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.