 31,
	2018				2017
	Number of		Principal		Number of		Principal
Investor	Loans		Outstanding		Loans		Outstanding
	(In Thousands)
Fannie Mae		4,919	$	461,730		4,920	$	461,783
Freddie Mac		9,571		937,406		9,420		913,632
Federal Home Loan Bank		99		11,983		88		9,723
Other		17		714		19		930
Totals		14,606	$	1,411,833		14,447	$	1,386,068

Custodial escrow balances maintained in connection with serviced loans were $14.3 million and $13.5 million at December 31, 2018 and 2017, respectively.

Significant assumptions at December 31, 2018, used in determining the value of MSRs include a weighted average prepayment speed assumption (“PSA”) of 131 and a weighted average discount rate of 12.01%. Significant assumptions at December 31, 2017, used in determining the value of MSRs include a weighted average prepayment rate of 151 PSA and a weighted average discount rate of 12.01%.

A sensitivity analysis of the current fair value to immediate 10% and 20% adverse changes in those assumptions as of December 31, 2018, is presented below. These sensitivities are hypothetical. Changes in fair value based on 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSR is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the discount rates), which might magnify or counteract the sensitivities.

	10% Adverse		20% Adverse
	Change		Change
	(In Thousands)
Assumption:
Decline in fair value from increase in prepayment rate	$	332	$	670
Decline in fair value from increase in discount rate		220		459

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9. Premises and Equipment

Premises and equipment are summarized as follows:

	December 31,
	2018			2017
	(In Thousands)
Cost:
Land	$	7,977		$	7,977
Land improvements		1,326			1,326
Buildings		44,632			44,563
Leasehold improvements		1,015			971
Furniture, fixtures and equipment		34,871			34,216
Construction in process		692			1,402
		90,513			90,455
Less allowances for depreciation and amortization		(49,843	)		(50,238	)
	$	40,670		$	40,217

Depreciation expense was $3.7 million, $3.6 million and $3.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Lease Agreements

The Company has entered into lease agreements covering nine First Insurance offices, five banking center locations, one loan production office, two land leases for which the Company owns the banking centers, one land lease which is primarily used for parking, one land lease for future branch development and numerous stand-alone Automated Teller Machine sites with varying terms and options to renew. First Federal and First Insurance share office space for one lease as a branch and insurance office.

Future minimum commitments under non-cancelable operating leases are as follows (In Thousands):

2019	$	967
2020		884
2021		843
2022		768
2023		739
Thereafter		8,078
Total	$	12,279

Rental expenses under operating leases amounted to $1.0 million, $691,000 and $571,000 in 2018, 2017, and 2016, respectively.

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10. Goodwill and Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the year is as follows:

	December 31,
	2018		2017
	(In Thousands)
Beginning balance	$	98,569	$	61,798
Goodwill acquired or adjusted during the year		-		36,771
Ending balance	$	98,569	$	98,569

Acquired Intangible Assets

Activity in intangible assets for the years ended December 31, 2018, 2017 and 2016, was as follows:

	Gross
	Carrying		Accumulated			Net
	Amount		Amortization			Value
	(In Thousands)
Balance as of January 1, 2016	$	14,477	$	(12,606	)	$	1,871
Amortization of intangible assets		-		(535	)		(535	)
Balance as of December 31, 2016		14,477		(13,141	)		1,336
Intangible assets acquired		5,656		-			5,656
Amortization of intangible assets		-		(1,289	)		(1,289	)
Balance as of December 31, 2017		20,133		(14,430	)		5,703
Amortization of intangible assets		-		(1,312	)		(1,312	)
Balance as of December 31, 2018	$	20,133	$	(15,742	)	$	4,391

Estimated amortization expense for each of the next five years and thereafter is as follows (In Thousands):

2019	$	1,097
2020		914
2021		744
2022		576
2023		439
Thereafter		621
Total	$	4,391

11. Deposits

The following schedule sets forth interest expense by type of deposit:

	Years Ended December 31,
	2018		2017		2016
	(In Thousands)
Checking and money market accounts	$	3,997	$	2,033	$	1,463
Savings accounts		115		102		88
Certificates of deposit		9,785		6,683		4,710
Totals	$	13,897	$	8,818	$	6,261

Accrued interest payable on deposit accounts amounted to $366,000 and $97,000 at December 31, 2018 and 2017, respectively, which was comprised of $314,000 and $52,000 for certificates of deposit and checking and money market accounts, respectively, at December 31, 2018, and $68,000 and $29,000 for certificates of deposit and checking and money market accounts, respectively, at December 31, 2017.

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A summary of deposit balances is as follows:

	December 31,
	2018		2017
	(In Thousands)
Noninterest-bearing checking accounts	$	607,198	$	571,360
Interest-bearing checking and money market accounts		1,040,471		1,005,519
Savings deposits		292,829		302,022
Retail certificates of deposit less than $250,000		591,822		504,912
Retail certificates of deposit greater than $250,000		88,562		53,843
	$	2,620,882	$	2,437,656

Scheduled maturities of certificates of deposit at December 31, 2018, are as follows (In Thousands):

2019	$	417,562
2020		130,756
2021		85,563
2022		33,184
2023		13,319
Thereafter		-
Total	$	680,384

12. Advances from Federal Home Loan Bank

First Federal has the ability to borrow funds from the FHLB. First Federal pledges its single-family residential mortgage loan portfolio, certain investment securities; certain first mortgage home equity loans, certain commercial real estate loans, and certain agriculture real estate loans as security for these advances. Advances secured by investment securities must have collateral of at least 105% of the borrowing. Advances secured by residential mortgages must have collateral of at least 125% of the borrowings. Advances secured by commercial real estate loans, and agriculture real estate loans must have collateral of at least 300% of the borrowings. The total level of borrowing is also limited to 50% of total assets and at least 50% of the borrowings must be secured by either one-to-four family residential mortgages or investment securities. Total loans pledged to the FHLB at December 31, 2018, and December 31, 2017, were $1.2 billion and $1.0 billion, respectively. First Federal could obtain advances of up to approximately $447.4 million from the FHLB at December 31, 2018.

At year-end, advances from the FHLB were as follows:

Principal Terms	Advance Amount			Range of Maturities	Weighted Average Interest Rate
		(In Thousands)
December 31, 2018
Single maturity fixed rate advances		59,000		January 2019 to March 2022		1.67	%
Amortizable mortgage advances		1,213		August 2027		2.14	%
Overnight advances		25,000		Overnight		2.45	%
Fair value adj. on acquired balances		(24	)
	$	85,189
December 31, 2017
Putable advances	$	5,000		March 2018		2.35	%
Single maturity fixed rate advances		72,000		January 2018 to March 2022		1.46	%
Amortizable mortgage advances		7,306		September 2018 to August 2027		1.85	%
Fair value adj. on acquired balances		(27	)
	$	84,279

Putable advances are callable at the option of the FHLB on a quarterly basis.

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Estimated future minimum payments by fiscal year based on maturity date and current interest rates are as follows (In Thousands):

2019	$	45,926
2020		21,563
2021		15,307
2022		219
2023		3,169
Thereafter		563
Total minimum payments		86,747
Less amounts representing interest		(1,534	)
Less fair value adj. on acquired balances		(24	)
Totals	$	85,189

First Defiance also utilizes short-term advances from the FHLB to meet cash flow needs and for short-term investment purposes. First Defiance borrows short-term advances under a variety of programs at FHLB. At December 31, 2018 and 2017, there were no amounts outstanding under First Defiance’s Cash Management Advance line of credit. The total available under this line is $15.0 million. In addition, First Defiance has a $100.0 million REPO Advance line of credit available. Twenty-five million was drawn on this line at December 31, 2018. There were no borrowings against this line at December 31, 2017. Amounts are generally borrowed under the Cash Management and REPO lines on an overnight basis.

13. Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust

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 the 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 4.29% and 3.09% as of December 31, 2018 and 2017, respectively.

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 sponsors 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 4.17% and 2.97% as of December 31, 2018 and 2017, respectively.

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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.

A summary of all junior subordinated debentures issued by the Company to affiliates follows. These amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts. Junior subordinated debentures owed to the following affiliates were as follows:

	December 31,
	2018		2017
	(In Thousands)
First Defiance Statutory Trust I due December 2035	$	20,619	$	20,619
First Defiance Statutory Trust II due June 2037		15,464		15,464
Total junior subordinated debentures owed to unconsolidated subsidiary Trusts	$	36,083	$	36,083

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.

14. Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings

Total securities sold under agreement to repurchase are summarized as follows:

	Years Ended December 31,
	2018			2017
	(In Thousands, Except Percentages)
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$	5,741		$	26,019
Year-end interest rate		0.31	%		0.20	%
Average daily balance during year		8,911			23,337
Maximum month-end balance during the year		18,259			26,019
Average interest rate during the year		0.26	%		0.23	%

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.

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The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2018 and 2017, is presented in the following tables.

	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
At December 31, 2018			(In Thousands)
Repurchase agreements:
Mortgage-backed securities – residential	$	4,199	$	-	$	-	$	-	$	4,199
Collateralized mortgage obligations		1,542		-		-		-		1,542
Total borrowings	$	5,741	$	-	$	-	$	-	$	5,741
Gross amount of recognized liabilities for repurchase agreements									$	5,741

	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
At December 31, 2017			(In Thousands)
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

As of December 31, 2018 and 2017, First Federal had the following undrawn lines of credit facilities available for short-term borrowing purposes:

A $20.0 million line of credit with First Tennessee Bank. The rate on the line of credit is at three- month LIBOR, which floats quarterly. This line was undrawn upon as of December 31, 2018 and 2017.

A $11.2 million line of credit with the Federal Reserve Bank Discount Window, at an interest rate of 50 basis points over the federal funds rate. The fed funds rate as of December, 31, 2018, was 2.25%. This line was undrawn upon as of December 31, 2018 and 2017.

A $20.0 million line of credit with MUFG Union Bank, N.A. The rate on this line of credit is Union Bank’s federal funds rate, which floats daily. This line was undrawn upon as of December 31, 2018 and 2017.

15. Other Noninterest Expense

The following is a summary of other noninterest expense:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Legal and other professional fees	$	3,328		$	3,603		$	2,902
Marketing		2,407			2,070			1,835
State financial institutions tax		2,118			1,819			1,781
OREO expenses and write-downs		742			177			244
Printing and office supplies		631			626			512
Amortization of intangibles		1,312			1,289			535
Postage		505			523			456
Check charge-offs and fraud losses		415			277			266
Credit and collection expense		379			359			303
Other		6,792	(1)		8,067	(2)		7,118	(3)
Total other noninterest expense	$	18,629		$	18,810		$	15,952

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1) Includes a credit of $806,000 for an accounting correction related to the Deferred Compensation Plan. See Note 19 for further details.

2) Includes $1.1 million of acquisition related expenses.

3) Includes $443,000 of acquisition related expenses and $300,000 of costs associated with termination of a lease agreement.

16. Postretirement Benefits

First Defiance sponsors a defined benefit postretirement plan that is intended to supplement Medicare coverage for certain retirees who meet minimum age requirements. First Federal employees who retired prior to April 1, 1997, and who completed 20 years of service after age 40 receive full medical coverage at no cost. First Federal employees retiring after April 1, 1997, are provided medical benefits at a cost based on their combined age and years of service at retirement. Surviving spouses are also eligible for continued coverage after the retiree is deceased at a subsidy level that is 10% less than what the retiree is eligible for. First Federal employees retiring before July 1, 1997, receive dental and vision care in addition to medical coverage. First Federal employees who retire after July 1, 1997, are not eligible for dental or vision care.

First Federal employees who were born after December 31, 1950, are not eligible for the medical coverage described above at retirement. Rather, a one-time medical spending account of up to $10,000 (based on the participant’s age and years of service) will be established to reimburse medical expenses for those individuals. First Insurance employees who were born before December 31, 1950, can continue coverage until they reach age 65, or in lieu of continuing coverage, can elect the medical spending account option, subject to eligibility requirements. Employees hired or acquired after January 1, 2003, are eligible only for the medical spending account option.

Included in accumulated other comprehensive income at December 31, 2018, 2017 and 2016, are the following amounts that have not yet been recognized in net periodic benefit cost:

	December 31,
	2018			2017			2016
	(In Thousands)
Unrecognized prior service cost	$	97		$	39		$	52
Unrecognized actuarial losses		(86	)		551			392
Total loss recognized in Accumulated Other Comprehensive Income		11			590			444
Income tax effect		80			(206	)		(155	)
Net loss recognized in Accumulated Other Comprehensive Income	$	91		$	384		$	289

The prior service cost and actuarial loss included in other comprehensive income and expected to be recognized in net postretirement benefit cost during the fiscal year-ended December 31, 2019, is $14,000 ($11,000 net of tax) and $0, respectively.

Reconciliation of Funded Status and Accumulated Benefit Obligation

The plan is not currently funded. The following table summarizes benefit obligation and plan asset activity for the plan measured as of December 31 each year:

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	December 31,
	2018			2017
	(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,194		$	2,985
Service cost		55			58
Interest cost		105			117
Participant contribution		32			29
Plan amendments for acquisitions		72			-
Actuarial (gains) / losses		(632	)		166
Benefits paid		(184	)		(161	)
Benefit obligation at end of year		2,642			3,194
Change in fair value of plan assets:
Balance at beginning of year		-			-
Employer contribution		152			132
Participant contribution		32			29
Benefits paid		(184	)		(161	)
Balance at end of year		-			-
Funded status at end of year	$	(2,642	)	$	(3,194	)

Net periodic postretirement benefit cost includes the following components:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Service cost-benefits attributable to service during the period	$	55		$	58		$	53
Interest cost on accumulated postretirement benefit obligation		105			117			128
Net amortization and deferral		18			19			30
Net periodic postretirement benefit cost		178			194			211
Net (gain) / loss during the year		(632	)		166			(184	)
Plan amendment for acquisition		72			-			12
Amortization of prior service cost and actuarial losses		(18	)		(19	)		(30	)
Total recognized in comprehensive income		(578	)		147			(202	)
Total recognized in net periodic postretirement benefit cost and other comprehensive income	$	(400	)	$	341		$	9

The following assumptions were used in determining the components of the postretirement benefit obligation:

	2018			2017			2016
Weighted average discount rates:
Used to determine benefit obligations at December 31		4.00	%		3.50	%		4.00	%
Used to determine net periodic postretirement benefit cost for years ended December 31		3.50	%		4.00	%		4.25	%
Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year		6.50	%		7.00	%		7.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		3.90	%		5.00	%		5.00	%
Year that rate reaches ultimate trend rate		2075			2022			2022

The following benefits are expected to be paid over the next five years and in aggregate for the next five years thereafter. Because the plan is unfunded, the expected net benefits to be paid and the estimated Company contributions are the same amount.

	Expected to be Paid
	(In Thousands)
2019	$	168
2020		181
2021		195
2022		209
2023		181
2024 through 2028		969

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:

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	One-Percentage-Point Increase				One-Percentage-Point Decrease
	Year Ended December 31,				Year Ended December 31,
	2018		2017		2018			2017
	(In Thousands)
Effect on total of service and interest cost	$	22	$	25	$	(18	)	$	(21	)
Effect on postretirement benefit obligation		178		392		(153	)		(333	)

The Company expects to contribute $168,000 before reflecting expected Medicare retiree drug subsidy payments in 2019.

17. Regulatory Matters

First Defiance and First Federal are subject to minimum capital adequacy guidelines. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators, which could have a material impact on First Defiance’s financial statements. Under capital adequacy guidelines, First Defiance and First Federal must maintain capital amounts in excess of minimum ratios based on quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

In July 2013, the Federal Reserve and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for First Defiance and First Federal on January 1, 2015, and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both quantity and quality of capital held by First Defiance and First Federal. The rules include a minimum common equity Tier 1 capital to risk-weighted assets ratio (“CET1”) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), which effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance sheet exposures.

The federal banking agencies have also established a system of “prompt corrective action” to resolve certain problems of undercapitalized banks. The regulatory agencies can initiate certain mandatory actions if First Federal fails to meet the minimum capital requirements, which could have a material effect on First Defiance’s financial statements.

The following schedule presents First Defiance consolidated and First Federal’s regulatory capital ratios as of December 31, 2018 and 2017 (Dollars in Thousands):

December 31, 2018
	Actual					Minimum Required for Adequately Capitalized					Minimum Required to be Well Capitalized for Prompt Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	303,860		11.00	%	$	124,339		4.5	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	124,225		4.5	%	$	179,436		6.5	%
Tier 1 Capital (2)
Consolidated	$	338,860		11.14	%	$	121,716		4.0	%		N/A		N/A
First Federal	$	322,520		10.62	%	$	121,461		4.0	%	$	151,827		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	338,860		12.26	%	$	165,786		6.0	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	165,633		6.0	%	$	220,844		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	367,191		13.29	%	$	221,048		8.0	%		N/A		N/A
First Federal	$	350,851		12.71	%	$	220,844		8.0	%	$	276,055		10.0	%

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(1) Excludes capital conservation buffer of 1.875% as of December 31, 2018.

(2) Core capital is computed as a percentage of adjusted total assets of $3.04 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.76 billion for consolidated and for the Bank.

December 31, 2017
	Actual					Minimum Required for Adequately Capitalized					Minimum Required to be Well Capitalized for Prompt Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	274,832		10.43	%	$	118,596		4.5	%		N/A		N/A
First Federal	$	298,571		11.33	%	$	118,534		4.5	%	$	171,216		6.5	%
Tier 1 Capital (2)
Consolidated	$	309,832		10.80	%	$	114,773		4.0	%		N/A		N/A
First Federal	$	298,571		10.43	%	$	114,539		4.0	%	$	143,173		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	309,832		11.76	%	$	158,128		6.0	%		N/A		N/A
First Federal	$	298,571		11.33	%	$	158,046		6.0	%	$	210,728		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	336,515		12.77	%	$	210,838		8.0	%		N/A		N/A
First Federal	$	325,254		12,.35	%	$	210,728		8.0	%	$	263,410		10.0	%

(1) Excludes capital conservation buffer of 1.25% as of December 31, 2017.

(2) Core capital is computed as a percentage of adjusted total assets of $2.87 billion for consolidated and $2.86 billion for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.64 billion for consolidated and $2.63 billion for the Bank.

Dividend Restrictions - Dividends paid by First Federal to First Defiance are subject to various regulatory restrictions. First Federal paid $22.0 million in dividends to First Defiance in 2018 and $13.0 million in 2017. First Federal may not pay dividends to First Defiance in excess of its net profits (as defined by statute) for the last two fiscal years, plus any year to date net profits without the approval of the OCC. First Insurance paid $1.6 million in dividends to First Defiance in 2018 and $1.8 million in dividends in 2017. First Defiance Risk Management paid $950,000 in dividends to First Defiance in 2018 and $1.0 million in 2017.

18. Income Taxes

Income tax expense for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, which is more fully discussed below, the Company recognized a net tax expense of $154,000.

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The components of income tax expense are as follows:

	Years Ended December 31,
	2018		2017		2016
	(In Thousands)
Current:
Federal	$	9,538	$	14,588	$	13,125
State and local		207		181		244
Deferred		881		1,261		(615	)
Tax reform revaluation		-		154		-
	$	10,626	$	16,184	$	12,754

The effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Tax expense at statutory rate (21%-2018 35%-2017 and 2016)	$	11,944		$	16,958		$	14,559
Increases (decreases) in taxes from:
State income tax – net of federal tax benefit		164			119			159
Tax exempt interest income, net of TEFRA		(770	)		(1,218	)		(1,168	)
Bank owned life insurance		(255	)		(1,212	)		(341	)
Captive insurance		(325	)		(364	)		(414	)
BOLI surrender		-			1,721			-
Tax reform revaluation		-			154			-
Other		(132	)		26			(41	)
Totals	$	10,626		$	16,184		$	12,754

Deferred federal income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of First Defiance’s deferred federal income tax assets and liabilities are as follows:

	December 31,
	2018			2017
	(In Thousands)
Deferred federal income tax assets:
Allowance for loan losses	$	5,802		$	5,415
Postretirement benefit costs		473			671
Deferred compensation		1,011			1,354
Impaired loans		1,154			1,432
Accrued vacation		11			123
Allowance for real estate held for sale losses		62			71
Deferred loan origination fees and costs		435			332
Accrued bonus		638			333
Net unrealized gains on available-for-sale securities		547			-
Other		1,273			1,578
Total deferred federal income tax assets		11,406			11,309
Deferred federal income tax liabilities:
FHLB stock dividends		1,558			1,558
Goodwill		4,584			4,377
Mortgage servicing rights		2,125			2,060
Fixed assets		2,046			1,039
Other intangible assets		778			990
Loan mark to market		7			5
Net unrealized gains on available-for-sale securities		-			194
Prepaid expenses		550			539
Other		22			316
Total deferred federal income tax liabilities		11,670			11,078
Net deferred federal income tax asset/ (liability)	$	(264	)	$	231

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The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized and thus no valuation allowance was required at December 31, 2018.

Retained earnings at December 31, 2018, include approximately $11.0 million for which no tax provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of the Company’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2018, was approximately $2.31 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (In Thousands):

Balance at January 1, 2016	$	-
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		398
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		-
Balance at December 31, 2016	$	398
Balance at January 1, 2017	$	398
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		(398	)
Balance at December 31, 2017	$	-
Balance at January 1, 2018	$	-
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		-
Balance at December 31, 2018	$	-

The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The total amount of interest and penalties recorded in the income statement was $0, $0 and $40,000 for the years ended December 31, 2018, 2017 and 2016. The amount accrued for interest and penalties was $0, $0 and $40,000 at December 31, 2018, 2017 and 2016.

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 2014. The Company currently operates primarily in the states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.

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Tax Cuts and Jobs Act – The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminated the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurrent by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changed U.S. tax law related to foreign operations, however, such changes did not impact First Defiance.

As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, First Defiance re-measured its deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. First Defiance recognized a net tax expense related to the re-measurement of its deferred tax assets and liabilities totaling $154,000 as of December 31, 2017.

19. Employee Benefit Plans

401(k) Plan

Employees of First Defiance are eligible to participate in the First Defiance Financial Corp. 401(k) Employee Savings Plan (the “First Defiance 401(k)”) if they meet certain age and service requirements. Under the First Defiance 401(k), First Defiance matches 100% of the participants’ contributions up to 3% of compensation and then 50% of the participants’ contributions for the next 2% of compensation. The First Defiance 401(k) also provides for a discretionary First Defiance contribution in addition to the First Defiance matching contribution. First Defiance matching contributions totaled $1.31 million, $1.19 million and $979,000 for the years ended December 31, 2018, 2017 and 2016, respectively. There were no discretionary contributions in any of those years.

Group Life Plan

On June 30, 2010, First Federal adopted the First Federal Bank of the Midwest Executive Group Life Plan – Post Separation (the “Group Life Plan”) in which various employees, including the Company’s named executive officers, may participate. Under the terms of the Group Life Plan, First Federal will purchase and own life insurance policies covering the lives of employees selected by the board of directors of First Federal as participants. There was $38,000, $248,000 and $71,000 of expense recorded for the years ended December 31, 2018, 2017 and 2016, respectively, with a liability of $1.71 million and $1.69 million for future benefits recorded at December 31, 2018 and 2017, respectively. The acquisition of CSB added $402,000 to this liability in 2017. The discount rate was reduced to 4.00% as of December 31, 2016, resulting in an increase to the Company’s liability, and remained unchanged at December 31, 2018.

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Deferred Compensation

The deferred compensation plan covers all directors and certain employees that elect to participate. Under the plan, the Company pays each participant, or their beneficiary, the amount of fees deferred plus interest over a defined time period. In the fourth quarter of 2018, the stock market declined significantly resulting in a significant decline in the value of the assets and liabilities of the deferred compensation plan and an accounting correction in the deferred compensation plan was recognized. The deferred compensation plan has approximately $5.0 million in assets and liabilities as of December 31, 2018, which are matched in terms of investment elections. Every year, other noninterest income and other noninterest expense reflects the changes in fair value of the underlying investments in the assets and liabilities, respectively. The Company made an accounting correction, which is expected to minimize any net impact to earnings from the deferred compensation plan going forward. This accounting correction was deemed immaterial which resulted in a one-time reduction to other noninterest expense of $806,000, including a $636,000 adjustment to equity for the phantom stock elections within the plan, and a $170,000 adjustment for the tax liability, as of December 31, 2018. The phantom shares are carried at cost in equity and will be treated as outstanding shares for earnings per share calculations. The net expense (income) recorded for the deferred compensation plan, excluding the one-time accounting correction, for each of the last three years was $15,000, $427,000 and $528,000 in 2018, 2017 and 2016, respectively, resulting in a deferred compensation liability of $4.5 million and $6.1 million as of year-end 2018 and 2017, respectively.

20.       Stock Compensation Plans

First Defiance has established equity based compensation plans for its directors and employees. On February 27, 2018, the Board adopted, and the shareholders approved at the 2018 Annual Shareholders Meeting, the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “2018 Equity Plan”). The 2018 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 2018 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 2018 Equity Plan. The 2018 Equity Plan allows for issuance of up to 900,000 common shares through the award of options, stock grants, restricted stock units (“RSU”), stock appreciation rights or other stock-based awards.

As of December 31, 2018, 39,400 options had been granted pursuant to previous plans, and remain outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted under all plans vest 20% per year. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

The Company approved a Short-Term (“STIP”) 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 between 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 49,052, 41,314 and 41,676 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 the payment.

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A total of 49,514 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 2018, the Company also granted to employees 23,952 restricted shares, of which 7,348 were RSUs and 16,604 were restricted stock grants. Of the 16,604 restricted stock grants, 4,104 were issued to directors and have a one-year vesting period. The remaining 12,500 were issued to employees and 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 shares. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during the twelve months ended December 31, 2018, or December 31, 2017.

Following is activity under the plans during 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		86,900		$	10.81
Forfeited or cancelled		-			-
Exercised		(47,500	)		8.15
Granted		-			-
Options outstanding, December 31, 2018		39,400		$	14.00		4.96	$	414
Vested or expected to vest at December 31, 2018		39,400		$	14.00		4.96	$	414
Exercisable at December 31, 2018		23,900		$	12.21		4.14	$	294

Information related to the stock option plans is as follows:

	Year Ended December 31,
	2018		2017		2016
	(In Thousands, except per share amounts)
Intrinsic value of options exercised	$	893	$	301	$	752
Cash received from option exercises		111		198		714
Tax benefit realized from option exercises		28		54		165
Weighted average fair value of options granted	$	-	$	-	$	13.95

As of December 31, 2018, there was $50,000 of total unrecognized compensation costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 1.6 years.

At December 31, 2018, 174,958 restricted share awards were outstanding. Compensation expense is recognized over the performance period based on the achievement of established targets. Total expense of $2.0 million, $2.0 million and $1.3 million was recorded during the years ended December 31, 2018, 2017 and 2016, respectively, and approximately $961,000 and $774,000 is included within other liabilities at December 31, 2018 and 2017, respectively, related to the STIPs and LTIPs.

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	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		145,076		$	20.26		21,072		$	25.28
Granted		49,024			26.97		66,118			19.68
Vested		(49,514	)		16.15		(56,818	)		17.51
Forfeited		-			-		-			-
Unvested at December 31, 2018		144,586		$	23.94		30,372		$	28.48

The maximum amount of compensation expense that may be earned for the 2018 STIP and the 2016, 2017 and 2018 LTIPs at December 31, 2018, is approximately $4.3 million in the aggregate. However, the estimated expense expected to be earned as of December 31, 2018, based on the performance measures in the plans, is $3.7 million of which $899,000 was unrecognized at December 31, 2018, and will be recognized over the remaining performance period.

As of December 31, 2018, 895,500 shares were available for grant under the 2018 Equity Plan. Options forfeited or cancelled under all plans except the 2018 Equity Plans are no longer available for grant to other participants.

21. Parent Company Statements

Condensed parent company financial statements, which include transactions with subsidiaries, are as follow:

	December 31,
Statements of Financial Condition	2018		2017
	(In Thousands)
Assets
Cash and cash equivalents	$	12,153	$	8,860
Investment in banking subsidiary		398,922		377,546
Investment in non-bank subsidiaries		23,372		22,319
Other assets		1,723		1,157
Total assets	$	436,170	$	409,882
Liabilities and stockholders’ equity:
Subordinated debentures	$	36,083	$	36,083
Accrued liabilities		498		513
Stockholders’ equity		399,589		373,286
Total liabilities and stockholders’ equity	$	436,170	$	409,882

	Years Ended December 31,
Statements of Income	2018			2017			2016
	(In Thousands)
Dividends from subsidiaries	$	24,550		$	15,800		$	24,200
Interest expense		(1,281	)		(1,090	)		(753	)
Other income		1			1			-
Noninterest expense		(831	)		(697	)		(644	)
Income before income taxes and equity in earnings of subsidiaries		22,439			14,014			22,803
Income tax credit		(431	)		(605	)		(466	)
Income before equity in earnings of subsidiaries		22,870			14,619			23,269
Undistributed equity in earnings of subsidiaries		23,379			17,649			5,574
Net income		46,249			32,268			28,843
Other comprehensive income (loss)		(2,412	)		2			(3,407	)
Comprehensive income	$	43,837		$	32,270		$	25,436

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	Years Ended December 31,
Statements of Cash Flows	2018			2017			2016
	(In Thousands)
Operating activities:
Net income	$	46,249		$	32,268		$	28,843
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Undistributed equity in earnings of subsidiaries		(23,379	)		(17,649	)		(5,574	)
Change in other assets and liabilities		(419	)		(358	)		235
Net cash provided by (used in) operating activities		22,451			14,261			23,504
Investing activities:
Cash paid for Commercial Bancshares		-			(12,340	)		-
Capital contribution to subsidiary		-			(6,491	)		-
Net cash used in investing activities		-			(18,831	)		-
Financing activities:
Repurchase of common stock		(6,330	)		-			(6,293	)
Cash dividends paid		(13,043	)		(9,859	)		(7,890	)
Stock Options Exercised		111			199			714
Direct stock sales		104			73			66
Net cash used in financing activities		(19,158	)		(9,587	)		(13,406	)
Net increase (decrease) in cash and cash equivalents		3,293			(14,157	)		10,098
Cash and cash equivalents at beginning of year		8,860			23,017			12,919
Cash and cash equivalents at end of year	$	12,153		$	8,860		$	23,017

22. Fair Value

FASB ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

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FASB ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on the best information available. In that regard, FASB ASC Topic 820 established a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

· Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

· Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by a correlation or other means.

· Level 3: Unobservable inputs for determining fair value of assets and liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Available for sale securities - Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities in Level 1 include federal agency preferred stock securities. Securities in Level 2 include U.S. Government agencies, mortgage-backed securities, corporate bonds and municipal securities.

Impaired loans - Fair values for impaired collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value on the cost to replace the current property.  Value of market comparison approach evaluates the sales price of similar properties in the same market area.  The income approach considers net operating income generated by the property and an investors required return.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell.  Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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Real Estate held for sale - Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are then reviewed monthly by members of the asset review committee for valuation changes and are accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted from 0% to 20% to account for other factors that may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used, which include:  physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

Mortgage servicing rights – On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level based on a model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and are validated against available market data (Level 2).

Mortgage banking derivative - The fair value of mortgage banking derivatives are evaluated monthly based on derivative valuation models using quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation date (Level 2).

The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Recurring Basis

December 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	$	-	$	2,503	$	-	$	2,503
Mortgage-backed - residential		-		74,710		-		74,710
REMICs		-		2,709		-		2,709
Collateralized mortgage obligations		-		101,461		-		101,461
Preferred stock		-		-		-		-
Corporate bonds		-		12,806		-		12,806
Obligations of state and political subdivisions		-		99,887				99,887
Mortgage banking derivative - asset		-		367		-		367
Mortgage banking derivative -liability		-		73		-		73

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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		-		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

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2018 and 2017.

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

December 31, 2018	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial Real Estate	$	-	$	-	$	1,456	$	1,456
Commercial						319		319
Total impaired loans		-		-		1,775		1,775
Mortgage servicing rights		-		629		-		629
Real estate held for sale
CRE		-		-		705		705
Total Real Estate held for sale		-		-		705		705

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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
Real estate held for sale
CRE		-		-		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 December 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)
Impaired Loans- Applies to all loan classes	$	1,775	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions		10-13	%		10.86	%
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	%		11	%
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	%

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $1.8 million, with a valuation allowance of $9,000 and a fair value of $4.6 million with no valuation allowance at December 31, 2018 and 2017, respectively. A provision expense of $1.2 million, $993,000, $1.0 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to these impaired loans was included in earnings. 

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Mortgage servicing rights, which are carried at the lower of cost or fair value, had a fair value of $629,000 with a valuation allowance of $300,000 and a fair value of $534,000 with a valuation allowance of $432,000 at December 31, 2018 and 2017, respectively. A recovery of $132,000, $90,000 and $123,000 for the years ended December 31, 2018, 2017 and 2016, respectively, was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for changes in market conditions. The change in fair value of real estate held for sale was $552,000, $20,000 and $74,000 for the years ended December 31, 2018, 2017 and 2016, respectively, which was recorded directly as an adjustment to current earnings through noninterest expense.

In accordance with FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of December 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, term notes payable and advance payments by borrowers for taxes and insurance, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

The Company adopted the amendments to ASU 2016-01 relating to the loan portfolio in 2018 and an exit price income approach is now 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 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 asset.

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The fair value of noninterest-bearing deposits are considered equal to the amount payable on demand at the reporting date (i.e., carrying value) and are classified as Level 1. The fair value of savings, NOW and certain money market accounts are equal to their carrying amounts and are a Level 2 classification. Fair values of fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

The fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 2 classification. The carrying value of subordinated debentures and deposits with fixed maturities is estimated based on discounted cash flow analyses based on interest rates currently being offered on instruments with similar characteristics and maturities resulting in a Level 3 classification.

FHLB advances with maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at December 31, 2018.

			Fair Value Measurements at December 31, 2018 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	98,962	$	98,962	$	98,962	$	-	$	-
Investment securities		294,602		294,602		-		294,602		-
FHLB Stock		14,217		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		2,518,321		2,501,096		-		6,865		2,494,231
Accrued interest receivable		9,641		9,641		18		1,168		8,455
Financial Liabilities:
Deposits	$	2,620,882	$	2,613,965	$	607,198	$	2,006,767	$	-
Advances from FHLB		85,189		84,281		-		84,281		-
Securities sold under repurchase agreements		5,741		5,741		-		5,741		-
Subordinated debentures		36,083		28,854		-		-		28,854

			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		-
FHLB 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 FHLB		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

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23. 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 $8.6 million and $14.8 million of interest rate lock commitments at December 31, 2018 and 2017, respectively. There were $11.5 million and $23.2 million of forward commitments for the future delivery of residential mortgage loans at December 31, 2018 and 2017, respectively.

The fair value of these mortgage banking derivatives are reflected by a derivative asset or a derivative liability. The table below provides data about the carrying values of these derivative instruments:

December 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

$

367

$

73

$

294

$

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:

	Twelve Months Ended December 31,
	2018			2017		2016
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	(304	)	$	107	$	(67	)

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24. Quarterly Consolidated Results of Operations (Unaudited)

The following is a summary of the quarterly consolidated results of operations:

	Three Months Ended
	March 31			June 30		September 30		December 31
	(In Thousands, Except Per Share Amounts)
2018
Interest income	$	28,905		$	30,299	$	31,963	$	33,550
Interest expense		3,218			3,752		4,434		5,058
Net interest income		25,687			26,547		27,529		28,492
Provision for loan losses		(1,095	)		423		1,376		472
Net interest income after provision for loan losses		26,782			26,124		26,153		28,020
Gain on sale, call or write-down of securities		-			-		76		97
Noninterest income		10,703			10,214		9,846		8,272
Noninterest expense		23,251			22,665		22,286		21,210
Income before income taxes		14,234			13,673		13,789		15,179
Income taxes		2,497			2,564		2,483		3,082
Net income	$	11,737		$	11,109	$	11,306	$	12,097
Earnings per common share:
Basic	$	0.58		$	0.54	$	0.55	$	0.60
Diluted	$	0.58		$	0.54	$	0.55	$	0.59
Average shares outstanding:
Basic		20,330			20,388		20,400		20,313
Diluted		20,438			20,492		20,467		20,404

	Three Months Ended
	March 31		June 30		September 30		December 31
	(In Thousands, Except Per Share Amounts)
2017
Interest income	$	24,036	$	27,458	$	28,081	$	28,527
Interest expense		2,391		2,826		3,074		3,140
Net interest income		21,645		24,632		25,007		25,387
Provision for loan losses		55		2,118		462		314
Net interest income after provision for loan losses		21,590		22,514		24,545		25,073
Gain on sale, call or write-down of securities		-		267		158		159
Noninterest income		10,549		9,873		9,337		9,738
Noninterest expense		23,142		20,630		20,440		21,139
Income before income taxes		8,997		12,024		13,600		13,831
Income taxes		3,857		3,677		4,219		4,431
Net income	$	5,140	$	8,347	$	9,381	$	9,400
Earnings per common share:
Basic	$	0.27	$	0.41	$	0.46	$	0.47
Diluted	$	0.27	$	0.41	$	0.46	$	0.46
Average shares outstanding:
Basic		18,870		20,294		20,298		20,310
Diluted		18,980		20,408		20,418		20,444

25. Other Comprehensive Income (Loss)

The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below. Reclassification adjustments related to securities available for sale are included in gains on sale or call of securities in the accompanying consolidated condensed statements of income. Reclassification adjustments related to the defined benefit postretirement medical plan are included in compensation and benefits in the accompanying consolidated condensed statements of income.

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	Before Tax Amount			Tax Effect			Net of Tax Amount
		(In Thousands)
Twelve months ended December 31, 2018:
Securities available for sale and transferred securities:
Change in net unrealized gain/(loss) during the period	$	(3,356	)	$	(706	)	$	(2,650	)
Reclassification adjustment for net gains included in net income		(173	)		(36	)		(137	)
Defined benefit postretirement medical plan:
Net gain on defined benefit postretirement medical plan realized during the period		560			200			360
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)		18			3			15
Total other comprehensive income	$	(2,951	)	$	(539	)	$	(2,412	)

	Before Tax Amount			Tax Effect			Net of Tax Amount
		(In Thousands)
Twelve months ended December 31, 2017:
Securities available for sale and transferred securities:
Change in net unrealized gain/(loss) during the period	$	733		$	256		$	477
Reclassification adjustment for net gains included in net income		(584	)		(204	)		(380	)
Defined benefit postretirement medical plan:
Net gain on defined benefit postretirement medical plan realized during the period		(166	)		(59	)		(107	)
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)		19			7			12
Total other comprehensive income	$	2		$	-		$	2

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 before reclassifications		(2,651	)		360			(2,291	)
Amounts reclassified from accumulated other comprehensive loss		(136	)		15			(121	)
Net other comprehensive income during period		(2,787	)		375			(2,412	)
Reclassification adjustment upon adoption of ASU 2018-02		129			(82	)		47
Balance December 31, 2018	$	(2,057	)	$	(91	)	$	(2,148	)
Balance January 1, 2017	$	504		$	(289	)	$	215
Other comprehensive income before reclassifications		477			(108	)		369
Amounts reclassified from accumulated other comprehensive loss		(380	)		13			(367	)
Net other comprehensive income during period		97			(95	)		2
Balance December 31, 2017	$	601		$	(384	)	$	217

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

First Defiance’s management carried out an evaluation, under the supervision and with the participation of the chief executive officer and the chief financial officer, of the effectiveness of First Defiance’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2018. Based upon that evaluation, the chief executive officer along with the chief financial officer concluded that First Defiance’s disclosure controls and procedures as of December 31, 2018, are effective.

The information set forth under “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” included in Item 8 above is incorporated herein by reference.

There were no changes in First Defiance’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect First Defiance’s internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item relating to our directors, nominees for directorship and executive officers is incorporated herein by reference from the section captioned “Composition of the Board” under the heading “PROPOSAL 1 – Election of Directors” and the section immediately following the heading “EXECUTIVE OFFICERS” in the Company’s definitive proxy statement which will be filed no later than 120 days after December 31, 2018 (the “Proxy Statement”). Information regarding our Audit Committee and compliance with Section 16(a) of the Securities Act of 1943 required by this item is incorporated herein by reference from the sections respectively captioned, “Board Committees” under the “PROPOSAL 1 – Election of Directors” and the section immediately following the heading “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” of the Proxy Statement. There have been no material changes to the procedures by which shareholders may recommend nominees to the board of directors.

First Defiance has adopted a code of ethics applicable to all officers, directors and employees that complies with SEC requirements, and is available on its Internet site at www.fdef.com under the Governance Documents tab on the Investor Relations page.

Item 11. Executive Compensation

Information regarding director compensation is set forth under the section captioned “Director Compensation” under the heading “PROPOSAL 1 – Election of Directors” of the Proxy Statement, and is incorporated herein by reference. Executive compensation information has been provided under the headings “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement, and is incorporated herein by reference.

The Compensation Committee Report and information related to compensation committee interlocks and insider participation have been respectively set forth under the section immediately following the heading “COMPENSATION COMMITTEE REPORT” and under the section captioned “Compensation Committee Interlocks and Insider Participation” following the heading “PROPOSAL 1 – Election of Directors” in the Proxy Statement, and are incorporated herein by reference.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information regarding security ownership of certain beneficial owners and management and information relating thereto is set forth in the section under the heading “BENEFICIAL OWNERSHIP” in the Proxy Statement, and is incorporated herein by reference.

Equity Compensation Plans

The following table provides information as of December 31, 2018, with respect to the shares of First Defiance common stock that are reserved for issuance under First Defiance’s existing equity compensation plans.

Plan Category	Number of securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)
	(a)		(b)		(c)
Equity Compensation Plans Approved by Security Holders		39,400	$	14.00		895,500

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item, including related transactions and director independence, is set forth respectively in the section following the heading “RELATED PERSON TRANSACTIONS” and in the section captioned “Composition of the Board” following the heading “PROPOSAL 1 – Election of Directors” in the Proxy Statement, which are both incorporated by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is set forth under the section captioned “Audit Fees” following the heading “INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” in the Proxy Statement, and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Financial Statements

(1) The following documents are filed as Item 8 of this Form 10-K.

(A)	Report of Independent Registered Public Accounting Firm (Crowe LLP)
(B)	Consolidated Statements of Financial Condition as of December 31, 2018 and 2017
(C)	Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016
(D)	Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
(E)	Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
(F)	Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
(G)	Notes to Consolidated Financial Statements

(2) Separate financial statement schedules are not being filed because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or the related notes.

(3) The exhibits required by this item are listed in the Exhibit Index of this Form 10-K. The management contracts and compensation plans or arrangements required to be filed with this Form 10-K are listed as Exhibits 10.1 through 10.29.

Item 16. 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST DEFIANCE FINANCIAL CORP.
February 28, 2019	By:	/s/ Kevin T. Thompson
		Kevin T. Thompson, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2019.

Signature	Title
/s/ John L. Bookmyer	Chairman of the Board
John L. Bookmyer
/s/ Donald P. Hileman	President and Chief
Donald P. Hileman	Executive Officer
/s/ Kevin T. Thompson	Executive Vice President and Chief
Kevin T. Thompson	Financial Officer (principal accounting officer)
/s/ Robert E. Beach	Director
Robert E. Beach
/s/ Douglas A. Burgei, D.V.M.	Director
Douglas A. Burgei, D.V.M.
/s/ Thomas A. Reineke	Director
Thomas A. Reineke
/s/ Barbara A. Mitzel	Director
Barbara A. Mitzel
/s/ Jean A. Hubbard	Director
Jean A. Hubbard
/s/ Samuel S. Strausbaugh	Director
Samuel S. Strausbaugh
/s/ Charles D. Niehaus	Director
Charles D. Niehaus
/s/ Terri A. Bettinger	Director
Terri A. Bettinger
/s/ Thomas K. Herman	Director
Thomas K. Herman
/s/ Mark A. Robison	Director
Mark A. Robison

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Exhibit Index

This report incorporates by reference the documents listed below that we have previously filed with the SEC. The SEC allows us to incorporate by reference information in this document. The information incorporated by reference is considered to be part of this document.

The SEC maintains an internet web site that contains reports, proxy statements, and other information about issuers, like First Defiance, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by First Defiance with the SEC are also available at the First Defiance Financial Corp. web site. The address of the site is http://www.fdef.com. Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those web sites is not part of this report.

Exhibit
Number	Description
2.1	Agreement and Plan of Merger, dated August 23, 2016, by and between First Defiance and Commercial Bancshares, Inc.	(28)
2.2	Amendment to Agreement and Plan of Merger, dated October 31, 2016, by and between First Defiance and Commercial Bancshares, Inc.	(12)
3.1	Articles of Incorporation of First Defiance	(1)
3.2	Amendment to Articles of Incorporation of First Defiance	(30)
3.3	Code of Regulations of First Defiance	(31)
4.1	Agreement to furnish instruments and agreements defining rights of holders of long-term debt	(26)
10.1	Employment Agreement with Gregory R. Allen	(5)
10.2	2005 Stock Option and Incentive Plan	(6)
10.3	Form of Stock Option Award Agreement under 2005 Stock Option and Incentive Plan	(3)
10.4	First Federal Amended and Restated Executive Group Life Plan – Post Separation	(13)
10.5	2010 Equity Incentive Plan	(14)
10.6	First Amendment to First Defiance Financial Corp. 2010 Equity Incentive Plan	(18)
10.7	2010 Equity Plan Form of Long-Term Incentive Performance-Based  Award Agreement	(16)
10.8	2010 Equity Plan Form of Short-Term Incentive Performance-Based Award Agreement	(17)
10.9	Form of Restricted Stock Award Agreement under 2010 Equity Plan	(25)
10.10	Form of Restricted Stock Unit Award Agreement under 2010 Equity Plan	(12)
10.11	First Defiance Deferred Compensation Plan	(22)
10.12	First Defiance Financial Corp. and Affiliates Incentive Compensation Plan	(19)
10.13	First Defiance Financial Corp. Long-Term Restricted Stock Unit Award Agreement (2012 Long Term Incentive)	(21)
10.14	Employment Agreement with Donald P. Hileman	(23)
10.15	Employment Agreement with Kevin T. Thompson	(24)
10.16	2014 Change of Control and Non-Solicitation Agreement with John R. Reisner	(27)
10.17	Change of Control Agreement and Non-Compete Agreement with Gregory R. Allen	(32)
10.18	First Amendment to Donald P. Hileman’s Employment Agreement	(33)
10.19	First Amendment to Kevin T. Thompson’s Employment Agreement	(34)
10.20	Form of Restricted Stock Award Agreement under 2018 Equity Incentive Plan	(35)
10.21	Form of Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan	(36)
10.22	First Defiance Deferred Compensation Plan, revised October 30, 2014	(37)
10.23	2018 Change of Control and Non-Solicitation Agreement with John Reisner	(38)
10.24	2018 Employment Agreement with Donald P. Hileman	(39)
10.25	2018 Employment Agreement with Kevin T. Thompson	(40)
10.26	Form of Performance-Based Restricted Stock Unit Award Agreement (LTIP) under the 2018 Equity Incentive Plan	(29)
10.27	Form of Performance-Based Restricted Stock Unit Award Agreement (Long-Term Equity Asset Growth) under the 2018 Equity Incentive Plan	(29)
10.28	Form of Performance-Based Restricted Stock Unit Award Agreement (LTIP) under the 2010 Equity Incentive Plan	(29)
10.29	Form of Performance-Based Restricted Stock Unit Award Agreement (Long-Term Equity Asset Growth) under the 2010 Equity Incentive Plan	(29)
21	List of Subsidiaries of the Company	(29)
23.1	Consent of Crowe LLP	(29)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	(29)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	(29)
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(29)
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(29)
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements tagged as blocks of text and in detail.	(29)

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(1)	Incorporated herein by reference to the like numbered exhibit in the Registrant’s Form S-3 filed on November 10, 2009 (File No. 333-163014)
(2)	Incorporated herein by reference to Exhibit 10.2 in the Registrant’s 2004 Form 10-K (File No. 000-26850)
(3)	Incorporated herein by reference to Exhibit 10.16 in the Registrant’s 2008 Form 10-K (File No. 000-26850)
(4)	Incorporated herein by reference to Appendix B to the 2001 Proxy Statement (File No. 000-26850)
(5)	Incorporated herein by reference to Exhibit 10.4 in Form 8-K filed October 1, 2007 (File No. 000-26850)
(6)	Incorporated herein by reference to Appendix A to the 2005 Proxy Statement (File No. 000-26850)
(7)	Incorporated herein by reference to Exhibit 3 in Form 8-K filed December 8, 2008 (F File No. 000-26850)
(8)	Incorporated herein by reference to Exhibit 10 in Form 8-K filed December 8, 2008 (File No. 000-26850)
(9)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed December 12, 2008 (File No. 000-26850)
(11)	Incorporated herein by reference to Exhibit 4 in Form 8-K filed December 8, 2008 (File No. 000-26850)
(12)	Incorporated herein by reference to Exhibit 10.24 in the Registrant’s 2016 Form 10-K (File No. 000-26850)
(13)	Incorporated herein by reference to Exhibit 10.1 in Form 10-Q filed November 2, 2010 (File No. 000-26850)
(14)	Incorporated herein by reference to Annex A to 2010 Proxy Statement (File No. 000-26850)
(15)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed March 4, 2011 (File No. 000-26850)
(16)	Incorporated herein by reference to Exhibit 10.1 in Form 10-Q filed November 8, 2011 (File No. 000-26850)
(17)	Incorporated herein by reference to Exhibit 10.2 in Form 10-Q filed November 8, 2011 (File No. 000-26850)
(18)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed March 15, 2012 (File No. 000-26850)
(19)	Incorporated herein by reference to Exhibit 10.2 in Form 8-K filed March 15, 2012 (File No. 000-26850)
(20)	Incorporated herein by reference to Exhibit 10.3 in Form 8-K filed March 15, 2012 (File No. 000-26850)

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(21)	Incorporated herein by reference to Exhibit 10.4 in Form 8-K filed March 15, 2012 (File No. 000-26850)
(22)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed December 23, 2005 (File No. 000-26850)
(23)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed December 30, 2013 (File No. 000-26850)
(24)	Incorporated herein by reference to Exhibit 10.2 in Form 8-K filed December 30, 2013 (File No. 000-26850)
(25)	Incorporated herein by reference to Exhibit 10.3 in Form 8-K filed December 30, 2013 (File No. 000-26850)
(26)	Incorporated herein by reference to Exhibit 4,1 in Registrant’s 2014 Form 10-K (File No. 000-26850)
(27)	Incorporated herein by reference to Exhibit 10.23 in Registrant’s 2015 Form 10-K (File No. 000-26850)
(28)	Incorporated herein by reference to Exhibit 2.1 in Form 8-K filed August 24, 2016 (File No. 000-26850)
(29)	Included herein
(30)	Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on June 22, 2018 (File No. 000-26850).
(31)	Incorporated by reference to Exhibit 4.3 of the Registrant’s Form S-8 POS filed on July 17, 2018 (333-197203).
(32)	Incorporated herein by reference to Exhibit 10.4 in Form 10-Q filed May 8, 2018 (File No. 000-26850)
(33)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed February 23, 2018 (File No. 000-26850)
(34)	Incorporated herein by reference to Exhibit 10.2 in Form 8-K filed February 23, 2018 (File No. 000-26850)
(35)	Incorporated herein by reference to Exhibit 10.1 in Form 10-Q filed August 7, 2018 (File No. 000-26850)
(36)	Incorporated herein by reference to Exhibit 10.2 in Form 10-Q filed August 7, 2018 (File No. 000-26850)
(37)	Incorporated herein by reference to Exhibit 10.3 in Form 10-Q filed August 7, 2018 (File No. 000-26850)
(38)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed March 22, 2018 (File No. 000-26850)
(39)	Incorporated herein by reference to Exhibit 10.1 in Form 8-K filed December 27, 2018 (File No. 000-26850)
(40)	Incorporated herein by reference to Exhibit 10.2 in Form 8-K filed December 27, 2018 (File No. 000-26850)

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EX-10.26

Exhibit 10.26

FIRST DEFIANCE FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT

AWARD AGREEMENT

First Defiance Financial Corp. (the “Company”) hereby grants the undersigned Participant a Performance Award (the “Award”), subject to the terms and conditions described in the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “Plan”) and this Performance-Based Award Agreement (______ Long-Term Incentive Equity Award) (this “Award Agreement”).

1. Name of Participant: ________________________

2. Performance Period: The ___ month period beginning _____________, 20__ and ending on _____________, 20__ (the “Performance Period”)

3. Grant Date: ___________, 20__ (the “Grant Date”).

4. Award of Restricted Stock Units: The number of RSUs subject to the Award is equal to _______ (the “Target Award”).

5 Vesting: At the end of the Performance Period, the Participant shall vest in between 0% and 100% of the RSUs subject to the Target Award based on the achievement of the Performance Objectives set forth in attached Exhibit A during the Performance Period. The Committee shall determine the number of RSUs vesting with respect to the Performance Period based on the level of achievement of the Performance Objectives and any other factors that the Committee deems relevant. The Committee, in its sole discretion, may adjust the number of RSUs vesting.

6 Limitations on Vesting: If the Participant’s employment terminates for any reason prior to the end of the applicable Performance Period, the Participant shall forfeit all of the RSUs subject to the Target Award for that and any subsequent Performance Period. Notwithstanding the foregoing:

(a) Death; Disability; Retirement: If the Participant, dies, becomes Disabled or Retires during any Performance Period, the Participant shall vest in a number of RSUs for that Performance Period based on the achievement of the Performance Objectives determined as of the fiscal quarter ended nearest to the Participant’s death, Disability or Retirement. Vested RSUs shall be settled in a lump sum within 60 days following the Participant’s death, Disability or Retirement.

(b) Change in Control: If a Change in Control occurs during a Performance Period and the Participant is terminated by the Company, other than for Cause (but in no event after the end of a Performance Period), the Participant shall vest in a number of RSUs equal to the greater of: (i) the number of RSUs that would have vested if the Performance Objectives had been satisfied at the “target” level of achievement for the Complete Performance Period; or (ii) the number of RSUs that would have vested based on the actual level of achievement of the Performance Objectives through the fiscal quarter ended nearest to the Participant’s termination. Vested RSUs shall be settled in a lump sum within 60 days following the Participant’s termination.

1

7 Form of Settlement: Each whole or fractional RSU entitles the Participant to receive a Share on the date the RSU is settled.

8 Time of Settlement: Except as otherwise provided in this Award Agreement, and provided that the Participant remains employed by the Company or an Affiliate on the settlement date, all vested RSUs shall be settled between January 1 and March 15 of the first fiscal year following the end of the applicable Performance Period in the form set forth in Section 7. Notwithstanding the foregoing, if the Participant is terminated for Cause after the end of any Performance Period but before the RSUs are settled, the Participant shall forfeit any right to settlement of the RSUs for that Performance Period and any subsequent Performance Period.

9 Miscellaneous:

(a) Non-Transferability. RSUs may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

(b) Beneficiary. Payments with respect to the Award shall be made to the Participant, except that, in the event of the Participant’s death, payment shall be made to the Participant’s beneficiary. Unless otherwise specifically designated by the Participant in writing, the Participant’s beneficiary shall be the Participant’s spouse or, if none, the Participant’s estate.

(c) No Right to Continued Service or to Awards. The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.

(d) Tax Withholding. The Company or an Affiliate, as applicable, will have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to the RSUs. To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant. Subject to the approval of the Committee, the Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction; provided that such Shares would otherwise be distributable to the Participant at the time of the withholding if such Shares are not otherwise distributable at the time of the withholding, provided that the Participant has a vested right to distribution of such Shares at such time. All such elections will be irrevocable and made in writing and will be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

(e) Requirements of Law. The grant of Awards shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.

2

(f) Governing Law. The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

(g) Award Subject to Plan. The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

(h) Section 409A of the Code. This Award Agreement is intended, and shall be construed and interpreted, to comply with Section 409A of the Code and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or the Treasury Regulations thereunder. For purposes of Section 409A of the Code, each payment of compensation under the Award Agreement shall be treated as a separate payment of compensation. Any amounts payable solely on account of an involuntary termination shall be excludible from the requirements of Section 409A of the Code, either as separation pay or as short-term deferrals to the maximum possible extent. Nothing herein shall be construed as the guarantee of any particular tax treatment to the Participant, and the Company shall have no liability with respect to any failure to comply with the requirements of Section 409A of the Code. Any reference to the Participant’s “termination” shall mean the Participant’s “separation from service,” as defined in Section 409A of the Code. In addition, if the Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s termination until the expiration of six months from the date of such termination (or, if earlier, the Participant’s death). Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such termination.

(i) Signature in Counterparts. This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

3

PARTICIPANT
	Date:
FIRST DEFIANCE FINANCIAL CORP.
By:	Date:
Its:

4

FIRST DEFIANCE FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT

AWARD AGREEMENT

(20__ LONG-TERM INCENTIVE EQUITY PLAN)

EXHIBIT A

As described in Section 5 of the Award Agreement, at the end of each applicable Performance Period, the Participant may vest in between 0% and 100% of the RSUs subject to the Target Award based on the achievement of the Performance Objectives set forth below during each applicable Performance Period. When determining the level of achievement of the Performance Objectives, the Committee may make such adjustments as it deems equitable to account for unusual or non-recurring items. Performance between two stated levels will be interpolated when determining the percentage of the Target Award earned. Each component of the Target Award is calculated separately for each applicable Performance Period based on the weight assigned to each Performance Objective, and the Participant’s Award for such Performance Period shall equal the sum of the Performance Objectives.

(a) [insert first Performance Objective]

[describe goal]	Percentage of Target Award Component Earned
Less than [threshold goal]	0
Equal to [goal], but less than [goal]	[insert applicable attainment]
Equal to or higher than [maximum goal]	100%

(b) [repeat for additional Performance Objectives]

For purposes of this Award Agreement: (i) [the Performance Objectives] will be determined by the Committee, in its sole discretion, using financial information filed with the Securities and Exchange Commission; and (ii) the Committee shall select the institutions constituting, and make such periodic adjustments as it determines appropriate to, the “Peer Group” in its sole discretion.

 A-1

EX-10.27

Exhibit 10.27

FIRST DEFIANCE FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT

AWARD AGREEMENT

(20__ LONG-TERM EQUITY _________________)

First Defiance Financial Corp. (the “Company”) hereby grants the undersigned Participant a Performance Award (the “Award”), subject to the terms and conditions described in the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “Plan”) and this Performance-Based Award Agreement (20__ Long-Term Equity) (this “Award Agreement”).

1. Name of Participant: _______________

2. Performance Period: The ___ month period beginning January 1, 20__ and ending on December 31, 20__ (the “Performance Period”).

3. Grant Date: _______________ (the “Grant Date”).

4. Award of Restricted Stock Units: The number of RSUs subject to the Award is equal to ______ (the “Maximum Award”).

5 Vesting: At the end of the Performance Period, the Participant shall vest in between 0% and 100% of the RSUs subject to the Maximum Award based on the achievement of the Performance Objective set forth below during the Performance Period. The Committee shall determine the number of RSUs vesting with respect to the Performance Period based on the level of achievement of the Performance Objective (including prorated achievement levels) and any other factors that the Committee deems relevant. The Committee, in its sole discretion, may adjust the number of RSUs vesting.

[describe goal]	RSU % Achieved
Less than [threshold goal]	0%
[goal]	___%
[goal]	___%
[maximum goal]	100%

6 Limitations on Vesting: If the Participant’s employment terminates for any reason prior to the time of settlement as described in Section 8, the Participant shall forfeit all of the RSUs subject to the Maximum Award. Notwithstanding the foregoing:

(a) Death; Disability; Retirement: (i) If the Participant dies, becomes Disabled or Retires during the Performance Period (other than as described in Section 6(c)), the Participant shall vest in a number of RSUs calculated based on the actual level of achievement of the Performance Objective through the fiscal quarter ended nearest to the Participant’s death, Disability or Retirement. Vested RSUs shall be settled within 60 days following the Participant’s death, Disability or Retirement.

(ii)       If the Participant dies, becomes Disabled or Retires (other than as described in Section 6(c)) after the last day of the Performance Period but before settlement of the Award, the Participant shall vest in a number of RSUs calculated based on the actual level of achievement of the Performance Objective for the Performance Period and the vested RSUs shall be settled between January 1 and March 15 of the first fiscal year following the end of the Performance Period.

(b) Change in Control: (i) If a Change in Control occurs during a Performance Period and the Participant is terminated by the Company (other than as described in Section 6(c)) prior to the last day of the Performance Period, the Participant shall vest in a number of RSUs equal to the greater of: (I) the number of RSUs that would have vested if the Performance Objective had been satisfied at the “target” level of achievement for the Complete Performance Period; or (II) the number of RSUs that would have vested based on the actual level of achievement of the Performance Objective through the fiscal quarter ended nearest to the Participant’s termination. Vested RSUs shall be settled in shares within 60 days following the Participant’s termination.

(ii)       If the Participant is terminated by the Company (other than as described in Section 6(c)) after a Change in Control and after the last day of the Performance Period but before settlement of the Award, the Participant shall vest in a number of RSUs calculated based on the actual level of achievement of the Performance Objective for the Performance Period and the vested RSUs shall be settled between January 1 and March 15 of the first fiscal year following the end of the Performance Period.

(c) Termination for Cause: If the Participant is terminated for Cause (or the Company determines that it would have had Cause to terminate the Participant who had Retired, died or become Disabled) prior to settlement of this Award, the Participant shall forfeit any right to settlement of the RSUs.

7 Form of Settlement: Each whole or fractional RSU that becomes vested under Sections 5 and 6, entitles the Participant to receive a Share on the date the RSU is settled.

8 Time of Settlement: Except as otherwise provided in this Award Agreement, and provided that the Participant remains employed by the Company or an Affiliate on the settlement date, all RSUs that become vested under Sections 5 and 6 shall be settled between January 1 and March 15 of the first fiscal year following the end of the Performance Period in the form set forth in Section 7.

9 Miscellaneous:

(a) Non-Transferability. RSUs may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

(b) Beneficiary. Payments with respect to the Award shall be made to the Participant, except that, in the event of the Participant’s death, payment shall be made to the Participant’s beneficiary. Unless otherwise specifically designated by the Participant in writing, the Participant’s beneficiary shall be the Participant’s spouse or, if none, the Participant’s estate.

(c) No Right to Continued Service or to Awards. The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.

(d) Tax Withholding. The Company or an Affiliate, as applicable, will have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to the RSUs. To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant. Unless the Participant has otherwise irrevocably elected a different method to satisfy the withholding, the Participant shall be deemed to have elected to satisfy the withholding requirement by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. All such elections will be irrevocable and made in writing and will be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

Page 2

(e) Requirements of Law. The grant of Awards shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.

(f) Governing Law. The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

(g) Award Subject to Plan. The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

(h) Section 409A of the Code. This Award Agreement is intended, and shall be construed and interpreted, to comply with Section 409A of the Code and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or the Treasury Regulations thereunder. For purposes of Section 409A of the Code, each payment of compensation under the Award Agreement shall be treated as a separate payment of compensation. Any amounts payable solely on account of an involuntary termination shall be excludible from the requirements of Section 409A of the Code, either as separation pay or as short-term deferrals to the maximum possible extent. Nothing herein shall be construed as the guarantee of any particular tax treatment to the Participant, and the Company shall have no liability with respect to any failure to comply with the requirements of Section 409A of the Code. Any reference to the Participant’s “termination” shall mean the Participant’s “separation from service,” as defined in Section 409A of the Code. In addition, if the Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s termination until the expiration of six months from the date of such termination (or, if earlier, the Participant’s death). Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such termination.

(i) Signature in Counterparts. This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

Page 3

PARTICIPANT
	Date:
FIRST DEFIANCE FINANCIAL CORP.
By:	Date:
Its:

Page 4

EX-10.28

Exhibit 10.28

FIRST DEFIANCE FINANCIAL CORP.

2010 EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT

AWARD AGREEMENT

First Defiance Financial Corp. (the “Company”) hereby grants the undersigned Participant a Performance Award (the “Award”), subject to the terms and conditions described in the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “Plan”) and this Performance-Based Award Agreement (______ Long-Term Incentive Equity Award) (this “Award Agreement”).

1. Name of Participant: ________________________

2. Performance Period: The ___ month period beginning _____________, 20__ and ending on _____________, 20__ (the “Performance Period”)

3. Grant Date: ___________, 20__ (the “Grant Date”).

4. Award of Restricted Stock Units: The number of RSUs subject to the Award is equal to _______ (the “Target Award”).

5 Vesting: At the end of the Performance Period, the Participant shall vest in between 0% and 100% of the RSUs subject to the Target Award based on the achievement of the Performance Objectives set forth in attached Exhibit A during the Performance Period. The Committee shall determine the number of RSUs vesting with respect to the Performance Period based on the level of achievement of the Performance Objectives and any other factors that the Committee deems relevant. The Committee, in its sole discretion, may adjust the number of RSUs vesting.

6 Limitations on Vesting: If the Participant’s employment terminates for any reason prior to the end of the applicable Performance Period, the Participant shall forfeit all of the RSUs subject to the Target Award for that and any subsequent Performance Period. Notwithstanding the foregoing:

(a) Death; Disability; Retirement: If the Participant, dies, becomes Disabled or Retires during any Performance Period, the Participant shall vest in a number of RSUs for that Performance Period based on the achievement of the Performance Objectives determined as of the fiscal quarter ended nearest to the Participant’s death, Disability or Retirement. Vested RSUs shall be settled in a lump sum within 60 days following the Participant’s death, Disability or Retirement.

(b) Change in Control: If a Change in Control occurs during a Performance Period and the Participant is terminated by the Company, other than for Cause (but in no event after the end of a Performance Period), the Participant shall vest in a number of RSUs equal to the greater of: (i) the number of RSUs that would have vested if the Performance Objectives had been satisfied at the “target” level of achievement for the Complete Performance Period; or (ii) the number of RSUs that would have vested based on the actual level of achievement of the Performance Objectives through the fiscal quarter ended nearest to the Participant’s termination. Vested RSUs shall be settled in a lump sum within 60 days following the Participant’s termination.

1

7 Form of Settlement: Each whole or fractional RSU entitles the Participant to receive a Share on the date the RSU is settled.

8 Time of Settlement: Except as otherwise provided in this Award Agreement, and provided that the Participant remains employed by the Company or an Affiliate on the settlement date, all vested RSUs shall be settled between January 1 and March 15 of the first fiscal year following the end of the applicable Performance Period in the form set forth in Section 7. Notwithstanding the foregoing, if the Participant is terminated for Cause after the end of any Performance Period but before the RSUs are settled, the Participant shall forfeit any right to settlement of the RSUs for that Performance Period and any subsequent Performance Period.

9 Miscellaneous:

(a) Non-Transferability. RSUs may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

(b) Beneficiary. Payments with respect to the Award shall be made to the Participant, except that, in the event of the Participant’s death, payment shall be made to the Participant’s beneficiary. Unless otherwise specifically designated by the Participant in writing, the Participant’s beneficiary shall be the Participant’s spouse or, if none, the Participant’s estate.

(c) No Right to Continued Service or to Awards. The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.

(d) Tax Withholding. The Company or an Affiliate, as applicable, will have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to the RSUs. To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant. Subject to the approval of the Committee, the Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction; provided that such Shares would otherwise be distributable to the Participant at the time of the withholding if such Shares are not otherwise distributable at the time of the withholding, provided that the Participant has a vested right to distribution of such Shares at such time. All such elections will be irrevocable and made in writing and will be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

(e) Requirements of Law. The grant of Awards shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.

2

(f) Governing Law. The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

(g) Award Subject to Plan. The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

(h) Section 409A of the Code. This Award Agreement is intended, and shall be construed and interpreted, to comply with Section 409A of the Code and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or the Treasury Regulations thereunder. For purposes of Section 409A of the Code, each payment of compensation under the Award Agreement shall be treated as a separate payment of compensation. Any amounts payable solely on account of an involuntary termination shall be excludible from the requirements of Section 409A of the Code, either as separation pay or as short-term deferrals to the maximum possible extent. Nothing herein shall be construed as the guarantee of any particular tax treatment to the Participant, and the Company shall have no liability with respect to any failure to comply with the requirements of Section 409A of the Code. Any reference to the Participant’s “termination” shall mean the Participant’s “separation from service,” as defined in Section 409A of the Code. In addition, if the Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s termination until the expiration of six months from the date of such termination (or, if earlier, the Participant’s death). Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such termination.

(i) Signature in Counterparts. This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

3

PARTICIPANT
	Date:
FIRST DEFIANCE FINANCIAL CORP.
By:	Date:
Its:

4

FIRST DEFIANCE FINANCIAL CORP.

2010 EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT

AWARD AGREEMENT

(20__ LONG-TERM INCENTIVE EQUITY PLAN)

EXHIBIT A

As described in Section 5 of the Award Agreement, at the end of each applicable Performance Period, the Participant may vest in between 0% and 100% of the RSUs subject to the Target Award based on the achievement of the Performance Objectives set forth below during each applicable Performance Period. When determining the level of achievement of the Performance Objectives, the Committee may make such adjustments as it deems equitable to account for unusual or non-recurring items. Performance between two stated levels will be interpolated when determining the percentage of the Target Award earned. Each component of the Target Award is calculated separately for each applicable Performance Period based on the weight assigned to each Performance Objective, and the Participant’s Award for such Performance Period shall equal the sum of the Performance Objectives.

(a) [insert first Performance Objective]

[describe goal]	Percentage of Target Award Component Earned
Less than [threshold goal]	0
Equal to [goal], but less than [goal]	[insert applicable attainment]
Equal to or higher than [maximum goal]	100%

(b) [repeat for additional Performance Objectives]

For purposes of this Award Agreement: (i) [the Performance Objectives] will be determined by the Committee, in its sole discretion, using financial information filed with the Securities and Exchange Commission; and (ii) the Committee shall select the institutions constituting, and make such periodic adjustments as it determines appropriate to, the “Peer Group” in its sole discretion. 

 A-1

EX-10.29

Exhibit 10.29

FIRST DEFIANCE FINANCIAL CORP.

2010 EQUITY INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT

AWARD AGREEMENT

(20__ LONG-TERM EQUITY _________________)

First Defiance Financial Corp. (the “Company”) hereby grants the undersigned Participant a Performance Award (the “Award”), subject to the terms and conditions described in the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “Plan”) and this Performance-Based Award Agreement (20__ Long-Term Equity) (this “Award Agreement”).

1. Name of Participant: _______________

2. Performance Period: The ___ month period beginning January 1, 20__ and ending on December 31, 20__ (the “Performance Period”).

3. Grant Date: _______________ (the “Grant Date”).

4. Award of Restricted Stock Units: The number of RSUs subject to the Award is equal to ______ (the “Maximum Award”).

5 Vesting: At the end of the Performance Period, the Participant shall vest in between 0% and 100% of the RSUs subject to the Maximum Award based on the achievement of the Performance Objective set forth below during the Performance Period. The Committee shall determine the number of RSUs vesting with respect to the Performance Period based on the level of achievement of the Performance Objective (including prorated achievement levels) and any other factors that the Committee deems relevant. The Committee, in its sole discretion, may adjust the number of RSUs vesting.

[describe goal]	RSU % Achieved
Less than [threshold goal]	0%
[goal]	___%
[goal]	___%
[maximum goal]	100%

6 Limitations on Vesting: If the Participant’s employment terminates for any reason prior to the time of settlement as described in Section 8, the Participant shall forfeit all of the RSUs subject to the Maximum Award. Notwithstanding the foregoing:

(a) Death; Disability; Retirement: (i) If the Participant dies, becomes Disabled or Retires during the Performance Period (other than as described in Section 6(c)), the Participant shall vest in a number of RSUs calculated based on the actual level of achievement of the Performance Objective through the fiscal quarter ended nearest to the Participant’s death, Disability or Retirement. Vested RSUs shall be settled within 60 days following the Participant’s death, Disability or Retirement.

(ii)       If the Participant dies, becomes Disabled or Retires (other than as described in Section 6(c)) after the last day of the Performance Period but before settlement of the Award, the Participant shall vest in a number of RSUs calculated based on the actual level of achievement of the Performance Objective for the Performance Period and the vested RSUs shall be settled between January 1 and March 15 of the first fiscal year following the end of the Performance Period.

(b) Change in Control: (i) If a Change in Control occurs during a Performance Period and the Participant is terminated by the Company (other than as described in Section 6(c)) prior to the last day of the Performance Period, the Participant shall vest in a number of RSUs equal to the greater of: (I) the number of RSUs that would have vested if the Performance Objective had been satisfied at the “target” level of achievement for the Complete Performance Period; or (II) the number of RSUs that would have vested based on the actual level of achievement of the Performance Objective through the fiscal quarter ended nearest to the Participant’s termination. Vested RSUs shall be settled in shares within 60 days following the Participant’s termination.

(ii)       If the Participant is terminated by the Company (other than as described in Section 6(c)) after a Change in Control and after the last day of the Performance Period but before settlement of the Award, the Participant shall vest in a number of RSUs calculated based on the actual level of achievement of the Performance Objective for the Performance Period and the vested RSUs shall be settled between January 1 and March 15 of the first fiscal year following the end of the Performance Period.

(c) Termination for Cause: If the Participant is terminated for Cause (or the Company determines that it would have had Cause to terminate the Participant who had Retired, died or become Disabled) prior to settlement of this Award, the Participant shall forfeit any right to settlement of the RSUs.

7 Form of Settlement: Each whole or fractional RSU that becomes vested under Sections 5 and 6, entitles the Participant to receive a Share on the date the RSU is settled.

8 Time of Settlement: Except as otherwise provided in this Award Agreement, and provided that the Participant remains employed by the Company or an Affiliate on the settlement date, all RSUs that become vested under Sections 5 and 6 shall be settled between January 1 and March 15 of the first fiscal year following the end of the Performance Period in the form set forth in Section 7.

9 Miscellaneous:

(a) Non-Transferability. RSUs may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

(b) Beneficiary. Payments with respect to the Award shall be made to the Participant, except that, in the event of the Participant’s death, payment shall be made to the Participant’s beneficiary. Unless otherwise specifically designated by the Participant in writing, the Participant’s beneficiary shall be the Participant’s spouse or, if none, the Participant’s estate.

(c) No Right to Continued Service or to Awards. The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.

(d) Tax Withholding. The Company or an Affiliate, as applicable, will have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to the RSUs. To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant. Unless the Participant has otherwise irrevocably elected a different method to satisfy the withholding, the Participant shall be deemed to have elected to satisfy the withholding requirement by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. All such elections will be irrevocable and made in writing and will be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

Page 2

(e) Requirements of Law. The grant of Awards shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.

(f) Governing Law. The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

(g) Award Subject to Plan. The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

(h) Section 409A of the Code. This Award Agreement is intended, and shall be construed and interpreted, to comply with Section 409A of the Code and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or the Treasury Regulations thereunder. For purposes of Section 409A of the Code, each payment of compensation under the Award Agreement shall be treated as a separate payment of compensation. Any amounts payable solely on account of an involuntary termination shall be excludible from the requirements of Section 409A of the Code, either as separation pay or as short-term deferrals to the maximum possible extent. Nothing herein shall be construed as the guarantee of any particular tax treatment to the Participant, and the Company shall have no liability with respect to any failure to comply with the requirements of Section 409A of the Code. Any reference to the Participant’s “termination” shall mean the Participant’s “separation from service,” as defined in Section 409A of the Code. In addition, if the Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s termination until the expiration of six months from the date of such termination (or, if earlier, the Participant’s death). Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such termination.

(i) Signature in Counterparts. This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

[signature page attached]

Page 3

PARTICIPANT
	Date:
FIRST DEFIANCE FINANCIAL CORP.
By:	Date:
Its:

Page 4

EX-21

Exhibit 21

List of Subsidiaries of First Defiance Financial Corp.

Name	Jurisdiction of Incorporation
First Federal Bank of the Midwest	Federal
First Insurance Group of the Midwest	OH
First Defiance Risk Management, Inc.	NV

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement on Form S-3 (333-180902) and in the Registration Statements on Form S-8 (333-197203 and 333-166891) of First Defiance Financial Corp. of our report dated February 28, 2019 relating to the consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of First Defiance Financial Corp. for the year ended December 31, 2018.

/s/ Crowe LLP

Crowe LLP

South Bend, Indiana

February 28, 2019

EX-31.1

Exhibit 31.1

SARBANES-OXLEY ACT OF 2002, SECTION 302

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Donald P. Hileman, President and Chief Executive Officer, certify that:

1) I have reviewed this annual report on Form 10-K of First Defiance Financial Corp. (the “registrant”);

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 28, 2019

/s/ Donald P. Hileman

Donald P. Hileman

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

SARBANES-OXLEY ACT OF 2002, SECTION 302

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Kevin T. Thompson, Chief Financial Officer, certify that:

1) I have reviewed this annual report on Form 10-K of First Defiance Financial Corp. (the “registrant”);

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 28, 2019

/s/ Kevin T. Thompson

Kevin T. Thompson

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of First Defiance Financial Corp (the “Registrant”) on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (the “Report”), I, Donald P. Hileman, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

By:	/s/ Donald P. Hileman
	Name:  Donald P. Hileman
	Title: President and Chief
	Executive Officer

Date: February 28, 2019

A signed original of this Certification has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of First Defiance Financial Corp (the “Registrant”) on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (the “Report”), I, Kevin T. Thompson, Executive Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

By:	/s/ Kevin T. Thompson
	Name:  Kevin T. Thompson
	Title: Executive Vice President
	and Chief Financial Officer

Date: February 28, 2019

A signed original of this Certification has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

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Document And Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Jan. 31, 2019	Jun. 30, 2018
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Entity Registrant Name	FIRST DEFIANCE FINANCIAL CORP
Entity Central Index Key	0000946647
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 675.1
Trading Symbol	FDEF
Entity Common Stock, Shares Outstanding		20,067,268
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Small Business	false

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Consolidated Statements of Financial Condition - USD ($) $ in Thousands		Dec. 31, 2018	Dec. 31, 2017
Cash and cash equivalents:
Cash and amounts due from depository institutions		$ 55,962	$ 58,693
Federal funds sold		43,000	55,000
Cash and cash equivalents at beginning of year		98,962	113,693
Securities available-for-sale, carried at fair value		294,076	260,650
Securities held-to-maturity, carried at amortized cost (fair value $526 and $649 at December 31, 2018 and 2017, respectively)		526	648
Marketable Securities, Total		294,602	261,298
Loans held for sale		6,613	10,435
Loans receivable, net of allowance of $28,331 and $26,683 at December 31, 2018 and 2017, respectively		2,511,708	2,322,030
Mortgage servicing rights		10,119	9,808
Accrued interest receivable		9,641	8,706
Federal Home Loan Bank (FHLB) stock		14,217	15,992
Bank owned life insurance		67,660	66,230
Premises and equipment		40,670	40,217
Real estate and other assets held for sale (OREO)		1,205	1,532
Goodwill		98,569	98,569
Core deposit and other intangibles		4,391	5,703
Deferred taxes		0	231
Other assets		23,365	38,959
Total assets		3,181,722	2,993,403
Deposits:
Noninterest-bearing		607,198	571,360
Interest-bearing		2,013,684	1,866,296
Total		2,620,882	2,437,656
Advances from the Federal Home Loan Bank		85,189	84,279
Securities sold under agreements to repurchase		5,741	26,019
Subordinated debentures		36,083	36,083
Advance payments by borrowers		3,652	2,925
Deferred taxes		264	0
Other liabilities		30,322	33,155
Total liabilities		2,782,133	2,620,117
Commitments and Contingent Liabilities (Note 6)
Stockholders' equity:
Preferred stock, $.01 par value per share: 37,000 shares authorized; no shares issued		0	0
Preferred stock, $.01 par value per share: 4,963,000 shares authorized; no shares issued		0	0
Common stock, $.01 par value per share: 50,000,000 shares authorized; 25,398,992 and 25,425,682 shares issued and 20,171,392 and 20,312,082 shares outstanding, respectively(1)	[1]	127	127
Additional paid-in capital		161,593	160,940
Accumulated other comprehensive income, net of tax of $(468) and $117, respectively		(2,148)	217
Retained earnings		295,588	262,900
Treasury stock, at cost, 5,227,600 and 5,113,600 shares respectively	[1]	(55,571)	(50,898)
Total stockholders' equity		399,589	373,286
Total liabilities and stockholders' equity		$ 3,181,722	$ 2,993,403

[1] Share data has been adjusted to reflect a 2-for-1 stock split on July 12, 2018.

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Consolidated Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Held-to-maturity, fair value (in dollars)	$ 526	$ 649
Loans receivable, allowance (in dollars)	$ 28,331	$ 26,683
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	25,398,992	25,425,682
Common stock, shares outstanding	20,171,392	20,312,082
Accumulated other comprehensive income, tax effect (in dollars)	$ (468)	$ 117
Treasury stock, shares	5,227,600	5,113,600
Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	4,963,000	4,963,000
Preferred stock, shares issued	0	0
Cumulative Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	37,000	37,000
Preferred stock, shares issued	0	0

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Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Interest Income
Loans	$ 114,398	$ 99,540	$ 80,217
Investment securities:
Taxable	4,738	3,762	3,231
Tax-exempt	3,396	3,180	3,016
Interest-bearing deposits	1,270	836	367
FHLB stock dividends	915	784	552
Total interest income	124,717	108,102	87,383
Interest Expense
Deposits	13,897	8,818	6,261
Federal Home Loan Bank advances and other	1,261	1,470	1,288
Subordinated debentures	1,281	935	753
Securities sold under agreement to repurchase	23	208	138
Total interest expense	16,462	11,431	8,440
Net interest income	108,255	96,671	78,943
Provision for loan losses	1,176	2,949	283
Net interest income after provision for loan losses	107,079	93,722	78,660
Noninterest Income
Insurance commissions	14,085	12,866	10,441
Gain on sale of non-mortgage loans	317	217	753
Gain on sale or call of securities	173	584	509
Trust income	2,091	2,332	1,701
Income from bank owned life insurance	1,767	3,085	909
Other noninterest income	598	1,854	1,538
Total noninterest income	39,208	40,081	34,030
Noninterest Expense
Compensation and benefits	52,566	49,847	40,187
Occupancy	8,641	7,707	7,418
FDIC insurance	1,021	1,250	1,169
Data processing	8,555	7,737	6,367
Other noninterest expense	18,629	18,810	15,952
Total noninterest expense	89,412	85,351	71,093
Income before income taxes	56,875	48,452	41,597
Federal income taxes	10,626	16,184	12,754
Net Income	$ 46,249	$ 32,268	$ 28,843
Earnings per common share (Note 4)
Basic	$ 2.27	$ 1.62	$ 1.61
Diluted	2.26	1.61	1.60
Dividends declared per common share	$ 0.64	$ 0.50	$ 0.44
Service fees and other charges [Member]
Noninterest Income
Revenue from Contract with Customer, Including Assessed Tax	$ 13,100	$ 12,139	$ 10,909
Mortgage banking income [Member]
Noninterest Income
Revenue from Contract with Customer, Including Assessed Tax	$ 7,077	$ 7,004	$ 7,270

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net income	$ 46,249	$ 32,268	$ 28,843
Change in securities available-for-sale (AFS):
Unrealized holding gains (losses) on available-for-sale securities arising during the period	(3,356)	732	(4,933)
Reclassification adjustment for (gains) losses realized in income	(173)	(584)	(509)
Net unrealized gains (losses)	(3,529)	148	(5,442)
Income tax effect	742	(51)	1,904
Net of tax amount	(2,787)	97	(3,538)
Change in unrealized gain/(loss) on postretirement benefit:
Net gain (loss) on defined benefit postretirement medical plan realized during the period	560	(166)	172
Net amortization and deferral	18	20	30
Net gain (loss) activity during the period	578	(146)	202
Income tax effect	(203)	51	(71)
Net of tax amount	375	(95)	131
Total other comprehensive income (loss)	(2,412)	2	(3,407)
Comprehensive income	$ 43,837	$ 32,270	$ 25,436

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands		Total	Preferred Stock [Member]	Common Stock [Member]	Common Stock Warrant [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2015		$ 280,197	$ 0	$ 127	$ 0	$ 125,734	$ 3,622	$ 219,737	$ (69,023)
Balance (in shares) at Dec. 31, 2015	[1]			18,205,662
Net income		28,843						28,843
Other comprehensive income (loss)		(3,407)					(3,407)
Stock based compensation expenses		274				274
Shares issued under stock option plan, net		714				(21)		(26)	761
Shares issued under stock option plan, net (in shares)	[1]			72,716
Restricted share activity under stock incentive plans		517				370		(72)	219
Restricted share activity under stock incentive plans (in shares)	[1]			20,810
Shares issued from direct stock sales		63				33			30
Shares issued from direct stock sales (in shares)	[1]			2,960
Shares repurchased		(6,293)							(6,293)
Shares repurchased (in shares)	[1]			(335,736)
Common stock dividends declared		(7,890)						(7,890)
Balance at Dec. 31, 2016		293,018	0	$ 127	0	126,390	215	240,592	(74,306)
Balance (in shares) at Dec. 31, 2016	[1]			17,966,412
Net income		32,268						32,268
Other comprehensive income (loss)		2					2
Stock based compensation expenses		215				215
Shares issued under stock option plan, net		199				51		(83)	231
Shares issued under stock option plan, net (in shares)	[1]			8,088
Capital stock issuance		56,532				33,792			22,740
Capital stock issuance (in shares)	[1]			2,279,004
Restricted share activity under stock incentive plans		838				447		(18)	409
Restricted share activity under stock incentive plans (in shares)	[1]			55,754
Shares issued from direct stock sales		73				45			28
Shares issued from direct stock sales (in shares)	[1]			2,824
Common stock dividends declared		(9,859)						(9,859)
Balance at Dec. 31, 2017		373,286	0	$ 127	0	160,940	217	262,900	(50,898)
Balance (in shares) at Dec. 31, 2017	[1]			20,312,082
Net income		46,249						46,249
Other comprehensive income (loss)		(2,412)					(2,412)
Adoption of ASU 2018-02 – See Note 2		0					47	(47)
Deferred compensation plan		636							636
Stock based compensation expenses		420				420
Shares issued under stock option plan, net		111				(93)		(270)	474
Shares issued under stock option plan, net (in shares)	[1]			38,628
Restricted share activity under stock incentive plans		568				258		(201)	511
Restricted share activity under stock incentive plans (in shares)	[1]			48,300
Shares issued from direct stock sales		104				68			36
Shares issued from direct stock sales (in shares)	[1]			3,542
Shares repurchased		(6,330)							(6,330)
Shares repurchased (in shares)	[1]			(231,160)
Common stock dividends declared		(13,043)						(13,043)
Balance at Dec. 31, 2018		$ 399,589	$ 0	$ 127	$ 0	$ 161,593	$ (2,148)	$ 295,588	$ (55,571)
Balance (in shares) at Dec. 31, 2018	[1]			20,171,392

[1] Share data has been adjusted to reflect a 2-for-1 stock split on July 12, 2018.

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Restricted Stock [Member]
Stock Repurchased and Retired (in shares)	17,818
Employee Stock Option [Member]
Stock Repurchased and Retired (in shares)	8,872	15,014	3,224

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Operating Activities
Net income	$ 46,249	$ 32,268	$ 28,843
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,176	2,949	283
Provision for depreciation	3,688	3,567	3,356
Net amortization of premium and discounts on loans, securities, deposits and debt obligations	861	740	1,128
Amortization of mortgage servicing rights	1,341	1,464	1,724
Net recovery of mortgage servicing rights	(132)	(89)	(123)
Amortization of intangibles	1,312	1,289	535
Gain on sale of loans	(4,819)	(4,881)	(6,064)
Loss on sale or disposals or write-downs of property, plant and equipment	13	48	0
(Gain) loss on sale or write-down of OREO	581	(56)	(300)
Gain on sale or call of securities	(173)	(584)	(509)
Change in deferred taxes	881	1,261	(615)
Proceeds from sale of loans held for sale	212,688	215,727	262,958
Origination of loans held for sale	(205,884)	(213,479)	(263,679)
Stock based compensation expenses	420	215	274
Restricted stock unit expense	568	838	517
Excess tax benefit (expense) on stock compensation plans	(154)	(171)	(192)
Income from bank owned life insurance	(1,767)	(3,085)	(909)
Change in interest receivable and other assets	(2,878)	(3,591)	(4,121)
Change in accrued interest and other liabilities	(916)	1,527	3,878
Net cash provided by operating activities	53,055	35,957	26,984
Investing Activities
Proceeds from maturities, calls and paydowns of held-to-maturity securities	122	128	59
Proceeds from maturities, calls and paydowns of available-for-sale securities	32,620	32,687	36,390
Proceeds from sale of available-for-sale securities	5,503	34,248	14,871
Proceeds from sale of OREO	887	554	1,705
Proceeds from sale of office properties and equipment	14	849	1
Purchases of available-for-sale securities	(76,647)	(73,007)	(71,276)
Purchases of office properties and equipment	(4,168)	(3,263)	(2,106)
Investment in bank owned life insurance	0	(20,000)	0
Proceeds from bank owned life insurance death benefit	337	0	0
Proceeds from sale of bank owned life insurance	17,689	0	0
Proceeds from FHLB stock redemption	1,775	0	3
Net cash received (paid) in acquisitions	0	19,359	0
Purchase of portfolio mortgage loans	0	(11,476)	(822)
Proceeds from sale of non-mortgage loans	28,729	20,227	20,816
Net increase in loans receivable	(219,885)	(133,184)	(158,121)
Net cash used in investing activities	(213,024)	(132,878)	(158,480)
Financing Activities
Net increase in deposits and advance payments by borrowers	183,764	148,065	145,467
Repayment of Federal Home Loan Bank advances	(34,090)	(31,070)	(959)
Proceeds from Federal Home Loan Bank advances	35,000	10,000	45,000
Decrease in securities sold under repurchase agreements	(20,278)	(5,797)	(25,372)
Cash dividends paid on common stock	(13,043)	(9,859)	(7,890)
Net cash paid for repurchase of common stock	(6,330)	0	(6,293)
Proceeds from exercise of stock options	111	199	714
Proceeds from direct treasury stock sales	104	73	63
Net cash provided by financing activities	145,238	111,611	150,730
Increase (decrease) in cash and cash equivalents	(14,731)	14,690	19,234
Cash and cash equivalents at beginning of period	113,693	99,003	79,769
Cash and cash equivalents at end of period	98,962	113,693	99,003
Supplemental cash flow information:
Interest paid	16,198	11,382	8,370
Income taxes paid	7,950	14,350	12,700
Transfer from other liability to equity	636	0	0
Transfers from loans to other real estate owned and other assets held for sale	1,141	705	583
Transfer from (to) property and equipment to real estate and other assets held for sale	0	(130)	(44)
Sale of bank owned life insurance not yet settled	0	17,840	0
Securities traded but not yet settled	$ 0	$ 548	$ 357

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Basis of Presentation

12 Months Ended

Dec. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Basis of Presentation

First Defiance Financial Corp. (“First Defiance” or the “Company”) is a unitary thrift holding company that conducts business through its three wholly owned subsidiaries, First Federal Bank of the Midwest (“First Federal”), First Insurance Group of the Midwest, Inc. (“First Insurance”), and First Defiance Risk Management, Inc. All significant intercompany transactions and balances are eliminated in consolidation.

First Federal is primarily engaged in attracting deposits from the general public through its branches 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, commercial and consumer loans and providing a broad range of depository, trust and wealth management services.

First Insurance is an insurance agency that conducts business (throughout First Federal’s Market) offering property and casualty, and group health and life insurance products.

First Defiance Risk Management was incorporated on December 20, 2012, as a wholly owned insurance company subsidiary of the Company to insure the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of two common shares for each outstanding common share. The stock split was distributed on July 12, 2018, to shareholders of record as of July 2, 2018. All share and per share data in this Form 10-K have been adjusted and are reflective of the stock split.

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Statement of Accounting Policies

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. Statement of Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 applicable to common shares (net income less dividend requirements for preferred stock, accretion of preferred stock discount and redemption of preferred stock) 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 includes the dilutive effect of additional potential common shares issuable under stock options, warrants, restricted stock awards and stock grants. See also Note 4.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on available-for-sale securities and the net unrecognized actuarial losses and unrecognized prior service costs associated with the Company’s Defined Benefit Postretirement Medical Plan. All items included in other comprehensive income are reported net of tax. See also Notes 5, 16 and 25 and the Consolidated Statements of Comprehensive Income.

Cash Flows

Cash and cash equivalents include amounts due from banks and overnight investments with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve. Cash and amounts due from depository institutions include required balances on hand or on deposit at the FHLB and Federal Reserve of approximately $1,723,000 and $1,048,000, respectively, at December 31, 2018, to meet regulatory reserve and clearing requirements. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions and repurchase agreements.

Investment Securities

Securities are classified as held-to-maturity when First Defiance has the positive intent and ability to hold the securities to maturity and are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

Securities available-for-sale consists of those securities which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income (loss) until realized. Realized gains and losses are included in gains (losses) on securities or other-than-temporary impairment losses on securities. Realized gains and losses on securities sold are recognized on the trade date based on the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Premiums and discounts are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are expected. Securities with unrealized losses are reviewed quarterly to determine if value impairment is other–than-temporary. In performing this review management considers the length of time and extent that fair value has been less than cost, the financial condition of the issuer, the impact of changes in market interest rates on market value and whether the Company intends to sell or it would be more than likely required to sell the securities prior to their anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) other-than-temporary impairment (“OTTI”) related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

FHLB Stock

First Federal is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. At December 31, 2018, the Company held $14.2 million at the FHLB of Cincinnati and $2,500 at the FHLB of Indianapolis.

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of deferred loan fees and costs, purchase premiums and discounts and the allowance for loan losses. Deferred fees net of deferred incremental loan origination costs, are amortized to interest income generally over the contractual life of the loan using the interest method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable, unamortized premiums and discounts, and net deferred fees and costs and undisbursed loan amounts.

Mortgage loans originated and intended for sale in the secondary market are classified as loans held for sale and are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains or losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

The Company may incur losses pertaining to loans sold to Fannie Mae and Freddie Mac but repurchased due to underwriting issues. Repurchase losses are recognized when the Company determines they are probable and estimable.

Interest receivable is accrued on loans and credited to income as earned. The accrual of interest on loans 90 days delinquent or those loans considered impaired is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. For these loans, interest accrual is only to the extent cash payments are received. The accrual of interest on these loans is generally resumed after a pattern of repayment has been established and the collection of principal and interest is reasonably assured.

Purchased Credit Impaired Loans

The Company acquires loans individually and in groups or portfolios. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that it will be unable to collect all amounts due according to the loan’s contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (credit score, loan type and date of origination). The Company considers expected prepayments, and estimates the amount and timing of undiscounted expected principal, interest, and other cash flows (expected at acquisition) for each loan and subsequently aggregated pool of loans.

The Company determines the excess of the loan’s or pool’s scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount—representing the excess of the loan’s cash flows expected to be collected over the amount paid—is accreted into interest income over the remaining life of the loan or pool (accretable yield).

Over the life of the loan or pool, the Company continues to estimate cash flows expected to be collected, and evaluates whether the present value of its loans determined using the effective interest rates has decreased and, if so, recognizes a loss. Valuation allowances for all acquired loans subject to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310 reflect only those losses incurred after acquisition—that is, the present value of cash flows expected at acquisition that are not expected to be collected. The present value of any subsequent increase in the loan’s or pool’s actual cash flows or cash flows expected to be collected is used first to reverse any existing valuation allowance for that loan or pool. For any remaining increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans, actual loss experience, current economic events in specific industries and geographical areas and other pertinent factors, including general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of economic trends, all of which may be susceptible to significant change. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

Loan losses are charged-off against the allowance when in management’s estimation it is unlikely that the loan will be collected, while recoveries of amounts previously charged-off are credited to the allowance. A provision for loan loss is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors in order to maintain the allowance for loan losses at the level deemed adequate by management. The determination of whether a loan is considered past due or delinquent is based on the contractual payment terms. Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. All loans are placed on non-accrual status at 90 days past due unless the loan is adequately secured and is in process of collection. Any loan in the portfolio may be placed on non-accrual status prior to becoming 90 days past due when collection of principal or interest is in doubt.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Impaired loans have been recognized in conformity with FASB ASC Topic 310.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loans agreement. Loans, for which terms have been modified and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. When a loan is considered impaired, an analysis of the net present value of estimated cash flows is performed and an allowance may be established based on the outcome of that analysis, or if the loan is deemed to be collateral dependent an allowance is established based on the fair value of collateral. All modifications are reviewed by the First Federal’s Chief Credit Officer or Credit Administration Officer to determine whether or not the modification constitutes a troubled debt restructure. Commercial and commercial real estate loan relationships greater than $250,000 are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net of the allowance allocation which is determined based on the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Impaired loan relationships less than $250,000 are aggregated by loan segment and risk level and given a specific reserve based on the general reserve factor for that loan segment and risk level. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

The following portfolio segments have been identified:

Commercial Real Estate Loans (consisting of multi-family residential and non-residential): Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

Commercial Loans: Commercial credit is extended primarily to middle market customers. Such credits are typically comprised of working capital loans, loans for physical asset expansion, asset acquisition loans and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses' principal owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types.

Consumer Finance Loans: Consumer finance loans are generally made to borrowers for a specific consumer purchase and are made based on their ability to repay with their current debt to income as well as the underlying collateral value of the item being purchased. Credit scores are part of the decision process of whether or not credit is extended. Minimum standards and underwriting guidelines have been established for all consumer loan types.

1-4 Family Residential Real Estate Loans: 1-4 family residential real estate loans can be categorized two different ways. One part of this portfolio is owner occupied and loans are made based primarily on the ability of the individual borrower to support the payments as well as the payments of any other debt the borrower may have outstanding at the time the loan is made. The other part of this portfolio is non-owner occupied income producing property and loans are made primarily based on the cash flow stream from rental income as well as the cash flow support from the borrower’s unrelated cash flow. Both types of loans have a secondary repayment source of the underlying collateral and generally the loans are not extended at higher than an 80% loan-to-value (“LTV”). Minimum standards and underwriting guidelines have been established for all 1-4 family residential real estate loan types.

Construction Loans: The Company defines construction loans as loans where the loan proceeds are controlled by the Company and used exclusively for the improvement of real estate in which the Company holds a mortgage.

Home Equity and Improvement Loans: Home Equity and Improvement loans are made to borrowers based on their ability to repay with their current debt to income as well as the underlying collateral value of the real estate taken as security. Minimum standards and underwriting guidelines have been established for all home equity and improvement loan types.

Consumer finance, 1-4 family residential real estate (including construction) and home equity and improvement loans are subject to adverse employment conditions in the local economy which could increase the default rate on loans.

Servicing Rights

Servicing rights are recognized separately when they are acquired through sales of loans. Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans, driven, generally, by changes in market interest rates.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with mortgage banking income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement with mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $3.8 million, $3.7 million and $3.6 million for the years ended December 31, 2018, 2017 and 2016. Late fees and ancillary fees related to loan servicing are not material. See Note 8.

Bank Owned Life Insurance

The Company has purchased life insurance policies for certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Premises and Equipment and Long Lived Assets

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

Buildings and improvements	20 to 50 years
Furniture, fixtures and equipment	3 to 15 years

Long-lived assets to be held and those to be disposed of and certain intangibles are periodically evaluated for impairment. See Note 9.

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 non-controlling 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. See Note 10.

Real Estate and Other Assets Held for Sale

Real estate and other assets held for sale are comprised of properties or other assets acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Losses arising from the acquisition of such property are charged against the allowance for loan losses at the time of acquisition. These properties are carried at the lower of cost or fair value, less estimated costs to dispose. If fair value declines subsequent to foreclosure, the property is written down against expense. Costs after acquisition are expensed.

Stock Compensation Plans

Compensation cost is recognized for stock options and restricted share awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Restricted shares awards are valued at the market value of Company stock at the date of the grant. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. See Note 20.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 22. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in fair values of these derivatives are included in mortgage banking income.

Operating Segments

Management considers the following factors in determining the need to disclose separate operating segments: (1) the nature of products and services, which are all financial in nature; (2) the type and class of customer for the products and services; in First Defiance’s case retail customers for retail bank and insurance products and commercial customers for commercial loan, deposit, life, health and property and casualty insurance needs; (3) the methods used to distribute products or provide services; such services are delivered through banking and insurance offices and through bank and insurance customer contact representatives. Retail and commercial customers are frequently targets for both banking and insurance products; (4) the nature of the regulatory environment; both banking and insurance entities are subject to various regulatory bodies and a number of specific regulations.

Quantitative thresholds as stated in FASB ASC Topic 280, Segment Reporting are monitored. For the year ended December 31, 2018, the reported revenue for First Insurance was 8.6% of total revenue for First Defiance. Total revenue includes interest income plus noninterest income. Net income for First Insurance for the year ended December 31, 2018 was 4.5% of consolidated net income. Total assets of First Insurance at December 31, 2018, were 0.7% of total assets. First Insurance does not meet any of the quantitative thresholds of FASB ASC Topic 280. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by First Federal to First Defiance. See Note 17 for further details on restrictions.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

In December 2017, a law was enacted which changed the corporate federal income tax rate from 35% to 21%, beginning January 1, 2018. Accordingly, the Company’s deferred tax assets and liabilities were re-measured at December 31, 2017, using the 21% corporate federal income tax rate resulting in a net tax expense of $154,000. An effective tax rate of 21% is used to determine after-tax components of other comprehensive income (loss) included in the statements of stockholders’ equity. See Note 18.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Retirement Plans

Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. See Note 16 and 19.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation which did not result in any changes to net income or equity.

Accounting Standards Updates

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This 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, this 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 “Revenue Recognition” 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, the Company’s fair value measurement of financial instruments was 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 public law No. 115-97, known as the Tax Cuts and Jobs Act (“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.

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 elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. The Company also expect to elect certain optional practical expedients. The Company has implemented a third party software solution to assist with the accounting under the new standard. The Company’s operating leases relate primarily to office space and bank branches. Upon adoption of ASU 2016-02 on January 1, 2019, the Company expects to recognize right-to-use assets and related lease liabilities totaling approximately $8.8 million and $9.3 million, respectively.

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 continues its implementation efforts through its established Company-wide implementation committee along with a third-party software vendor to assist in the implementation process. The committee’s 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 adopt this ASU early.

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 the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in the Company’s statement of income as components of noninterest 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 $7.6 million in 2018. Income from services charges on deposit accounts is included in service fees and other charges in noninterest income.

· Interchange income - this represents fees earned from debit and credit 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 were $4.1 million in 2018, which are reported net of network related charges. Interchange income is included in service fees and other charges in noninterest 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, and 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 $821,000 and $2.1 million, respectively, in 2018. Income from wealth management services is included in other noninterest income in total noninterest income. Trust fees are reported separately in total noninterest income.

· Gain/loss on sales of other real estate owned (“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 a loss of $28,000 in 2018. Income from the gain or loss on sales of OREO is included in other noninterest income in total noninterest 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: (i) new/renewal commissions and (ii) contingent commissions. Insurance commissions were $14.1 million for 2018, of which, $13.1 million were new/renewal commissions and $1.0 million were contingent commissions.

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Business Combinations

12 Months Ended

Dec. 31, 2018

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

3. 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 seven full-service banking offices in northwest and north central, Ohio and one 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 central Ohio. The acquisition offered 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 were 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 – NonInterest-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 2.3616 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 2,279,004 shares of its common stock and paid $12.3 million in cash to the former shareholders of Commercial Bancshares.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2016, after giving effect to certain adjustments. The unaudited pro forma information for the twelve months ended December 31, 2017, and December 31, 2016, includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

	Pro Forma Twelve		Pro Forma Twelve
	Months Ended		Months Ended
	December 31, 2017		December 31, 2016
	(In Thousands, except per share data)
Net Interest Income	$	98,856	$	90,452
Provision for loan losses		2,949		753
Noninterest Income		40,338		35,496
Noninterest Expense		82,597		76,393
Income Before Income Taxes		53,648		48,802
Income Tax Expense		17,780		15,276
Net Income	$	35,868	$	33,526
Diluted Earnings Per Share	$	3.51	$	3.29

The above pro forma financial information includes approximately $4.6 million of net income related to the operations of Commercial Bancshares during the twelve months of 2017. The above pro forma financial information related to 2017 excludes merger related costs that totaled $3.7 million on a pre-tax basis.

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 was due and paid the second quarter of 2018, and up to $2.3 million may be due 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 maximum 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, the Company recorded goodwill of $7.9 million as well as identifiable intangible assets of $756,000 consisting of a 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. The transaction enhanced employee benefit offerings and expanded First Insurance’s presence into adjacent markets in northwest Ohio.

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Earnings Per Common Share

12 Months Ended

Dec. 31, 2018

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

4. Earnings Per Common Share

Basic earnings per share is 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 for the years ended December 31:

	2018		2017		2016
	(In Thousands, Except Per Share Amounts)
Basic Earnings Per Share: Net income available to common shareholders	$	46,249	$	32,268	$	28,843
Less: Income allocated to participating securities		16		5		39
Net income allocated to common shareholders	$	46,233	$	32,263	$	28,804
Weighted average common shares outstanding Including participating securities		20,358		19,950		17,960
Less: Participating securities		9		18		22
Average common shares		20,349		19,932		17,938
Basic earnings per common share	$	2.27	$	1.62	$	1.61
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	46,233	$	32,263	$	28,804
Weighted average common shares outstanding for basic earnings per common share		20,349		19,932		17,938
Add: Dilutive effects of stock options		119		124		132
Average shares and dilutive potential common shares		20,468		20,056		18,070
Diluted earnings per common share	$	2.26	$	1.61	$	1.60

Shares subject to issue upon exercise of options of 10,500 in 2018, zero in 2017 and 25,100 in 2016 were excluded from the diluted earnings per common share calculation as they were anti-dilutive.

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Investment Securities

12 Months Ended

Dec. 31, 2018

Marketable Securities [Abstract]

Investment [Text Block]

5. Investment Securities

The following tables summarize the amortized cost and fair value of available-for-sale securities and held-to-maturity investment securities at December 31, 2018 and 2017, and the corresponding amounts of gross unrealized and unrecognized gains and losses:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
2018
Available-for-sale
Obligations of U.S. government corporations and agencies	$	2,519	$	2	$	(18	)	$	2,503
Mortgage-backed securities - residential		76,165		111		(1,566	)		74,710
REMICs		2,712		4		(7	)		2,709
Collateralized mortgage obligations - residential		103,026		124		(1,689	)		101,461
Corporate bonds		12,910		44		(148	)		12,806
Obligations of state and political subdivisions		99,349		1,258		(720	)		99,887
Total Available-for-Sale	$	296,681	$	1,543	$	(4,148	)	$	294,076

			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Held-to-Maturity
FHLMC certificates	$	8	$	-	$	-	$	8
FNMA certificates		31		-		-		31
GNMA certificates		12		-		-		12
Obligations of states and political subdivisions		475		-		-		475
Total Held-to-Maturity	$	526	$	-	$	-	$	526

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
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 - residential		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

The amortized cost and fair value of the investment securities portfolio at December 31, 2018, is shown below by contractual maturity. Expected maturities will differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity tables below, mortgage-backed securities and collateralized mortgage obligations, which are not due at a single maturity date, have not been allocated over maturity groupings.

	Available-for-Sale
	Amortized		Fair
	Cost		Value
	(In Thousands)
2018
Available-for-sale
Due in one year or less	$	771	$	773
Due after one year through five years		22,957		22,969
Due after five years through ten years		34,245		34,904
Due after ten years		56,805		56,550
MBS/CMO/REMIC		181,903		178,880
Total	$	296,681	$	294,076
Held-to-maturity
Due in one year or less	$	31	$	31
Due after five years through ten years		444		444
MBS		51		51
Total	$	526	$	526

Securities pledged at year-end 2018 and 2017 had a carrying amount of $143.9 million and $135.4 million, respectively, and were pledged to secure public deposits, securities sold under repurchase agreements and FHLB advances.

As of December 31, 2018, the Company’s investment portfolio consisted of 438 securities, 177 of which were in an unrealized loss position. The Company did not hold any single security that was greater than 10% of the Company’s equity at December 31, 2018.

The following table summarizes First Defiance’s securities that were in an unrealized loss position at December 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 December 31, 2018
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	-	$	-		$	500	$	(18	)	$	500	$	(18	)
Mortgage-backed securities-residential		11,589		(71	)		48,665		(1,495	)		60,254		(1,566	)
REMIC’s		-		-			857		(7	)		857		(7	)
Collateralized mortgage obligations		11,613		(53	)		70,585		(1,636	)		82,198		(1,689	)
Corporate Bonds		5,752		(148	)		-		-			5,752		(148	)
Obligations of state and political subdivisions		11,974		(69	)		16,492		(651	)		28,466		(720	)
Held to maturity securities:		8		-			26		-			34		-
Total temporarily impaired securities	$	40,936	$	(341	)	$	137,125	$	(3,807	)	$	178,061	$	(4,148	)
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	)
REMIC’s		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	)

Management evaluates securities for OTTI on at least a quarterly basis, 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 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 2018, 2017 and 2016, management determined there was no OTTI.

There were no credit losses relating to debt securities recognized in earnings for the years ended December 31, 2018, 2017 and 2016.

Realized gains from the sales and calls of investment securities totaled $173,000 ($136,000 after tax) in 2018 while there were realized gains of $584,000 ($380,000 after tax) and $509,000 ($331,000 after tax) in 2017 and 2016, respectively.

The proceeds from sales and calls of securities and the associated gains and losses for the years ended December 31 are listed below:

	2018			2017			2016
	(In Thousands)
Proceeds	$	5,503		$	34,248		$	14,871
Gross realized gains		178			665			509
Gross realized losses		(5	)		(81	)		-

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Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments Contingencies and Guarantees [Text Block]

6. Commitments and Contingent Liabilities

Loan Commitments

Loan commitments are made to accommodate the financial needs of First Federal’s customers. 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 on December 31 was as follows (In Thousands):

	2018				2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	44,352	$	114,308	$	42,458	$	161,778
Unused lines of credit		7,523		382,189		6,245		408,831
Standby letters of credit		-		7,239		-		7,605
Total	$	51,875	$	503,736	$	48,703	$	578,214

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments at December 31, 2018, had interest rates ranging from 3.25% to 18.00% and maturities ranging from less than one year to 30 years.

In addition to the above commitments, at December 31, 2018, First Defiance had commitments to sell $8.6 million of loans to Freddie Mac, Fannie Mae, or FHLB of Cincinnati.

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Loans

12 Months Ended

Dec. 31, 2018

Loans Receivable, Net [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

7. Loans

Loans receivable consist of the following:

	December 31, 2018			December 31, 2017
	(In Thousands)
Real Estate:
Secured by 1-4 family residential	$	322,686		$	274,862
Secured by multi-family residential		278,358			248,092
Secured by commercial real estate		1,126,452			987,129
Construction		265,772			265,476
		1,993,268			1,775,559
Other Loans:
Commercial		509,577			526,142
Home equity and improvement		128,152			135,457
Consumer Finance		34,405			29,109
		672,134			690,708
Total loans		2,665,402			2,466,267
Deduct:
Undisbursed loan funds		(123,293	)		(115,972	)
Net deferred loan origination fees and costs		(2,070	)		(1,582	)
Allowance for loan loss		(28,331	)		(26,683	)
Totals	$	2,511,708		$	2,322,030

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.

The following table discloses the year-to-date activity in the allowance for loan loss for the dates indicated by portfolio segment (In Thousands):

Year to Date December 31,  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		(261	)		-		(1,387	)		-		(724	)		(269	)		(233	)		(2,874	)
Recoveries		131			57		720			-		2,221			191			26			3,346
Provisions		479			342		2,354			35		(2,181	)		(151	)		298			1,176
Ending Allowance	$	2,881		$	3,101	$	12,041		$	682	$	7,281		$	2,026		$	319		$	28,331

Year to Date December 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		(279	)		-		(429	)		-		(2,301	)		(301	)		(139	)		(3,449	)
Recoveries		115			32		657			-		243			167			85			1,299
Provisions		69			442		(499	)		197		2,662			3			75			2,949
Ending Allowance	$	2,532		$	2,702	$	10,354		$	647	$	7,965		$	2,255		$	228		$	26,683

Year to Date December 31, 2016	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate		Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$3,212			$2,151		$11,772			$517			$5,255			$2,304			$171			$25,382
Charge-Offs		(350	)		-		(92	)		-			(615	)		(268	)		(94	)		(1,419	)
Recoveries		166			-		923			-			335			150			64			1,638
Provisions		(401	)		77		(1,978	)		(67	)		2,386			200			66			283
Ending Allowance	$	2,627		$	2,228	$	10,625		$	450		$	7,361		$	2,386		$	207		$	25,884

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, 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	$	175	$	3	$	95	$	-	$	79	$	242	$	1	$	595
Collectively evaluated for impairment		2,706		3,098		11,946		682		7,202		1,784		318		27,736
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	2,881	$	3,101	$	12,041	$	682	$	7,281	$	2,026	$	319	$	28,331
Loans:
Loans individually evaluated for impairment	$	6,774	$	1,347	$	26,334	$	-	$	10,477	$	963	$	45	$	45,940
Loans collectively evaluated for impairment		315,385		277,105		1,102,355		142,096		500,730		128,065		34,486		2,500,222
Loans acquired with deteriorated credit quality		1,012		296		846		-		177		-		-		2,331
Total ending loans balance	$	323,171	$	278,748	$	1,129,535	$	142,096	$	511,384	$	129,028	$	34,531	$	2,548,493

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 tables presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the years ended December 31, 2018, 2017 and 2016

(In Thousands):

	Twelve Months Ended December 31, 2018
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,704	$	151	$	150
Residential Non Owner Occupied		2,354		133		126
Total 1-4 Family Residential Real Estate		7,058		284		276
Multi-Family Residential Real Estate		1,644		90		89
CRE Owner Occupied		9,992		234		221
CRE Non Owner Occupied		2,620		94		93
Agriculture Land		13,827		575		575
Other CRE		1,304		106		106
Total Commercial Real Estate		27,743		1,009		995
Construction		-		-		-
Commercial Working Capital		8,047		256		245
Commercial Other		3,501		119		119
Total Commercial		11,548		375		364
Home Equity and Home Improvement		1,150		38		38
Consumer Finance		39		4		4
Total Impaired Loans	$	49,182	$	1,800	$	1,766

	Twelve Months Ended December 31, 2017
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,811	$	138	$	138
Residential Non Owner Occupied		3,038		138		138
Total 1-4 Family Residential Real Estate		6,849		276		276
Multi-Family Residential Real Estate		2,471		58		58
CRE Owner Occupied		10,592		110		109
CRE Non Owner Occupied		3,768		140		133
Agriculture Land		9,667		472		229
Other CRE		1,603		76		70
Total Commercial Real Estate		25,630		798		541
Construction		-		-		-
Commercial Working Capital		5,235		129		123
Commercial Other		5,940		109		79
Total Commercial		11,175		238		202
Home Equity and Home Improvement		1,217		43		43
Consumer Finance		59		4		4
Total Impaired Loans	$	47,401	$	1,417	$	1,124

	Twelve Months Ended December 31, 2016
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,954	$	244	$	237
Residential Non Owner Occupied		3,133		211		210
Total 1-4 Family Residential Real Estate		7,087		455		447
Multi-Family Residential Real Estate		3,946		124		123
CRE Owner Occupied		6,925		203		183
CRE Non Owner Occupied		5,351		411		407
Agriculture Land		2,283		128		68
Other CRE		1,632		71		70
Total Commercial Real Estate		16,191		813		728
Construction		-		-		-
Commercial Working Capital		1,606		109		90
Commercial Other		2,393		81		79
Total Commercial		3,999		190		169
Home Equity and Home Improvement		1,543		85		83
Consumer Finance		67		8		8
Total Impaired Loans	$	32,833	$	1,675	$	1,558

The following table presents loans individually evaluated for impairment by class of loans (In Thousands):

	December 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	$	901	$	775	$	-	$	2,507	$	2,364	$	-
Residential Non Owner Occupied		950		955		-		1,711		1,708		-
Total 1-4 Family Residential Real Estate		1,851		1,730		-		4,218		4,072		-
Multi-Family Residential Real Estate		1,296		1,302		-		2,095		2,102		-
CRE Owner Occupied		7,464		6,202		-		12,273		11,804		-
CRE Non Owner Occupied		1,824		1,659		-		3,085		2,925		-
Agriculture Land		14,915		14,994		-		13,029		13,185		-
Other CRE		464		462		-		981		768		-
Total Commercial Real Estate		24,667		23,317		-		29,368		28,682		-
Construction		-		-		-		-		-		-
Commercial Working Capital		7,569		7,498		-		5,462		5,422		-
Commercial Other		2,095		2,100		-		9,916		7,644		-
Total Commercial		9,664		9,598		-		15,378		13,066		-
Home Equity and Home Improvement		-		-		-		630		584		-
Consumer Finance		-		-		-		42		42		-
Total loans with no allowance recorded	$	37,478	$	35,947	$	-	$	51,731	$	48,548	$	-
With an allowance recorded:
Residential Owner Occupied	$	3,926	$	3,884	$	148	$	1,841	$	1,814	$	137
Residential Non Owner Occupied		1,152		1,160		27		1,031		1,024		30
Total 1-4 Family Residential Real Estate		5,078		5,044		175		2,872		2,838		167
Multi-Family Residential Real Estate		44		44		3		175		176		7
CRE Owner Occupied		2,419		1,935		38		2,007		1,546		44
CRE Non Owner Occupied		350		353		16		651		593		28
Agriculture Land		37		38		2		293		292		14
Other CRE		1,107		691		39		909		708		32
Total Commercial Real Estate		3,913		3,017		95		3,860		3,139		118
Construction		-		-		-		-		-		-
Commercial Working Capital		525		528		55		447		449		77
Commercial Other		560		352		24		854		858		110
Total Commercial		1,085		880		79		1,301		1,307		187
Home Equity and Home Improvement		1,013		963		242		596		592		279
Consumer Finance		45		45		1		8		8		-
Total loans with an allowance recorded	$	11,178	$	9,993	$	595	$	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:

	December 31, 2018		December 31, 2017
	(In Thousands)
Non-accrual loans	$	19,016	$	30,715
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		19,016		30,715
Real estate and other assets held for sale		1,205		1,532
Total non-performing assets	$	20,221	$	32,247
Troubled debt restructuring, still accruing	$	11,573	$	13,770

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 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	$	199,664	$	887	$	821	$	1,402	$	3,110	$	3,266
Residential Non Owner Occupied		119,988		64		180		165		409		363
Total 1-4 Family Residential Real Estate		319,652		951		1,001		1,567		3,519		3,629
Multi-Family Residential Real Estate		278,748		-		-		-		-		102
CRE Owner Occupied		416,879		52		300		138		490		4,377
CRE Non Owner Occupied		534,823		6		119		-		125		620
Agriculture Land		129,040		66		-		2,869		2,935		5,253
Other Commercial Real Estate		45,232		11		-		-		11		-
Total Commercial Real Estate		1,125,974		135		419		3,007		3,561		10,250
Construction		142,096		-		-		-		-		-
Commercial Working Capital		217,832		268		-		3,838		4,106		4,021
Commercial Other		289,125		32		54		235		321		480
Total Commercial		506,957		300		54		4,073		4,427		4,501
Home Equity and Home Improvement		127,346		1,446		146		90		1,682		394
Consumer Finance		34,224		134		77		96		307		126
Total Loans	$	2,534,997	$	2,966	$	1,697	$	8,833	$	13,496	$	19,002

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 December 31, 2018 and 2017, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $19.2 million and $21.7 million, respectively. The Company allocated $581,000 and $751,000, of specific reserves to those loans at December 31, 2018 and 2017, and committed to lend additional amounts totaling up to $169,000 and $242,000 at December 31, 2018 and 2017.

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 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 real estate 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, $7.6 million are on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following table presents loans by class modified as TDRs that occurred during the years indicated (Dollars in Thousands):

	Loans Modified as a TDR for the  Twelve Months Ended   December 31, 2018				Loans Modified as a TDR for the  Twelve Months Ended   December 31, 2017				Loans Modified as a TDR for the  Twelve Months Ended   December 31, 2016
TDRs	Number  of Loans		Recorded  Investment (as of period end)		Number  of Loans		Recorded  Investment (as  of period end)		Number of  Loans		Recorded  Investment (as of  period end)
Residential Owner Occupied		18	$	980		24	$	982		17	$	778
Residential  Non Owner Occupied		4		189		5		193		5		494
Multi Family		-		-		-		-		2		1,885
CRE Owner Occupied		12		1,639		2		149		-		-
CRE Non Owner Occupied		1		42		1		262		5		974
Agriculture Land		-		-		5		1,700		1		45
Other CRE		-		-		2		153		1		348
Commercial Working Capital		5		2,898		7		1,475		1		226
Commercial Other		1		44		7		3,833		1		587
Home Equity and Home Improvement		7		89		6		152		9		281
Consumer Finance		8		29		5		14		2		14
Total		56	$	5,910		64	$	8,913		44	$	5,632

The loans described above increased the allowance for loan losses (“ALLL”) by $110,000 for the year ended December 31, 2018, decreased the ALLL by $104,000 for the year ended December 31, 2017, and increased the ALLL by $413,000 for the year ended December 31, 2016.

Of the 2018 modifications, four were made a TDR due to terming out lines of credit, 18 were made a TDR due to advancing or renewing money to a watch list credit, one loan was made a TDR due to a reduction of the interest rate, five were made a TDR due to extending the maturity, 18 were made a TDR due to bankruptcy and 10 were made a TDR because the current debt was refinanced due to maturity or for payment relief.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the indicated:

	Twelve Months Ended  December 31, 2018  ($ in thousands)				Twelve Months Ended  December 31, 2017  ($ in thousands)				Twelve Months Ended  December 31, 2016  ($ in thousands)
TDRs That Subsequently Defaulted:	Number of  Loans		Recorded  Investment  (as of Period End)		Number of  Loans		Recorded  Investment  (as of Period End)		Number  of Loans		Recorded  Investment  (as of Period End)
Residential Owner Occupied		1	$	76		-	$	-		-	$	-
Residential Non Owner Occupied		1		45		-		-		-		-
CRE Owner Occupied		-		-		-		-		-		-
CRE Non Owner Occupied		-		-		-		-		1		205
Agriculture Land		-		-		-		-		-		-
Other CRE		-		-		-		-		-		-
Commercial Working Capital		3		2,644		-		-		-		-
Commercial  Other		1		30		-		-		-		-
Home Equity and  Home  Improvement		1		61		-		-		-		-
Consumer		-		-		-		-		-		-
Total		7	$	2,856		-	$	-		1	$	205

The TDRs that subsequently defaulted described above increased the ALLL by $17,000 for the year ended December 31, 2018, and had no effect on the ALLL for the years ended December 31, 2017 and 2016.

A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed regarding 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 December 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
Residential Owner Occupied	$	9,419	$	91	$	3,130	$	-	$	190,134	$	202,774
Residential Non Owner Occupied		109,885		700		3,087		-		6,725		120,397
Total 1-4 Family Real Estate		119,304		791		6,217		-		196,859		323,171
Multi-Family Residential Real Estate		276,594		-		2,047		-		107		278,748
CRE Owner Occupied		402,008		5,724		9,547		-		89		417,368
CRE Non Owner Occupied		529,842		2,807		2,297		-		-		534,946
Agriculture Land		111,595		4,023		16,358		-		-		131,976
Other CRE		42,189		730		1,244		-		1,082		45,245
Total Commercial Real Estate		1,085,634		13,284		29,446		-		1,171		1,129,535
Construction		122,775		219		-		-		19,102		142,096
Commercial Working Capital		205,903		6,546		9,489		-		-		221,938
Commercial Other		279,234		7,011		3,201		-		-		289,446
Total Commercial		485,137		13,557		12,690		-		-		511,384
Home Equity and Home Improvement		-		-		434		-		128,594		129,028
Consumer Finance		-		-		206		-		34,325		34,531
Total Loans	$	2,089,444	$	27,851	$	51,040	$	-	$	380,158	$	2,548,493

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

Certain loans acquired had evidence that the credit quality of the loan had deteriorated since its origination and in management’s assessment at the acquisition date it was probable that First Defiance would be unable to collect all contractually required payments due. In accordance with FASB ASC Topic 310 Subtopic 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, these loans have been recorded based on management’s estimate of the fair value of the loans. The outstanding balance of those loans by segment is as follows (In thousands):

	December 31, 2018		December 31, 2017
1-4 Family Residential Real Estate	$	1,045	$	1,154
Multi-Family Residential Real Estate		300		309
Commercial Real Estate Loans		899		2,921
Commercial		227		407
Consumer		-		2
Total Outstanding Balance	$	2,471	$	4,793
Recorded Investment, net of allowance of $0	$	2,331	$	3,828

Accretable yield, or income expected to be collected, is as follows:

	2018			2017
Balance at January 1	$	804		$	-
New Loans Purchased		-			1,018
Accretion of Income		(139	)		(163	)
Reclassification from Non-accretable		-			-
Charge-off of Accretable Yield		(197	)		(8	)
Balance at December 31	$	468		$	847

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the twelve months ended December 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 December 31, 2017, using information as of the date of acquisition are included in the table below. There were no such loans purchased during the year ended December 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

Loans to executive officers, directors, and their affiliates are as follows:

	Years Ended December 31,
	2018			2017
	(In Thousands)
Beginning balance	$	16,728		$	16,199
New loans		10,806			5,857
Effect of changes in composition of related parties		(217	)		-
Repayments		(5,754	)		(5,328	)
Ending Balance	$	21,563		$	16,728

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $796,000 as of December 31, 2018.

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Mortgage Banking

12 Months Ended

Dec. 31, 2018

Mortgage Banking [Abstract]

Mortgage Banking [Text Block]

8. Mortgage Banking

Net revenues from the sales and servicing of mortgage loans consisted of the following:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Gain from sale of mortgage loans	$	4,502		$	4,664		$	5,311
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		3,784			3,714			3,560
Amortization of mortgage servicing rights		(1,341	)		(1,464	)		(1,724	)
Mortgage servicing rights valuation adjustments		132			90			123
		2,575			2,340			1,959
Net mortgage banking income	$	7,077		$	7,004		$	7,270

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.41 billion at December 31, 2018, and $1.39 billion at December 31, 2017.

Activity for capitalized mortgage servicing rights (“MSRs”) and the related valuation allowance is as follows:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,240		$	10,117		$	9,893
Loans sold, servicing retained		1,520			1,587			1,948
Amortization		(1,341	)		(1,464	)		(1,724	)
Carrying value before valuation allowance at end of period		10,419			10,240			10,117
Valuation allowance:
Balance at beginning of period		(432	)		(522	)		(645	)
Impairment recovery (charges)		132			90			123
Balance at end of period		(300	)		(432	)		(522	)
Net carrying value of MSRs at end of period	$	10,119		$	9,808		$	9,595
Fair value of MSRs at end of period	$	10,656		$	9,930		$	9,770

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced.

The Company had no actual losses from secondary market buy-backs in 2018, 2017 or 2016. Based on management’s estimate of potential losses from secondary market buyback activity, a liability of $43,000 was accrued at both December 31, 2018 and 2017, and is reflected in other liabilities in the Consolidated Statements of Financial Condition. Expense (credit) recognized related to the accrual was $0, $(36,000) and $(135,000) for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company’s servicing portfolio is comprised of the following:

	December 31,
	2018				2017
	Number of		Principal		Number of		Principal
Investor	Loans		Outstanding		Loans		Outstanding
	(In Thousands)
Fannie Mae		4,919	$	461,730		4,920	$	461,783
Freddie Mac		9,571		937,406		9,420		913,632
Federal Home Loan Bank		99		11,983		88		9,723
Other		17		714		19		930
Totals		14,606	$	1,411,833		14,447	$	1,386,068

Custodial escrow balances maintained in connection with serviced loans were $14.3 million and $13.5 million at December 31, 2018 and 2017, respectively.

Significant assumptions at December 31, 2018, used in determining the value of MSRs include a weighted average prepayment speed assumption (“PSA”) of 131 and a weighted average discount rate of 12.01%. Significant assumptions at December 31, 2017, used in determining the value of MSRs include a weighted average prepayment rate of 151 PSA and a weighted average discount rate of 12.01%.

A sensitivity analysis of the current fair value to immediate 10% and 20% adverse changes in those assumptions as of December 31, 2018, is presented below. These sensitivities are hypothetical. Changes in fair value based on 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSR is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the discount rates), which might magnify or counteract the sensitivities.

	10% Adverse		20% Adverse
	Change		Change
	(In Thousands)
Assumption:
Decline in fair value from increase in prepayment rate	$	332	$	670
Decline in fair value from increase in discount rate		220		459

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Premises and Equipment

12 Months Ended

Dec. 31, 2018

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

9. Premises and Equipment

Premises and equipment are summarized as follows:

	December 31,
	2018			2017
	(In Thousands)
Cost:
Land	$	7,977		$	7,977
Land improvements		1,326			1,326
Buildings		44,632			44,563
Leasehold improvements		1,015			971
Furniture, fixtures and equipment		34,871			34,216
Construction in process		692			1,402
		90,513			90,455
Less allowances for depreciation and amortization		(49,843	)		(50,238	)
	$	40,670		$	40,217

Depreciation expense was $3.7 million, $3.6 million and $3.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Lease Agreements

The Company has entered into lease agreements covering nine First Insurance offices, five banking center locations, one loan production office, two land leases for which the Company owns the banking centers, one land lease which is primarily used for parking, one land lease for future branch development and numerous stand-alone Automated Teller Machine sites with varying terms and options to renew. First Federal and First Insurance share office space for one lease as a branch and insurance office.

Future minimum commitments under non-cancelable operating leases are as follows (In Thousands):

2019	$	967
2020		884
2021		843
2022		768
2023		739
Thereafter		8,078
Total	$	12,279

Rental expenses under operating leases amounted to $1.0 million, $691,000 and $571,000 in 2018, 2017, and 2016, respectively.

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Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

10. Goodwill and Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the year is as follows:

	December 31,
	2018		2017
	(In Thousands)
Beginning balance	$	98,569	$	61,798
Goodwill acquired or adjusted during the year		-		36,771
Ending balance	$	98,569	$	98,569

Acquired Intangible Assets

Activity in intangible assets for the years ended December 31, 2018, 2017 and 2016, was as follows:

	Gross
	Carrying		Accumulated			Net
	Amount		Amortization			Value
	(In Thousands)
Balance as of January 1, 2016	$	14,477	$	(12,606	)	$	1,871
Amortization of intangible assets		-		(535	)		(535	)
Balance as of December 31, 2016		14,477		(13,141	)		1,336
Intangible assets acquired		5,656		-			5,656
Amortization of intangible assets		-		(1,289	)		(1,289	)
Balance as of December 31, 2017		20,133		(14,430	)		5,703
Amortization of intangible assets		-		(1,312	)		(1,312	)
Balance as of December 31, 2018	$	20,133	$	(15,742	)	$	4,391

Estimated amortization expense for each of the next five years and thereafter is as follows (In Thousands):

2019	$	1,097
2020		914
2021		744
2022		576
2023		439
Thereafter		621
Total	$	4,391

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Deposits

12 Months Ended

Dec. 31, 2018

Deposits [Abstract]

Deposit Liabilities Disclosures [Text Block]

11. Deposits

The following schedule sets forth interest expense by type of deposit:

	Years Ended December 31,
	2018		2017		2016
	(In Thousands)
Checking and money market accounts	$	3,997	$	2,033	$	1,463
Savings accounts		115		102		88
Certificates of deposit		9,785		6,683		4,710
Totals	$	13,897	$	8,818	$	6,261

Accrued interest payable on deposit accounts amounted to $366,000 and $97,000 at December 31, 2018 and 2017, respectively, which was comprised of $314,000 and $52,000 for certificates of deposit and checking and money market accounts, respectively, at December 31, 2018, and $68,000 and $29,000 for certificates of deposit and checking and money market accounts, respectively, at December 31, 2017.

A summary of deposit balances is as follows:

	December 31,
	2018		2017
	(In Thousands)
Noninterest-bearing checking accounts	$	607,198	$	571,360
Interest-bearing checking and money market accounts		1,040,471		1,005,519
Savings deposits		292,829		302,022
Retail certificates of deposit less than $250,000		591,822		504,912
Retail certificates of deposit greater than $250,000		88,562		53,843
	$	2,620,882	$	2,437,656

Scheduled maturities of certificates of deposit at December 31, 2018, are as follows (In Thousands):

2019	$	417,562
2020		130,756
2021		85,563
2022		33,184
2023		13,319
Thereafter		-
Total	$	680,384

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Advances from Federal Home Loan Bank

12 Months Ended

Dec. 31, 2018

Advances from Federal Home Loan Banks [Abstract]

Federal Home Loan Bank Advances, Disclosure [Text Block]

12. Advances from Federal Home Loan Bank

First Federal has the ability to borrow funds from the FHLB. First Federal pledges its single-family residential mortgage loan portfolio, certain investment securities; certain first mortgage home equity loans, certain commercial real estate loans, and certain agriculture real estate loans as security for these advances. Advances secured by investment securities must have collateral of at least 105% of the borrowing. Advances secured by residential mortgages must have collateral of at least 125% of the borrowings. Advances secured by commercial real estate loans, and agriculture real estate loans must have collateral of at least 300% of the borrowings. The total level of borrowing is also limited to 50% of total assets and at least 50% of the borrowings must be secured by either one-to-four family residential mortgages or investment securities. Total loans pledged to the FHLB at December 31, 2018, and December 31, 2017, were $1.2 billion and $1.0 billion, respectively. First Federal could obtain advances of up to approximately $447.4 million from the FHLB at December 31, 2018.

At year-end, advances from the FHLB were as follows:

Principal Terms	Advance Amount			Range of Maturities	Weighted  Average Interest  Rate
		(In Thousands)
December 31, 2018
Single maturity fixed rate advances		59,000		January 2019 to March 2022		1.67	%
Amortizable mortgage advances		1,213		August 2027		2.14	%
Overnight advances		25,000		Overnight		2.45	%
Fair value adj. on acquired balances		(24	)
	$	85,189
December 31, 2017
Putable advances	$	5,000		March 2018		2.35	%
Single maturity fixed rate advances		72,000		January 2018 to March 2022		1.46	%
Amortizable mortgage advances		7,306		September 2018 to August 2027		1.85	%
Fair value adj. on acquired balances		(27	)
	$	84,279

Putable advances are callable at the option of the FHLB on a quarterly basis.

Estimated future minimum payments by fiscal year based on maturity date and current interest rates are as follows (In Thousands):

2019	$	45,926
2020		21,563
2021		15,307
2022		219
2023		3,169
Thereafter		563
Total minimum payments		86,747
Less amounts representing interest		(1,534	)
Less fair value adj. on acquired balances		(24	)
Totals	$	85,189

First Defiance also utilizes short-term advances from the FHLB to meet cash flow needs and for short-term investment purposes. First Defiance borrows short-term advances under a variety of programs at FHLB. At December 31, 2018 and 2017, there were no amounts outstanding under First Defiance’s Cash Management Advance line of credit. The total available under this line is $15.0 million. In addition, First Defiance has a $100.0 million REPO Advance line of credit available. Twenty-five million was drawn on this line at December 31, 2018. There were no borrowings against this line at December 31, 2017. Amounts are generally borrowed under the Cash Management and REPO lines on an overnight basis.

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Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust

12 Months Ended

Dec. 31, 2018

Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust [Abstract]

Junior Subordinated Debentures Owed To Unconsolidated Subsidiary Trust Disclosure [Text Block]

13. Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust

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 the 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 4.29% and 3.09% as of December 31, 2018 and 2017, respectively.

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 sponsors 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 4.17% and 2.97% as of December 31, 2018 and 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.

A summary of all junior subordinated debentures issued by the Company to affiliates follows. These amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts. Junior subordinated debentures owed to the following affiliates were as follows:

	December 31,
	2018		2017
	(In Thousands)
First Defiance Statutory Trust I due December 2035	$	20,619	$	20,619
First Defiance Statutory Trust II due June 2037		15,464		15,464
Total junior subordinated debentures owed to unconsolidated subsidiary Trusts	$	36,083	$	36,083

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.

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Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings

12 Months Ended

Dec. 31, 2018

Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings [Abstract]

Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings Disclosure [Text Block]

14. Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings

Total securities sold under agreement to repurchase are summarized as follows:

	Years Ended December 31,
	2018			2017
	(In Thousands, Except Percentages)
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$	5,741		$	26,019
Year-end interest rate		0.31	%		0.20	%
Average daily balance during year		8,911			23,337
Maximum month-end balance during the year		18,259			26,019
Average interest rate during the year		0.26	%		0.23	%

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 December 31, 2018 and 2017, is presented in the following tables.

	Overnight and  Continuous		Up to 30  Days		30-90 Days		Greater  than 90  Days		Total
At December 31, 2018			(In Thousands)
Repurchase agreements:
Mortgage-backed securities – residential	$	4,199	$	-	$	-	$	-	$	4,199
Collateralized mortgage obligations		1,542		-		-		-		1,542
Total borrowings	$	5,741	$	-	$	-	$	-	$	5,741
Gross amount of recognized liabilities for repurchase agreements									$	5,741

	Overnight and Continuous		Up to 30  Days		30-90 Days		Greater  than 90  Days		Total
At December 31, 2017			(In Thousands)
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

As of December 31, 2018 and 2017, First Federal had the following undrawn lines of credit facilities available for short-term borrowing purposes:

A $20.0 million line of credit with First Tennessee Bank. The rate on the line of credit is at three- month LIBOR, which floats quarterly. This line was undrawn upon as of December 31, 2018 and 2017.

A $11.2 million line of credit with the Federal Reserve Bank Discount Window, at an interest rate of 50 basis points over the federal funds rate. The fed funds rate as of December, 31, 2018, was 2.25%. This line was undrawn upon as of December 31, 2018 and 2017.

A $20.0 million line of credit with MUFG Union Bank, N.A. The rate on this line of credit is Union Bank’s federal funds rate, which floats daily. This line was undrawn upon as of December 31, 2018 and 2017.

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Other Noninterest Expense

12 Months Ended

Dec. 31, 2018

Other Expense, Nonoperating [Abstract]

Other Expense Disclosure Non Operating [Text Block]

15. Other Noninterest Expense

The following is a summary of other noninterest expense:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Legal and other professional fees	$	3,328		$	3,603		$	2,902
Marketing		2,407			2,070			1,835
State financial institutions tax		2,118			1,819			1,781
OREO expenses and write-downs		742			177			244
Printing and office supplies		631			626			512
Amortization of intangibles		1,312			1,289			535
Postage		505			523			456
Check charge-offs and fraud losses		415			277			266
Credit and collection expense		379			359			303
Other		6,792	(1)		8,067	(2)		7,118	(3)
Total other noninterest expense	$	18,629		$	18,810		$	15,952

1) Includes a credit of $806,000 for an accounting correction related to the Deferred Compensation Plan. See Note 19 for further details.

2) Includes $1.1 million of acquisition related expenses.

3) Includes $443,000 of acquisition related expenses and $300,000 of costs associated with termination of a lease agreement.

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Postretirement Benefits

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

16. Postretirement Benefits

First Defiance sponsors a defined benefit postretirement plan that is intended to supplement Medicare coverage for certain retirees who meet minimum age requirements. First Federal employees who retired prior to April 1, 1997, and who completed 20 years of service after age 40 receive full medical coverage at no cost. First Federal employees retiring after April 1, 1997, are provided medical benefits at a cost based on their combined age and years of service at retirement. Surviving spouses are also eligible for continued coverage after the retiree is deceased at a subsidy level that is 10% less than what the retiree is eligible for. First Federal employees retiring before July 1, 1997, receive dental and vision care in addition to medical coverage. First Federal employees who retire after July 1, 1997, are not eligible for dental or vision care.

First Federal employees who were born after December 31, 1950, are not eligible for the medical coverage described above at retirement. Rather, a one-time medical spending account of up to $10,000 (based on the participant’s age and years of service) will be established to reimburse medical expenses for those individuals. First Insurance employees who were born before December 31, 1950, can continue coverage until they reach age 65, or in lieu of continuing coverage, can elect the medical spending account option, subject to eligibility requirements. Employees hired or acquired after January 1, 2003, are eligible only for the medical spending account option.

Included in accumulated other comprehensive income at December 31, 2018, 2017 and 2016, are the following amounts that have not yet been recognized in net periodic benefit cost:

	December 31,
	2018			2017			2016
	(In Thousands)
Unrecognized prior service cost	$	97		$	39		$	52
Unrecognized actuarial losses		(86	)		551			392
Total loss recognized in Accumulated Other  Comprehensive Income		11			590			444
Income tax effect		80			(206	)		(155	)
Net loss recognized in Accumulated Other  Comprehensive Income	$	91		$	384		$	289

The prior service cost and actuarial loss included in other comprehensive income and expected to be recognized in net postretirement benefit cost during the fiscal year-ended December 31, 2019, is $14,000 ($11,000 net of tax) and $0, respectively.

Reconciliation of Funded Status and Accumulated Benefit Obligation

The plan is not currently funded. The following table summarizes benefit obligation and plan asset activity for the plan measured as of December 31 each year:

	December 31,
	2018			2017
	(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,194		$	2,985
Service cost		55			58
Interest cost		105			117
Participant contribution		32			29
Plan amendments for acquisitions		72			-
Actuarial (gains) / losses		(632	)		166
Benefits paid		(184	)		(161	)
Benefit obligation at end of year		2,642			3,194
Change in fair value of plan assets:
Balance at beginning of year		-			-
Employer contribution		152			132
Participant contribution		32			29
Benefits paid		(184	)		(161	)
Balance at end of year		-			-
Funded status at end of year	$	(2,642	)	$	(3,194	)

Net periodic postretirement benefit cost includes the following components:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Service cost-benefits attributable to service during the period	$	55		$	58		$	53
Interest cost on accumulated postretirement benefit obligation		105			117			128
Net amortization and deferral		18			19			30
Net periodic postretirement benefit cost		178			194			211
Net (gain) / loss during the year		(632	)		166			(184	)
Plan amendment for acquisition		72			-			12
Amortization of prior service cost and actuarial losses		(18	)		(19	)		(30	)
Total recognized in comprehensive income		(578	)		147			(202	)
Total recognized in net periodic postretirement benefit  cost and other comprehensive income	$	(400	)	$	341		$	9

The following assumptions were used in determining the components of the postretirement benefit obligation:

	2018			2017			2016
Weighted average discount rates:
Used to determine benefit obligations at December 31		4.00	%		3.50	%		4.00	%
Used to determine net periodic postretirement benefit cost for years ended December 31		3.50	%		4.00	%		4.25	%
Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year		6.50	%		7.00	%		7.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		3.90	%		5.00	%		5.00	%
Year that rate reaches ultimate trend rate		2075			2022			2022

The following benefits are expected to be paid over the next five years and in aggregate for the next five years thereafter. Because the plan is unfunded, the expected net benefits to be paid and the estimated Company contributions are the same amount.

	Expected to be Paid
	(In Thousands)
2019	$	168
2020		181
2021		195
2022		209
2023		181
2024 through 2028		969

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:

	One-Percentage-Point  Increase				One-Percentage-Point  Decrease
	Year Ended December 31,				Year Ended December 31,
	2018		2017		2018			2017
	(In Thousands)
Effect on total of service and interest cost	$	22	$	25	$	(18	)	$	(21	)
Effect on postretirement benefit obligation		178		392		(153	)		(333	)

The Company expects to contribute $168,000 before reflecting expected Medicare retiree drug subsidy payments in 2019.

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Regulatory Matters

12 Months Ended

Dec. 31, 2018

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

17. Regulatory Matters

First Defiance and First Federal are subject to minimum capital adequacy guidelines. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators, which could have a material impact on First Defiance’s financial statements. Under capital adequacy guidelines, First Defiance and First Federal must maintain capital amounts in excess of minimum ratios based on quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

In July 2013, the Federal Reserve and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for First Defiance and First Federal on January 1, 2015, and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both quantity and quality of capital held by First Defiance and First Federal. The rules include a minimum common equity Tier 1 capital to risk-weighted assets ratio (“CET1”) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), which effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance sheet exposures.

The federal banking agencies have also established a system of “prompt corrective action” to resolve certain problems of undercapitalized banks. The regulatory agencies can initiate certain mandatory actions if First Federal fails to meet the minimum capital requirements, which could have a material effect on First Defiance’s financial statements.

The following schedule presents First Defiance consolidated and First Federal’s regulatory capital ratios as of December 31, 2018 and 2017 (Dollars in Thousands):

December 31, 2018
	Actual					Minimum Required for  Adequately Capitalized					Minimum Required to be Well  Capitalized for Prompt  Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	303,860		11.00	%	$	124,339		4.5	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	124,225		4.5	%	$	179,436		6.5	%
Tier 1 Capital (2)
Consolidated	$	338,860		11.14	%	$	121,716		4.0	%		N/A		N/A
First Federal	$	322,520		10.62	%	$	121,461		4.0	%	$	151,827		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	338,860		12.26	%	$	165,786		6.0	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	165,633		6.0	%	$	220,844		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	367,191		13.29	%	$	221,048		8.0	%		N/A		N/A
First Federal	$	350,851		12.71	%	$	220,844		8.0	%	$	276,055		10.0	%

(1) Excludes capital conservation buffer of 1.875% as of December 31, 2018.

(2) Core capital is computed as a percentage of adjusted total assets of $3.04 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.76 billion for consolidated and for the Bank.

December 31, 2017
	Actual					Minimum Required for  Adequately Capitalized					Minimum Required to be Well  Capitalized for Prompt  Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	274,832		10.43	%	$	118,596		4.5	%		N/A		N/A
First Federal	$	298,571		11.33	%	$	118,534		4.5	%	$	171,216		6.5	%
Tier 1 Capital (2)
Consolidated	$	309,832		10.80	%	$	114,773		4.0	%		N/A		N/A
First Federal	$	298,571		10.43	%	$	114,539		4.0	%	$	143,173		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	309,832		11.76	%	$	158,128		6.0	%		N/A		N/A
First Federal	$	298,571		11.33	%	$	158,046		6.0	%	$	210,728		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	336,515		12.77	%	$	210,838		8.0	%		N/A		N/A
First Federal	$	325,254		12,.35	%	$	210,728		8.0	%	$	263,410		10.0	%

(1) Excludes capital conservation buffer of 1.25% as of December 31, 2017.

(2) Core capital is computed as a percentage of adjusted total assets of $2.87 billion for consolidated and $2.86 billion for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.64 billion for consolidated and $2.63 billion for the Bank.

Dividend Restrictions - Dividends paid by First Federal to First Defiance are subject to various regulatory restrictions. First Federal paid $22.0 million in dividends to First Defiance in 2018 and $13.0 million in 2017. First Federal may not pay dividends to First Defiance in excess of its net profits (as defined by statute) for the last two fiscal years, plus any year to date net profits without the approval of the OCC. First Insurance paid $1.6 million in dividends to First Defiance in 2018 and $1.8 million in dividends in 2017. First Defiance Risk Management paid $950,000 in dividends to First Defiance in 2018 and $1.0 million in 2017.

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Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

18. Income Taxes

Income tax expense for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. As a result of the new law, which is more fully discussed below, the Company recognized a net tax expense of $154,000.

The components of income tax expense are as follows:

	Years Ended December 31,
	2018		2017		2016
	(In Thousands)
Current:
Federal	$	9,538	$	14,588	$	13,125
State and local		207		181		244
Deferred		881		1,261		(615	)
Tax reform revaluation		-		154		-
	$	10,626	$	16,184	$	12,754

The effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Tax expense at statutory rate (21%-2018 35%-2017 and 2016)	$	11,944		$	16,958		$	14,559
Increases (decreases) in taxes from:
State income tax – net of federal tax benefit		164			119			159
Tax exempt interest income, net of TEFRA		(770	)		(1,218	)		(1,168	)
Bank owned life insurance		(255	)		(1,212	)		(341	)
Captive insurance		(325	)		(364	)		(414	)
BOLI surrender		-			1,721			-
Tax reform revaluation		-			154			-
Other		(132	)		26			(41	)
Totals	$	10,626		$	16,184		$	12,754

Deferred federal income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of First Defiance’s deferred federal income tax assets and liabilities are as follows:

	December 31,
	2018			2017
	(In Thousands)
Deferred federal income tax assets:
Allowance for loan losses	$	5,802		$	5,415
Postretirement benefit costs		473			671
Deferred compensation		1,011			1,354
Impaired loans		1,154			1,432
Accrued vacation		11			123
Allowance for real estate held for sale losses		62			71
Deferred loan origination fees and costs		435			332
Accrued bonus		638			333
Net unrealized gains on available-for-sale securities		547			-
Other		1,273			1,578
Total deferred federal income tax assets		11,406			11,309
Deferred federal income tax liabilities:
FHLB stock dividends		1,558			1,558
Goodwill		4,584			4,377
Mortgage servicing rights		2,125			2,060
Fixed assets		2,046			1,039
Other intangible assets		778			990
Loan mark to market		7			5
Net unrealized gains on available-for-sale securities		-			194
Prepaid expenses		550			539
Other		22			316
Total deferred federal income tax liabilities		11,670			11,078
Net deferred federal income tax asset/ (liability)	$	(264	)	$	231

The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized and thus no valuation allowance was required at December 31, 2018.

Retained earnings at December 31, 2018, include approximately $11.0 million for which no tax provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of the Company’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2018, was approximately $2.31 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (In Thousands):

Balance at January 1, 2016	$	-
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		398
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		-
Balance at December 31, 2016	$	398
Balance at January 1, 2017	$	398
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		(398	)
Balance at December 31, 2017	$	-
Balance at January 1, 2018	$	-
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		-
Balance at December 31, 2018	$	-

The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The total amount of interest and penalties recorded in the income statement was $0, $0 and $40,000 for the years ended December 31, 2018, 2017 and 2016. The amount accrued for interest and penalties was $0, $0 and $40,000 at December 31, 2018, 2017 and 2016.

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 2014. The Company currently operates primarily in the states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.

Tax Cuts and Jobs Act – The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminated the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurrent by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changed U.S. tax law related to foreign operations, however, such changes did not impact First Defiance.

As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, First Defiance re-measured its deferred tax assets and liabilities based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. First Defiance recognized a net tax expense related to the re-measurement of its deferred tax assets and liabilities totaling $154,000 as of December 31, 2017.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

Compensation and Employee Benefit Plans [Text Block]

19. Employee Benefit Plans

401(k) Plan

Employees of First Defiance are eligible to participate in the First Defiance Financial Corp. 401(k) Employee Savings Plan (the “First Defiance 401(k)”) if they meet certain age and service requirements. Under the First Defiance 401(k), First Defiance matches 100% of the participants’ contributions up to 3% of compensation and then 50% of the participants’ contributions for the next 2% of compensation. The First Defiance 401(k) also provides for a discretionary First Defiance contribution in addition to the First Defiance matching contribution. First Defiance matching contributions totaled $1.31 million, $1.19 million and $979,000 for the years ended December 31, 2018, 2017 and 2016, respectively. There were no discretionary contributions in any of those years.

Group Life Plan

On June 30, 2010, First Federal adopted the First Federal Bank of the Midwest Executive Group Life Plan – Post Separation (the “Group Life Plan”) in which various employees, including the Company’s named executive officers, may participate. Under the terms of the Group Life Plan, First Federal will purchase and own life insurance policies covering the lives of employees selected by the board of directors of First Federal as participants. There was $38,000, $248,000 and $71,000 of expense recorded for the years ended December 31, 2018, 2017 and 2016, respectively, with a liability of $1.71 million and $1.69 million for future benefits recorded at December 31, 2018 and 2017, respectively. The acquisition of CSB added $402,000 to this liability in 2017. The discount rate was reduced to 4.00% as of December 31, 2016, resulting in an increase to the Company’s liability, and remained unchanged at December 31, 2018.

Deferred Compensation

The deferred compensation plan covers all directors and certain employees that elect to participate. Under the plan, the Company pays each participant, or their beneficiary, the amount of fees deferred plus interest over a defined time period. In the fourth quarter of 2018, the stock market declined significantly resulting in a significant decline in the value of the assets and liabilities of the deferred compensation plan and an accounting correction in the deferred compensation plan was recognized. The deferred compensation plan has approximately $5.0 million in assets and liabilities as of December 31, 2018, which are matched in terms of investment elections. Every year, other noninterest income and other noninterest expense reflects the changes in fair value of the underlying investments in the assets and liabilities, respectively. The Company made an accounting correction, which is expected to minimize any net impact to earnings from the deferred compensation plan going forward. This accounting correction was deemed immaterial which resulted in a one-time reduction to other noninterest expense of $806,000, including a $636,000 adjustment to equity for the phantom stock elections within the plan, and a $170,000 adjustment for the tax liability, as of December 31, 2018. The phantom shares are carried at cost in equity and will be treated as outstanding shares for earnings per share calculations. The net expense (income) recorded for the deferred compensation plan, excluding the one-time accounting correction, for each of the last three years was $15,000, $427,000 and $528,000 in 2018, 2017 and 2016, respectively, resulting in a deferred compensation liability of $4.5 million and $6.1 million as of year-end 2018 and 2017, respectively.

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Stock Compensation Plans

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

20.       Stock Compensation Plans

First Defiance has established equity based compensation plans for its directors and employees. On February 27, 2018, the Board adopted, and the shareholders approved at the 2018 Annual Shareholders Meeting, the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “2018 Equity Plan”). The 2018 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 2018 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 2018 Equity Plan. The 2018 Equity Plan allows for issuance of up to 900,000 common shares through the award of options, stock grants, restricted stock units (“RSU”), stock appreciation rights or other stock-based awards.

As of December 31, 2018, 39,400 options had been granted pursuant to previous plans, and remain outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted under all plans vest 20% per year. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

The Company approved a Short-Term (“STIP”) 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 between 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 49,052, 41,314 and 41,676 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 the payment.

A total of 49,514 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 2018, the Company also granted to employees 23,952 restricted shares, of which 7,348 were RSUs and 16,604 were restricted stock grants. Of the 16,604 restricted stock grants, 4,104 were issued to directors and have a one-year vesting period. The remaining 12,500 were issued to employees and 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 shares. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during the twelve months ended December 31, 2018, or December 31, 2017.

Following is activity under the plans during 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		86,900		$	10.81
Forfeited or cancelled		-			-
Exercised		(47,500	)		8.15
Granted		-			-
Options outstanding, December 31, 2018		39,400		$	14.00		4.96	$	414
Vested or expected to vest at December 31, 2018		39,400		$	14.00		4.96	$	414
Exercisable at December 31, 2018		23,900		$	12.21		4.14	$	294

Information related to the stock option plans is as follows:

	Year Ended December 31,
	2018		2017		2016
	(In Thousands, except per share amounts)
Intrinsic value of options exercised	$	893	$	301	$	752
Cash received from option exercises		111		198		714
Tax benefit realized from option exercises		28		54		165
Weighted average fair value of options granted	$	-	$	-	$	13.95

As of December 31, 2018, there was $50,000 of total unrecognized compensation costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 1.6 years.

At December 31, 2018, 174,958 restricted share awards were outstanding. Compensation expense is recognized over the performance period based on the achievement of established targets. Total expense of $2.0 million, $2.0 million and $1.3 million was recorded during the years ended December 31, 2018, 2017 and 2016, respectively, and approximately $961,000 and $774,000 is included within other liabilities at December 31, 2018 and 2017, respectively, related to the STIPs and LTIPs.

	Restricted Stock Units					Stock Grants
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
Unvested Shares	Shares			Fair Value		Shares			Fair Value
Unvested at January 1, 2018		145,076		$	20.26		21,072		$	25.28
Granted		49,024			26.97		66,118			19.68
Vested		(49,514	)		16.15		(56,818	)		17.51
Forfeited		-			-		-			-
Unvested at December 31, 2018		144,586		$	23.94		30,372		$	28.48

The maximum amount of compensation expense that may be earned for the 2018 STIP and the 2016, 2017 and 2018 LTIPs at December 31, 2018, is approximately $4.3 million in the aggregate. However, the estimated expense expected to be earned as of December 31, 2018, based on the performance measures in the plans, is $3.7 million of which $899,000 was unrecognized at December 31, 2018, and will be recognized over the remaining performance period.

As of December 31, 2018, 895,500 shares were available for grant under the 2018 Equity Plan. Options forfeited or cancelled under all plans except the 2018 Equity Plans are no longer available for grant to other participants. 

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Parent Company Statements

12 Months Ended

Dec. 31, 2018

Condensed Financial Information Disclosure [Abstract]

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

21. Parent Company Statements

Condensed parent company financial statements, which include transactions with subsidiaries, are as follow:

	December 31,
Statements of Financial Condition	2018		2017
	(In Thousands)
Assets
Cash and cash equivalents	$	12,153	$	8,860
Investment in banking subsidiary		398,922		377,546
Investment in non-bank subsidiaries		23,372		22,319
Other assets		1,723		1,157
Total assets	$	436,170	$	409,882
Liabilities and stockholders’ equity:
Subordinated debentures	$	36,083	$	36,083
Accrued liabilities		498		513
Stockholders’ equity		399,589		373,286
Total liabilities and stockholders’ equity	$	436,170	$	409,882

	Years Ended December 31,
Statements of Income	2018			2017			2016
	(In Thousands)
Dividends from subsidiaries	$	24,550		$	15,800		$	24,200
Interest expense		(1,281	)		(1,090	)		(753	)
Other income		1			1			-
Noninterest expense		(831	)		(697	)		(644	)
Income before income taxes and equity in earnings of subsidiaries		22,439			14,014			22,803
Income tax credit		(431	)		(605	)		(466	)
Income before equity in earnings of subsidiaries		22,870			14,619			23,269
Undistributed equity in earnings of subsidiaries		23,379			17,649			5,574
Net income		46,249			32,268			28,843
Other comprehensive income (loss)		(2,412	)		2			(3,407	)
Comprehensive income	$	43,837		$	32,270		$	25,436

	Years Ended December 31,
Statements of Cash Flows	2018			2017			2016
	(In Thousands)
Operating activities:
Net income	$	46,249		$	32,268		$	28,843
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Undistributed equity in earnings of subsidiaries		(23,379	)		(17,649	)		(5,574	)
Change in other assets and liabilities		(419	)		(358	)		235
Net cash provided by (used in) operating activities		22,451			14,261			23,504
Investing activities:
Cash paid for Commercial Bancshares		-			(12,340	)		-
Capital contribution to subsidiary		-			(6,491	)		-
Net cash used in investing activities		-			(18,831	)		-
Financing activities:
Repurchase of common stock		(6,330	)		-			(6,293	)
Cash dividends paid		(13,043	)		(9,859	)		(7,890	)
Stock Options Exercised		111			199			714
Direct stock sales		104			73			66
Net cash used in financing activities		(19,158	)		(9,587	)		(13,406	)
Net increase (decrease) in cash and cash equivalents		3,293			(14,157	)		10,098
Cash and cash equivalents at beginning of year		8,860			23,017			12,919
Cash and cash equivalents at end of year	$	12,153		$	8,860		$	23,017

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Fair Value

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

22. Fair Value

FASB ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

FASB ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on the best information available. In that regard, FASB ASC Topic 820 established a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

· Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

· Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by a correlation or other means.

· Level 3: Unobservable inputs for determining fair value of assets and liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Available for sale securities - Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities in Level 1 include federal agency preferred stock securities. Securities in Level 2 include U.S. Government agencies, mortgage-backed securities, corporate bonds and municipal securities.

Impaired loans - Fair values for impaired collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value on the cost to replace the current property.  Value of market comparison approach evaluates the sales price of similar properties in the same market area.  The income approach considers net operating income generated by the property and an investors required return.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell.  Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Real Estate held for sale - Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are then reviewed monthly by members of the asset review committee for valuation changes and are accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted from 0% to 20% to account for other factors that may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used, which include:  physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

Mortgage servicing rights – On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level based on a model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and are validated against available market data (Level 2).

Mortgage banking derivative - The fair value of mortgage banking derivatives are evaluated monthly based on derivative valuation models using quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation date (Level 2).

The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Recurring Basis

December 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	$	-	$	2,503	$	-	$	2,503
Mortgage-backed - residential		-		74,710		-		74,710
REMICs		-		2,709		-		2,709
Collateralized mortgage obligations		-		101,461		-		101,461
Preferred stock		-		-		-		-
Corporate bonds		-		12,806		-		12,806
Obligations of state and political subdivisions		-		99,887				99,887
Mortgage banking derivative - asset		-		367		-		367
Mortgage banking derivative -liability		-		73		-		73

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		-		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

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2018 and 2017.

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

December 31, 2018	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair  Value
	(In Thousands)
Impaired loans
Commercial Real Estate	$	-	$	-	$	1,456	$	1,456
Commercial						319		319
Total impaired loans		-		-		1,775		1,775
Mortgage servicing rights		-		629		-		629
Real estate held for sale
CRE		-		-		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
Real estate held for sale
CRE		-		-		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 December 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)
Impaired Loans- Applies to all loan classes	$	1,775	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions		10-13	%		10.86	%
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	%		11	%
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	%

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $1.8 million, with a valuation allowance of $9,000 and a fair value of $4.6 million with no valuation allowance at December 31, 2018 and 2017, respectively. A provision expense of $1.2 million, $993,000, $1.0 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to these impaired loans was included in earnings. 

Mortgage servicing rights, which are carried at the lower of cost or fair value, had a fair value of $629,000 with a valuation allowance of $300,000 and a fair value of $534,000 with a valuation allowance of $432,000 at December 31, 2018 and 2017, respectively. A recovery of $132,000, $90,000 and $123,000 for the years ended December 31, 2018, 2017 and 2016, respectively, was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for changes in market conditions. The change in fair value of real estate held for sale was $552,000, $20,000 and $74,000 for the years ended December 31, 2018, 2017 and 2016, respectively, which was recorded directly as an adjustment to current earnings through noninterest expense.

In accordance with FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of December 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, term notes payable and advance payments by borrowers for taxes and insurance, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

The Company adopted the amendments to ASU 2016-01 relating to the loan portfolio in 2018 and an exit price income approach is now 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 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 asset.

The fair value of noninterest-bearing deposits are considered equal to the amount payable on demand at the reporting date (i.e., carrying value) and are classified as Level 1. The fair value of savings, NOW and certain money market accounts are equal to their carrying amounts and are a Level 2 classification. Fair values of fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

The fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 2 classification. The carrying value of subordinated debentures and deposits with fixed maturities is estimated based on discounted cash flow analyses based on interest rates currently being offered on instruments with similar characteristics and maturities resulting in a Level 3 classification.

FHLB advances with maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at December 31, 2018.

			Fair Value Measurements at December 31, 2018 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	98,962	$	98,962	$	98,962	$	-	$	-
Investment securities		294,602		294,602		-		294,602		-
FHLB Stock		14,217		N/A		N/A		N/A		N/A
Loans, net, including loans  held for sale		2,518,321		2,501,096		-		6,865		2,494,231
Accrued interest receivable		9,641		9,641		18		1,168		8,455
Financial Liabilities:
Deposits	$	2,620,882	$	2,613,965	$	607,198	$	2,006,767	$	-
Advances from FHLB		85,189		84,281		-		84,281		-
Securities sold under repurchase agreements		5,741		5,741		-		5,741		-
Subordinated debentures		36,083		28,854		-		-		28,854

			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		-
FHLB 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 FHLB		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

XML

Derivative Financial Instruments

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

23. 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 $8.6 million and $14.8 million of interest rate lock commitments at December 31, 2018 and 2017, respectively. There were $11.5 million and $23.2 million of forward commitments for the future delivery of residential mortgage loans at December 31, 2018 and 2017, respectively.

The fair value of these mortgage banking derivatives are reflected by a derivative asset or a derivative liability. The table below provides data about the carrying values of these derivative instruments:

December 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

$

367

$

73

$

294

$

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:

	Twelve Months Ended December 31,
	2018			2017		2016
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	(304	)	$	107	$	(67	)

XML

Quarterly Consolidated Results of Operations

12 Months Ended

Dec. 31, 2018

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information [Text Block]

24. Quarterly Consolidated Results of Operations (Unaudited)

The following is a summary of the quarterly consolidated results of operations:

	Three Months Ended
	March 31			June 30		September 30		December 31
	(In Thousands, Except Per Share Amounts)
2018
Interest income	$	28,905		$	30,299	$	31,963	$	33,550
Interest expense		3,218			3,752		4,434		5,058
Net interest income		25,687			26,547		27,529		28,492
Provision for loan losses		(1,095	)		423		1,376		472
Net interest income after provision for loan losses		26,782			26,124		26,153		28,020
Gain on sale, call or write-down of securities		-			-		76		97
Noninterest income		10,703			10,214		9,846		8,272
Noninterest expense		23,251			22,665		22,286		21,210
Income before income taxes		14,234			13,673		13,789		15,179
Income taxes		2,497			2,564		2,483		3,082
Net income	$	11,737		$	11,109	$	11,306	$	12,097
Earnings per common share:
Basic	$	0.58		$	0.54	$	0.55	$	0.60
Diluted	$	0.58		$	0.54	$	0.55	$	0.59
Average shares outstanding:
Basic		20,330			20,388		20,400		20,313
Diluted		20,438			20,492		20,467		20,404

	Three Months Ended
	March 31		June 30		September 30		December 31
	(In Thousands, Except Per Share Amounts)
2017
Interest income	$	24,036	$	27,458	$	28,081	$	28,527
Interest expense		2,391		2,826		3,074		3,140
Net interest income		21,645		24,632		25,007		25,387
Provision for loan losses		55		2,118		462		314
Net interest income after provision for loan losses		21,590		22,514		24,545		25,073
Gain on sale, call or write-down of securities		-		267		158		159
Noninterest income		10,549		9,873		9,337		9,738
Noninterest expense		23,142		20,630		20,440		21,139
Income before income taxes		8,997		12,024		13,600		13,831
Income taxes		3,857		3,677		4,219		4,431
Net income	$	5,140	$	8,347	$	9,381	$	9,400
Earnings per common share:
Basic	$	0.27	$	0.41	$	0.46	$	0.47
Diluted	$	0.27	$	0.41	$	0.46	$	0.46
Average shares outstanding:
Basic		18,870		20,294		20,298		20,310
Diluted		18,980		20,408		20,418		20,444

XML

Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2018

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Other Comprehensive Income Loss [Text Block]

25. Other Comprehensive Income (Loss)

The before and after tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below. Reclassification adjustments related to securities available for sale are included in gains on sale or call of securities in the accompanying consolidated condensed statements of income. Reclassification adjustments related to the defined benefit postretirement medical plan are included in compensation and benefits in the accompanying consolidated condensed statements of income.

	Before Tax Amount			Tax Effect			Net of Tax Amount
		(In Thousands)
Twelve months ended December 31, 2018:
Securities available for sale and transferred securities:
Change in net unrealized gain/(loss) during the period	$	(3,356	)	$	(706	)	$	(2,650	)
Reclassification adjustment for net gains included in net income		(173	)		(36	)		(137	)
Defined benefit postretirement medical plan:
Net gain on defined benefit postretirement medical plan realized during the period		560			200			360
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)		18			3			15
Total other comprehensive income	$	(2,951	)	$	(539	)	$	(2,412	)

	Before Tax Amount			Tax Effect			Net of Tax Amount
		(In Thousands)
Twelve months ended December 31, 2017:
Securities available for sale and transferred securities:
Change in net unrealized gain/(loss) during the period	$	733		$	256		$	477
Reclassification adjustment for net gains included in net income		(584	)		(204	)		(380	)
Defined benefit postretirement medical plan:
Net gain on defined benefit postretirement medical plan realized during the period		(166	)		(59	)		(107	)
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)		19			7			12
Total other comprehensive income	$	2		$	-		$	2

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 before reclassifications		(2,651	)		360			(2,291	)
Amounts reclassified from accumulated other comprehensive loss		(136	)		15			(121	)
Net other comprehensive income during period		(2,787	)		375			(2,412	)
Reclassification adjustment upon adoption of ASU 2018-02		129			(82	)		47
Balance December 31, 2018	$	(2,057	)	$	(91	)	$	(2,148	)
Balance January 1, 2017	$	504		$	(289	)	$	215
Other comprehensive income before reclassifications		477			(108	)		369
Amounts reclassified from accumulated other comprehensive loss		(380	)		13			(367	)
Net other comprehensive income during period		97			(95	)		2
Balance December 31, 2017	$	601		$	(384	)	$	217

XML

Statement of Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 Share, Policy [Policy Text Block]

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income applicable to common shares (net income less dividend requirements for preferred stock, accretion of preferred stock discount and redemption of preferred stock) 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 includes the dilutive effect of additional potential common shares issuable under stock options, warrants, restricted stock awards and stock grants. See also Note 4.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on available-for-sale securities and the net unrecognized actuarial losses and unrecognized prior service costs associated with the Company’s Defined Benefit Postretirement Medical Plan. All items included in other comprehensive income are reported net of tax. See also Notes 5, 16 and 25 and the Consolidated Statements of Comprehensive Income.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Flows

Cash and cash equivalents include amounts due from banks and overnight investments with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve. Cash and amounts due from depository institutions include required balances on hand or on deposit at the FHLB and Federal Reserve of approximately $1,723,000 and $1,048,000, respectively, at December 31, 2018, to meet regulatory reserve and clearing requirements. Net cash flows are reported for customer loan and deposit transactions, interest-bearing deposits in other financial institutions and repurchase agreements.

Investment, Policy [Policy Text Block]

Investment Securities

Securities are classified as held-to-maturity when First Defiance has the positive intent and ability to hold the securities to maturity and are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

Securities available-for-sale consists of those securities which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income (loss) until realized. Realized gains and losses are included in gains (losses) on securities or other-than-temporary impairment losses on securities. Realized gains and losses on securities sold are recognized on the trade date based on the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Premiums and discounts are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are expected. Securities with unrealized losses are reviewed quarterly to determine if value impairment is other–than-temporary. In performing this review management considers the length of time and extent that fair value has been less than cost, the financial condition of the issuer, the impact of changes in market interest rates on market value and whether the Company intends to sell or it would be more than likely required to sell the securities prior to their anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) other-than-temporary impairment (“OTTI”) related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Stock In Federal Home Loan Bank [Policy Text Block]

FHLB Stock

First Federal is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. At December 31, 2018, the Company held $14.2 million at the FHLB of Cincinnati and $2,500 at the FHLB of Indianapolis.

Policy Loans Receivable, Policy [Policy Text Block]

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of deferred loan fees and costs, purchase premiums and discounts and the allowance for loan losses. Deferred fees net of deferred incremental loan origination costs, are amortized to interest income generally over the contractual life of the loan using the interest method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable, unamortized premiums and discounts, and net deferred fees and costs and undisbursed loan amounts.

Mortgage loans originated and intended for sale in the secondary market are classified as loans held for sale and are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains or losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

The Company may incur losses pertaining to loans sold to Fannie Mae and Freddie Mac but repurchased due to underwriting issues. Repurchase losses are recognized when the Company determines they are probable and estimable.

Interest receivable is accrued on loans and credited to income as earned. The accrual of interest on loans 90 days delinquent or those loans considered impaired is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. For these loans, interest accrual is only to the extent cash payments are received. The accrual of interest on these loans is generally resumed after a pattern of repayment has been established and the collection of principal and interest is reasonably assured.

Certain Loans and Debt Securities Acquired in Transfer, Recognizing Interest Income on Impaired Loans, Policy [Policy Text Block]

Purchased Credit Impaired Loans

The Company acquires loans individually and in groups or portfolios. At acquisition, the Company reviews each loan to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that it will be unable to collect all amounts due according to the loan’s contractual terms. If both conditions exist, the Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (credit score, loan type and date of origination). The Company considers expected prepayments, and estimates the amount and timing of undiscounted expected principal, interest, and other cash flows (expected at acquisition) for each loan and subsequently aggregated pool of loans.

The Company determines the excess of the loan’s or pool’s scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount—representing the excess of the loan’s cash flows expected to be collected over the amount paid—is accreted into interest income over the remaining life of the loan or pool (accretable yield).

Over the life of the loan or pool, the Company continues to estimate cash flows expected to be collected, and evaluates whether the present value of its loans determined using the effective interest rates has decreased and, if so, recognizes a loss. Valuation allowances for all acquired loans subject to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310 reflect only those losses incurred after acquisition—that is, the present value of cash flows expected at acquisition that are not expected to be collected. The present value of any subsequent increase in the loan’s or pool’s actual cash flows or cash flows expected to be collected is used first to reverse any existing valuation allowance for that loan or pool. For any remaining increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans, actual loss experience, current economic events in specific industries and geographical areas and other pertinent factors, including general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of economic trends, all of which may be susceptible to significant change. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

Loan losses are charged-off against the allowance when in management’s estimation it is unlikely that the loan will be collected, while recoveries of amounts previously charged-off are credited to the allowance. A provision for loan loss is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors in order to maintain the allowance for loan losses at the level deemed adequate by management. The determination of whether a loan is considered past due or delinquent is based on the contractual payment terms. Loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. All loans are placed on non-accrual status at 90 days past due unless the loan is adequately secured and is in process of collection. Any loan in the portfolio may be placed on non-accrual status prior to becoming 90 days past due when collection of principal or interest is in doubt.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. Impaired loans have been recognized in conformity with FASB ASC Topic 310.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loans agreement. Loans, for which terms have been modified and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. When a loan is considered impaired, an analysis of the net present value of estimated cash flows is performed and an allowance may be established based on the outcome of that analysis, or if the loan is deemed to be collateral dependent an allowance is established based on the fair value of collateral. All modifications are reviewed by the First Federal’s Chief Credit Officer or Credit Administration Officer to determine whether or not the modification constitutes a troubled debt restructure. Commercial and commercial real estate loan relationships greater than $250,000 are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net of the allowance allocation which is determined based on the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Impaired loan relationships less than $250,000 are aggregated by loan segment and risk level and given a specific reserve based on the general reserve factor for that loan segment and risk level. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

The following portfolio segments have been identified:

Commercial Real Estate Loans (consisting of multi-family residential and non-residential): Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

Commercial Loans: Commercial credit is extended primarily to middle market customers. Such credits are typically comprised of working capital loans, loans for physical asset expansion, asset acquisition loans and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses' principal owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types.

Consumer Finance Loans: Consumer finance loans are generally made to borrowers for a specific consumer purchase and are made based on their ability to repay with their current debt to income as well as the underlying collateral value of the item being purchased. Credit scores are part of the decision process of whether or not credit is extended. Minimum standards and underwriting guidelines have been established for all consumer loan types.

1-4 Family Residential Real Estate Loans: 1-4 family residential real estate loans can be categorized two different ways. One part of this portfolio is owner occupied and loans are made based primarily on the ability of the individual borrower to support the payments as well as the payments of any other debt the borrower may have outstanding at the time the loan is made. The other part of this portfolio is non-owner occupied income producing property and loans are made primarily based on the cash flow stream from rental income as well as the cash flow support from the borrower’s unrelated cash flow. Both types of loans have a secondary repayment source of the underlying collateral and generally the loans are not extended at higher than an 80% loan-to-value (“LTV”). Minimum standards and underwriting guidelines have been established for all 1-4 family residential real estate loan types.

Construction Loans: The Company defines construction loans as loans where the loan proceeds are controlled by the Company and used exclusively for the improvement of real estate in which the Company holds a mortgage.

Home Equity and Improvement Loans: Home Equity and Improvement loans are made to borrowers based on their ability to repay with their current debt to income as well as the underlying collateral value of the real estate taken as security. Minimum standards and underwriting guidelines have been established for all home equity and improvement loan types.

Consumer finance, 1-4 family residential real estate (including construction) and home equity and improvement loans are subject to adverse employment conditions in the local economy which could increase the default rate on loans.

Transfers and Servicing of Financial Assets, Servicing of Financial Assets, Policy [Policy Text Block]

Servicing Rights

Servicing rights are recognized separately when they are acquired through sales of loans. Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans, driven, generally, by changes in market interest rates.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with mortgage banking income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement with mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $3.8 million, $3.7 million and $3.6 million for the years ended December 31, 2018, 2017 and 2016. Late fees and ancillary fees related to loan servicing are not material. See Note 8.

Bank Owned Life Insurance [Policy Text Block]

Bank Owned Life Insurance

The Company has purchased life insurance policies for certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Property, Plant and Equipment, Policy [Policy Text Block]

Premises and Equipment and Long Lived Assets

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

Buildings and improvements	20 to 50 years
Furniture, fixtures and equipment	3 to 15 years

Long-lived assets to be held and those to be disposed of and certain intangibles are periodically evaluated for impairment. See Note 9.

Goodwill and Intangible Assets, Policy [Policy Text Block]

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 non-controlling 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. See Note 10.

Real Estate Held for Development and Sale, Policy [Policy Text Block]

Real Estate and Other Assets Held for Sale

Real estate and other assets held for sale are comprised of properties or other assets acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Losses arising from the acquisition of such property are charged against the allowance for loan losses at the time of acquisition. These properties are carried at the lower of cost or fair value, less estimated costs to dispose. If fair value declines subsequent to foreclosure, the property is written down against expense. Costs after acquisition are expensed.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Compensation Plans

Compensation cost is recognized for stock options and restricted share awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Restricted shares awards are valued at the market value of Company stock at the date of the grant. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. See Note 20.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 22. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Transfers and Servicing of Financial Assets, Transfers of Financial Assets, Sales, Policy [Policy Text Block]

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans and Leases Receivable, Mortgage Banking Activities, Policy [Policy Text Block]

Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in fair values of these derivatives are included in mortgage banking income.

Segment Reporting, Policy [Policy Text Block]

Operating Segments

Management considers the following factors in determining the need to disclose separate operating segments: (1) the nature of products and services, which are all financial in nature; (2) the type and class of customer for the products and services; in First Defiance’s case retail customers for retail bank and insurance products and commercial customers for commercial loan, deposit, life, health and property and casualty insurance needs; (3) the methods used to distribute products or provide services; such services are delivered through banking and insurance offices and through bank and insurance customer contact representatives. Retail and commercial customers are frequently targets for both banking and insurance products; (4) the nature of the regulatory environment; both banking and insurance entities are subject to various regulatory bodies and a number of specific regulations.

Quantitative thresholds as stated in FASB ASC Topic 280, Segment Reporting are monitored. For the year ended December 31, 2018, the reported revenue for First Insurance was 8.6% of total revenue for First Defiance. Total revenue includes interest income plus noninterest income. Net income for First Insurance for the year ended December 31, 2018 was 4.5% of consolidated net income. Total assets of First Insurance at December 31, 2018, were 0.7% of total assets. First Insurance does not meet any of the quantitative thresholds of FASB ASC Topic 280. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

Dividend Restriction [Policy Text Block]

Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by First Federal to First Defiance. See Note 17 for further details on restrictions.

Loan Commitments, Policy [Policy Text Block]

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Malpractice Loss Contingency, Policy [Policy Text Block]

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Income Tax, Policy [Policy Text Block]

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

In December 2017, a law was enacted which changed the corporate federal income tax rate from 35% to 21%, beginning January 1, 2018. Accordingly, the Company’s deferred tax assets and liabilities were re-measured at December 31, 2017, using the 21% corporate federal income tax rate resulting in a net tax expense of $154,000. An effective tax rate of 21% is used to determine after-tax components of other comprehensive income (loss) included in the statements of stockholders’ equity. See Note 18.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

Pension and Other Postretirement Plans, Pensions, Policy [Policy Text Block]

Retirement Plans

Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Employee 401(k) plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. See Note 16 and 19.

Reclassification, Policy [Policy Text Block]

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation which did not result in any changes to net income or equity.

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Standards Updates

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This 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, this 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 “Revenue Recognition” 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, the Company’s fair value measurement of financial instruments was 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 public law No. 115-97, known as the Tax Cuts and Jobs Act (“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.

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 elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. The Company also expect to elect certain optional practical expedients. The Company has implemented a third party software solution to assist with the accounting under the new standard. The Company’s operating leases relate primarily to office space and bank branches. Upon adoption of ASU 2016-02 on January 1, 2019, the Company expects to recognize right-to-use assets and related lease liabilities totaling approximately $8.8 million and $9.3 million, respectively.

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 continues its implementation efforts through its established Company-wide implementation committee along with a third-party software vendor to assist in the implementation process. The committee’s 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 adopt this ASU early.

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 the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in the Company’s statement of income as components of noninterest 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 $7.6 million in 2018. Income from services charges on deposit accounts is included in service fees and other charges in noninterest income.

· Interchange income - this represents fees earned from debit and credit 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 were $4.1 million in 2018, which are reported net of network related charges. Interchange income is included in service fees and other charges in noninterest 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, and 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 $821,000 and $2.1 million, respectively, in 2018. Income from wealth management services is included in other noninterest income in total noninterest income. Trust fees are reported separately in total noninterest income.

· Gain/loss on sales of other real estate owned (“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 a loss of $28,000 in 2018. Income from the gain or loss on sales of OREO is included in other noninterest income in total noninterest 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: (i) new/renewal commissions and (ii) contingent commissions. Insurance commissions were $14.1 million for 2018, of which, $13.1 million were new/renewal commissions and $1.0 million were contingent commissions.

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Statement of Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Premises and Equipment and Long Lived Assets [Table Text Block]

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

Buildings and improvements	20 to 50 years
Furniture, fixtures and equipment	3 to 15 years

XML

Business Combinations (Tables)

12 Months Ended

Dec. 31, 2018

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

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 – NonInterest-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

Business Acquisition, Pro Forma Information [Table Text Block]

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2016, after giving effect to certain adjustments. The unaudited pro forma information for the twelve months ended December 31, 2017, and December 31, 2016, includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

	Pro Forma Twelve		Pro Forma Twelve
	Months Ended		Months Ended
	December 31, 2017		December 31, 2016
	(In Thousands, except per share data)
Net Interest Income	$	98,856	$	90,452
Provision for loan losses		2,949		753
Noninterest Income		40,338		35,496
Noninterest Expense		82,597		76,393
Income Before Income Taxes		53,648		48,802
Income Tax Expense		17,780		15,276
Net Income	$	35,868	$	33,526
Diluted Earnings Per Share	$	3.51	$	3.29

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Earnings Per Common Share (Tables)

12 Months Ended

Dec. 31, 2018

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31:

	2018		2017		2016
	(In Thousands, Except Per Share Amounts)
Basic Earnings Per Share: Net income available to common shareholders	$	46,249	$	32,268	$	28,843
Less: Income allocated to participating securities		16		5		39
Net income allocated to common shareholders	$	46,233	$	32,263	$	28,804
Weighted average common shares outstanding Including participating securities		20,358		19,950		17,960
Less: Participating securities		9		18		22
Average common shares		20,349		19,932		17,938
Basic earnings per common share	$	2.27	$	1.62	$	1.61
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	46,233	$	32,263	$	28,804
Weighted average common shares outstanding for basic earnings per common share		20,349		19,932		17,938
Add: Dilutive effects of stock options		119		124		132
Average shares and dilutive potential common shares		20,468		20,056		18,070
Diluted earnings per common share	$	2.26	$	1.61	$	1.60

XML

Investment Securities (Tables)

12 Months Ended

Dec. 31, 2018

Marketable Securities [Abstract]

Schedule of Available-for-sale and Held to Maturity Securities [Table Text Block]

The following tables summarize the amortized cost and fair value of available-for-sale securities and held-to-maturity investment securities at December 31, 2018 and 2017, and the corresponding amounts of gross unrealized and unrecognized gains and losses:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
2018
Available-for-sale
Obligations of U.S. government corporations and agencies	$	2,519	$	2	$	(18	)	$	2,503
Mortgage-backed securities - residential		76,165		111		(1,566	)		74,710
REMICs		2,712		4		(7	)		2,709
Collateralized mortgage obligations - residential		103,026		124		(1,689	)		101,461
Corporate bonds		12,910		44		(148	)		12,806
Obligations of state and political subdivisions		99,349		1,258		(720	)		99,887
Total Available-for-Sale	$	296,681	$	1,543	$	(4,148	)	$	294,076

			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
Held-to-Maturity
FHLMC certificates	$	8	$	-	$	-	$	8
FNMA certificates		31		-		-		31
GNMA certificates		12		-		-		12
Obligations of states and political subdivisions		475		-		-		475
Total Held-to-Maturity	$	526	$	-	$	-	$	526

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
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 - residential		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

Investments Classified by Contractual Maturity Date [Table Text Block]

The amortized cost and fair value of the investment securities portfolio at December 31, 2018, is shown below by contractual maturity. Expected maturities will differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity tables below, mortgage-backed securities and collateralized mortgage obligations, which are not due at a single maturity date, have not been allocated over maturity groupings.

	Available-for-Sale
	Amortized		Fair
	Cost		Value
	(In Thousands)
2018
Available-for-sale
Due in one year or less	$	771	$	773
Due after one year through five years		22,957		22,969
Due after five years through ten years		34,245		34,904
Due after ten years		56,805		56,550
MBS/CMO/REMIC		181,903		178,880
Total	$	296,681	$	294,076
Held-to-maturity
Due in one year or less	$	31	$	31
Due after five years through ten years		444		444
MBS		51		51
Total	$	526	$	526

Unrealized Gain (Loss) on Investments [Table Text Block]

The following table summarizes First Defiance’s securities that were in an unrealized loss position at December 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 December 31, 2018
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	-	$	-		$	500	$	(18	)	$	500	$	(18	)
Mortgage-backed securities-residential		11,589		(71	)		48,665		(1,495	)		60,254		(1,566	)
REMIC’s		-		-			857		(7	)		857		(7	)
Collateralized mortgage obligations		11,613		(53	)		70,585		(1,636	)		82,198		(1,689	)
Corporate Bonds		5,752		(148	)		-		-			5,752		(148	)
Obligations of state and political subdivisions		11,974		(69	)		16,492		(651	)		28,466		(720	)
Held to maturity securities:		8		-			26		-			34		-
Total temporarily impaired securities	$	40,936	$	(341	)	$	137,125	$	(3,807	)	$	178,061	$	(4,148	)
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	)
REMIC’s		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	)

Marketable Securities [Table Text Block]

The proceeds from sales and calls of securities and the associated gains and losses for the years ended December 31 are listed below:

	2018			2017			2016
	(In Thousands)
Proceeds	$	5,503		$	34,248		$	14,871
Gross realized gains		178			665			509
Gross realized losses		(5	)		(81	)		-

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Commitments and Contingent Liabilities (Tables)

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Schedule of Line of Credit Facilities [Table Text Block]

The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding on December 31 was as follows (In Thousands):

	2018				2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	44,352	$	114,308	$	42,458	$	161,778
Unused lines of credit		7,523		382,189		6,245		408,831
Standby letters of credit		-		7,239		-		7,605
Total	$	51,875	$	503,736	$	48,703	$	578,214

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Loans (Tables)

12 Months Ended

Dec. 31, 2018

Loans Receivable, Net [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Loans receivable consist of the following:

	December 31, 2018			December 31, 2017
	(In Thousands)
Real Estate:
Secured by 1-4 family residential	$	322,686		$	274,862
Secured by multi-family residential		278,358			248,092
Secured by commercial real estate		1,126,452			987,129
Construction		265,772			265,476
		1,993,268			1,775,559
Other Loans:
Commercial		509,577			526,142
Home equity and improvement		128,152			135,457
Consumer Finance		34,405			29,109
		672,134			690,708
Total loans		2,665,402			2,466,267
Deduct:
Undisbursed loan funds		(123,293	)		(115,972	)
Net deferred loan origination fees and costs		(2,070	)		(1,582	)
Allowance for loan loss		(28,331	)		(26,683	)
Totals	$	2,511,708		$	2,322,030

Schedule of Valuation Allowance for Impairment of Recognized Servicing Assets [Table Text Block]

The following table discloses the year-to-date activity in the allowance for loan loss for the dates indicated by portfolio segment (In Thousands):

Year to Date December 31,  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		(261	)		-		(1,387	)		-		(724	)		(269	)		(233	)		(2,874	)
Recoveries		131			57		720			-		2,221			191			26			3,346
Provisions		479			342		2,354			35		(2,181	)		(151	)		298			1,176
Ending Allowance	$	2,881		$	3,101	$	12,041		$	682	$	7,281		$	2,026		$	319		$	28,331

Year to Date December 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		(279	)		-		(429	)		-		(2,301	)		(301	)		(139	)		(3,449	)
Recoveries		115			32		657			-		243			167			85			1,299
Provisions		69			442		(499	)		197		2,662			3			75			2,949
Ending Allowance	$	2,532		$	2,702	$	10,354		$	647	$	7,965		$	2,255		$	228		$	26,683

Year to Date December 31, 2016	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate		Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$3,212			$2,151		$11,772			$517			$5,255			$2,304			$171			$25,382
Charge-Offs		(350	)		-		(92	)		-			(615	)		(268	)		(94	)		(1,419	)
Recoveries		166			-		923			-			335			150			64			1,638
Provisions		(401	)		77		(1,978	)		(67	)		2,386			200			66			283
Ending Allowance	$	2,627		$	2,228	$	10,625		$	450		$	7,361		$	2,386		$	207		$	25,884

Schedule of Allowance for Loan Losses and Recorded Investment in Portfolio Segment Based on Impairment [Table Text Block]

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, 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	$	175	$	3	$	95	$	-	$	79	$	242	$	1	$	595
Collectively evaluated for impairment		2,706		3,098		11,946		682		7,202		1,784		318		27,736
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	2,881	$	3,101	$	12,041	$	682	$	7,281	$	2,026	$	319	$	28,331
Loans:
Loans individually evaluated for impairment	$	6,774	$	1,347	$	26,334	$	-	$	10,477	$	963	$	45	$	45,940
Loans collectively evaluated for impairment		315,385		277,105		1,102,355		142,096		500,730		128,065		34,486		2,500,222
Loans acquired with deteriorated credit quality		1,012		296		846		-		177		-		-		2,331
Total ending loans balance	$	323,171	$	278,748	$	1,129,535	$	142,096	$	511,384	$	129,028	$	34,531	$	2,548,493

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

Loans Receivable, Impaired, Interest Income, Cash Basis Method [Table Text Block]

The following tables presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the years ended December 31, 2018, 2017 and 2016

(In Thousands):

	Twelve Months Ended December 31, 2018
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,704	$	151	$	150
Residential Non Owner Occupied		2,354		133		126
Total 1-4 Family Residential Real Estate		7,058		284		276
Multi-Family Residential Real Estate		1,644		90		89
CRE Owner Occupied		9,992		234		221
CRE Non Owner Occupied		2,620		94		93
Agriculture Land		13,827		575		575
Other CRE		1,304		106		106
Total Commercial Real Estate		27,743		1,009		995
Construction		-		-		-
Commercial Working Capital		8,047		256		245
Commercial Other		3,501		119		119
Total Commercial		11,548		375		364
Home Equity and Home Improvement		1,150		38		38
Consumer Finance		39		4		4
Total Impaired Loans	$	49,182	$	1,800	$	1,766

	Twelve Months Ended December 31, 2017
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,811	$	138	$	138
Residential Non Owner Occupied		3,038		138		138
Total 1-4 Family Residential Real Estate		6,849		276		276
Multi-Family Residential Real Estate		2,471		58		58
CRE Owner Occupied		10,592		110		109
CRE Non Owner Occupied		3,768		140		133
Agriculture Land		9,667		472		229
Other CRE		1,603		76		70
Total Commercial Real Estate		25,630		798		541
Construction		-		-		-
Commercial Working Capital		5,235		129		123
Commercial Other		5,940		109		79
Total Commercial		11,175		238		202
Home Equity and Home Improvement		1,217		43		43
Consumer Finance		59		4		4
Total Impaired Loans	$	47,401	$	1,417	$	1,124

	Twelve Months Ended December 31, 2016
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,954	$	244	$	237
Residential Non Owner Occupied		3,133		211		210
Total 1-4 Family Residential Real Estate		7,087		455		447
Multi-Family Residential Real Estate		3,946		124		123
CRE Owner Occupied		6,925		203		183
CRE Non Owner Occupied		5,351		411		407
Agriculture Land		2,283		128		68
Other CRE		1,632		71		70
Total Commercial Real Estate		16,191		813		728
Construction		-		-		-
Commercial Working Capital		1,606		109		90
Commercial Other		2,393		81		79
Total Commercial		3,999		190		169
Home Equity and Home Improvement		1,543		85		83
Consumer Finance		67		8		8
Total Impaired Loans	$	32,833	$	1,675	$	1,558

Impaired Financing Receivables [Table Text Block]

The following table presents loans individually evaluated for impairment by class of loans (In Thousands):

	December 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	$	901	$	775	$	-	$	2,507	$	2,364	$	-
Residential Non Owner Occupied		950		955		-		1,711		1,708		-
Total 1-4 Family Residential Real Estate		1,851		1,730		-		4,218		4,072		-
Multi-Family Residential Real Estate		1,296		1,302		-		2,095		2,102		-
CRE Owner Occupied		7,464		6,202		-		12,273		11,804		-
CRE Non Owner Occupied		1,824		1,659		-		3,085		2,925		-
Agriculture Land		14,915		14,994		-		13,029		13,185		-
Other CRE		464		462		-		981		768		-
Total Commercial Real Estate		24,667		23,317		-		29,368		28,682		-
Construction		-		-		-		-		-		-
Commercial Working Capital		7,569		7,498		-		5,462		5,422		-
Commercial Other		2,095		2,100		-		9,916		7,644		-
Total Commercial		9,664		9,598		-		15,378		13,066		-
Home Equity and Home Improvement		-		-		-		630		584		-
Consumer Finance		-		-		-		42		42		-
Total loans with no allowance recorded	$	37,478	$	35,947	$	-	$	51,731	$	48,548	$	-
With an allowance recorded:
Residential Owner Occupied	$	3,926	$	3,884	$	148	$	1,841	$	1,814	$	137
Residential Non Owner Occupied		1,152		1,160		27		1,031		1,024		30
Total 1-4 Family Residential Real Estate		5,078		5,044		175		2,872		2,838		167
Multi-Family Residential Real Estate		44		44		3		175		176		7
CRE Owner Occupied		2,419		1,935		38		2,007		1,546		44
CRE Non Owner Occupied		350		353		16		651		593		28
Agriculture Land		37		38		2		293		292		14
Other CRE		1,107		691		39		909		708		32
Total Commercial Real Estate		3,913		3,017		95		3,860		3,139		118
Construction		-		-		-		-		-		-
Commercial Working Capital		525		528		55		447		449		77
Commercial Other		560		352		24		854		858		110
Total Commercial		1,085		880		79		1,301		1,307		187
Home Equity and Home Improvement		1,013		963		242		596		592		279
Consumer Finance		45		45		1		8		8		-
Total loans with an allowance recorded	$	11,178	$	9,993	$	595	$	8,812	$	8,060	$	758

* Presented gross of charge offs

Schedule of Non-Performing Loans and Real Estate Owned [Table Text Block]

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:

	December 31, 2018		December 31, 2017
	(In Thousands)
Non-accrual loans	$	19,016	$	30,715
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		19,016		30,715
Real estate and other assets held for sale		1,205		1,532
Total non-performing assets	$	20,221	$	32,247
Troubled debt restructuring, still accruing	$	11,573	$	13,770

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 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	$	199,664	$	887	$	821	$	1,402	$	3,110	$	3,266
Residential Non Owner Occupied		119,988		64		180		165		409		363
Total 1-4 Family Residential Real Estate		319,652		951		1,001		1,567		3,519		3,629
Multi-Family Residential Real Estate		278,748		-		-		-		-		102
CRE Owner Occupied		416,879		52		300		138		490		4,377
CRE Non Owner Occupied		534,823		6		119		-		125		620
Agriculture Land		129,040		66		-		2,869		2,935		5,253
Other Commercial Real Estate		45,232		11		-		-		11		-
Total Commercial Real Estate		1,125,974		135		419		3,007		3,561		10,250
Construction		142,096		-		-		-		-		-
Commercial Working Capital		217,832		268		-		3,838		4,106		4,021
Commercial Other		289,125		32		54		235		321		480
Total Commercial		506,957		300		54		4,073		4,427		4,501
Home Equity and Home Improvement		127,346		1,446		146		90		1,682		394
Consumer Finance		34,224		134		77		96		307		126
Total Loans	$	2,534,997	$	2,966	$	1,697	$	8,833	$	13,496	$	19,002

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 on Financing Receivables [Table Text Block]

The following table presents loans by class modified as TDRs that occurred during the years indicated (Dollars in Thousands):

	Loans Modified as a TDR for the  Twelve Months Ended   December 31, 2018				Loans Modified as a TDR for the  Twelve Months Ended   December 31, 2017				Loans Modified as a TDR for the  Twelve Months Ended   December 31, 2016
TDRs	Number  of Loans		Recorded  Investment (as of period end)		Number  of Loans		Recorded  Investment (as  of period end)		Number of  Loans		Recorded  Investment (as of  period end)
Residential Owner Occupied		18	$	980		24	$	982		17	$	778
Residential  Non Owner Occupied		4		189		5		193		5		494
Multi Family		-		-		-		-		2		1,885
CRE Owner Occupied		12		1,639		2		149		-		-
CRE Non Owner Occupied		1		42		1		262		5		974
Agriculture Land		-		-		5		1,700		1		45
Other CRE		-		-		2		153		1		348
Commercial Working Capital		5		2,898		7		1,475		1		226
Commercial Other		1		44		7		3,833		1		587
Home Equity and Home Improvement		7		89		6		152		9		281
Consumer Finance		8		29		5		14		2		14
Total		56	$	5,910		64	$	8,913		44	$	5,632

Troubled Debt Restructurings on Payments [Table Text Block]

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the indicated:

	Twelve Months Ended  December 31, 2018  ($ in thousands)				Twelve Months Ended  December 31, 2017  ($ in thousands)				Twelve Months Ended  December 31, 2016  ($ in thousands)
TDRs That Subsequently Defaulted:	Number of  Loans		Recorded  Investment  (as of Period End)		Number of  Loans		Recorded  Investment  (as of Period End)		Number  of Loans		Recorded  Investment  (as of Period End)
Residential Owner Occupied		1	$	76		-	$	-		-	$	-
Residential Non Owner Occupied		1		45		-		-		-		-
CRE Owner Occupied		-		-		-		-		-		-
CRE Non Owner Occupied		-		-		-		-		1		205
Agriculture Land		-		-		-		-		-		-
Other CRE		-		-		-		-		-		-
Commercial Working Capital		3		2,644		-		-		-		-
Commercial  Other		1		30		-		-		-		-
Home Equity and  Home  Improvement		1		61		-		-		-		-
Consumer		-		-		-		-		-		-
Total		7	$	2,856		-	$	-		1	$	205

Financing Receivable Credit Quality Indicators [Table Text Block]

As of December 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
Residential Owner Occupied	$	9,419	$	91	$	3,130	$	-	$	190,134	$	202,774
Residential Non Owner Occupied		109,885		700		3,087		-		6,725		120,397
Total 1-4 Family Real Estate		119,304		791		6,217		-		196,859		323,171
Multi-Family Residential Real Estate		276,594		-		2,047		-		107		278,748
CRE Owner Occupied		402,008		5,724		9,547		-		89		417,368
CRE Non Owner Occupied		529,842		2,807		2,297		-		-		534,946
Agriculture Land		111,595		4,023		16,358		-		-		131,976
Other CRE		42,189		730		1,244		-		1,082		45,245
Total Commercial Real Estate		1,085,634		13,284		29,446		-		1,171		1,129,535
Construction		122,775		219		-		-		19,102		142,096
Commercial Working Capital		205,903		6,546		9,489		-		-		221,938
Commercial Other		279,234		7,011		3,201		-		-		289,446
Total Commercial		485,137		13,557		12,690		-		-		511,384
Home Equity and Home Improvement		-		-		434		-		128,594		129,028
Consumer Finance		-		-		206		-		34,325		34,531
Total Loans	$	2,089,444	$	27,851	$	51,040	$	-	$	380,158	$	2,548,493

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

Schedule Of Deterioration Of Credit Quality Contractual Purchased Loans [Table Text Block]

The outstanding balance of those loans by segment is as follows (In thousands):

	December 31, 2018		December 31, 2017
1-4 Family Residential Real Estate	$	1,045	$	1,154
Multi-Family Residential Real Estate		300		309
Commercial Real Estate Loans		899		2,921
Commercial		227		407
Consumer		-		2
Total Outstanding Balance	$	2,471	$	4,793
Recorded Investment, net of allowance of $0	$	2,331	$	3,828

Certain Loans Acquired In Transfer Accounted For As Debt Securities Acquired During Period Contractually Required Payments [Table Text Block]

Accretable yield, or income expected to be collected, is as follows:

	2018			2017
Balance at January 1	$	804		$	-
New Loans Purchased		-			1,018
Accretion of Income		(139	)		(163	)
Reclassification from Non-accretable		-			-
Charge-off of Accretable Yield		(197	)		(8	)
Balance at December 31	$	468		$	847

Schedule Of Contractually Required Payments Receivable Of Loans Purchased With Evidence Of Credit Deterioration [Table Text Block]

Contractually required payments receivable of loans purchased with evidence of credit deterioration during the period ended December 31, 2017, using information as of the date of acquisition are included in the table below. There were no such loans purchased during the year ended December 31, 2018. (In Thousands)

1-4 Family Residential Real Estate	$	1,720
Commercial Real Estate		4,724
Commercial		785
Consumer		4
Total	$	7,233

Schedule Of Loan Allocated To Executive Officers Directors And Their Affiliates [Table Text Block]

Loans to executive officers, directors, and their affiliates are as follows:

	Years Ended December 31,
	2018			2017
	(In Thousands)
Beginning balance	$	16,728		$	16,199
New loans		10,806			5,857
Effect of changes in composition of related parties		(217	)		-
Repayments		(5,754	)		(5,328	)
Ending Balance	$	21,563		$	16,728

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Mortgage Banking (Tables)

12 Months Ended

Dec. 31, 2018

Mortgage Banking [Abstract]

Mortgage Loans [Table Text Block]

Net revenues from the sales and servicing of mortgage loans consisted of the following:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Gain from sale of mortgage loans	$	4,502		$	4,664		$	5,311
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		3,784			3,714			3,560
Amortization of mortgage servicing rights		(1,341	)		(1,464	)		(1,724	)
Mortgage servicing rights valuation adjustments		132			90			123
		2,575			2,340			1,959
Net mortgage banking income	$	7,077		$	7,004		$	7,270

Capitalized Mortgage and Valuation Allowance [Table Text Block]

Activity for capitalized mortgage servicing rights (“MSRs”) and the related valuation allowance is as follows:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,240		$	10,117		$	9,893
Loans sold, servicing retained		1,520			1,587			1,948
Amortization		(1,341	)		(1,464	)		(1,724	)
Carrying value before valuation allowance at end of period		10,419			10,240			10,117
Valuation allowance:
Balance at beginning of period		(432	)		(522	)		(645	)
Impairment recovery (charges)		132			90			123
Balance at end of period		(300	)		(432	)		(522	)
Net carrying value of MSRs at end of period	$	10,119		$	9,808		$	9,595
Fair value of MSRs at end of period	$	10,656		$	9,930		$	9,770

Servicing Portfolio [Table Text Block]

The Company’s servicing portfolio is comprised of the following:

	December 31,
	2018				2017
	Number of		Principal		Number of		Principal
Investor	Loans		Outstanding		Loans		Outstanding
	(In Thousands)
Fannie Mae		4,919	$	461,730		4,920	$	461,783
Freddie Mac		9,571		937,406		9,420		913,632
Federal Home Loan Bank		99		11,983		88		9,723
Other		17		714		19		930
Totals		14,606	$	1,411,833		14,447	$	1,386,068

Schedule of Fair Value Assumption, Date of Securitization or Asset-backed Financing Arrangement, Transferor's Continuing Involvement, Servicing Assets or Liabilities [Table Text Block]

	10% Adverse		20% Adverse
	Change		Change
	(In Thousands)
Assumption:
Decline in fair value from increase in prepayment rate	$	332	$	670
Decline in fair value from increase in discount rate		220		459

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2018

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Premises and equipment are summarized as follows:

	December 31,
	2018			2017
	(In Thousands)
Cost:
Land	$	7,977		$	7,977
Land improvements		1,326			1,326
Buildings		44,632			44,563
Leasehold improvements		1,015			971
Furniture, fixtures and equipment		34,871			34,216
Construction in process		692			1,402
		90,513			90,455
Less allowances for depreciation and amortization		(49,843	)		(50,238	)
	$	40,670		$	40,217

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Future minimum commitments under non-cancelable operating leases are as follows (In Thousands):

2019	$	967
2020		884
2021		843
2022		768
2023		739
Thereafter		8,078
Total	$	12,279

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Goodwill and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill [Table Text Block]

The change in the carrying amount of goodwill for the year is as follows:

	December 31,
	2018		2017
	(In Thousands)
Beginning balance	$	98,569	$	61,798
Goodwill acquired or adjusted during the year		-		36,771
Ending balance	$	98,569	$	98,569

Schedule of Finite-Lived Intangible Assets [Table Text Block]

Activity in intangible assets for the years ended December 31, 2018, 2017 and 2016, was as follows:

	Gross
	Carrying		Accumulated			Net
	Amount		Amortization			Value
	(In Thousands)
Balance as of January 1, 2016	$	14,477	$	(12,606	)	$	1,871
Amortization of intangible assets		-		(535	)		(535	)
Balance as of December 31, 2016		14,477		(13,141	)		1,336
Intangible assets acquired		5,656		-			5,656
Amortization of intangible assets		-		(1,289	)		(1,289	)
Balance as of December 31, 2017		20,133		(14,430	)		5,703
Amortization of intangible assets		-		(1,312	)		(1,312	)
Balance as of December 31, 2018	$	20,133	$	(15,742	)	$	4,391

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Estimated amortization expense for each of the next five years and thereafter is as follows (In Thousands):

2019	$	1,097
2020		914
2021		744
2022		576
2023		439
Thereafter		621
Total	$	4,391

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Deposits (Tables)

12 Months Ended

Dec. 31, 2018

Deposits [Abstract]

Schedule Sets Forth Interest Expense By Type Of Deposit [Table Text Block]

The following schedule sets forth interest expense by type of deposit:

	Years Ended December 31,
	2018		2017		2016
	(In Thousands)
Checking and money market accounts	$	3,997	$	2,033	$	1,463
Savings accounts		115		102		88
Certificates of deposit		9,785		6,683		4,710
Totals	$	13,897	$	8,818	$	6,261

Deposits [Table Text Block]

A summary of deposit balances is as follows:

	December 31,
	2018		2017
	(In Thousands)
Noninterest-bearing checking accounts	$	607,198	$	571,360
Interest-bearing checking and money market accounts		1,040,471		1,005,519
Savings deposits		292,829		302,022
Retail certificates of deposit less than $250,000		591,822		504,912
Retail certificates of deposit greater than $250,000		88,562		53,843
	$	2,620,882	$	2,437,656

Schedule of Maturities of Long-term Debt [Table Text Block]

Scheduled maturities of certificates of deposit at December 31, 2018, are as follows (In Thousands):

2019	$	417,562
2020		130,756
2021		85,563
2022		33,184
2023		13,319
Thereafter		-
Total	$	680,384

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Advances from Federal Home Loan Bank (Tables)

12 Months Ended

Dec. 31, 2018

Advances from Federal Home Loan Banks [Abstract]

Schedule of Federal Home Loan Bank, Advances, by Branch of FHLB Bank [Table Text Block]

At year-end, advances from the FHLB were as follows:

Principal Terms	Advance Amount			Range of Maturities	Weighted  Average Interest  Rate
		(In Thousands)
December 31, 2018
Single maturity fixed rate advances		59,000		January 2019 to March 2022		1.67	%
Amortizable mortgage advances		1,213		August 2027		2.14	%
Overnight advances		25,000		Overnight		2.45	%
Fair value adj. on acquired balances		(24	)
	$	85,189
December 31, 2017
Putable advances	$	5,000		March 2018		2.35	%
Single maturity fixed rate advances		72,000		January 2018 to March 2022		1.46	%
Amortizable mortgage advances		7,306		September 2018 to August 2027		1.85	%
Fair value adj. on acquired balances		(27	)
	$	84,279

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Estimated future minimum payments by fiscal year based on maturity date and current interest rates are as follows (In Thousands):

2019	$	45,926
2020		21,563
2021		15,307
2022		219
2023		3,169
Thereafter		563
Total minimum payments		86,747
Less amounts representing interest		(1,534	)
Less fair value adj. on acquired balances		(24	)
Totals	$	85,189

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Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust (Tables)

12 Months Ended

Dec. 31, 2018

Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust [Abstract]

Schedule of Subordinated Borrowing [Table Text Block]

A summary of all junior subordinated debentures issued by the Company to affiliates follows. These amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts. Junior subordinated debentures owed to the following affiliates were as follows:

	December 31,
	2018		2017
	(In Thousands)
First Defiance Statutory Trust I due December 2035	$	20,619	$	20,619
First Defiance Statutory Trust II due June 2037		15,464		15,464
Total junior subordinated debentures owed to unconsolidated subsidiary Trusts	$	36,083	$	36,083

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Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings (Tables)

12 Months Ended

Dec. 31, 2018

Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings [Abstract]

Securities Sold Under Agreements To Repurchase [Table Text Block]

Total securities sold under agreement to repurchase are summarized as follows:

	Years Ended December 31,
	2018			2017
	(In Thousands, Except Percentages)
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$	5,741		$	26,019
Year-end interest rate		0.31	%		0.20	%
Average daily balance during year		8,911			23,337
Maximum month-end balance during the year		18,259			26,019
Average interest rate during the year		0.26	%		0.23	%

Schedule of Underlying Assets of Repurchase Agreements when Amount of Repurchase Agreements Exceeds 10 Percent of Assets [Table Text Block]

The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of December 31, 2018 and 2017, is presented in the following tables.

	Overnight and  Continuous		Up to 30  Days		30-90 Days		Greater  than 90  Days		Total
At December 31, 2018			(In Thousands)
Repurchase agreements:
Mortgage-backed securities – residential	$	4,199	$	-	$	-	$	-	$	4,199
Collateralized mortgage obligations		1,542		-		-		-		1,542
Total borrowings	$	5,741	$	-	$	-	$	-	$	5,741
Gross amount of recognized liabilities for repurchase agreements									$	5,741

	Overnight and Continuous		Up to 30  Days		30-90 Days		Greater  than 90  Days		Total
At December 31, 2017			(In Thousands)
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

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Other Noninterest Expense (Tables)

12 Months Ended

Dec. 31, 2018

Other Expense, Nonoperating [Abstract]

Other Non Interest Expense [Table Text Block]

The following is a summary of other noninterest expense:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Legal and other professional fees	$	3,328		$	3,603		$	2,902
Marketing		2,407			2,070			1,835
State financial institutions tax		2,118			1,819			1,781
OREO expenses and write-downs		742			177			244
Printing and office supplies		631			626			512
Amortization of intangibles		1,312			1,289			535
Postage		505			523			456
Check charge-offs and fraud losses		415			277			266
Credit and collection expense		379			359			303
Other		6,792	(1)		8,067	(2)		7,118	(3)
Total other noninterest expense	$	18,629		$	18,810		$	15,952

1) Includes a credit of $806,000 for an accounting correction related to the Deferred Compensation Plan. See Note 19 for further details.

2) Includes $1.1 million of acquisition related expenses.

3) Includes $443,000 of acquisition related expenses and $300,000 of costs associated with termination of a lease agreement.

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Postretirement Benefits (Tables)

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

Schedule of Net Periodic Benefit Cost Not yet Recognized [Table Text Block]

Included in accumulated other comprehensive income at December 31, 2018, 2017 and 2016, are the following amounts that have not yet been recognized in net periodic benefit cost:

	December 31,
	2018			2017			2016
	(In Thousands)
Unrecognized prior service cost	$	97		$	39		$	52
Unrecognized actuarial losses		(86	)		551			392
Total loss recognized in Accumulated Other  Comprehensive Income		11			590			444
Income tax effect		80			(206	)		(155	)
Net loss recognized in Accumulated Other  Comprehensive Income	$	91		$	384		$	289

Schedule of Defined Benefit Plan Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

The plan is not currently funded. The following table summarizes benefit obligation and plan asset activity for the plan measured as of December 31 each year:

	December 31,
	2018			2017
	(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,194		$	2,985
Service cost		55			58
Interest cost		105			117
Participant contribution		32			29
Plan amendments for acquisitions		72			-
Actuarial (gains) / losses		(632	)		166
Benefits paid		(184	)		(161	)
Benefit obligation at end of year		2,642			3,194
Change in fair value of plan assets:
Balance at beginning of year		-			-
Employer contribution		152			132
Participant contribution		32			29
Benefits paid		(184	)		(161	)
Balance at end of year		-			-
Funded status at end of year	$	(2,642	)	$	(3,194	)

Schedule of Net Benefit Costs [Table Text Block]

Net periodic postretirement benefit cost includes the following components:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Service cost-benefits attributable to service during the period	$	55		$	58		$	53
Interest cost on accumulated postretirement benefit obligation		105			117			128
Net amortization and deferral		18			19			30
Net periodic postretirement benefit cost		178			194			211
Net (gain) / loss during the year		(632	)		166			(184	)
Plan amendment for acquisition		72			-			12
Amortization of prior service cost and actuarial losses		(18	)		(19	)		(30	)
Total recognized in comprehensive income		(578	)		147			(202	)
Total recognized in net periodic postretirement benefit  cost and other comprehensive income	$	(400	)	$	341		$	9

Assumptions Are Used In Determining Components Of Postretirement Benefit Obligation [Table Text Block]

The following assumptions were used in determining the components of the postretirement benefit obligation:

	2018			2017			2016
Weighted average discount rates:
Used to determine benefit obligations at December 31		4.00	%		3.50	%		4.00	%
Used to determine net periodic postretirement benefit cost for years ended December 31		3.50	%		4.00	%		4.25	%
Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year		6.50	%		7.00	%		7.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		3.90	%		5.00	%		5.00	%
Year that rate reaches ultimate trend rate		2075			2022			2022

Schedule of Expected Benefit Payments [Table Text Block]

The following benefits are expected to be paid over the next five years and in aggregate for the next five years thereafter. Because the plan is unfunded, the expected net benefits to be paid and the estimated Company contributions are the same amount.

	Expected to be Paid
	(In Thousands)
2019	$	168
2020		181
2021		195
2022		209
2023		181
2024 through 2028		969

Schedule of Effect of One-Percentage-Point Change in Assumed Health Care Cost Trend Rates [Table Text Block]

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:

	One-Percentage-Point  Increase				One-Percentage-Point  Decrease
	Year Ended December 31,				Year Ended December 31,
	2018		2017		2018			2017
	(In Thousands)
Effect on total of service and interest cost	$	22	$	25	$	(18	)	$	(21	)
Effect on postretirement benefit obligation		178		392		(153	)		(333	)

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Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2018

Regulatory Capital Requirements [Abstract]

Computation of Net Capital under Securities and Exchange Commission Regulation [Table Text Block]

The following schedule presents First Defiance consolidated and First Federal’s regulatory capital ratios as of December 31, 2018 and 2017 (Dollars in Thousands):

December 31, 2018
	Actual					Minimum Required for  Adequately Capitalized					Minimum Required to be Well  Capitalized for Prompt  Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	303,860		11.00	%	$	124,339		4.5	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	124,225		4.5	%	$	179,436		6.5	%
Tier 1 Capital (2)
Consolidated	$	338,860		11.14	%	$	121,716		4.0	%		N/A		N/A
First Federal	$	322,520		10.62	%	$	121,461		4.0	%	$	151,827		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	338,860		12.26	%	$	165,786		6.0	%		N/A		N/A
First Federal	$	322,520		11.68	%	$	165,633		6.0	%	$	220,844		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	367,191		13.29	%	$	221,048		8.0	%		N/A		N/A
First Federal	$	350,851		12.71	%	$	220,844		8.0	%	$	276,055		10.0	%

(1) Excludes capital conservation buffer of 1.875% as of December 31, 2018.

(2) Core capital is computed as a percentage of adjusted total assets of $3.04 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.76 billion for consolidated and for the Bank.

December 31, 2017
	Actual					Minimum Required for  Adequately Capitalized					Minimum Required to be Well  Capitalized for Prompt  Corrective Action
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	274,832		10.43	%	$	118,596		4.5	%		N/A		N/A
First Federal	$	298,571		11.33	%	$	118,534		4.5	%	$	171,216		6.5	%
Tier 1 Capital (2)
Consolidated	$	309,832		10.80	%	$	114,773		4.0	%		N/A		N/A
First Federal	$	298,571		10.43	%	$	114,539		4.0	%	$	143,173		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	309,832		11.76	%	$	158,128		6.0	%		N/A		N/A
First Federal	$	298,571		11.33	%	$	158,046		6.0	%	$	210,728		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	336,515		12.77	%	$	210,838		8.0	%		N/A		N/A
First Federal	$	325,254		12,.35	%	$	210,728		8.0	%	$	263,410		10.0	%

(1) Excludes capital conservation buffer of 1.25% as of December 31, 2017.

(2) Core capital is computed as a percentage of adjusted total assets of $2.87 billion for consolidated and $2.86 billion for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.64 billion for consolidated and $2.63 billion for the Bank.

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

The components of income tax expense are as follows:

	Years Ended December 31,
	2018		2017		2016
	(In Thousands)
Current:
Federal	$	9,538	$	14,588	$	13,125
State and local		207		181		244
Deferred		881		1,261		(615	)
Tax reform revaluation		-		154		-
	$	10,626	$	16,184	$	12,754

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

The effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:

	Years Ended December 31,
	2018			2017			2016
	(In Thousands)
Tax expense at statutory rate (21%-2018 35%-2017 and 2016)	$	11,944		$	16,958		$	14,559
Increases (decreases) in taxes from:
State income tax – net of federal tax benefit		164			119			159
Tax exempt interest income, net of TEFRA		(770	)		(1,218	)		(1,168	)
Bank owned life insurance		(255	)		(1,212	)		(341	)
Captive insurance		(325	)		(364	)		(414	)
BOLI surrender		-			1,721			-
Tax reform revaluation		-			154			-
Other		(132	)		26			(41	)
Totals	$	10,626		$	16,184		$	12,754

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

Significant components of First Defiance’s deferred federal income tax assets and liabilities are as follows:

	December 31,
	2018			2017
	(In Thousands)
Deferred federal income tax assets:
Allowance for loan losses	$	5,802		$	5,415
Postretirement benefit costs		473			671
Deferred compensation		1,011			1,354
Impaired loans		1,154			1,432
Accrued vacation		11			123
Allowance for real estate held for sale losses		62			71
Deferred loan origination fees and costs		435			332
Accrued bonus		638			333
Net unrealized gains on available-for-sale securities		547			-
Other		1,273			1,578
Total deferred federal income tax assets		11,406			11,309
Deferred federal income tax liabilities:
FHLB stock dividends		1,558			1,558
Goodwill		4,584			4,377
Mortgage servicing rights		2,125			2,060
Fixed assets		2,046			1,039
Other intangible assets		778			990
Loan mark to market		7			5
Net unrealized gains on available-for-sale securities		-			194
Prepaid expenses		550			539
Other		22			316
Total deferred federal income tax liabilities		11,670			11,078
Net deferred federal income tax asset/ (liability)	$	(264	)	$	231

Reconciliation Of Beginning And Ending Amount Of Unrecognized Tax Benefits [Table Text Block]

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (In Thousands):

Balance at January 1, 2016	$	-
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		398
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		-
Balance at December 31, 2016	$	398
Balance at January 1, 2017	$	398
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		(398	)
Balance at December 31, 2017	$	-
Balance at January 1, 2018	$	-
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Reductions due to the statute of limitations		-
Settlements		-
Balance at December 31, 2018	$	-

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Stock Compensation Plans (Tables)

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Following is activity under the plans during 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		86,900		$	10.81
Forfeited or cancelled		-			-
Exercised		(47,500	)		8.15
Granted		-			-
Options outstanding, December 31, 2018		39,400		$	14.00		4.96	$	414
Vested or expected to vest at December 31, 2018		39,400		$	14.00		4.96	$	414
Exercisable at December 31, 2018		23,900		$	12.21		4.14	$	294

Schedule Of Share Based Compensation Stock Options Plans [Table Text Block]

Information related to the stock option plans is as follows:

	Year Ended December 31,
	2018		2017		2016
	(In Thousands, except per share amounts)
Intrinsic value of options exercised	$	893	$	301	$	752
Cash received from option exercises		111		198		714
Tax benefit realized from option exercises		28		54		165
Weighted average fair value of options granted	$	-	$	-	$	13.95

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

Total expense of $2.0 million, $2.0 million and $1.3 million was recorded during the years ended December 31, 2018, 2017 and 2016, respectively, and approximately $961,000 and $774,000 is included within other liabilities at December 31, 2018 and 2017, respectively, related to the STIPs and LTIPs.

	Restricted Stock Units					Stock Grants
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
Unvested Shares	Shares			Fair Value		Shares			Fair Value
Unvested at January 1, 2018		145,076		$	20.26		21,072		$	25.28
Granted		49,024			26.97		66,118			19.68
Vested		(49,514	)		16.15		(56,818	)		17.51
Forfeited		-			-		-			-
Unvested at December 31, 2018		144,586		$	23.94		30,372		$	28.48

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Parent Company Statements (Tables)

12 Months Ended

Dec. 31, 2018

Condensed Financial Information Disclosure [Abstract]

Condensed Balance Sheet [Table Text Block]

Condensed parent company financial statements, which include transactions with subsidiaries, are as follow:

	December 31,
Statements of Financial Condition	2018		2017
	(In Thousands)
Assets
Cash and cash equivalents	$	12,153	$	8,860
Investment in banking subsidiary		398,922		377,546
Investment in non-bank subsidiaries		23,372		22,319
Other assets		1,723		1,157
Total assets	$	436,170	$	409,882
Liabilities and stockholders’ equity:
Subordinated debentures	$	36,083	$	36,083
Accrued liabilities		498		513
Stockholders’ equity		399,589		373,286
Total liabilities and stockholders’ equity	$	436,170	$	409,882

Condensed Income Statement [Table Text Block]

	Years Ended December 31,
Statements of Income	2018			2017			2016
	(In Thousands)
Dividends from subsidiaries	$	24,550		$	15,800		$	24,200
Interest expense		(1,281	)		(1,090	)		(753	)
Other income		1			1			-
Noninterest expense		(831	)		(697	)		(644	)
Income before income taxes and equity in earnings of subsidiaries		22,439			14,014			22,803
Income tax credit		(431	)		(605	)		(466	)
Income before equity in earnings of subsidiaries		22,870			14,619			23,269
Undistributed equity in earnings of subsidiaries		23,379			17,649			5,574
Net income		46,249			32,268			28,843
Other comprehensive income (loss)		(2,412	)		2			(3,407	)
Comprehensive income	$	43,837		$	32,270		$	25,436

Condensed Cash Flow Statement [Table Text Block]

	Years Ended December 31,
Statements of Cash Flows	2018			2017			2016
	(In Thousands)
Operating activities:
Net income	$	46,249		$	32,268		$	28,843
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Undistributed equity in earnings of subsidiaries		(23,379	)		(17,649	)		(5,574	)
Change in other assets and liabilities		(419	)		(358	)		235
Net cash provided by (used in) operating activities		22,451			14,261			23,504
Investing activities:
Cash paid for Commercial Bancshares		-			(12,340	)		-
Capital contribution to subsidiary		-			(6,491	)		-
Net cash used in investing activities		-			(18,831	)		-
Financing activities:
Repurchase of common stock		(6,330	)		-			(6,293	)
Cash dividends paid		(13,043	)		(9,859	)		(7,890	)
Stock Options Exercised		111			199			714
Direct stock sales		104			73			66
Net cash used in financing activities		(19,158	)		(9,587	)		(13,406	)
Net increase (decrease) in cash and cash equivalents		3,293			(14,157	)		10,098
Cash and cash equivalents at beginning of year		8,860			23,017			12,919
Cash and cash equivalents at end of year	$	12,153		$	8,860		$	23,017

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Fair Value (Tables)

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

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

December 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	$	-	$	2,503	$	-	$	2,503
Mortgage-backed - residential		-		74,710		-		74,710
REMICs		-		2,709		-		2,709
Collateralized mortgage obligations		-		101,461		-		101,461
Preferred stock		-		-		-		-
Corporate bonds		-		12,806		-		12,806
Obligations of state and political subdivisions		-		99,887				99,887
Mortgage banking derivative - asset		-		367		-		367
Mortgage banking derivative -liability		-		73		-		73

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		-		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

Schedule of Fair Value, Assets Measured on Non Recurring Basis [Table Text Block]

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

December 31, 2018	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair  Value
	(In Thousands)
Impaired loans
Commercial Real Estate	$	-	$	-	$	1,456	$	1,456
Commercial						319		319
Total impaired loans		-		-		1,775		1,775
Mortgage servicing rights		-		629		-		629
Real estate held for sale
CRE		-		-		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
Real estate held for sale
CRE		-		-		227		227
Total Real Estate held for sale		-		-		227		227

Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 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)
Impaired Loans- Applies to all loan classes	$	1,775	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions		10-13	%		10.86	%
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	%		11	%
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	%

Fair Value, by Balance Sheet Grouping [Table Text Block]

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 December 31, 2018.

			Fair Value Measurements at December 31, 2018 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	98,962	$	98,962	$	98,962	$	-	$	-
Investment securities		294,602		294,602		-		294,602		-
FHLB Stock		14,217		N/A		N/A		N/A		N/A
Loans, net, including loans  held for sale		2,518,321		2,501,096		-		6,865		2,494,231
Accrued interest receivable		9,641		9,641		18		1,168		8,455
Financial Liabilities:
Deposits	$	2,620,882	$	2,613,965	$	607,198	$	2,006,767	$	-
Advances from FHLB		85,189		84,281		-		84,281		-
Securities sold under repurchase agreements		5,741		5,741		-		5,741		-
Subordinated debentures		36,083		28,854		-		-		28,854

			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		-
FHLB 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 FHLB		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

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Derivative Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position Carrying Value [Table Text Block]

The fair value of these mortgage banking derivatives are reflected by a derivative asset or a derivative liability. The table below provides data about the carrying values of these derivative instruments:

December 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

$

367

$

73

$

294

$

609

$

11

$

598

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:

	Twelve Months Ended December 31,
	2018			2017		2016
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	(304	)	$	107	$	(67	)

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Quarterly Consolidated Results of Operations (Tables)

12 Months Ended

Dec. 31, 2018

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information [Table Text Block]

The following is a summary of the quarterly consolidated results of operations:

	Three Months Ended
	March 31			June 30		September 30		December 31
	(In Thousands, Except Per Share Amounts)
2018
Interest income	$	28,905		$	30,299	$	31,963	$	33,550
Interest expense		3,218			3,752		4,434		5,058
Net interest income		25,687			26,547		27,529		28,492
Provision for loan losses		(1,095	)		423		1,376		472
Net interest income after provision for loan losses		26,782			26,124		26,153		28,020
Gain on sale, call or write-down of securities		-			-		76		97
Noninterest income		10,703			10,214		9,846		8,272
Noninterest expense		23,251			22,665		22,286		21,210
Income before income taxes		14,234			13,673		13,789		15,179
Income taxes		2,497			2,564		2,483		3,082
Net income	$	11,737		$	11,109	$	11,306	$	12,097
Earnings per common share:
Basic	$	0.58		$	0.54	$	0.55	$	0.60
Diluted	$	0.58		$	0.54	$	0.55	$	0.59
Average shares outstanding:
Basic		20,330			20,388		20,400		20,313
Diluted		20,438			20,492		20,467		20,404

	Three Months Ended
	March 31		June 30		September 30		December 31
	(In Thousands, Except Per Share Amounts)
2017
Interest income	$	24,036	$	27,458	$	28,081	$	28,527
Interest expense		2,391		2,826		3,074		3,140
Net interest income		21,645		24,632		25,007		25,387
Provision for loan losses		55		2,118		462		314
Net interest income after provision for loan losses		21,590		22,514		24,545		25,073
Gain on sale, call or write-down of securities		-		267		158		159
Noninterest income		10,549		9,873		9,337		9,738
Noninterest expense		23,142		20,630		20,440		21,139
Income before income taxes		8,997		12,024		13,600		13,831
Income taxes		3,857		3,677		4,219		4,431
Net income	$	5,140	$	8,347	$	9,381	$	9,400
Earnings per common share:
Basic	$	0.27	$	0.41	$	0.46	$	0.47
Diluted	$	0.27	$	0.41	$	0.46	$	0.46
Average shares outstanding:
Basic		18,870		20,294		20,298		20,310
Diluted		18,980		20,408		20,418		20,444

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Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2018

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Other Comprehensive Income Loss Reclassification Adjustments Related To Securities Available For Sale [Table Text Block]

Reclassification adjustments related to the defined benefit postretirement medical plan are included in compensation and benefits in the accompanying consolidated condensed statements of income.

	Before Tax Amount			Tax Effect			Net of Tax Amount
		(In Thousands)
Twelve months ended December 31, 2018:
Securities available for sale and transferred securities:
Change in net unrealized gain/(loss) during the period	$	(3,356	)	$	(706	)	$	(2,650	)
Reclassification adjustment for net gains included in net income		(173	)		(36	)		(137	)
Defined benefit postretirement medical plan:
Net gain on defined benefit postretirement medical plan realized during the period		560			200			360
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)		18			3			15
Total other comprehensive income	$	(2,951	)	$	(539	)	$	(2,412	)

	Before Tax Amount			Tax Effect			Net of Tax Amount
		(In Thousands)
Twelve months ended December 31, 2017:
Securities available for sale and transferred securities:
Change in net unrealized gain/(loss) during the period	$	733		$	256		$	477
Reclassification adjustment for net gains included in net income		(584	)		(204	)		(380	)
Defined benefit postretirement medical plan:
Net gain on defined benefit postretirement medical plan realized during the period		(166	)		(59	)		(107	)
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)		19			7			12
Total other comprehensive income	$	2		$	-		$	2

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

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 before reclassifications		(2,651	)		360			(2,291	)
Amounts reclassified from accumulated other comprehensive loss		(136	)		15			(121	)
Net other comprehensive income during period		(2,787	)		375			(2,412	)
Reclassification adjustment upon adoption of ASU 2018-02		129			(82	)		47
Balance December 31, 2018	$	(2,057	)	$	(91	)	$	(2,148	)
Balance January 1, 2017	$	504		$	(289	)	$	215
Other comprehensive income before reclassifications		477			(108	)		369
Amounts reclassified from accumulated other comprehensive loss		(380	)		13			(367	)
Net other comprehensive income during period		97			(95	)		2
Balance December 31, 2017	$	601		$	(384	)	$	217

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Statement of Accounting Policies (Details)	12 Months Ended
	Dec. 31, 2018
Buildings and improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	50 years
Buildings and improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	20 years
Furniture, fixtures and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	15 years
Furniture, fixtures and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	3 years

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Statement of Accounting Policies (Details Textual) - USD ($)	1 Months Ended		12 Months Ended
	Feb. 28, 2018	Feb. 24, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Jan. 01, 2019
Property, Plant and Equipment [Line Items]
Cash and Due from Banks				$ 55,962,000	$ 58,693,000
Amortization Of Mortgage Servicing Rights Excluding Valuation Adjustments				$ 3,800,000	$ 3,700,000	$ 3,600,000
Percentage Of Revenue				8.60%
Percentage Of Consolidated Net Income				4.50%
Percentage Of Assets				0.70%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent				35.00%	35.00%
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		10 years
Cumulative Effect on Retained Earnings, Net of Tax	$ 47,000			$ 0
Revenue from Wealth Management				821,000
Trust Income				2,091,000	$ 2,332,000	1,701,000
Gains (Losses) on Sales of Other Real Estate				(581,000)	56,000	300,000
Insurance Commissions and Fees				14,085,000	12,866,000	10,441,000
Minimum Amount of Loans To be Evaluated Individually for Impairment				250,000
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability				$ 0	$ 154,000	$ 0
Percentage of Loan to Value				80.00%
Other Non Interest Income [Member]
Property, Plant and Equipment [Line Items]
Gains (Losses) on Sales of Other Real Estate				$ 28,000,000,000
Deposit Account [Member]
Property, Plant and Equipment [Line Items]
Revenues				7,600,000
Credit and Debit Card [Member]
Property, Plant and Equipment [Line Items]
Revenues				4,100,000
New Renewal Policies [Member]
Property, Plant and Equipment [Line Items]
Insurance Commissions and Fees				13,100,000
Contigent Policies [Member]
Property, Plant and Equipment [Line Items]
Insurance Commissions and Fees				1,000,000
Scenario, Plan [Member]
Property, Plant and Equipment [Line Items]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			21.00%
Accounting Standards Update 2016-02 [Member] | Subsequent Event [Member]
Property, Plant and Equipment [Line Items]
Operating Lease, Right-of-Use Asset							$ 8,800,000
Operating Lease, Liability							$ 9,300,000
Federal Reserve [Member]
Property, Plant and Equipment [Line Items]
Cash and Due from Banks				1,048,000
FHLB of Cincinnati [Member]
Property, Plant and Equipment [Line Items]
Balance Of Stock				14,200,000
FHLB of Indianapolis [Member]
Property, Plant and Equipment [Line Items]
Balance Of Stock				2,500
Federal Home Loan Bank [Member]
Property, Plant and Equipment [Line Items]
Cash and Due from Banks				$ 1,723,000
Core Deposit and Customer Relationship [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life				20 years
Core Deposit and Customer Relationship [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life				10 years

XML

Business Combinations (Details) - USD ($)	1 Months Ended
	Feb. 24, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cash Consideration	$ 12,340,000
Equity - Dollar Value of Issued Shares	56,532,000
Fair Value of Total Consideration Transferred	68,872,000
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents	35,411,000
Federal Funds Sold	2,769,000
Securities	4,338,000
Loans	285,448,000
FHLB Stock of Cincinnati and Other Stock	2,194,000
Office Properties and Equipment	5,256,000
Intangible Assets	4,900,000		$ 756,000
Bank-Owned Life Insurance	8,168,000
Accrued Interest Receivable and Other Assets	3,606,000
Deposits - Non-Interest Bearing	(56,061,000)
Deposits - Interest Bearing	(251,931,000)
Advances from FHLB	(1,403,000)
Accrued Interest Payable and Other Liabilities	(2,717,000)
Total Identifiable Net Assets	39,978,000
Goodwill	$ 28,894,000	$ 98,569,000	$ 98,569,000	$ 61,798,000

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Business Combinations (Details 1) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net Interest Income	$ 33,550	$ 31,963	$ 30,299	$ 28,905	$ 28,527	$ 28,081	$ 27,458	$ 24,036	$ 124,717	$ 108,102	$ 87,383
Provision for loan losses	472	1,376	423	(1,095)	314	462	2,118	55	1,176	2,949	283
Non-Interest Income	28,020	26,153	26,124	26,782	25,073	24,545	22,514	21,590	107,079	93,722	78,660
Non-Interest Expense	21,210	22,286	22,665	23,251	21,139	20,440	20,630	23,142	89,412	85,351	71,093
Income Before Income Taxes	15,179	13,789	13,673	14,234	13,831	13,600	12,024	8,997	56,875	48,452	41,597
Income Tax Expense	$ 3,082	$ 2,483	$ 2,564	$ 2,497	$ 4,431	$ 4,219	$ 3,677	$ 3,857	$ 10,626	16,184	12,754
Net Income										4,600
Pro Forma [Member]
Net Interest Income										98,856	90,452
Provision for loan losses										2,949	753
Non-Interest Income										40,338	35,496
Non-Interest Expense										82,597	76,393
Income Before Income Taxes										53,648	48,802
Income Tax Expense										17,780	15,276
Net Income										$ 35,868	$ 33,526
Diluted Earnings Per Share										$ 3.51	$ 3.29

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Business Combinations (Details Textual)		1 Months Ended	12 Months Ended
	Apr. 13, 2017 USD ($)	Feb. 24, 2017 USD ($)	Dec. 31, 2018 USD ($) $ / shares shares	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Goodwill		$ 28,894,000	$ 98,569,000	$ 98,569,000	$ 61,798,000
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life		10 years
Payments to Acquire Businesses, Gross		$ 12,340,000
Business Acquisition, Pro Forma Net Income (Loss)				4,600,000
Noncash Merger Related Costs				3,700,000
Business Combination, Consideration Transferred		68,872,000
Stockholders' Equity Note, Stock Split, Conversion Ratio			2.3616
Labor and Related Expense			$ 52,566,000	49,847,000	40,187,000
Business Combination, Acquisition Related Costs				1,100,000	$ 443,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill		4,900,000		756,000
Commercial Bancshares [Member]
Goodwill		28,900,000
Payments to Acquire Businesses, Gross			$ 12,300,000
Labor and Related Expense		2,800,000
Business Combination Recognized Identifiable Assets Acquired And Liabilities Assumed Assets		348,400,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Liabilities		37,500,000
Business Combination, Acquisition Related Costs		$ 3,700,000
Stock Issued During Period, Shares, Acquisitions | shares			2,279,004
Business Combination Consideration Transferred Cash Per Shares | $ / shares			$ 51.00
Business Combinations Consideration Transferred In Shares Percentage			80.00%
Business Combinations Consideration Transferred In Cash percentage			20.00%
Corporate One Benefits Agency Inc [Member]
Goodwill				7,900,000
Business Combination, Consideration Transferred	$ 9,300,000
Business Combination, Contingent Consideration, Liability				2,300,000
Contingent Consideration Classified as Equity, Fair Value Disclosure				1,800,000
Corporate One Benefits Agency Inc [Member] | First Payment [Member]
Payments to Acquire Businesses, Gross	6,500,000
Corporate One Benefits Agency Inc [Member] | Second Payment [Member]
Payments to Acquire Businesses, Gross	500,000
Corporate One Benefits Agency Inc [Member] | Third Payment [Member]
Payments to Acquire Businesses, Gross	$ 2,300,000
Customer Relationships [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill				564,000
Non compete Intangible [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill				$ 192,000

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Earnings Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Basic Earnings Per Share:
Net income attributable to First Defiance	$ 12,097	$ 11,306	$ 11,109	$ 11,737	$ 9,400	$ 9,381	$ 8,347	$ 5,140	$ 46,249	$ 32,268	$ 28,843
Less: Income allocated to participating securities									16	5	39
Net income allocated to common shareholders									$ 46,233	$ 32,263	$ 28,804
Weighted average common shares outstanding Including participating securities									20,358	19,950	17,960
Less: Participating securities									9	18	22
Average Shares	20,313	20,400	20,388	20,330	20,310	20,298	20,294	18,870	20,349	19,932	17,938
Basic earnings per common share	$ 0.60	$ 0.55	$ 0.54	$ 0.58	$ 0.47	$ 0.46	$ 0.41	$ 0.27	$ 2.27	$ 1.62	$ 1.61
Diluted Earnings Per Share:
Net income allocated to common shareholders									$ 46,233	$ 32,263	$ 28,804
Weighted average common shares outstanding For basic earnings per common share	20,404	20,467	20,492	20,438	20,444	20,418	20,408	18,980	20,349	19,932	17,938
Add: Dilutive effects of exercise of stock options									119	124	132
Average shares and dilutive potential common shares									20,468	20,056	18,070
Diluted earnings per common share	$ 0.59	$ 0.55	$ 0.54	$ 0.58	$ 0.46	$ 0.46	$ 0.41	$ 0.27	$ 2.26	$ 1.61	$ 1.60

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Earnings Per Common Share (Details Textual) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	20,468	20,056	18,070

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Investment Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Available-for-sale
Available-for-Sale Securities, Amortized Cost	$ 296,681	$ 259,726
Available-for-Sale Securities, Gross Unrealized Gains	1,543	2,886
Available-for-Sale Securities, Gross Unrealized Losses	(4,148)	(1,962)
Available-for-Sale Securities, Amortized Cost	294,076	260,650
Held-to-Maturity
Held-to-Maturity Securities, Amortized Cost	526	648
Held-to-Maturity Securities, Gross Unrealized Gains	0	1
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	526	649
Obligations of U.S. government corporations and agencies [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost	2,519	518
Available-for-Sale Securities, Gross Unrealized Gains	2	0
Available-for-Sale Securities, Gross Unrealized Losses	(18)	(10)
Available-for-Sale Securities, Amortized Cost	2,503	508
Mortgage-backed securities - residential [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost	76,165	59,942
Available-for-Sale Securities, Gross Unrealized Gains	111	90
Available-for-Sale Securities, Gross Unrealized Losses	(1,566)	(763)
Available-for-Sale Securities, Amortized Cost	74,710	59,269
REMICs [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost	2,712	1,072
Available-for-Sale Securities, Gross Unrealized Gains	4	0
Available-for-Sale Securities, Gross Unrealized Losses	(7)	(7)
Available-for-Sale Securities, Amortized Cost	2,709	1,065
Collateralized mortgage obligations [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost	103,026	94,588
Available-for-Sale Securities, Gross Unrealized Gains	124	180
Available-for-Sale Securities, Gross Unrealized Losses	(1,689)	(892)
Available-for-Sale Securities, Amortized Cost	101,461	93,876
Preferred stock [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost		0
Available-for-Sale Securities, Gross Unrealized Gains		1
Available-for-Sale Securities, Gross Unrealized Losses		0
Available-for-Sale Securities, Amortized Cost	0	1
Corporate bonds [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost	12,910	12,914
Available-for-Sale Securities, Gross Unrealized Gains	44	189
Available-for-Sale Securities, Gross Unrealized Losses	(148)	0
Available-for-Sale Securities, Amortized Cost	12,806	13,103
Obligations of state and political subdivisions [Member]
Available-for-sale
Available-for-Sale Securities, Amortized Cost	99,349	90,692
Available-for-Sale Securities, Gross Unrealized Gains	1,258	2,426
Available-for-Sale Securities, Gross Unrealized Losses	(720)	(290)
Available-for-Sale Securities, Amortized Cost	99,887	92,828
Held-to-Maturity
Held-to-Maturity Securities, Amortized Cost	475	580
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	475	580
FHLMC certificates [Member]
Held-to-Maturity
Held-to-Maturity Securities, Amortized Cost	8	10
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	8	10
FNMA certificates [Member]
Held-to-Maturity
Held-to-Maturity Securities, Amortized Cost	31	41
Held-to-Maturity Securities, Gross Unrealized Gains	0	1
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	31	42
GNMA certificates [Member]
Held-to-Maturity
Held-to-Maturity Securities, Amortized Cost	12	17
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	$ 12	$ 17

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Investment Securities (Details 1) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Available-for-sale, Due in one year or less, Amortized Cost	$ 771
Available-for-sale, Due after one year through five years, Amortized Cost	22,957
Available-for-sale, Due after five years through ten years, Amortized Cost	34,245
Available-for-sale, Due after ten years, Amortized Cost	56,805
Available-for-sale, MBS/CMO/REMIC, Amortized Cost	181,903
Available-for-sale, Amortized Cost	296,681
Available-for-sale, Due in one year or less, Fair Value	773
Available-for-sale, Due after one year through five years, Fair Value	22,969
Available-for-sale, Due after five years through ten years, Fair Value	34,904
Available-for-sale, Due after ten years, Fair Value	56,550
Available-for-sale, MBS/CMO/REMIC, Fair Value	178,880
Available for sale securities, Total Fair Value	294,076	$ 260,650
Held-to-maturity Securities, Due in one year or less, Amortized Cost	31
Held-to-maturity,Securities, Due after five years through ten years, Amortized Cost	444
Held-to-maturity, MBS, Amortized Cost	51
Held-to-maturity, Amortized Cost	526	648
Held-to-maturity Securities, Due after one year through five years, Fair Value	31
Held-to-maturity, Securites, Due after five years through ten years, Fair Value	444
Held-to-maturity, MBS, Fair Value	51
Held-to-Maturity Securities, Fair Value	$ 526	$ 649

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Investment Securities (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Held to maturity securities:
Held-to-maturity Securities, Duration of Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 8	$ 12
Held-to-maturity Securities, Duration of Unrealized Loss Position, Less than 12 Months, Gross Unrealized Loss	0	0
Held-to-maturity Securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Fair Value	26	9
Held-to-maturity Securities, Duration of Unrealized Loss Position, 12 Months or Longer, Gross Unrealized Loss	0	0
Held-to-maturity Securities, Duration of Unrealized Loss Position, Fair Value	34	21
Held-to-maturity Securities, Duration of Unrealized Loss Position, Gross Unrealized Loss	0	0
Total temporarily impaired securities, Duration Unrealized Loss Position, Less Than Twelve Months, Fair Value	40,936	92,314
Total temporarily impaired securities, Duration of Unrealized Loss Position, Less Than 12 Months, Gross Unrealized Loss	(341)	(705)
Total temporarily impaired securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Fair Value	137,125	43,729
Total temporarily impaired securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Gross Unrealized Loss	(3,807)	(1,257)
Total temporarily impaired securities, Duration of Unrealized Loss Position, Fair Value	178,061	136,043
Total temporarily impaired securities, Duration of Unrealized Loss Position, Unrealized Loss	(4,148)	(1,962)
Mortgage-backed securities - residential [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	11,589	27,881
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(71)	(215)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	48,665	19,038
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(1,495)	(548)
Available-for-sale securities, Total, Fair Value	60,254	46,919
Available-for-sale securities, Total, Unrealized Loss	(1,566)	(763)
REMICs [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	0	1,065
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	0	(7)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	857	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(7)	0
Available-for-sale securities, Total, Fair Value	857	1,065
Available-for-sale securities, Total, Unrealized Loss	(7)	(7)
Collateralized mortgage obligations [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	11,613	49,107
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(53)	(320)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	70,585	20,804
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(1,636)	(572)
Available-for-sale securities, Total, Fair Value	82,198	69,911
Available-for-sale securities, Total, Unrealized Loss	(1,689)	(892)
Corporate bonds [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	5,752
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(148)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0
Available-for-sale securities, Total, Fair Value	5,752
Available-for-sale securities, Total, Unrealized Loss	(148)
Obligations of state and political subdivisions [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	11,974	14,249
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(69)	(163)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	16,492	3,370
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(651)	(127)
Available-for-sale securities, Total, Fair Value	28,466	17,619
Available-for-sale securities, Total, Unrealized Loss	(720)	(290)
Obligations of U.S. government corporations and agencies [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	0	0
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	0	0
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	500	508
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(18)	(10)
Available-for-sale securities, Total, Fair Value	500	508
Available-for-sale securities, Total, Unrealized Loss	$ (18)	$ (10)

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Investment Securities (Details 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Proceeds	$ 5,503	$ 34,248	$ 14,871
Gross realized gains	178	665	509
Gross realized losses	$ (5)	$ (81)	$ 0

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Investment Securities (Details Textual)	12 Months Ended
	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Security Owned and Pledged as Collateral Carrying Value	$ 143,900,000	$ 135,400,000
Investment Portfolio, Number of Securities	438
Investment Portfolio, Number of Securities, Unrealized Loss	177
Realized Investment Gains (Losses)	$ 173,000	584,000	$ 509,000
Realized Investment Gains Losses, Net of Tax	$ 136,000	$ 380,000	$ 331,000
Investment Portfolio Single Security	10.00%

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Commitments and Contingent Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Fixed Rate, Commitments to make loans	$ 44,352	$ 42,458
Fixed Rate, Unused lines of credit	7,523	6,245
Fixed Rate, Standby letters of credit	0	0
Fixed Rate, Total	51,875	48,703
Variable Rate, Commitments to make loans	114,308	161,778
Variable Rate, Unused lines of credit	382,189	408,831
Variable Rate, Standby letters of credit	7,239	7,605
Variable Rate, Total	$ 503,736	$ 578,214

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Commitments and Contingent Liabilities (Details Textual) $ in Millions	12 Months Ended
	Dec. 31, 2018 USD ($)
Commitments and Loans, Available to Sell	$ 8.6
Loan Commitments Maturities Range Description	less than 1 year to 30 years.
Maximum [Member]
Loan Commitments Interest Rate	18.00%
Minimum [Member]
Loan Commitments Interest Rate	3.25%

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Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Real Estate:
Real Estate	$ 1,993,268	$ 1,775,559
Other Loans:
Total loans	2,665,402	2,466,267
Deduct:
Undisbursed loan funds	(123,293)	(115,972)
Net deferred loan origination fees and costs	(2,070)	(1,582)
Allowance for loan loss	(28,331)	(26,683)	$ (25,884)	$ (25,382)
Totals	2,511,708	2,322,030
Other Loan [Member]
Other Loans:
Total loans	672,134	690,708
One to Four Family Residential Real Estate [Member]
Real Estate:
Real Estate	322,686	274,862
Multi Family Residential [Member]
Real Estate:
Real Estate	278,358	248,092
Commercial Real Estate [Member]
Real Estate:
Real Estate	1,126,452	987,129
Construction Loans [Member]
Real Estate:
Real Estate	265,772	265,476
Commercial Loan [Member]
Other Loans:
Total loans	509,577	526,142
Home Equity and Home Improvement [Member]
Other Loans:
Total loans	128,152	135,457
Consumer finance [Member]
Other Loans:
Total loans	$ 34,405	$ 29,109

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Loans (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	$ 26,683	$ 25,884	$ 25,382
Charge-Offs	(2,874)	(3,449)	(1,419)
Recoveries	3,346	1,299	1,638
Provisions	1,176	2,949	283
Ending Allowance	28,331	26,683	25,884
One to Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	2,532	2,627	3,212
Charge-Offs	(261)	(279)	(350)
Recoveries	131	115	166
Provisions	479	69	(401)
Ending Allowance	2,881	2,532	2,627
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	2,702	2,228	2,151
Charge-Offs	0	0	0
Recoveries	57	32	0
Provisions	342	442	77
Ending Allowance	3,101	2,702	2,228
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	10,354	10,625	11,772
Charge-Offs	(1,387)	(429)	(92)
Recoveries	720	657	923
Provisions	2,354	(499)	(1,978)
Ending Allowance	12,041	10,354	10,625
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	647	450	517
Charge-Offs	0	0	0
Recoveries	0	0	0
Provisions	35	197	(67)
Ending Allowance	682	647	450
Commercial Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	7,965	7,361	5,255
Charge-Offs	(724)	(2,301)	(615)
Recoveries	2,221	243	335
Provisions	(2,181)	2,662	2,386
Ending Allowance	7,281	7,965	7,361
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	2,255	2,386	2,304
Charge-Offs	(269)	(301)	(268)
Recoveries	191	167	150
Provisions	(151)	3	200
Ending Allowance	2,026	2,255	2,386
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	228	207	171
Charge-Offs	(233)	(139)	(94)
Recoveries	26	85	64
Provisions	298	75	66
Ending Allowance	$ 319	$ 228	$ 207

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Loans (Details 2) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 595	$ 758
Collectively evaluated for impairment	27,736	25,925
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	28,331	26,683
Loans:
Loans individually evaluated for impairment	45,940	56,608
Loans collectively evaluated for impairment	2,500,222	2,296,053
Loans acquired with deteriorated credit quality	2,331	3,828
Total ending loans balance	2,548,493	2,356,489
One to Four Family Residential Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	175	167
Collectively evaluated for impairment	2,706	2,365
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	2,881	2,532
Loans:
Loans individually evaluated for impairment	6,774	6,910
Loans collectively evaluated for impairment	315,385	267,377
Loans acquired with deteriorated credit quality	1,012	1,069
Total ending loans balance	323,171	275,356
Multi Family Residential Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	3	7
Collectively evaluated for impairment	3,098	2,695
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	3,101	2,702
Loans:
Loans individually evaluated for impairment	1,347	2,278
Loans collectively evaluated for impairment	277,105	245,823
Loans acquired with deteriorated credit quality	296	301
Total ending loans balance	278,748	248,402
Commercial Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	95	118
Collectively evaluated for impairment	11,946	10,236
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	12,041	10,354
Loans:
Loans individually evaluated for impairment	26,334	31,821
Loans collectively evaluated for impairment	1,102,355	956,238
Loans acquired with deteriorated credit quality	846	2,121
Total ending loans balance	1,129,535	990,180
Construction Loans [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	682	647
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	682	647
Loans:
Loans individually evaluated for impairment	0	0
Loans collectively evaluated for impairment	142,096	149,174
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	142,096	149,174
Commercial Loan [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	79	187
Collectively evaluated for impairment	7,202	7,778
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	7,281	7,965
Loans:
Loans individually evaluated for impairment	10,477	14,373
Loans collectively evaluated for impairment	500,730	513,218
Loans acquired with deteriorated credit quality	177	337
Total ending loans balance	511,384	527,928
Home Equity and Home Improvement [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	242	279
Collectively evaluated for impairment	1,784	1,976
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	2,026	2,255
Loans:
Loans individually evaluated for impairment	963	1,176
Loans collectively evaluated for impairment	128,065	135,098
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	129,028	136,274
Consumer Finance [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	1	0
Collectively evaluated for impairment	318	228
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	319	228
Loans:
Loans individually evaluated for impairment	45	50
Loans collectively evaluated for impairment	34,486	29,125
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	$ 34,531	$ 29,175

XML

Loans (Details 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	$ 49,182	$ 47,401	$ 32,833
Interest Income Recognized	1,800	1,417	1,675
Cash Basis Income Recognized	1,766	1,124	1,558
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	4,704	3,811	3,954
Interest Income Recognized	151	138	244
Cash Basis Income Recognized	150	138	237
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	2,354	3,038	3,133
Interest Income Recognized	133	138	211
Cash Basis Income Recognized	126	138	210
Total Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	7,058	6,849	7,087
Interest Income Recognized	284	276	455
Cash Basis Income Recognized	276	276	447
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	0	0	0
Interest Income Recognized	0	0	0
Cash Basis Income Recognized	0	0	0
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,644	2,471	3,946
Interest Income Recognized	90	58	124
Cash Basis Income Recognized	89	58	123
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	9,992	10,592	6,925
Interest Income Recognized	234	110	203
Cash Basis Income Recognized	221	109	183
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	2,620	3,768	5,351
Interest Income Recognized	94	140	411
Cash Basis Income Recognized	93	133	407
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	13,827	9,667	2,283
Interest Income Recognized	575	472	128
Cash Basis Income Recognized	575	229	68
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,304	1,603	1,632
Interest Income Recognized	106	76	71
Cash Basis Income Recognized	106	70	70
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	27,743	25,630	16,191
Interest Income Recognized	1,009	798	813
Cash Basis Income Recognized	995	541	728
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	8,047	5,235	1,606
Interest Income Recognized	256	129	109
Cash Basis Income Recognized	245	123	90
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	3,501	5,940	2,393
Interest Income Recognized	119	109	81
Cash Basis Income Recognized	119	79	79
Commercial Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	11,548	11,175	3,999
Interest Income Recognized	375	238	190
Cash Basis Income Recognized	364	202	169
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,150	1,217	1,543
Interest Income Recognized	38	43	85
Cash Basis Income Recognized	38	43	83
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	39	59	67
Interest Income Recognized	4	4	8
Cash Basis Income Recognized	$ 4	$ 4	$ 8

XML

Loans (Details 4) - USD ($) $ in Thousands		Dec. 31, 2018	Dec. 31, 2017
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	$ 37,478	$ 51,731
Recorded Investment, With no allowance		35,947	48,548
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	11,178	8,812
Recorded Investment, With an Allowance		9,993	8,060
Allowance for Loan Losses Allocated, With an Allowance		595	758
Residential Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	901	2,507
Recorded Investment, With no allowance		775	2,364
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	3,926	1,841
Recorded Investment, With an Allowance		3,884	1,814
Allowance for Loan Losses Allocated, With an Allowance		148	137
Residential Non Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	950	1,711
Recorded Investment, With no allowance		955	1,708
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	1,152	1,031
Recorded Investment, With an Allowance		1,160	1,024
Allowance for Loan Losses Allocated, With an Allowance		27	30
One To Four Family Residential Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	1,851	4,218
Recorded Investment, With no allowance		1,730	4,072
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	5,078	2,872
Recorded Investment, With an Allowance		5,044	2,838
Allowance for Loan Losses Allocated, With an Allowance		175	167
Multi Family Residential Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	1,296	2,095
Recorded Investment, With no allowance		1,302	2,102
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	44	175
Recorded Investment, With an Allowance		44	176
Allowance for Loan Losses Allocated, With an Allowance		3	7
Commercial Real Estate Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	7,464	12,273
Recorded Investment, With no allowance		6,202	11,804
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	2,419	2,007
Recorded Investment, With an Allowance		1,935	1,546
Allowance for Loan Losses Allocated, With an Allowance		38	44
Commercial Real Estate Non Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	1,824	3,085
Recorded Investment, With no allowance		1,659	2,925
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	350	651
Recorded Investment, With an Allowance		353	593
Allowance for Loan Losses Allocated, With an Allowance		16	28
Agriculture Land [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	14,915	13,029
Recorded Investment, With no allowance		14,994	13,185
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	37	293
Recorded Investment, With an Allowance		38	292
Allowance for Loan Losses Allocated, With an Allowance		2	14
Commercial Real Estate Other Receivables [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	464	981
Recorded Investment, With no allowance		462	768
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	1,107	909
Recorded Investment, With an Allowance		691	708
Allowance for Loan Losses Allocated, With an Allowance		39	32
Commercial Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	24,667	29,368
Recorded Investment, With no allowance		23,317	28,682
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	3,913	3,860
Recorded Investment, With an Allowance		3,017	3,139
Allowance for Loan Losses Allocated, With an Allowance		95	118
Construction [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	0	0
Recorded Investment, With no allowance		0	0
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	0	0
Recorded Investment, With an Allowance		0	0
Allowance for Loan Losses Allocated, With an Allowance		0	0
Commercial Working Capital [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	7,569	5,462
Recorded Investment, With no allowance		7,498	5,422
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	525	447
Recorded Investment, With an Allowance		528	449
Allowance for Loan Losses Allocated, With an Allowance		55	77
Commercial Loans Other [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	2,095	9,916
Recorded Investment, With no allowance		2,100	7,644
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	560	854
Recorded Investment, With an Allowance		352	858
Allowance for Loan Losses Allocated, With an Allowance		24	110
Commercial Loan [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	9,664	15,378
Recorded Investment, With no allowance		9,598	13,066
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	1,085	1,301
Recorded Investment, With an Allowance		880	1,307
Allowance for Loan Losses Allocated, With an Allowance		79	187
Home Equity and Improvement [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	0	630
Recorded Investment, With no allowance		0	584
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	1,013	596
Recorded Investment, With an Allowance		963	592
Allowance for Loan Losses Allocated, With an Allowance		242	279
Consumer Finance [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	0	42
Recorded Investment, With no allowance		0	42
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	45	8
Recorded Investment, With an Allowance		45	8
Allowance for Loan Losses Allocated, With an Allowance		$ 1	$ 0

[1] Presented gross of charge offs

XML

Loans (Details 5) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 19,016	$ 30,715
Loans over 90 days past due and still accruing	0	0
Total non-performing loans	19,016	30,715
Real estate and other assets held for sale	1,205	1,532
Total non-performing assets	20,221	32,247
Troubled debt restructuring, still accruing	$ 11,573	$ 13,770

XML

Loans (Details 6) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	$ 2,534,997	$ 2,343,042
Total Past Due	13,496	13,447
Total Non Accrual	19,002	30,703
Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,966	5,326
Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,697	3,098
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	8,833	5,023
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	199,664	175,139
Total Past Due	3,110	3,081
Total Non Accrual	3,266	2,510
Residential Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	887	821
Residential Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	821	1,033
Residential Owner Occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,402	1,227
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	119,988	96,400
Total Past Due	409	736
Total Non Accrual	363	520
Residential Non Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	64	495
Residential Non Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	180	8
Residential Non Owner Occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	165	233
One To Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	319,652	271,539
Total Past Due	3,519	3,817
Total Non Accrual	3,629	3,030
One To Four Family Residential Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	951	1,316
One To Four Family Residential Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,001	1,041
One To Four Family Residential Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,567	1,460
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	278,748	247,980
Total Past Due	0	422
Total Non Accrual	102	128
Multi Family Residential Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	422
Multi Family Residential Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Multi Family Residential Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	416,879	393,125
Total Past Due	490	1,651
Total Non Accrual	4,377	10,775
Commercial Real Estate Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	52	195
Commercial Real Estate Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	300	188
Commercial Real Estate Owner Occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	138	1,268
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	534,823	403,656
Total Past Due	125	516
Total Non Accrual	620	2,431
Commercial Real Estate Non Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	6	1
Commercial Real Estate Non Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	119	91
Commercial Real Estate Non Owner Occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	424
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	129,040	131,753
Total Past Due	2,935	478
Total Non Accrual	5,253	4,144
Agriculture Land [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	66	412
Agriculture Land [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Agriculture Land [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,869	66
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	45,232	58,784
Total Past Due	11	217
Total Non Accrual	0	734
Commercial Real Estate Other Receivable [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	11	13
Commercial Real Estate Other Receivable [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial Real Estate Other Receivable [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	204
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	1,125,974	987,318
Total Past Due	3,561	2,862
Total Non Accrual	10,250	18,084
Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	135	621
Commercial Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	419	279
Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	3,007	1,962
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	142,096	149,174
Total Past Due	0	0
Total Non Accrual	0	0
Construction [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Construction [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Construction [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	217,832	233,632
Total Past Due	4,106	2,242
Total Non Accrual	4,021	2,369
Commercial Working Capital [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	268	102
Commercial Working Capital [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	1,264
Commercial Working Capital [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	3,838	876
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	289,125	291,455
Total Past Due	321	599
Total Non Accrual	480	6,474
Commercial Loans Other [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	32	82
Commercial Loans Other [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	54	0
Commercial Loans Other [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	235	517
Commercial Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	506,957	525,087
Total Past Due	4,427	2,841
Total Non Accrual	4,501	8,843
Commercial Loan [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	300	184
Commercial Loan [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	54	1,264
Commercial Loan [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	4,073	1,393
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	34,224	28,800
Total Past Due	307	375
Total Non Accrual	126	27
Consumer Finance [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	134	293
Consumer Finance [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	77	80
Consumer Finance [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	96	2
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	127,346	133,144
Total Past Due	1,682	3,130
Total Non Accrual	394	591
Home Equity and Improvement [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,446	2,490
Home Equity and Improvement [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	146	434
Home Equity and Improvement [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	$ 90	$ 206

XML

Loans (Details 7) - TDRs [Member] $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) Number	Dec. 31, 2017 USD ($) Number	Dec. 31, 2016 USD ($) Number
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	56	64	44
Troubled Debt Restructurings, Recorded Investment | $	$ 5,910	$ 8,913	$ 5,632
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	18	24	17
Troubled Debt Restructurings, Recorded Investment | $	$ 980	$ 982	$ 778
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	4	5	5
Troubled Debt Restructurings, Recorded Investment | $	$ 189	$ 193	$ 494
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	0	0	2
Troubled Debt Restructurings, Recorded Investment | $	$ 0	$ 0	$ 1,885
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	12	2	0
Troubled Debt Restructurings, Recorded Investment | $	$ 1,639	$ 149	$ 0
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	1	1	5
Troubled Debt Restructurings, Recorded Investment | $	$ 42	$ 262	$ 974
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	0	5	1
Troubled Debt Restructurings, Recorded Investment | $	$ 0	$ 1,700	$ 45
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	0	2	1
Troubled Debt Restructurings, Recorded Investment | $	$ 0	$ 153	$ 348
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	5	7	1
Troubled Debt Restructurings, Recorded Investment | $	$ 2,898	$ 1,475	$ 226
Commercial Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	1	7	1
Troubled Debt Restructurings, Recorded Investment | $	$ 44	$ 3,833	$ 587
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	7	6	9
Troubled Debt Restructurings, Recorded Investment | $	$ 89	$ 152	$ 281
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Number	8	5	2
Troubled Debt Restructurings, Recorded Investment | $	$ 29	$ 14	$ 14

XML

Loans (Details 8) - Subsequently Defaulted [Member] $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) Number	Dec. 31, 2017 USD ($) Number	Dec. 31, 2016 USD ($) Number
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	7	0	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 2,856	$ 0	$ 205
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	1	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 76	$ 0	$ 0
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	1	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 45	$ 0	$ 0
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 0	$ 0	$ 0
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	0	0	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 0	$ 0	$ 205
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 0	$ 0	$ 0
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 0	$ 0	$ 0
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	3	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 2,644	$ 0	$ 0
Commercial Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	1	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 30	$ 0	$ 0
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	1	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 61	$ 0	$ 0
Consumer Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Number	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 0	$ 0	$ 0

XML

Loans (Details 9) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 2,548,493	$ 2,356,489
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,089,444	1,901,149
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	27,851	32,539
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	51,040	59,667
Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	380,158	363,134
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	202,774	178,220
Residential Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	9,419	7,534
Residential Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	91	99
Residential Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	3,130	2,367
Residential Owner Occupied [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Residential Owner Occupied [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	190,134	168,220
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	120,397	97,136
Residential Non Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	109,885	85,802
Residential Non Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	700	935
Residential Non Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	3,087	3,835
Residential Non Owner Occupied [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Residential Non Owner Occupied [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	6,725	6,564
One To Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	323,171	275,356
One To Four Family Residential Real Estate [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	119,304	93,336
One To Four Family Residential Real Estate [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	791	1,034
One To Four Family Residential Real Estate [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	6,217	6,202
One To Four Family Residential Real Estate [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
One To Four Family Residential Real Estate [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	196,859	174,784
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	278,748	248,402
Multi Family Residential Real Estate [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	276,594	242,969
Multi Family Residential Real Estate [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	2,503
Multi Family Residential Real Estate [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,047	2,819
Multi Family Residential Real Estate [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Multi Family Residential Real Estate [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	107	111
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	417,368	394,776
Commercial Real Estate Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	402,008	370,613
Commercial Real Estate Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	5,724	10,432
Commercial Real Estate Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	9,547	13,575
Commercial Real Estate Owner Occupied [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Real Estate Owner Occupied [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	89	156
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	534,946	404,172
Commercial Real Estate Non Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	529,842	395,264
Commercial Real Estate Non Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,807	3,464
Commercial Real Estate Non Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,297	5,444
Commercial Real Estate Non Owner Occupied [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Real Estate Non Owner Occupied [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	131,976	132,231
Agriculture Land [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	111,595	114,776
Agriculture Land [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	4,023	2,639
Agriculture Land [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	16,358	14,816
Agriculture Land [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Agriculture Land [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	45,245	59,001
Commercial Real Estate Other Receivable [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	42,189	56,133
Commercial Real Estate Other Receivable [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	730	165
Commercial Real Estate Other Receivable [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,244	1,788
Commercial Real Estate Other Receivable [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Real Estate Other Receivable [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,082	915
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,129,535	990,180
Commercial Real Estate [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,085,634	936,786
Commercial Real Estate [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	13,284	16,700
Commercial Real Estate [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	29,446	35,623
Commercial Real Estate [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Real Estate [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,171	1,071
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	142,096	149,174
Construction Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	122,775	125,519
Construction Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	219	1,254
Construction Loans [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Construction Loans [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Construction Loans [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	19,102	22,401
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	221,938	235,874
Commercial Working Capital [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	205,903	222,526
Commercial Working Capital [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	6,546	7,605
Commercial Working Capital [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	9,489	5,743
Commercial Working Capital [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Working Capital [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	289,446	292,054
Commercial Loans Other [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	279,234	280,013
Commercial Loans Other [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	7,011	3,443
Commercial Loans Other [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	3,201	8,598
Commercial Loans Other [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Loans Other [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	511,384	527,928
Commercial Loan [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	485,137	502,539
Commercial Loan [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	13,557	11,048
Commercial Loan [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	12,690	14,341
Commercial Loan [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial Loan [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	129,028	136,274
Home Equity and Home Improvement [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Home Equity and Home Improvement [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Home Equity and Home Improvement [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	434	600
Home Equity and Home Improvement [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Home Equity and Home Improvement [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	128,594	135,674
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	34,531	29,175
Consumer Finance [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Consumer Finance [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Consumer Finance [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	206	82
Consumer Finance [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Consumer Finance [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 34,325	$ 29,093

XML

Loans (Details 10) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	$ 2,331	$ 3,828
Loan Purchase [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	2,471	4,793
Notes Receivable Net Acquired With Recorded Investment Net Of Allowance	2,331	3,828
One To Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	1,012	1,069
One To Four Family Residential Real Estate [Member] | Loan Purchase [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	1,045	1,154
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	296	301
Multi Family Residential Real Estate [Member] | Loan Purchase [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	300	309
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	846	2,121
Commercial Real Estate [Member] | Loan Purchase [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	899	2,921
Commercial Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	177	337
Commercial Loan [Member] | Loan Purchase [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	227	407
Consumer [Member] | Loan Purchase [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes Receivable Net Acquired With Deteriorated Credit Quality	$ 0	$ 2

XML

Loans (Details 11) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Balance at January 1	$ 804	$ 0
New Loans Purchased	0	1,018
Accretion of Income	(139)	(163)
Reclassifications from Non-accretable	0	0
Charge-off of Accretable Yield	(197)	(8)
Balance at December 31	$ 468	$ 804

XML

Loans (Details 12) $ in Thousands	Dec. 31, 2018 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Acquired During Period, Contractually Required Payments Receivable at Acquisition	$ 7,233
One To Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Acquired During Period, Contractually Required Payments Receivable at Acquisition	1,720
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Acquired During Period, Contractually Required Payments Receivable at Acquisition	4,724
Commercial Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Acquired During Period, Contractually Required Payments Receivable at Acquisition	785
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Acquired During Period, Contractually Required Payments Receivable at Acquisition	$ 4

XML

Loans (Details 13) $ in Thousands	Dec. 31, 2018 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Cash Flows Expected to be Collected at Acquisition	$ 5,721
Fair Value of Acquired Loans at Acquisition	$ 4,703

XML

Loans (Details 14) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	$ 16,728	$ 16,199
New loans	10,806	5,857
Effect of changes in composition of related parties	(217)	0
Repayments	(5,754)	(5,328)
Ending Balance	$ 21,563	$ 16,728

XML

Loans (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Loans and Leases Receivable, Loans in Process	$ 123,293,000	$ 115,972,000
Allowance for Loan and Lease Losses, Period Increase (Decrease)	1,176,000	2,949,000	$ 283,000
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Loans in Process	796,000
Troubled Debt Restructuring [Member]
Financing Receivable, Modifications, Recorded Investment	19,200,000	21,700,000
Specified Reserves, Provision for Troubled Debt Restructurings	581,000	751,000
Loans and Leases Receivable, Impaired, Commitment to Lend	169,000	242,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	7,600,000
Allowance for Loan and Lease Losses, Period Increase (Decrease)	17,000
Troubled Debt Restructuring [Member] | Subsequently Defaulted [Member]
Financing Receivable, Allowance for Credit Losses, Period Increase (Increase)	$ 110,000	$ 104,000	$ 413,000

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Mortgage Banking (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Gain from sale of mortgage loans	$ 4,502	$ 4,664	$ 5,311
Mortgage loans servicing revenue (expense):
Mortgage loan servicing revenue	3,784	3,714	3,560
Amortization of mortgage servicing rights	(1,341)	(1,464)	(1,724)
Mortgage servicing rights valuation adjustments	132	90	123
Mortgage loans servicing revenue (expense), Total	2,575	2,340	1,959
Net mortgage banking income	$ 7,077	$ 7,004	$ 7,270

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Mortgage Banking (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Mortgage servicing assets:
Balance at beginning of period	$ 10,240	$ 10,117	$ 9,893
Loans sold, servicing retained	1,520	1,587	1,948
Amortization	(1,341)	(1,464)	(1,724)
Carrying value before valuation allowance at end of period	10,419	10,240	10,117
Valuation allowance:
Balance at beginning of period	(432)	(522)	(645)
Impairment recovery (charges)	132	90	123
Balance at end of period	(300)	(432)	(522)
Net carrying value of MSRs at end of period	10,119	9,808	9,595
Fair value of MSRs at end of period	$ 10,656	$ 9,930	$ 9,770

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Mortgage Banking (Details 2) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) Number	Dec. 31, 2017 USD ($) Number
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Mortgage Loans On Banking Number Of Loans | Number	14,606	14,447
Investor, Principal Outstanding | $	$ 1,411,833	$ 1,386,068
Fannie Mae [Member]
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Mortgage Loans On Banking Number Of Loans | Number	4,919	4,920
Investor, Principal Outstanding | $	$ 461,730	$ 461,783
Freddie Mac [Member]
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Mortgage Loans On Banking Number Of Loans | Number	9,571	9,420
Investor, Principal Outstanding | $	$ 937,406	$ 913,632
Federal Home Loan Bank Borrowings [Member]
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Mortgage Loans On Banking Number Of Loans | Number	99	88
Investor, Principal Outstanding | $	$ 11,983	$ 9,723
Other Mortgage Banking [Member]
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Mortgage Loans On Banking Number Of Loans | Number	17	19
Investor, Principal Outstanding | $	$ 714	$ 930

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Mortgage Banking (Details 3) $ in Thousands	Dec. 31, 2018 USD ($)
10% Adverse Change [Member]
Assumption:
Decline in fair value from increase in prepayment rate	$ 332
Decline in fair value from increase in discount rate	220
20% Adverse Change [Member]
Assumption:
Decline in fair value from increase in prepayment rate	670
Decline in fair value from increase in discount rate	$ 459

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Mortgage Banking (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Residential Mortgage Loans, Unpaid Balance	$ 1,410,000,000	$ 1,390,000,000
Escrow Deposit	$ 14,300,000	$ 13,500,000
Weighted Average Discount Rate	12.01%	12.01%
Adverse Changes In Fair Value One	10.00%
Adverse Changes In Fair Value Two	20.00%
Secondary Market Buy Back Expense	$ 0	$ (36,000)	$ (135,000)
Accrued Liabilities and Other Liabilities	$ 43,000	$ 43,000

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Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Cost:
Land	$ 7,977	$ 7,977
Land improvements	1,326	1,326
Buildings	44,632	44,563
Leasehold improvements	1,015	971
Furniture, fixtures and equipment	34,871	34,216
Construction in process	692	1,402
Property, Plant and Equipment, Gross	90,513	90,455
Less allowances for depreciation and amortization	(49,843)	(50,238)
Property, Plant and Equipment, Net	$ 40,670	$ 40,217

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Premises and Equipment (Details 1) $ in Thousands	Dec. 31, 2018 USD ($)
Property, Plant and Equipment [Line Items]
2019	$ 967
2020	884
2021	843
2022	768
2023	739
Thereafter	8,078
Total	$ 12,279

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Premises and Equipment (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Property, Plant and Equipment [Line Items]
Depreciation	$ 3,688,000	$ 3,567,000	$ 3,356,000
Operating Leases, Rent Expense, Net	$ 1,000,000	$ 691,000	$ 571,000

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Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Indefinite-lived Intangible Assets [Line Items]
Beginning balance	$ 98,569	$ 61,798
Goodwill acquired or adjusted during the year	0	36,771
Ending balance	$ 98,569	$ 98,569

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Goodwill and Intangible Assets (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Indefinite-lived Intangible Assets [Line Items]
Begnning Balance, Gross Carrying Amount	$ 20,133	$ 14,477	$ 14,477
Intangible assets acquired, Gross Carrying Amount		5,656
Amortization of intangible assets, Gross Carrying Amount	0	0	0
Ending Balance, Gross Carrying Amount	20,133	20,133	14,477
Beginning Balance, Accumulated Amortization	(14,430)	(13,141)	(12,606)
Intangible assets acquired, Accumulated Amortization		0
Amortization of intangible assets, Accumulated Amortization	(1,312)	(1,289)	(535)
Ending Balance, Accumulated Amortization	(15,742)	(14,430)	(13,141)
Beginning Balance, Net Value	5,703	1,336	1,871
Intangible assets acquired, Net Value		5,656
Amortization of Intangible Assets, Net Value	(1,312)	(1,289)	(535)
Ending Balance, Net Value	$ 4,391	$ 5,703	$ 1,336

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Goodwill and Intangible Assets (Details 2) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Indefinite-lived Intangible Assets [Line Items]
2019	$ 1,097
2020	914
2021	744
2022	576
2023	439
Thereafter	621
Total	$ 4,391	$ 5,703	$ 1,336	$ 1,871

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Deposits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Deposits [Line Items]
Checking and money market accounts	$ 3,997	$ 2,033	$ 1,463
Savings accounts	115	102	88
Certificates of deposit	9,785	6,683	4,710
Totals	$ 13,897	$ 8,818	$ 6,261

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Deposits (Details 1) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deposits [Line Items]
Noninterest-bearing checking accounts	$ 607,198	$ 571,360
Interest-bearing checking and money market accounts	1,040,471	1,005,519
Savings deposits	292,829	302,022
Retail certificates of deposit less than $250,000	591,822	504,912
Retail certificates of deposit greater than $250,000	88,562	53,843
Total	$ 2,620,882	$ 2,437,656

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Deposits (Details 2) $ in Thousands	Dec. 31, 2018 USD ($)
Deposits [Line Items]
2019	$ 417,562
2020	130,756
2021	85,563
2022	33,184
2023	13,319
Thereafter	0
Total	$ 680,384

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Deposits (Details Textual) - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Deposit [Line Items]
Accounts Payable	$ 366,000	$ 97,000
Certificates of Deposit, at Carrying Value	314,000	68,000
Money Market Funds, at Carrying Value	$ 52,000	$ 29,000

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Advances from Federal Home Loan Bank (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Putable advances		$ 5,000
Single maturity fixed rate advances	$ 59,000	72,000
Amortizable mortgage advances	1,213	7,306
Overnight Advances	25,000
Fair value adj. on acquired balances	(24)	(27)
Totals	$ 85,189	$ 84,279
March 2018 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate		2.35%
January 2018 to March 2022 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate		1.46%
September 2018 to August 2027 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate		1.85%
January 2019 to March 2022 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate	1.67%
August 2027 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate	2.14%
Overnight [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Weighted Average Interest Rate	2.45%

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Advances from Federal Home Loan Bank (Details 1) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Future Minimum Lease Payments For Capital Leases [Line Items]
2019	$ 45,926
2020	21,563
2021	15,307
2022	219
2023	3,169
Thereafter	563
Total minimum payments	86,747
Less amounts representing interest	(1,534)
Less fair value adj. on acquired balances	(24)	$ (27)
Totals	$ 85,189	$ 84,279

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Advances from Federal Home Loan Bank (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2016
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Pledged Assets Separately Reported, Loans Pledged as Collateral, at Fair Value	$ 1,200.0	$ 1,000.0
Proceeds From First Federal Home Loan Bank Advances	$ 447.4
Percentage Of Advances Secured Collateral Pledged	50.00%
Securities Investment [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Percentage Of Advances Secured Collateral Pledged	105.00%
Residential Mortgage [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Percentage Of Advances Secured Collateral Pledged	125.00%
Multi Family or Non Residential Real Estate Loans, and Agriculture Real Estate Loans [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Percentage Of Advances Secured Collateral Pledged	300.00%
One to Four Family Residential Mortgages or Investment Securities [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Percentage Of Advances Secured Collateral Pledged	50.00%
Cash Management Advance [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Line of Credit, Current	$ 15.0
Long-term Line of Credit	25.0
Repo Advance [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Line of Credit, Current	$ 100.0

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Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$ 36,083	$ 36,083
First Defiance Statutory Trusts I [Member]
Debt Instrument [Line Items]
Junior subordinated debentures owed to unconsolidated subsidiary trusts	20,619	20,619
First Defiance Statutory Trusts II [Member]
Debt Instrument [Line Items]
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$ 15,464	$ 15,464

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Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust (Details Textual) - USD ($) $ in Millions	1 Months Ended	12 Months Ended
	Mar. 31, 2007	Dec. 31, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Preferred Securities Variable Interest Rate		LIBOR rate plus 1.38%
Financial Instruments Subject to Mandatory Redemption, Settlement Terms, Description		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.
First Defiance Statutory Trusts I [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Trust Preferred Securities		$ 20.0
Proceeds from Issuance of Subordinated Long-term Debt		$ 20.6
Financial Instruments Subject to Mandatory Redemption, Settlement Terms, Description		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.
Coupon Rate On Preferred Securities, Period End		4.17%	2.97%
First Defiance Statutory Trusts II [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Trust Preferred Securities	$ 15.0
Proceeds from Issuance of Subordinated Long-term Debt	$ 15.5
Preferred Securities Variable Interest Rate	LIBOR rate plus 1.5%
Coupon Rate On Preferred Securities, Period End		4.29%	3.09%

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Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$ 5,741	$ 26,019
Year-end interest rate	0.31%	0.20%
Average daily balance during year	$ 8,911	$ 23,337
Maximum month-end balance during the year	$ 18,259	$ 26,019
Average interest rate during the year	0.26%	0.23%

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Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings (Details 1) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$ 5,741	$ 26,019
Gross amount of recognized liabilities for repurchase agreements	5,741	26,019
Collateralized Mortgage Backed Securities [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	1,542	19,420
Maturity Overnight [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	5,741	26,019
Maturity Overnight [Member] | Collateralized Mortgage Backed Securities [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	1,542	19,420
Maturity Less than 30 Days [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity Less than 30 Days [Member] | Collateralized Mortgage Backed Securities [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity 30 to 90 Days [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity 30 to 90 Days [Member] | Collateralized Mortgage Backed Securities [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity Greater than 90 Days [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity Greater than 90 Days [Member] | Collateralized Mortgage Backed Securities [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Mortgage Backed Securities, Other [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	4,199	6,599
Mortgage Backed Securities, Other [Member] | Maturity Overnight [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	4,199	6,599
Mortgage Backed Securities, Other [Member] | Maturity Less than 30 Days [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Mortgage Backed Securities, Other [Member] | Maturity 30 to 90 Days [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Mortgage Backed Securities, Other [Member] | Maturity Greater than 90 Days [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$ 0	$ 0

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Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Short Term Debt Fed Funds Rate	2.25%
First Tennessee Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 20.0	$ 20.0
MUFG Union Bank [Member]
Line of Credit, Current	20.0	$ 20.0
Federal Reserve Bank Discount [Member]
Line of Credit, Current	$ 11.2
Short-term Debt, Terms	50 basis points over the federal funds rate

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Other Noninterest Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018		Dec. 31, 2017		Dec. 31, 2016
Other Noninterest Expense [Line Items]
Legal and other professional fees	$ 3,328		$ 3,603		$ 2,902
Marketing	2,407		2,070		1,835
State financial institutions tax	2,118		1,819		1,781
OREO expenses and write-downs	742		177		244
Printing and office supplies	631		626		512
Amortization of intangibles	1,312		1,289		535
Postage	505		523		456
Check charge-offs and fraud losses	415		277		266
Credit and collection expense	379		359		303
Other	6,792	[1]	8,067	[2]	7,118	[3]
Total other noninterest expense	$ 18,629		$ 18,810		$ 15,952

[1] Includes a credit of $806,000 for an accounting correction related to the Deferred Compensation Plan. See Note 19 for further details.

[2] Includes $1.1 million of acquisition related expenses.

[3] Includes $443,000 of acquisition related expenses and $300,000 of costs associated with termination of a lease agreement.

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Other Noninterest Expense (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Other Non-Interest Expense [Line Items]
Business Combination, Acquisition Related Costs		$ 1,100,000	$ 443,000
Lease agreement termination Costs			$ 300,000
Increase (Decrease) in Deferred Compensation	$ 170,000

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Postretirement Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Defined Benefit Plan Disclosure [Line Items]
Unrecognized prior service cost	$ 97	$ 39	$ 52
Unrecognized actuarial losses	(86)	551	392
Total loss recognized in Accumulated Other Comprehensive Income	11	590	444
Income tax effect	80	(206)	(155)
Net loss recognized in Accumulated Other Comprehensive Income	$ 91	$ 384	$ 289

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Postretirement Benefits (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Change in benefit obligation:
Benefit obligation at beginning of year	$ 3,194	$ 2,985
Service cost	55	58	$ 53
Interest cost	105	117	128
Participant contribution	32	29
Plan amendments for acquisitions	72	0	12
Actuarial (gains) / losses	(632)	166	(184)
Benefits paid	(184)	(161)
Benefit obligation at end of year	2,642	3,194	2,985
Change in fair value of plan assets:
Balance at beginning of year	0	0
Employer contribution	152	132
Participant contribution	32	29
Benefits paid	(184)	(161)
Balance at end of year	0	0	$ 0
Funded status at end of year	$ (2,642)	$ (3,194)

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Postretirement Benefits (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Defined Benefit Plan Disclosure [Line Items]
Service cost-benefits attributable to service during the period	$ 55	$ 58	$ 53
Interest cost on accumulated postretirement benefit obligation	105	117	128
Net amortization and deferral	18	19	30
Net periodic postretirement benefit cost	178	194	211
Net (gain) / loss during the year	(632)	166	(184)
Plan amendment for acquisition	72	0	12
Amortization of prior service cost and actuarial losses	(18)	(19)	(30)
Total recognized in comprehensive income	(578)	147	(202)
Total recognized in net periodic postretirement benefit cost and other comprehensive income	$ (400)	$ 341	$ 9

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Postretirement Benefits (Details 3)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Weighted average discount rates:
Used to determine benefit obligations at December 31	4.00%	3.50%	4.00%
Used to determine net periodic postretirement benefit cost for years ended December 31	3.50%	4.00%	4.25%
Assumed health care cost trend rates at December 31:
Health care cost trend rate assumed for next year	6.50%	7.00%	7.50%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	3.90%	5.00%	5.00%
Year that rate reaches ultimate trend rate	2075	2022	2022

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Postretirement Benefits (Details 4) $ in Thousands	Dec. 31, 2018 USD ($)
Defined Benefit Plan Disclosure [Line Items]
2019	$ 168
2020	181
2021	195
2022	209
2023	181
2024 through 2028	$ 969

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Postretirement Benefits (Details 5) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Defined Benefit Plan Disclosure [Line Items]
Effect on total of service and interest cost, One-Percentage-Point Increase	$ 22	$ 25
Effect on postretirement benefit obligation, One-Percentage-Point Increase	178	392
Effect on total of service and interest cost, One-Percentage-Point Decrease	(18)	(21)
Effect on postretirement benefit obligation, One-Percentage-Point Decrease	$ (153)	$ (333)

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Postretirement Benefits (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Postretirement Benefits Description Of Medical Coverage		First Federal employees who retired prior to April 1, 1997, and who completed 20 years of service after age 40 receive full medical coverage at no cost.
Maximum Reimburse Medical Expenses		$ 10,000
Postretirement Benefits Description Of Medical Coverage One		First Federal employees who were born after December 31, 1950, are not eligible for the medical coverage described above at retirement.
Scenario, Forecast [Member]
Defined Benefit Plan Disclosure [Line Items]
Other Comprehensive Income Loss Defined Benefit Plan Expected To Be Recognized In Net Postretirement Benefit Cost Before Tax	$ 0
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), after Reclassification Adjustment, before Tax	14,000
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), after Tax	11,000
Defined Benefits Plan, Expected Contribution, Before Reflecting Subsidy Payments	$ 168,000

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Regulatory Matters (Details) - USD ($) $ in Thousands	Dec. 31, 2018		Dec. 31, 2017	[2]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 Capital (to Risk Weighted Assets) Actual (Ratio)	4.50%
Total Capital (to Risk Weighted Assets) Actual (Ratio)	7.00%
Consolidated [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
CET1 Capital (to Risk-Weighted Assets) Actual (in dollars)	$ 303,860	[1]	$ 274,832
CET1 Capital (to Risk-Weighted Assets) Minimum Required for Adequately Capitalized (in dollars)	124,339	[1]	118,596
CET1 Capital (to Risk-Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)		[1]
CET1 Capital (to Risk-Weighted Assets) Actual (Ratio)	11.00%	[1]	10.43%
CET1 Capital (to Risk-Weighted Assets) Minimum Required for Adequately Capitalized (Ratio)	4.50%	[1],[3]	4.50%	[4]
CET1 Capital (to Risk-Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)		[1]
Tier 1 Capital Actual (in dollars)	$ 338,860	[1]	$ 309,832
Tier 1 Capital Minimum Required for Adequately Capitalized (in dollars)	121,716	[1]	114,773
Tier 1 Capital Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)		[1]
Tier 1 Capital Actual (Ratio)	11.14%	[1]	10.80%
Tier 1 Capital Minimum Required for Adequately Capitalized (Ratio)	4.00%	[1],[3]	4.00%	[4]
Tier 1 Capital Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)		[1]
Tier 1 Capital (to Risk Weighted Assets) Actual (in dollars)	$ 338,860	[1]	$ 309,832
Tier 1 Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (in dollars)	165,786	[1]	158,128
Tier 1 Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)		[1]
Tier 1 Capital (to Risk Weighted Assets) Actual (Ratio)	12.26%	[1]	11.76%
Tier 1 Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (Ratio)	6.00%	[1],[3]	6.00%	[4]
Tier 1 Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)		[1]
Total Capital (to Risk Weighted Assets) Actual (in dollars)	$ 367,191	[1]	$ 336,515
Total Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (in dollars)	221,048	[1]	210,838
Total Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)		[1]
Total Capital (to Risk Weighted Assets) Actual (Ratio)	13.29%	[1]	12.77%
Total Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (Ratio)	8.00%	[1],[3]	8.00%	[4]
Total Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)		[1]
First Federal [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
CET1 Capital (to Risk-Weighted Assets) Actual (in dollars)	$ 322,520	[1]	$ 298,571
CET1 Capital (to Risk-Weighted Assets) Minimum Required for Adequately Capitalized (in dollars)	124,225	[1]	118,534
CET1 Capital (to Risk-Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)	$ 179,436	[1]	$ 171,216
CET1 Capital (to Risk-Weighted Assets) Actual (Ratio)	11.68%	[1]	11.33%
CET1 Capital (to Risk-Weighted Assets) Minimum Required for Adequately Capitalized (Ratio)	4.50%	[1],[3]	4.50%	[4]
CET1 Capital (to Risk-Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)	6.50%	[1]	6.50%
Tier 1 Capital Actual (in dollars)	$ 322,520	[1]	$ 298,571
Tier 1 Capital Minimum Required for Adequately Capitalized (in dollars)	121,461	[1]	114,539
Tier 1 Capital Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)	$ 151,827	[1]	$ 143,173
Tier 1 Capital Actual (Ratio)	10.62%	[1]	10.43%
Tier 1 Capital Minimum Required for Adequately Capitalized (Ratio)	4.00%	[1],[3]	4.00%	[4]
Tier 1 Capital Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)	5.00%	[1]	5.00%
Tier 1 Capital (to Risk Weighted Assets) Actual (in dollars)	$ 322,520	[1]	$ 298,571
Tier 1 Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (in dollars)	165,633	[1]	158,046
Tier 1 Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)	$ 220,844	[1]	$ 210,728
Tier 1 Capital (to Risk Weighted Assets) Actual (Ratio)	11.68%	[1]	11.33%
Tier 1 Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (Ratio)	6.00%	[1],[3]	6.00%	[4]
Tier 1 Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)	8.00%	[1]	8.00%
Total Capital (to Risk Weighted Assets) Actual (in dollars)	$ 350,851	[1]	$ 325,254
Total Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (in dollars)	220,844	[1]	210,728
Total Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (in dollars)	$ 276,055	[1]	$ 263,410
Total Capital (to Risk Weighted Assets) Actual (Ratio)	12.71%	[1]	12.35%
Total Capital (to Risk Weighted Assets) Minimum Required for Adequately Capitalized (Ratio)	8.00%	[1],[3]	8.00%	[4]
Total Capital (to Risk Weighted Assets) Minimum Required to be Well Capitalized for Prompt Corrective Action (Ratio)	10.00%	[1]	10.00%

[1] Core capital is computed as a percentage of adjusted total assets of $3.04 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.76 billion for consolidated and for the Bank.

[2] Core capital is computed as a percentage of adjusted total assets of $2.87 billion for consolidated and $2.86 billion for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.64 billion for consolidated and $2.63 billion for the Bank.

[3] Excludes capital conservation buffer of 1.875% as of December 31, 2018.

[4] Excludes capital conservation buffer of 1.25% as of December 31, 2017.

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Regulatory Matters (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018		Dec. 31, 2017
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Adjusted Total Assets	$ 3,040,000,000		$ 2,870,000,000
Risk Weighted Assets			$ 2,860,000,000
Tier One Risk Based Capital to Risk Weighted Assets	4.50%
Excess Tier One Risk Based Capital to Risk Weighted Assets	2.50%
Capital to Risk Weighted Assets	7.00%
Capital Conservation Buffer	1.875%		1.25%
Basel III [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Excess Tier One Risk Based Capital to Risk Weighted Assets	8.50%
Capital to Risk Weighted Assets	10.50%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	4.00%
Basel III [Member] | Maximum [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier One Risk Based Capital to Risk Weighted Assets	6.00%
Basel III [Member] | Minimum [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier One Risk Based Capital to Risk Weighted Assets	4.00%
First Federal [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Proceeds from Dividends Received	$ 950,000		$ 1,000,000
Dividends Receivable	$ 22,000,000		$ 13,000,000
Tier One Risk Based Capital to Risk Weighted Assets	11.68%	[1]	11.33%	[2]
Capital to Risk Weighted Assets	12.71%	[1]	12.35%	[2]
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	6.00%	[1],[3]	6.00%	[2],[4]
Consolidated [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Adjusted Total Assets			$ 2,640,000,000
Risk Weighted Assets	$ 2,760,000,000		$ 2,630,000,000
Tier One Risk Based Capital to Risk Weighted Assets	12.26%	[1]	11.76%	[2]
Capital to Risk Weighted Assets	13.29%	[1]	12.77%	[2]
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	6.00%	[1],[3]	6.00%	[2],[4]
First Insurance [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Proceeds from Dividends Received	$ 1,600,000		$ 1,800,000

[1] Core capital is computed as a percentage of adjusted total assets of $3.04 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.76 billion for consolidated and for the Bank.

[2] Core capital is computed as a percentage of adjusted total assets of $2.87 billion for consolidated and $2.86 billion for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.64 billion for consolidated and $2.63 billion for the Bank.

[3] Excludes capital conservation buffer of 1.875% as of December 31, 2018.

[4] Excludes capital conservation buffer of 1.25% as of December 31, 2017.

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Current:
Federal									$ 9,538	$ 14,588	$ 13,125
State and local									207	181	244
Deferred									881	1,261	(615)
Tax reform revaluation									0	154	0
Income Tax Expense (Benefit)	$ 3,082	$ 2,483	$ 2,564	$ 2,497	$ 4,431	$ 4,219	$ 3,677	$ 3,857	$ 10,626	$ 16,184	$ 12,754

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Income Taxes (Details 1) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Tax Disclosure [Line Items]
Tax expense at statutory rate (21%-2018 35%-2017 and 2016)									$ 11,944	$ 16,958	$ 14,559
Increases (decreases) in taxes from:
State income tax - net of federal tax benefit									164	119	159
Tax exempt interest income, net of TEFRA									(770)	(1,218)	(1,168)
Bank owned life insurance									(255)	(1,212)	(341)
Captive insurance									(325)	(364)	(414)
BOLI surrender									0	1,721	0
Tax reform revaluation									0	154	0
Other									(132)	26	(41)
Totals	$ 3,082	$ 2,483	$ 2,564	$ 2,497	$ 4,431	$ 4,219	$ 3,677	$ 3,857	$ 10,626	$ 16,184	$ 12,754

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Income Taxes (Details 2) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deferred federal income tax assets:
Allowance for loan losses	$ 5,802	$ 5,415
Postretirement benefit costs	473	671
Deferred compensation	1,011	1,354
Impaired loans	1,154	1,432
Accrued vacation	11	123
Allowance for real estate held for sale losses	62	71
Deferred loan origination fees and costs	435	332
Accrued bonus	638	333
Net unrealized gains on available-for-sale securities	547	0
Other	1,273	1,578
Total deferred federal income tax assets	11,406	11,309
Deferred federal income tax liabilities:
FHLB stock dividends	1,558	1,558
Goodwill	4,584	4,377
Mortgage servicing rights	2,125	2,060
Fixed assets	2,046	1,039
Other intangible assets	778	990
Loan mark to market	7	5
Net unrealized gains on available-for-sale securities	0	194
Prepaid expenses	550	539
Other	22	316
Total deferred federal income tax liabilities	11,670	11,078
Net deferred federal income tax asset		231
Net deferred federal income tax liability	$ (264)	$ 0

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Income Taxes (Details 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Tax Disclosure [Line Items]
Beginning Balance	$ 0	$ 398	$ 0
Additions based on tax positions related to the current year	0	0	0
Additions for tax positions of prior years	0	0	398
Reductions for tax positions of prior years	0	0	0
Reductions due to the statute of limitations	0	0	0
Settlements	0	(398)	0
Ending Balance	$ 0	$ 0	$ 398

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Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Tax Disclosure [Line Items]
Tax Basis of Investments, Cost for Income Tax Purposes	$ 11,000,000
Deferred Tax Liability Not Recognized, Amount of Unrecognized Deferred Tax Liability, Policyholders' Surplus	2,310,000
Income Tax Examination, Penalties and Interest Expense	0	$ 0	$ 40,000
Income Tax Examination, Penalties and Interest Accrued	$ 0	$ 0	40,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	35.00%	35.00%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ 0	$ 154,000	$ 0

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Employee Benefit Plans (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Employee Contribution Plan Description	First Defiance matches 100% of the participants’ contributions up to 3% of compensation and then 50% of the participants’ contributions for the next 2% of compensation.
Employee Benefits Plans Contribution	$ 1,310,000	$ 1,190,000	$ 979,000
Liability for Future Policy Benefits, Period Expense (Income)	38,000	248,000	$ 71,000
Liability for Future Policy Benefits	1,710,000	1,690,000
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate			4.00%
Defined Benefit Plan, Benefit Obligation, Business Combination		402,000
Deferred Compensation Arrangement with Individual, Compensation Expense	15,000	427,000	$ 528,000
Deferred Compensation Liability, Current and Noncurrent	4,500,000	$ 6,100,000
Deferred Compensation Plan Assets and Liabilities	5,000,000
Increase (Decrease) in Deferred Compensation	170,000
Adjustments to equity [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Increase (Decrease) in Deferred Compensation	806,000
Adjustments to tax liability [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Increase (Decrease) in Deferred Compensation	$ 636,000

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Stock Compensation Plans (Details 1) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) $ / shares shares
Options Outstanding, January 1, 2018 | shares	86,900
Options Outstanding, Forfeited or cancelled | shares	0
Options Outstanding, Exercised | shares	(47,500)
Options Outstanding, Granted | shares	0
Options Outstanding, December 31, 2018 | shares	39,400
Options Outstanding, Vested or expected to vest at December 31, 2018 | shares	39,400
Options Outstanding, Exercisable at December 31, 2018 | shares	23,900
Weighted Average Exercise Price, Outstanding, January 1, 2018 | $ / shares	$ 10.81
Weighted Average Exercise Price, Forfeited or cancelled | $ / shares	0
Weighted Average Exercise Price, Exercised | $ / shares	8.15
Weighted Average Exercise Price, Granted | $ / shares	0
Weighted Average Exercise Price, outstanding, December 31, 2018 | $ / shares	14.00
Weighted Average Exercise Price, Vested or expected to vest at December 31, 2018 | $ / shares	14.00
Weighted Average Exercise Price, Exercisable at December 31, 2018 | $ / shares	$ 12.21
Weighted Average Remaining Contractual Term (in years), outstanding, December 31, 2018	4 years 11 months 16 days
Weighted Average Remaining Contractual Term (in years), Vested or expected to vest at December 31, 2018	4 years 11 months 16 days
Weighted Average Remaining Contractual Term (in years), Exercisable at December 31, 2018	4 years 1 month 20 days
Aggregate Intrinsic Value, outstanding, December 31, 2018 | $	$ 414
Aggregate Intrinsic Value, Vested or expected to vest at December 31, 2018 | $	414
Aggregate Intrinsic Value, Exercisable at December 31, 2018 | $	$ 294

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Stock Compensation Plans (Details 2) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Intrinsic value of options exercised	$ 893	$ 301	$ 752
Cash received from option exercises	111	199	714
Tax benefit realized from option exercises	$ 28	$ 54	$ 165
Weighted average fair value of options granted	$ 0	$ 0	$ 13.95

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Stock Compensation Plans (Details 3)	12 Months Ended
	Dec. 31, 2018 $ / shares shares
Restricted Stock Units (RSUs) [Member]
Shares, Unvested at January 1, 2018 | shares	145,076
Shares, Granted | shares	49,024
Shares, Vested | shares	(49,514)
Shares, Forfeited | shares	0
Shares, Unvested at December 31, 2018 | shares	144,586
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2018 | $ / shares	$ 20.26
Weighted-Average Grant Date Fair Value, Granted | $ / shares	26.97
Weighted-Average Grant Date Fair Value, Vested | $ / shares	16.15
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares	0
Weighted-Average Grant Date Fair Value, Unvested at December 31, 2018 | $ / shares	$ 23.94
Stock Grants [Member]
Shares, Unvested at January 1, 2018 | shares	21,072
Shares, Granted | shares	66,118
Shares, Vested | shares	(56,818)
Shares, Forfeited | shares	0
Shares, Unvested at December 31, 2018 | shares	30,372
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2018 | $ / shares	$ 25.28
Weighted-Average Grant Date Fair Value, Granted | $ / shares	19.68
Weighted-Average Grant Date Fair Value, Vested | $ / shares	17.51
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares	0
Weighted-Average Grant Date Fair Value, Unvested at December 31, 2018 | $ / shares	$ 28.48

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Stock Compensation Plans (Details Textual) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Feb. 27, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number		39,400	86,900
Option Subscription, Description		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 the payment.
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options		$ 50,000
Employee Service Share Based Compensation Nonvested Awards, Total Compensation Cost Not Yet Recognized, Period For Recognition (in years)		1 year 7 months 6 days
Allocated Share-based Compensation Expense		$ 2,000,000	$ 2,000,000	$ 1,300,000
Compensation Expense, Maximum		4,300,000
Estimated Compensation Expense, Excepted		3,700,000
Unrecognized Compensation Expense		$ 899,000
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		7,348
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number		174,958
Restricted Stock Units (RSUs) [Member] | Share Based compensation Award Tranche One
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		4,104
Restricted Stock Units (RSUs) [Member] | Share Based Compensation Award Tranche Two
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		12,500
Short-term Equity Incentive Plan 2013 [Member]
Stock Option Period, Description		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.
Equity Plan 2010 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					900,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant		895,500
Short-term and Long-term Equity Incentive Plan 2011 [Member]
Allocated Share-based Compensation Expense		$ 961,000	$ 774,000
Stock Option Grant, 2009 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Vested Percentage, Year		20.00%
Short Term Equity Incentive Plan 2014 [Member]
Option Subscription, Description		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.
Long Term Equity Incentive Plan 2014 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	49,514			49,052
Long Term Equity Incentive Plan 2015 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			41,314
Option Subscription, Description		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 the payment.
Long Term Equity Incentive Plan 2015 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate		45.00%
Long Term Equity Incentive Plan 2015 [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate		20.00%
Short Term Equity Incentive Plan 2015 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate		45.00%
Short Term Equity Incentive Plan 2015 [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate		10.00%
Long Term Equity Incentive Plan 2016 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		41,676
Restricted Stock Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		16,604
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		23,952

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Parent Company Statements (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Assets
Cash and cash equivalents	$ 98,962	$ 113,693	$ 99,003	$ 79,769
Other assets	23,365	38,959
Total assets	3,181,722	2,993,403
Liabilities and stockholders' equity:
Stockholders' equity	399,589	373,286	$ 293,018	$ 280,197
Total liabilities and stockholders' equity	3,181,722	2,993,403
Parent Company [Member]
Assets
Cash and cash equivalents	12,153	8,860
Investment in banking subsidiary	398,922	377,546
Investment in non-bank subsidiaries	23,372	22,319
Other assets	1,723	1,157
Total assets	436,170	409,882
Liabilities and stockholders' equity:
Subordinated debentures	36,083	36,083
Accrued liabilities	498	513
Stockholders' equity	399,589	373,286
Total liabilities and stockholders' equity	$ 436,170	$ 409,882

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Parent Company Statements (Details 1) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Condensed Income Statements, Captions [Line Items]
Interest expense	$ (5,058)	$ (4,434)	$ (3,752)	$ (3,218)	$ (3,140)	$ (3,074)	$ (2,826)	$ (2,391)	$ (16,462)	$ (11,431)	$ (8,440)
Noninterest expense	(21,210)	(22,286)	(22,665)	(23,251)	(21,139)	(20,440)	(20,630)	(23,142)	(89,412)	(85,351)	(71,093)
Income before income taxes and equity in earnings of subsidiaries	15,179	13,789	13,673	14,234	13,831	13,600	12,024	8,997	56,875	48,452	41,597
Net income	$ 12,097	$ 11,306	$ 11,109	$ 11,737	$ 9,400	$ 9,381	$ 8,347	$ 5,140	46,249	32,268	28,843
Other comprehensive income (loss)									(2,412)	2	(3,407)
Comprehensive income									43,837	32,270	25,436
Parent Company [Member]
Condensed Income Statements, Captions [Line Items]
Dividends from subsidiaries									24,550	15,800	24,200
Interest expense									(1,281)	(1,090)	(753)
Other income									1	1	0
Noninterest expense									(831)	(697)	(644)
Income before income taxes and equity in earnings of subsidiaries									22,439	14,014	22,803
Income tax credit									(431)	(605)	(466)
Income before equity in earnings of subsidiaries									22,870	14,619	23,269
Undistributed equity in earnings of subsidiaries									23,379	17,649	5,574
Net income									46,249	32,268	28,843
Other comprehensive income (loss)									(2,412)	2	(3,407)
Comprehensive income									$ 43,837	$ 32,270	$ 25,436

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Parent Company Statements (Details 2) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Operating activities:
Net income	$ 12,097	$ 11,306	$ 11,109	$ 11,737	$ 9,400	$ 9,381	$ 8,347	$ 5,140	$ 46,249	$ 32,268	$ 28,843
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Net cash provided by (used in) operating activities									53,055	35,957	26,984
Investing activities:
Net cash used in investing activities									(213,024)	(132,878)	(158,480)
Financing activities:
Repurchase of common stock									(6,330)	0	(6,293)
Stock Options Exercised									111	199	714
Direct stock sales									104	73	63
Net cash used in financing activities									145,238	111,611	150,730
Net increase (decrease) in cash and cash equivalents									(14,731)	14,690	19,234
Parent Company [Member]
Operating activities:
Net income									46,249	32,268	28,843
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Undistributed equity in earnings of subsidiaries									(23,379)	(17,649)	(5,574)
Change in other assets and liabilities									(419)	(358)	235
Net cash provided by (used in) operating activities									22,451	14,261	23,504
Investing activities:
Cash paid for Commercial Bancshares									0	(12,340)	0
Capital contribution to subsidiary									0	(6,491)	0
Net cash used in investing activities									0	(18,831)	0
Financing activities:
Repurchase of common stock									(6,330)	0	(6,293)
Cash dividends paid									(13,043)	(9,859)	(7,890)
Stock Options Exercised									111	199	714
Direct stock sales									104	73	66
Net cash used in financing activities									(19,158)	(9,587)	(13,406)
Net increase (decrease) in cash and cash equivalents									3,293	(14,157)	10,098
Cash and cash equivalents at beginning of year				$ 8,860				$ 23,017	8,860	23,017	12,919
Cash and cash equivalents at end of year	$ 12,153				$ 8,860				$ 12,153	$ 8,860	$ 23,017

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Fair Value (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Available for sale securities:
Available for sale securities, Total Fair Value	$ 294,076	$ 260,650
Collateralized mortgage obligations- residential [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	101,461	93,876
Fair Value, Inputs, Level 1 [Member] | Collateralized mortgage obligations- residential [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Fair Value, Inputs, Level 2 [Member] | Collateralized mortgage obligations- residential [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	101,461	93,876
Fair Value, Inputs, Level 3 [Member] | Collateralized mortgage obligations- residential [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Obligations of U.S. Government corporations and agencies [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	2,503	508
Obligations of U.S. Government corporations and agencies [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Obligations of U.S. Government corporations and agencies [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	2,503	508
Obligations of U.S. Government corporations and agencies [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage-backed - residential [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	74,710	59,269
Mortgage-backed - residential [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage-backed - residential [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	74,710	59,269
Mortgage-backed - residential [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
REMIC [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	2,709	1,065
REMIC [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
REMIC [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	2,709	1,065
REMIC [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Preferred Stock [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	1
Preferred Stock [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	1
Preferred Stock [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Preferred Stock [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Corporate bonds [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	12,806	13,103
Corporate bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Corporate bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	12,806	13,103
Corporate bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Obligations of state and political subdivisions [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	99,887	92,828
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	99,887	92,828
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value
Mortgage Banking Derivative Asset [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	367	609
Mortgage Banking Derivative Asset [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage Banking Derivative Asset [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	367	609
Mortgage Banking Derivative Asset [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage Banking Derivative Liability [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	73	11
Mortgage Banking Derivative Liability [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage Banking Derivative Liability [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	73	11
Mortgage Banking Derivative Liability [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	$ 0	$ 0

XML

Fair Value (Details 1) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Impaired loans
Total impaired loans	$ 1,775	$ 4,604
Mortgage servicing rights	629	534
Real estate held for sale
Total Real Estate held for sale	705	227
Commercial Real Estate [Member]
Impaired loans
Total impaired loans	1,456	1,787
Real estate held for sale
Total Real Estate held for sale	705	227
Commercial Loan [Member]
Impaired loans
Total impaired loans	319	2,817
Fair Value, Inputs, Level 1 [Member]
Impaired loans
Total impaired loans	0	0
Mortgage servicing rights	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 1 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 2 [Member]
Impaired loans
Total impaired loans	0	0
Mortgage servicing rights	629	534
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 2 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 3 [Member]
Impaired loans
Total impaired loans	1,775	4,604
Mortgage servicing rights	0	0
Real estate held for sale
Total Real Estate held for sale	705	227
Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	1,456	1,787
Real estate held for sale
Total Real Estate held for sale	705	227
Fair Value, Inputs, Level 3 [Member] | Commercial Loan [Member]
Impaired loans
Total impaired loans	$ 319	$ 2,817

XML

Fair Value (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Impaired Loans- Applies to all loan classes, Fair Value	$ 1,775	$ 4,604
Real estate held for sale - Applies to all classes, Fair Value	705	227
Range Of Input 10-20% [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Impaired Loans- Applies to all loan classes, Fair Value		$ 4,604
Valuation Technique, Fair Value		Appraisals which utilize sales comparison, net income and cost approach
Unobservable Inputs, Fair Value		Discounts for collection issues and changes in market conditions
Fair Value, Range of Input, Minimum		10.00%
Fair Value, Range of Input, Maximum		20.00%
Fair Value Measurement Weighted Average Range		11.00%
Range of Input 0% [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Real estate held for sale - Applies to all classes, Fair Value		$ 227
Valuation Technique, Fair Value		Appraisals which utilize sales comparison, net income and cost approach
Unobservable Inputs, Fair Value		Discounts for changes in market conditions
Fair Value, Range of Input, Minimum		0.00%
Fair Value Measurement Weighted Average Range		0.00%
Range Of Input 10-13% [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Impaired Loans- Applies to all loan classes, Fair Value	$ 1,775
Valuation Technique, Fair Value	Appraisals which utilize sales comparison, net income and cost approach
Unobservable Inputs, Fair Value	Discounts for collection issues and changes in market conditions
Fair Value, Range of Input, Minimum	10.00%
Fair Value, Range of Input, Maximum	13.00%
Fair Value Measurement Weighted Average Range	10.86%
Range of Input 20% [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Real estate held for sale - Applies to all classes, Fair Value	$ 705
Valuation Technique, Fair Value	Appraisals which utilize sales comparison, net income and cost approach
Unobservable Inputs, Fair Value	Discounts for changes in market conditions
Fair Value, Range of Input, Minimum	20.00%
Fair Value Measurement Weighted Average Range	20.00%

XML

Fair Value (Details 3) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financial Assets, Carrying Value:
Cash and cash equivalents, Carrying Value	$ 98,962	$ 113,693	$ 99,003	$ 79,769
Investment securities, Carrying Value	294,602	261,298
Federal Home Loan Bank Stock, Carrying Value	14,217	15,992
Loans, net, including loans held for sale, Carrying Value	2,518,321	2,332,465
Accrued interest receivable, Carrying Value	9,641	8,706
Financial Liabilities, Carrying Value:
Deposits, Carrying Value	2,620,882	2,437,656
Advances from Federal Home Loan Bank, Carrying Value	85,189	84,279
Securities sold under repurchase agreements, Carrying Value	5,741	26,019
Subordinated debentures, Carrying Value	36,083	36,083
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	98,962	113,693
Investment securities, Fair Value	294,602	261,299
Loans, net, including loans held for sale, Fair Value	2,501,096	2,315,791
Accrued interest receivable, Fair Value	9,641	8,706
Financial Liabilities, Fair Value:
Deposits, Fair Value	2,613,965	2,444,683
Advances from Federal Home Loan Bank, Fair Value	84,281	83,261
Securities sold under repurchase agreements, Fair Value	5,741	26,019
Subordinated debentures, Fair Value	28,854	35,385
Fair Value, Inputs, Level 1 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	98,962	113,693
Investment securities, Fair Value	0	1
Loans, net, including loans held for sale, Fair Value	0	0
Accrued interest receivable, Fair Value	18	13
Financial Liabilities, Fair Value:
Deposits, Fair Value	607,198	571,360
Advances from Federal Home Loan Bank, Fair Value	0	0
Securities sold under repurchase agreements, Fair Value	0	0
Subordinated debentures, Fair Value	0	0
Fair Value, Inputs, Level 2 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	0	0
Investment securities, Fair Value	294,602	261,298
Loans, net, including loans held for sale, Fair Value	6,865	10,830
Accrued interest receivable, Fair Value	1,168	917
Financial Liabilities, Fair Value:
Deposits, Fair Value	2,006,767	1,873,323
Advances from Federal Home Loan Bank, Fair Value	84,281	83,261
Securities sold under repurchase agreements, Fair Value	5,741	26,019
Subordinated debentures, Fair Value	0	0
Fair Value, Inputs, Level 3 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	0	0
Investment securities, Fair Value	0	0
Loans, net, including loans held for sale, Fair Value	2,494,231	2,304,961
Accrued interest receivable, Fair Value	8,455	7,776
Financial Liabilities, Fair Value:
Deposits, Fair Value	0	0
Advances from Federal Home Loan Bank, Fair Value	0	0
Securities sold under repurchase agreements, Fair Value	0	0
Subordinated debentures, Fair Value	$ 28,854	$ 35,385

XML

Fair Value (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Option, Qualitative Disclosures Related to Election [Abstract]
Impaired Financing Receivable, Recorded Investment	$ 1,775,000	$ 4,604,000
Impaired Financing Receivables, Provisional Expenses	1,200,000	993,000	$ 1,000,000
Mortgage Servicing Rights at Fair Value	629,000	534,000
Valuation Allowance of Mortgage Servicing Rights	300,000	432,000
Proceeds from Collection of Loans Receivable	132,000	90,000	123,000
Real Estate Held-for-sale, Increase (Decrease) in Fair Value	552,000	20,000	$ 74,000
Impaired Financing Receivable, Related Allowance	595,000	758,000
Collateral Dependent Loan [Member]
Fair Value, Option, Qualitative Disclosures Related to Election [Abstract]
Impaired Financing Receivable, Recorded Investment	1,800,000	4,600,000
Impaired Financing Receivable, Related Allowance	$ 9,000	$ 9,000
Minimum [Member] | Real Estate held for sale [Member]
Fair Value, Option, Qualitative Disclosures Related to Election [Abstract]
Fair Value Inputs, Discount Rate	0.00%
Maximum [Member] | Real Estate held for sale [Member]
Fair Value, Option, Qualitative Disclosures Related to Election [Abstract]
Fair Value Inputs, Discount Rate	20.00%

XML

Derivative Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives Assets, Carrying Value	$ 367	$ 609
Mortgage Banking Derivatives Liabilities, Carrying Value	73	11
Mortgage Banking Derivatives, Net Carrying Value	$ 294	$ 598

XML

Derivative Financial Instruments (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives - Gain (Loss)	$ (304)	$ 107	$ (67)

XML

Derivative Financial Instruments (Details Textual) - USD ($) $ in Millions	Dec. 31, 2018	Dec. 31, 2017
Derivative Instruments, Gain (Loss) [Line Items]
Interest Rate Derivative Instruments Not Designated as Hedging Instruments at Fair Value, Net	$ 8.6	$ 14.8
Notional Amount of Interest Rate Derivative Instruments Not Designated as Hedging Instruments	$ 11.5	$ 23.2

XML

Quarterly Consolidated Results of Operations (Unaudited) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Interest income	$ 33,550	$ 31,963	$ 30,299	$ 28,905	$ 28,527	$ 28,081	$ 27,458	$ 24,036	$ 124,717	$ 108,102	$ 87,383
Interest expense	5,058	4,434	3,752	3,218	3,140	3,074	2,826	2,391	16,462	11,431	8,440
Net interest income	28,492	27,529	26,547	25,687	25,387	25,007	24,632	21,645	108,255	96,671	78,943
Provision for loan losses	472	1,376	423	(1,095)	314	462	2,118	55	1,176	2,949	283
Net interest income after provision for loan losses	28,020	26,153	26,124	26,782	25,073	24,545	22,514	21,590	107,079	93,722	78,660
Gain on sale, call or write-down of securities	97	76	0	0	159	158	267	0	173	584	509
Noninterest income	8,272	9,846	10,214	10,703	9,738	9,337	9,873	10,549	39,208	40,081	34,030
Noninterest expense	21,210	22,286	22,665	23,251	21,139	20,440	20,630	23,142	89,412	85,351	71,093
Income before income taxes	15,179	13,789	13,673	14,234	13,831	13,600	12,024	8,997	56,875	48,452	41,597
Income taxes	3,082	2,483	2,564	2,497	4,431	4,219	3,677	3,857	10,626	16,184	12,754
Net income	$ 12,097	$ 11,306	$ 11,109	$ 11,737	$ 9,400	$ 9,381	$ 8,347	$ 5,140	$ 46,249	$ 32,268	$ 28,843
Earnings per common share:
Basic	$ 0.60	$ 0.55	$ 0.54	$ 0.58	$ 0.47	$ 0.46	$ 0.41	$ 0.27	$ 2.27	$ 1.62	$ 1.61
Diluted	$ 0.59	$ 0.55	$ 0.54	$ 0.58	$ 0.46	$ 0.46	$ 0.41	$ 0.27	$ 2.26	$ 1.61	$ 1.60
Average shares outstanding:
Basic	20,313	20,400	20,388	20,330	20,310	20,298	20,294	18,870	20,349	19,932	17,938
Diluted	20,404	20,467	20,492	20,438	20,444	20,418	20,408	18,980	20,349	19,932	17,938

XML

Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Securities available for sale and transferred securities:Before Tax Amount
Change in net unrealized gain/(loss) during the period	$ (3,356)	$ 732	$ (4,933)
Reclassification adjustment for net gains included in net income	(173)	(584)	(509)
Net gain on defined benefit postretirement medical plan realized during the period	560	(166)
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)	18	19
Total other comprehensive income	(2,951)	2
Securities available for sale and transferred securities: Tax Effect
Change in net unrealized gain/(loss) during the period	(706)	256
Reclassification adjustment for net gains included in net income	(36)	(204)
Net gain on defined benefit postretirement medical plan realized during the period	200	(59)
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)	3	7
Total other comprehensive income	(539)	0
Securities available for sale and transferred securities: Net of Tax Amount
Change in net unrealized gain/(loss) during the period	(2,650)	477
Reclassification adjustment for net gains included in net income	(137)	(380)
Net gain on defined benefit postretirement medical plan realized during the period	360	(107)
Reclassification adjustment for net amortization and deferral on defined benefit postretirement medical plan (included in compensation and benefits)	15	12
Total other comprehensive income (loss)	$ (2,412)	$ 2	$ (3,407)

XML

Other Comprehensive Income (Loss) (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Securities Available For Sale, Beginning balance	$ 601	$ 504
Securities Available For Sale, Other comprehensive income before reclassifications	(2,651)	477
Securities Available For Sale, Amounts reclassified from accumulated other comprehensive loss	(136)	(380)
Securities Available For Sale, Net other comprehensive income during period	(2,787)	97
Securities Available For Sale, Reclassification adjustment upon adoption of ASU 2018-02	129
Securities Available For Sale, Ending balance	(2,057)	601
Post-retirement Benefit, Beginning balance	(384)	(289)
Post-retirement Benefit, Other comprehensive income before reclassifications	360	(108)
Post-retirement Benefit, Amounts reclassified from accumulated other comprehensive loss	15	13
Post-retirement Benefit, Net other comprehensive income during period	375	(95)
Post-retirement Benefit, Reclassification adjustment upon adoption of ASU 2018-02	(82)
Post-retirement Benefit, Ending balance	(91)	(384)
Accumulated Other Comprehensive Income, Beginning balance	217	215
Accumulated Other Comprehensive Income, Other comprehensive income before reclassifications	(2,291)	369
Accumulated Other Comprehensive Income, Amounts reclassified from accumulated other comprehensive loss	(121)	(367)
Accumulated Other Comprehensive Income, Net other comprehensive income during period	(2,412)	2
Accumulated Other Comprehensive Income (Loss), Reclassification adjustment upon adoption of ASU 2018-02	47
Accumulated Other Comprehensive Income, Ending balance	$ (2,148)	$ 217