10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the Quarterly Period Ended June 30, 2019

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the Transition Period from ___________to__________

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	(I.R.S. Employer
incorporation or organization)	Identification Number)

601 Clinton Street, Defiance, Ohio	43512
(Address of principal executive office)	(Zip Code)

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

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, Par Value $0.01 Per Share	FDEF	The NASDAQ Stock Market

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value – 19,728,023 shares outstanding at July 31, 2019.

FIRST DEFIANCE FINANCIAL CORP.

INDEX

		Page Number
PART I.-FINANCIAL INFORMATION
Item 1.	Consolidated Condensed Financial Statements (Unaudited):
	Consolidated Condensed Statements of Financial Condition – June 30, 2019 and December 31, 2018	2
	Consolidated Condensed Statements of Income - Three and six months ended June 30, 2019 and 2018	4
	Consolidated Condensed Statements of Comprehensive Income – Three and six months ended June 30, 2019 and 2018	5
	Consolidated Condensed Statements of Changes in   Stockholders’ Equity – Three and Six months ended June 30, 2019 and 2018	6
	Consolidated Condensed Statements of Cash Flows  - Six months ended June 30, 2019 and 2018	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	74
Item 4.	Controls and Procedures	75
PART II-OTHER INFORMATION:
Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77
	Signatures	78

1

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

(Amounts in Thousands, except share and per share data)

	June 30, 2019		December 31, 2018
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	50,597	$	55,962
Federal funds sold		33,000		43,000
		83,597		98,962
Securities:
Available-for-sale, carried at fair value		296,115		294,076
Held-to-maturity, carried at amortized cost (fair value $484 and $526 at June 30, 2019 and December 31, 2018, respectively)		485		526
		296,600		294,602
Loans held for sale		14,509		6,613
Loans receivable, net of allowance of $28,934 at June 30, 2019 and $28,331 at December 31, 2018, respectively		2,595,285		2,511,708
Mortgage servicing rights		9,855		10,119
Accrued interest receivable		10,771		9,641
Federal Home Loan Bank stock		11,915		14,217
Bank owned life insurance		75,086		67,660
Premises and equipment		39,959		40,670
Real estate and other assets held for sale		-		1,205
Goodwill		98,569		98,569
Core deposit and other intangibles		3,816		4,391
Other assets		37,590		23,365
Total assets	$	3,277,552	$	3,181,722

(continued)

2

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

(Amounts in Thousands, except share and per share data)

	June 30, 2019			December 31, 2018
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	2,680,637		$	2,620,882
Advances from the Federal Home Loan Bank		105,178			85,189
Subordinated debentures		36,083			36,083
Securities sold under repurchase agreements		3,064			5,741
Advance payments by borrowers		3,550			3,652
Deferred taxes		1,593			264
Other liabilities		40,231			30,322
Total liabilities		2,870,336			2,782,133
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; 25,371,086 and 25,398,992 shares issued and 19,727,630 and 20,171,392 shares outstanding at June 30, 2019 and December 31, 2018, respectively		127			127
Additional paid-in capital		161,205			161,593
Accumulated other comprehensive income (loss), net of tax of $1,108 and $(468), respectively		4,167			(2,148	)
Retained earnings		311,576			295,588
Treasury stock, at cost, 5,643,456 shares at June 30, 2019 and 5,227,600 shares at December 31, 2018		(69,859	)		(55,571	)
Total stockholders’ equity		407,216			399,589
Total liabilities and stockholders’ equity	$	3,277,552		$	3,181,722

See accompanying notes.

3

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Income

(UNAUDITED)

(Amounts in Thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Interest Income
Loans	$	32,660	$	27,660	$	63,874	$	54,186
Investment securities:
Taxable		1,289		1,189		2,655		2,238
Non-taxable		849		850		1,688		1,652
Interest-bearing deposits		260		373		545		670
FHLB stock dividends		183		227		398		458
Total interest income		35,241		30,299		69,160		59,204
Interest Expense
Deposits		5,581		3,144		10,586		5,755
FHLB advances and other		304		282		580		601
Subordinated debentures		350		320		714		600
Notes payable		17		6		21		14
Total interest expense		6,252		3,752		11,901		6,970
Net interest income		28,989		26,547		57,259		52,234
Provision for loan losses		282		423		494		(672	)
Net interest income after provision for loan losses		28,707		26,124		56,765		52,906
Non-interest Income
Service fees and other charges		3,301		3,296		6,308		6,427
Insurance commissions		3,616		3,493		7,731		7,770
Mortgage banking income		2,137		2,013		3,978		3,755
Gain on sale of non-mortgage loans		21		43		110		267
Trust income		476		522		999		1,074
Income from Bank Owned Life Insurance		527		566		919		966
Other non-interest income		408		281		1,254		658
Total non-interest income		10,486		10,214		21,299		20,917
Non-interest Expense
Compensation and benefits		14,398		12,885		28,483		26,134
Occupancy		2,304		2,026		4,545		4,097
FDIC insurance premium		258		202		531		562
Financial institutions tax		556		531		1,112		1,062
Data processing		2,267		2,083		4,564		4,188
Amortization of intangibles		276		332		575		679
Other non-interest expense		4,176		4,606		9,291		9,194
Total non-interest expense		24,235		22,665		49,101		45,916
Income before income taxes		14,958		13,673		28,963		27,907
Federal income taxes		2,759		2,564		5,282		5,061
Net Income	$	12,199	$	11,109	$	23,681	$	22,846
Earnings per common share (1)
Basic	$	0.62	$	0.54	$	1.19	$	1.12
Diluted	$	0.61	$	0.54	$	1.19	$	1.12
Dividends declared per share (1)	$	0.19	$	0.15	$	0.38	$	0.30
Average common shares outstanding (1)
Basic		19,780		20,388		19,897		20,359
Diluted		19,860		20,492		19,976		20,466

See accompanying notes.

4

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income

(UNAUDITED)

(Amounts in Thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income	$	12,199		$	11,109		$	23,681		$	22,846
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale		3,289			(872	)		7,892			(4,429	)
Income tax expense (benefit)		(691	)		183			(1,659	)		930
Net of tax amount		2,598			(689	)		6,233			(3,499	)
Change in unrealized gain/(loss) on postretirement benefit:
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan		-			-			82			-
Net of tax amount		-			-			82			-
Total other comprehensive income (loss)		2,598			(689	)		6,315			(3,499	)
Comprehensive income	$	14,797		$	10,420		$	29,996		$	19,347

See accompanying notes.

5

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statement of Changes in Stockholders’ Equity

(UNAUDITED)

(Amounts in Thousands, except share data)

											Accumulated
			Common					Additional			Other									Total
	Preferred		Stock			Common		Paid-In			Comprehensive			Retained			Treasury			Stockholders’
	Stock		Shares(1)			Stock		Capital			Income			Earnings			Stock			Equity
Balance at December 31, 2018	$	-		20,171,392		$	127	$	161,593		$	(2,148	)	$	295,588		$	(55,571	)	$	399,589
Net income															11,482						11,482
Other comprehensive income												3,717									3,717
Deferred compensation plan									(22	)								42			20
Stock based compensation expenses									11												11
Shares issued under stock option plan,  net of 178 repurchased and retired				17,822					(22	)					(5	)		212			185
Restricted share activity under stock incentive plans net of 25,195 repurchased and retired				38,890					(751	)								440			(311	)
Shares issued from direct stock sales				1,065					19									12			31
Shares repurchased				(515,977	)													(15,147	)		(15,147	)
Common stock dividends declared															(3,788	)					(3,788	)
Balance at March 31, 2019	$	-		19,713,192		$	127	$	160,828		$	1,569		$	303,277		$	(70,012	)	$	395,789
Net income															12,199						12,199
Other comprehensive income												2,598									2,598
Deferred compensation plan									(12	)								29			17
Stock based compensation expenses									255												255
Shares issued under stock option plan,  net of 0 repurchased and retired				1,200					(9	)								15			6
Restricted share activity under stock incentive plans net of 2,533 repurchased and retired				12,304					129						(153	)		98			74
Shares issued from direct stock sales				934					14									11			25
Common stock dividends declared															(3,747	)					(3,747	)
Balance at June 30, 2019	$	-		19,727,630		$	127	$	161,205		$	4,167		$	311,576		$	(69,859	)	$	407,216

										Accumulated
			Common				Additional			Other									Total
	Preferred		Stock		Common		Paid-In			Comprehensive			Retained			Treasury			Stockholders’
	Stock		Shares(1)		Stock		Capital			Income			Earnings			Stock			Equity
Balance at December 31, 2017	$	-		20,312,082	$	127	$	160,940		$	217		$	262,900		$	(50,898	)	$	373,286
Net income														11,737						11,737
Other comprehensive loss											(2,810	)								(2,810	)
Adoption of ASU 2018-02 – See Note 2											47			(47	)					-
Stock based compensation expenses								84												84
Shares issued under stock option plan, net of 1,224 repurchased and retired				11,276				(33	)					(36	)		125			56
Restricted share activity under stock incentive plans net of 17,818 repurchased and retired				39,696				(458	)					(81	)		426			(113	)
Shares issued from direct stock sales				744				14									7			21
Common stock dividends declared														(3,047	)					(3,047	)
Balance at March 31, 2018	$	-		20,363,798	$	127	$	160,547		$	(2,546	)	$	271,426		$	(50,340	)	$	379,214
Net income														11,109						11,109
Other comprehensive loss											(689	)								(689	)
Stock based compensation expenses								88												88
Shares issued under stock option plan, net of 7,648 repurchased and retired				27,352				(60	)					(234	)		349			55
Restricted share activity under stock incentive plans net of 0 repurchased and retired				4,104				253						(120	)		40			173
Shares issued from direct stock sales				924				19									10			29
Common stock dividends declared														(3,059	)					(3,059	)
Balance at June 30, 2018	$	-		20,396,178	$	127	$	160,847		$	(3,235	)	$	279,122		$	(49,941	)	$	386,920

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

See accompanying notes.

6

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)

	Six Months Ended
	June 30,
	2019			2018
Operating Activities
Net income	$	23,681		$	22,846
Items not requiring (providing) cash:
Provision for loan losses		494			(672	)
Depreciation		2,073			1,719
Amortization of mortgage servicing rights, net of impairment charges/recoveries		980			586
Amortization of core deposit and other intangible assets		575			679
Net accretion of premiums and discounts on loans and deposits		(450	)		(192	)
Amortization of premiums and discounts on securities		633			588
Change in deferred taxes		(246	)		70
Proceeds from the sale of loans held for sale		99,438			100,481
Originations of loans held for sale		(104,974	)		(103,730	)
Gain from sale of loans		(3,186	)		(2,731	)
Loss on sale or write down of property plant and equipment		10			-
Gain/loss on sale / write-down of real estate and other assets held for sale		278			529
Stock option expense		266			172
Restricted stock (income)/expense		(239	)		60
Income from bank owned life insurance		(919	)		(966	)
Excess tax benefit on stock compensation plans		(106	)		(158	)
Changes in:
Accrued interest receivable		(1,130	)		(769	)
Other assets		(5,417	)		(2,219	)
Other liabilities		1,246			(3,382	)
Net cash provided by operating activities		13,007			12,911
Investing Activities
Proceeds from maturities of held-to-maturity securities		38			41
Proceeds from maturities, calls and pay-downs of available-for-sale securities		16,432			12,519
Proceeds from sale of premises and equipment, real estate and other assets held for sale		1,073			343
Proceeds from sale of non-mortgage loans		14,378			14,086
Purchases of available-for-sale securities		(11,211	)		(42,839	)
Proceeds from Federal Home Loan stock redemption		2,302			3
Proceeds from sale of bank owned life insurance		-			17,689
Purchases of premises and equipment, net		(1,372	)		(1,946	)
Investment in bank owned life insurance		(6,600	)		-
Proceeds from bank owned life insurance death benefit		93			336
Net increase in loans receivable		(98,035	)		(49,941	)
Net cash used by  investing activities		(82,902	)		(49,709	)
Financing Activities
Net increase in deposits and advance payments by borrowers		59,652			53,612
Repayment of Federal Home Loan Bank advances		(35,062	)		(28,557	)
Proceeds from Federal Home Loan Bank advances		35,000			30,000
Net change in Federal Home Loan Bank advances		20,051			-
Decrease in securities sold under repurchase agreements		(2,677	)		(19,120	)
Net cash paid for repurchase of common stock		(15,147	)		-
Proceeds from exercise of stock options		191			111
Proceeds from direct stock sales		57			50
Cash dividends paid on common stock		(7,535	)		(6,106	)
Net cash provided by financing activities		54,530			29,990
Increase in cash and cash equivalents		(15,365	)		(6,808	)
Cash and cash equivalents at beginning of period		98,962			113,693
Cash and cash equivalents at end of period	$	83,597		$	106,885
Supplemental cash flow information:
Interest paid	$	11,811		$	6,901
Income taxes paid	$	4,200		$	5,250
Initial recognition of right-of-use asset	$	8,808		$	-
Initial recognition of lease liability	$	9,339		$	-
Transfers from loans to real estate and other assets held for sale	$	146		$	930
Securities purchased but not yet settled	$	-		$	397

See accompanying notes. 

7

FIRST DEFIANCE FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements (UNAUDITED)

June 30, 2019 and 2018

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” or the “Bank”), First Insurance Group of the Midwest, Inc. (“First Insurance”), and First Defiance Risk Management Inc. (“First Defiance Risk Management”). All significant intercompany transactions and balances are eliminated in consolidation.

First Federal is primarily engaged in 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 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 is a wholly-owned insurance company subsidiary of the Company that insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

The consolidated condensed statement of financial condition at December 31, 2018, has been derived from the audited financial statements at that date, which were included in First Defiance’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

The accompanying consolidated condensed financial statements as of June 30, 2019, and for the three and six month periods ended June 30, 2019 and 2018 have been prepared by First Defiance without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the 2018 Form 10-K. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and six month periods ended June 30, 2019, are not necessarily indicative of the results that may be expected for the entire year.

8

On June 22, 2018, the Company announced a stock split in the form of a share distribution of one common share 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 Quarterly Report on Form 10-Q has been adjusted and is reflective of the stock split.

2. Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with 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 by the weighted average number of shares of common stock outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for the calculation. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, restricted stock awards and stock grants.

Goodwill and Other Intangibles

Goodwill resulting from business combinations prior to January 1, 2009, represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected November 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on First Defiance’s balance sheet.

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank, insurance and branch acquisitions. They are initially recorded at fair value and then amortized on an accelerated basis over their estimated lives, which range from five years for non-compete agreements to 10 to 20 years for core deposit and customer relationship intangibles.

9

Accounting Standards Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet. For public companies, this update was effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of 2019. Upon adoption, the Company elected a practical expedient which allows existing leases to retain their classification as operating leases. The Company has elected to account for lease and related nonlease components as a single lease component. The Company has also elected to not recognize right-of-use assets and lease liabilities arising from short-term leases, which are twelve months or less. Implementation of the guidance resulted in the recording of a right-of-use asset and lease liability on the balance sheet; however it does not have a material impact on the Company's other consolidated financial statements. See additional disclosures in Note 10.

Accounting Standards Updates

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 are not 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; however, the Company does not currently plan to adopt this ASU early. As a result of this ASU, the Company could experience an increase in its allowance. 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). Interagency guidance issued in December 2018 allows for a three-year phase-in of the cumulative-effect adjustment for regulatory capital reporting purposes. 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. The Company is currently running parallel computations in 2019 and continues to evaluate the impact of adoption of this ASU.

10

3. Fair Value

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

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 2 include U.S. federal government agencies, mortgage-backed securities, corporate bonds and municipal securities.

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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 investor’s required return.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell.  Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted from 0% to 30% to account for other factors that may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used, which include but are not limited to:  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:

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Assets and Liabilities Measured on a Recurring Basis

June 30, 2019	Level 1 Inputs		Level 2 Inputs		Level 3  Inputs		Total Fair Value
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	-	$	2,533	$	-	$	2,533
Mortgage-backed - residential		-		79,204		-		79,204
REMICs		-		2,412		-		2,412
Collateralized mortgage obligations- residential		-		97,526		-		97,526
Preferred Stock		1		-		-		1
Corporate bonds		-		12,986		-		12,986
Obligations of state and political subdivisions		-		101,453		-		101,453
Mortgage banking derivative - asset		-		1,392		-		1,392
Mortgage banking derivative - liability		-		205		-		205

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. federal government corporations and agencies	$	-	$	2,503	$	-	$	2,503
Mortgage-backed - residential		-		74,710		-		74,710
REMICs		-		2,709		-		2,709
Collateralized mortgage obligations-residential		-		101,461		-		101,461
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

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:

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Assets and Liabilities Measured on a Non-Recurring Basis

June 30, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate	$	-	$	-	$	459	$	459
Commercial		-		-		205		205
Total impaired loans		-		-		664		664
Mortgage servicing rights		-		288		-		288

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
Commercial real estate		-		-		705		705
Total real estate held for sale		-		-		705		705

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2019, 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	$	664	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-40%		19.3%

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%

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Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $664,000 with a $91,000 valuation allowance and a fair value of $1.8 million with a $9,000 valuation allowance at June 30, 2019, and December 31, 2018, respectively. Provision expense of $52,000 and $176,000 were included in earnings for the three and six months ended June 30, 2019. A provision recovery of $72,000 for the three months ended June 30, 2018 and a provision expense of $61,000 for the six months ended June 30, 2018 were included in earnings.

Mortgage servicing rights, which are carried at the lower of cost or fair value, had a fair value of $288,000 with a valuation allowance of $603,000 and a fair value of $629,000 with a valuation allowance of $300,000 at June 30, 2019, and December 31, 2018, respectively. Charges of $190,000 and $303,000 for the three and six months ended June 30, 2019 and recoveries of $47,000 and $83,000 for the three and six months ended June 30, 2018, respectively, were included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair value of real estate held for sale was $0 and $264,000 for the three and six months ended June 30, 2019, respectively, which was recorded directly as an adjustment to current earnings through non-interest expense. The change in fair value of real estate held for sale was $0 and $544,000 for the three and six months ended June 30, 2018.

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 June 30, 2019, and December 31, 2018. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of First Defiance.

Much of the information used to arrive at “fair value” is highly subjective and judgmental in nature and therefore the results may not be precise. Subjective factors include, among other things, estimated cash flows, risk characteristics and interest rates, all of which are subject to change. With the exception of investment securities, the Company’s financial instruments are not readily marketable and market prices do not exist. Since negotiated prices for the instruments, which are not readily marketable, depend greatly on the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these instruments could be significantly different.

The carrying amount of cash and cash equivalents and notes payable, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

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

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The Company adopted the amendments to ASU 2016-01 relating to the loan portfolio in the first quarter of 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. 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 value.

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

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

FHLB advances with maturities greater than 90 days are valued based on a 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 June 30, 2019.

	Carrying		Fair Value Measurements at June 30, 2019 (In Thousands)
	Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	83,597	$	83,597	$	83,597	$	-	$	-
Investment securities		296,600		296,599		1		296,598		-
Federal Home Loan Bank Stock		11,915		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		2,609,794		2,631,763		-		14,982		2,616,781
Accrued interest receivable		10,771		10,771		3		1,225		9,543
Financial Liabilities:
Deposits	$	2,680,637	$	2,681,088	$	584,735	$	2,096,353	$	-
Advances from Federal Home Loan Bank		105,178		105,063		-		105,063		-
Securities sold under repurchase agreements		3,064		3,064		-		3,064		-
Subordinated debentures		36,083		32,330		-		-		32,330

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	Carrying		Fair Value Measurements at December 31, 2018 (In Thousands)
	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

4. 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 June 30, 2019, 20,200 options to acquire First Defiance shares were outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted vest 20% per year. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

The Company approved a Short-Term Incentive Plan (“STIP”) and a Long-Term Equity Incentive Plan (“LTIP”) for selected members of management.

Under the 2018 and 2019 STIPs, the participants could earn between 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 the payment.

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Under each LTIP, the participants could 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 41,676 and 69,014 RSUs to the participants in the 2018 and 2019 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 48,363 RSUs were issued to the participants of the 2016 LTIP in the first quarter of 2019 for the three year performance period ended December 31, 2018.

In the six months ended June 30, 2019, the Company also granted to employees 13,916 RSUs and 24,651 shares of restricted stock. Of the 24,651 restricted shares granted, 5,258 were issued to directors and have a one-year vesting period. The remaining 19,393 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 on the date of the grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during the three or six months ended June 30, 2019, or June 30, 2018.

Following is stock option activity under the plans during the six months ended June 30, 2019:

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2019		39,400		$	14.00
Forfeited or cancelled		-			-
Exercised		(19,200	)		10.15
Granted		-			-
Options outstanding, June 30, 2019		20,200		$	17.66		5.27	$	221
Vested or expected to vest at June 30, 2019		20,200		$	17.66		5.27	$	221
Exercisable at June 30, 2019		14,500		$	17.48		4.90	$	161

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Proceeds of options exercised	$	6	$	55	$	191	$	111
Related tax benefit recognized		-		6		4		28
Intrinsic value of options exercised		30		781		390		1,034

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As of June 30, 2019, there was $27,000 of total unrecognized compensation cost related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 1.3 years.

At June 30, 2019, 160,995 RSUs and 48,919 restricted stock grants were unvested. Compensation expense is recognized over the performance period based on the achievements of targets as established under the plan documents. A total expense of $437,000 and $960,000 was recorded during the three and six months ended June 30, 2019 compared to an expense of $343,000 and $907,000 for the three and six months ended June 30, 2018. There was approximately $457,000 and $961,000 included within other liabilities at June 30, 2019 and December 31, 2018, respectively, related to the STIP.

				Restricted Stock Units					Stock Grants
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
Unvested Shares	Shares			Fair Value		Shares			Fair Value
Unvested at January 1, 2019		144,586		$	23.94		30,372		$	28.48
Granted		82,930			25.61		78,922			22.25
Vested		(54,771	)		20.13		(60,375	)		21.17
Forfeited		(11,750	)		25.63		-			-
Unvested at  June 30, 2019		160,995		$	25.72		48,919		$	27.18

The maximum amount of compensation expense that may be recorded for the 2019 STIP and the active LTIPs at March 31, 2019, is approximately $4.8 million. However, the estimated expense expected to be recorded as of June 30, 2019, based on the performance measures in the plans, is $3.8 million of which $2.0 million is unrecognized at June 30, 2019, and will be recognized over the remaining performance periods.

5. Dividends on Common Stock

First Defiance declared and paid a $0.19 per common stock dividend in the first and second quarters of 2019 and declared and paid a $0.15 per common stock dividend in the first and second quarters of 2018.

6. Earnings Per Common Share

Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e., unvested restricted stock), not subject to performance based measures.

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The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended  June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(In Thousands, except per share data)
Basic Earnings Per Share:
Net income available to common shareholders	$	12,199	$	11,109	$	23,681	$	22,846
Less: Income allocated to participating securities		1		1		2		2
Net income allocated to common shareholders		12,198		11,108		23,679		22,844
Weighted average common shares outstanding including participating securities(1)		19,791		20,399		19,908		20,370
Less: Participating securities		11		11		11		11
Average common shares(1)		19,780		20,388		19,897		20,359
Basic earnings per common share	$	0.62	$	0.54		1.19		1.12
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	12,198	$	11,108	$	23,679	$	22,844
Weighted average common shares outstanding for basic earnings per common share(1)		19,780		20,388		19,897		20,359
Add: Dilutive effects of stock options		80		104		79		107
Average shares and dilutive potential common shares(1)		19,860		20,492		19,976		20,466
Diluted earnings per common share	$	0.61	$	0.54		1.19		1.12

(1) Share and per share data in above table has been adjusted for a 2-for-1 stock split on July 12, 2018.

There were 6,171 shares for both the three and six month periods in 2019 that were excluded from the diluted earnings per common share calculation as they were anti-dilutive. There were no anti-dilutive shares for both the three and six month periods in 2018 excluded subject to issue upon exercise of options.

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7. Investment Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At June 30, 2019
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	2,519	$	14	$	-		$	2,533
Mortgage-backed securities – residential		78,553		876		(225	)		79,204
REMICs		2,390		22		-			2,412
Collateralized mortgage obligations		96,574		1,062		(110	)		97,526
Preferred stock		-		1		-			1
Corporate bonds		12,906		97		(17	)		12,986
Obligations of state and political subdivisions		97,886		3,572		(5	)		101,453
Total Available-for-Sale	$	290,828	$	5,644	$	(357	)	$	296,115

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In Thousands)
Held-to-Maturity Securities*:
FHLMC certificates	$	7	$	-	$	-		$	7
FNMA certificates		25		-		(1	)		24
GNMA certificates		9		-		-			9
Obligations of state and political subdivisions		444		-		-			444
Total Held-to Maturity	$	485	$	-	$	(1	)	$	484

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
At December 31, 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

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			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

* FHLMC, FNMA, and GNMA certificates are residential mortgage-backed securities.

The amortized cost and fair value of the investment securities portfolio at June 30, 2019, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMO”) and REMICs, which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	5,594	$	5,614	$	-	$	-
Due after one year through five years		17,876		18,079		-		-
Due after five years through ten years		33,585		34,483		444		444
Due after ten years		56,256		58,797		-		-
MBS/CMO/REMIC		177,517		179,142		41		40
	$	290,828	$	296,115	$	485	$	484

Investment securities with a carrying amount of $154.2 million at June 30, 2019, were pledged as collateral on public deposits, securities sold under repurchase agreements and the Federal Reserve discount window.

As of June 30, 2019, the Company’s investment portfolio consisted of 434 securities, 39 of which were in an unrealized loss position.

22

The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2019, and December 31, 2018:

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
			Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loses
	(In Thousands)
At June 30, 2019
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	-	$	-		$	-	$	-		$	-	$	-
Mortgage-backed securities-residential		2,038		(14	)		23,742		(211	)		25,780		(225	)
Collateralized mortgage obligations		-		-			11,497		(110	)		11,497		(110	)
Corporate bonds		871		(17	)		-		-			871		(17	)
Obligations of state and political subdivisions		-		-			1,442		(5	)		1,442		(5	)
Held to maturity securities:		-		-			16		(1	)		16		(1	)
Total temporarily impaired securities	$	2,909	$	(31	)	$	36,697	$	(327	)	$	39,606	$	(358	)

	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	)
Total temporarily impaired securities	$	40,928	$	(341	)	$	137,099	$	(3,807	)	$	178,027	$	(4,148	)

There were no realized gains from the sales and calls of investment securities in the three and six month periods ending June 30, 2019 and 2018.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. The investment portfolio is evaluated for OTTI by segregating the portfolio into two general segments. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under FASB ASC Topic 320, Investments-Debt and Equity Securities. Certain collateralized debt obligations (“CDOs”) are evaluated for OTTI under FASB ASC Topic 325, Investment – Other.

23

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected compared to the book value of the security and is recognized in earnings. The amount of OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.

With the exception of corporate bonds, the above securities all have fixed interest rates, and all securities have defined maturities. Their fair value is sensitive to movements in market interest rates. First Defiance has the ability and intent to hold these investments for a time necessary to recover the amortized cost without impacting its liquidity position and it is not more than likely that the Company will be required to sell the investments before anticipated recovery.

In the second quarter of 2019 and 2018, management determined there was no OTTI.

8. Loans

Loans receivable consist of the following:

	June 30, 2019			December 31, 2018
	(In Thousands)
Real Estate:
Secured by 1-4 family residential	$	322,123		$	322,686
Secured by multi-family residential		281,679			278,358
Secured by commercial real estate		1,129,784			1,126,452
Construction		335,847			265,772
		2,069,433			1,993,268
Other Loans:
Commercial		530,528			509,577
Home equity and improvement		125,860			128,152
Consumer finance		35,350			34,405
		691,738			672,134
Total loans		2,761,171			2,665,402
Deduct:
Undisbursed loan funds		(134,794	)		(123,293	)
Net deferred loan origination fees and costs		(2,158	)		(2,070	)
Allowance for loan loss		(28,934	)		(28,331	)
Totals	$	2,595,285		$	2,511,708

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

The following table discloses allowance for loan loss activity for the quarters ended June 30, 2019 and 2018 by portfolio segment (In Thousands):

24

Quarter Ended June 30, 2019	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	$	2,811		$	3,068	$	12,001		$	731	$	7,276		$	1,928		$	349		$	28,164
Charge-Offs		(11	)		0		(15	)		0		(13	)		(64	)		(33	)		(136	)
Recoveries		156			24		269			0		94			60			21			624
Provisions		(163	)		10		(106	)		156		531			(161	)		15			282
Ending Allowance	$	2,793		$	3,102	$	12,149		$	887	$	7,888		$	1,763		$	352		$	28,934

Quarter Ended June 30, 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	$	2,534		$	2,983		$	10,773		$	667	$	7,838		$	2,209		$	263		$	27,267
Charge-Offs		(78	)		0			(254	)		0		(84	)		(41	)		(72	)		(529	)
Recoveries		34			2			26			0		30			57			11			160
Provisions		192			(72	)		708			70		(329	)		(193	)		47			423
Ending Allowance	$	2,682		$	2,913		$	11,253		$	737	$	7,455		$	2,032		$	249		$	27,321

The following table discloses allowance for loan loss activity for the year-to-date periods ended June 30, 2019 and June 30, 2018 by portfolio segment (In Thousands):

Year-to-date Period Ended June 30, 2019	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	$	2,881		$	3,101		$	12,041		$	682	$	7,281		$	2,026		$	319		$	28,331
Charge-Offs		(183	)		0			(15	)		0		(200	)		(97	)		(175	)		(670	)
Recoveries		170			36			353			0		106			84			30			779
Provisions		(75	)		(35	)		(230	)		205		701			(250	)		178			494
Ending Allowance	$	2,793		$	3,102		$	12,149		$	887	$	7,888		$	1,763		$	352		$	28,934

Year-to-date Period Ended June 30, 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		(94	)		0		(309	)		0		(181	)		(158	)		(103	)		(845	)
Recoveries		58			2		210			0		1,787			85			13			2,155
Provisions		186			209		998			90		(2,116	)		(150	)		111			(672	)
Ending Allowance	$	2,682		$	2,913	$	11,253		$	737	$	7,455		$	2,032		$	249		$	27,321

25

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 June 30, 2019 (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	$	196	$	2	$	65	$	-	$	161	$	66	$	-	$	490
Collectively evaluated for impairment		2,597		3,100		12,084		887		7,727		1,697		352		28,444
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934
Loans:
Loans individually evaluated for impairment	$	7,230	$	179	$	24,144	$	-	$	8,749	$	881	$	22	$	41,205
Loans collectively evaluated for impairment		314,359		281,595		1,108,728		200,767		523,640		125,921		35,476		2,590,486
Loans acquired with deteriorated credit quality		1,003		293		652		-		119		-		-		2,067
Total ending loans balance	$	322,592	$	282,067	$	1,133,524	$	200,767	$	532,508	$	126,802	$	35,498	$	2,633,758

26

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

27

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans (In Thousands):

	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	5,212	$	46	$	44	$	4,882	$	110	$	104
Residential Non Owner Occupied		2,040		26		26		2,060		56		56
Total Residential Real Estate		7,252		72		70		6,942		166		160
Construction		-		-		-		-		-		-
Multi-Family		305		7		7		819		27		27
CRE Owner Occupied		7,514		57		45		7,439		223		177
CRE Non Owner Occupied		1,942		18		18		1,966		51		44
Agriculture Land		13,734		170		94		13,319		376		291
Other CRE		796		19		17		975		53		50
Total Commercial Real Estate		23,986		264		174		23,699		703		562
Commercial Working Capital		7,594		83		71		7,842		226		162
Commercial Other		1,549		21		21		1,709		48		45
Total Commercial		9,143		104		92		9,551		274		207
Home Equity and  Improvement		889		6		5		905		20		18
Consumer Finance		25		-		-		30		1		1
Total Impaired Loans	$	41,600	$	453	$	348	$	41,946	$	1,191	$	975

28

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans (In Thousands):

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,598	$	40	$	38	$	4,619	$	72	$	69
Residential Non Owner Occupied		2,392		30		30		2,450		74		71
Total Residential Real Estate		6,990		70		68		7,069		146		140
Construction		-		-		-		-		-		-
Multi-Family		1,600		22		22		1,825		49		48
CRE Owner Occupied		8,352		78		72		10,789		122		107
CRE Non Owner Occupied		2,642		23		23		3,062		57		57
Agriculture Land		14,478		155		110		12,997		250		152
Other CRE		1,329		25		22		1,407		50		42
Total Commercial Real Estate		26,801		281		227		28,255		479		358
Commercial Working Capital		8,788		81		72		6,998		105		96
Commercial Other		3,046		29		29		4,073		54		52
Total Commercial		11,834		110		101		11,071		159		148
Home Equity and  Improvement		1,019		9		9		1,247		20		20
Consumer Finance		35		1		1		37		2		2
Total Impaired Loans	$	48,279	$	493	$	428	$	49,504	$	855	$	716

29

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

	June 30, 2019						December 31, 2018
	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	$	384	$	385	$	-	$	901	$	775	$	-
Residential Non Owner Occupied		891		894		-		950		955		-
Total 1-4 Family Residential Real Estate		1,275		1,279		-		1,851		1,730		-
Multi-Family Residential Real Estate		135		136		-		1,296		1,302		-
CRE Owner Occupied		6,953		5,813		-		7,464		6,202		-
CRE Non Owner Occupied		1,750		1,585		-		1,824		1,659		-
Agriculture Land		13,276		13,470		-		14,915		14,994		-
Other CRE		449		453		-		464		462		-
Total Commercial Real Estate		22,428		21,321		-		24,667		23,317		-
Construction		-		-		-		-		-		-
Commercial Working Capital		6,309		6,333		-		7,569		7,498		-
Commercial Other		1,407		1,400		-		2,095		2,100		-
Total Commercial		7,716		7,733		-		9,664		9,598		-
Home Equity and Home Improvement		-		-		-		-		-		-
Consumer Finance		-		-		-		-		-		-
Total loans with no allowance recorded	$	31,554	$	30,469	$	-	$	37,478	$	35,947	$	-
With an allowance recorded:
Residential Owner Occupied	$	5,004	$	4,843	$	172	$	3,926	$	3,884	$	148
Residential Non Owner Occupied		1,104		1,108		24		1,152		1,160		27
Total 1-4 Family Residential Real Estate		6,108		5,951		196		5,078		5,044		175
Multi-Family Residential Real Estate		43		43		2		44		44		3
CRE Owner Occupied		2,110		1,628		29		2,419		1,935		38
CRE Non Owner Occupied		334		337		14		350		353		16
Agriculture Land		552		555		5		37		38		2
Other CRE		522		303		17		1,107		691		39
Total Commercial Real Estate		3,518		2,823		65		3,913		3,017		95
Construction		-		-		-		-		-		-
Commercial Working Capital		866		869		147		525		528		55
Commercial Other		144		147		14		560		352		24
Total Commercial		1,010		1,016		161		1,085		880		79
Home Equity and Home Improvement		926		881		66		1,013		963		242
Consumer Finance		22		22		-		45		45		1
Total loans with an allowance recorded	$	11,627	$	10,736	$	490	$	11,178	$	9,993	$	595

* Presented gross of charge-offs

30

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:

	June 30, 2019		December 31, 2018
	(In Thousands)
Non-accrual loans	$	15,334	$	19,016
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		15,334		19,016
Real estate and other assets held for sale		-		1,205
Total non-performing assets	$	15,334	$	20,221
Troubled debt restructuring, still accruing	$	10,308	$	11,573

The following table presents the aging of the recorded investment in past due and non- accrual loans as of June 30, 2019, by class of loans (In Thousands):

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non- Accrual
Residential Owner Occupied	$	201,501	$	1,015	$	844	$	984	$	2,843	$	2,931
Residential Non Owner Occupied		118,191		33		3		21		57		249
Total 1-4 Family Residential Real Estate		319,692		1,048		847		1,005		2,900		3,180
Multi-Family Residential Real Estate		282,067		-		-		-		-		-
CRE Owner Occupied		409,221		244		104		489		837		3,214
CRE Non Owner Occupied		549,736		-		108		481		589		639
Agriculture Land		127,030		222		103		-		325		4,351
Other Commercial Real Estate		45,775				-		11		11		29
Total Commercial Real Estate		1,131,762		466		315		981		1,762		8,233
Construction		200,767		-		-		-		-		-
Commercial Working Capital		234,347		140		-		2,681		2,821		2,914
Commercial Other		294,958		105		59		218		382		423
Total Commercial		529,305		245		59		2,899		3,203		3,337
Home Equity/Home Improvement		125,556		946		186		114		1,246		552
Consumer Finance		35,247		232		-		19		251		20
Total Loans	$	2,624,396	$	2,937	$	1,407	$	5,018	$	9,362	$	15,322

31

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

32

Troubled Debt Restructurings

As of June 30, 2019, and December 31, 2018, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $17.3 million and $19.2 million, respectively. The Company allocated $399,000 and $581,000 of specific reserves to those loans at June 30, 2019, and December 31, 2018, respectively, and had committed to lend additional amounts totaling up to $315,000 and $169,000 at June 30, 2019, and December 31, 2018, respectively.

The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Each TDR is uniquely designed to meet the specific needs of the borrower. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral or an additional guarantor is often requested when granting a concession. Commercial mortgage loans modified in a TDR often involve temporary interest-only payments, re-amortization of remaining debt in order to lower payments and sometimes reducing the interest rate lower than the current market rate. Residential mortgage loans modified in a TDR are comprised of loans where monthly payments are lowered, either through interest rate reductions or principal only payments for a period of time, to accommodate the borrowers’ financial needs, interest is capitalized into principal, or the term and amortization are extended. Home equity modifications are made infrequently and usually involve providing an interest rate that is lower than the borrower would be able to obtain due to credit issues. All retail loans where the borrower is in bankruptcy are classified as TDRs regardless of whether or not a concession is made.

Of the loans modified in a TDR as of June 30, 2019, $6.9 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

33

The following tables present loans by class modified as TDRs that occurred during the three and six month periods ending June 30, 2019, and June 30, 2018:

	Loans Modified as a TDR for the Three Months Ended June 30, 2019 ($ in thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2019 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
1-4 Family Owner Occupied		4	$	434		7	$	907
1-4 Family Non Owner Occupied		0		-		0		-
Multi Family		0		-		0		-
CRE Owner Occupied		0		-		0		-
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial Working Capital		1		46		1		46
Commercial Other		0		-		1		13
Home Equity and Improvement		1		26		2		26
Consumer Finance		1		1		2		1
Total		7	$	507		13	$	993

The loans described above increased the allowance for loan and lease losses (“ALLL”) by $27,000 in the three month period ending June 30, 2019, and increased the ALLL by $21,000 in the six month period ending June 30, 2019.

	Loans Modified as a TDR for the Three Months Ended June 30, 2018 ($ in thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2018 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
1-4 Family Owner Occupied		9	$	481		12	$	624
1-4 Family Non Owner Occupied		1		75		2		142
Multi Family		0		-		0		-
CRE Owner Occupied		5		1,554		7		2,181
CRE Non Owner Occupied		1		47		1		47
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial Working Capital		1		150		5		2,816
Commercial Other		0		-		0		-
Home Equity and Improvement		2		20		2		20
Consumer Finance		0		-		0		-
Total		19	$	2,327		29	$	5,830

The loans described above decreased the allowance for loan and lease losses (“ALLL”) by $16,000 in the three month period ending June 30, 2018 and decreased the ALLL by $21,000 in the six month period ending June 30, 2018.

Of the 2019 modifications, six were made a TDR due to bankruptcy and seven were made a TDR because the current debt was refinanced due to maturity or for payment relief.

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The following tables present loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and six month periods ended June 30, 2019, and June 30, 2018:

	Three Months Ended June 30, 2019 ($ in thousands)				Six Months Ended June 30, 2019 ($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
1-4 Family Owner Occupied		1	$	92		2	$	168
1-4 Family Non Owner Occupied		1		21		1		21
CRE Owner Occupied		0		-		0		-
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial Working Capital or Other		0		-		3		2,311
Commercial Other		0		-		0		-
Home Equity and Improvement		0		-		1		61
Consumer Finance		0		-		0		-
Total		2	$	113		1	$	2,561

The TDRs that subsequently defaulted described above increased the allowance for loan losses by $5,000 and $4,000 for the three and six month period ended June 30, 2019.

	Three Months Ended June 30, 2018 ($ in thousands)				Six Months Ended June 30, 2018 ($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
1-4 Family Owner Occupied		0	$	-		0	$	-
1-4 Family Non Owner Occupied		0		-		0		-
CRE Owner Occupied		0		-		0		-
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial Working Capital or Other		0		-		0		-
Commercial Other		0		-		1		196
Home Equity and Improvement		0		-		0		-
Consumer Finance		0		-		0		-
Total		0	$	-		1	$	196

The TDRs that subsequently defaulted described above had no effect on the ALLL for the three and six month period ended June 30, 2018.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

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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.

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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 June 30, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (In Thousands):

Class	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
1-4 Family Owner Occupied	$	8,741	$	87	$	3,400	$	-	$	192,116	$	204,344
1-4 Family Non Owner Occupied		109,285		604		2,691		-		5,668		118,248
Total 1-4 Family Real Estate		118,026		691		6,091		-		197,784		322,592
Multi-Family Residential Real Estate		281,210		-		751		-		106		282,067
CRE Owner Occupied		388,488		13,825		7,668		-		77		410,058
CRE Non Owner Occupied		542,751		4,963		2,611		-		-		550,325
Agriculture Land		110,181		2,253		14,921		-		-		127,355
Other CRE		43,374		579		843		-		990		45,786
Total Commercial Real Estate		1,084,794		21,620		26,043		-		1,067		1,133,524
Construction		178,822		1,603		-		-		20,342		200,767
Commercial Working Capital		220,234		10,006		6,928		-		-		237,168
Commercial Other		285,150		8,028		2,162		-		-		295,340
Total Commercial		505,384		18,034		9,090		-		-		532,508
Home Equity and Home Improvement		-		-		422		-		126,380		126,802
Consumer Finance		-		-		81		-		35,417		35,498
Total Loans	$	2,168,236	$	41,948	$	42,478	$	-	$	381,096	$	2,633,758

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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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The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance of those loans is as follows (In Thousands):

	June 30, 2019		December 31, 2018
1-4 Family Residential Real Estate	$	1,029	$	1,045
Multi-Family Residential Real Estate		293		300
Commercial Real Estate Loans		741		899
Commercial		181		227
Consumer		-		-
Total Outstanding Balance	$	2,244	$	2,471
Recorded Investment, net of allowance of $0	$	2,067	$	2,331

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

	2019			2018
Balance at January 1	$	468		$	804
New Loans Purchased		-			-
Accretion of Income		(18	)		(56	)
Reclassification from Non-accretable		-			-
Charge-off of Accretable Yield		-			(10	)
Balance at June 30	$	450		$	738

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the six months ended June 30, 2019 or 2018. No allowances for loan losses were reversed during the same period.

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $705,000 as of June 30, 2019 and $796,000 as of December 31, 2018.

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9. Mortgage Banking

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

	Three Months Ended  June 30,						Six Months Ended  June 30,
	2019			2018			2019			2018
	(In Thousands)
Gain from sale of mortgage loans	$	1,775		$	1,383		$	3,076		$	2,464
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		943			933			1,882			1,877
Amortization of mortgage servicing rights		(391	)		(350	)		(677	)		(669	)
Mortgage servicing rights valuation adjustments		(190	)		47			(303	)		83
		362			630			902			1,291
Net revenue from sale and servicing of mortgage loans	$	2,137		$	2,013		$	3,978		$	3,755

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.42 billion at June 30, 2019 and $1.41 billion at December 31, 2018.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,411		$	10,245		$	10,419		$	10,240
Loans sold, servicing retained		438			402			716			726
Amortization		(391	)		(350	)		(677	)		(669	)
Carrying value before valuation allowance at end of period		10,458			10,297			10,458			10,297
Valuation allowance:
Balance at beginning of period		(413	)		(396	)		(300	)		(432	)
Impairment recovery (charges)		(190	)		47			(303	)		83
Balance at end of period		(603	)		(349	)		(603	)		(349	)
Net carrying value of MSRs at end of period	$	9,855		$	9,948		$	9,855		$	9,948
Fair value of MSRs at end of period	$	9,925		$	10,488		$	9,925		$	10,488

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily estimable.

The Company has established an accrual for secondary market buy-back activity. A liability of $43,000 was accrued at both June 30, 2019, and December 31, 2018, respectively. There was no expense or credit recognized related to the accrual in the three or six months ended June 30, 2019 or 2018.

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10. Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company chose to use the effective date approach. As such, all periods presented after January 1, 2019 are under ASC 842 whereas periods presented prior to January 1, 2019 are in accordance with prior lease accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods before January 1, 2019.

As of June 30, 2019, the Company has entered into lease agreements covering seven 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. The lease agreements have maturity dates ranging from December 2019 to December 2039, some of which include options for multiple five and ten year extensions. The weighted average remaining life of the lease term for these leases was 17.80 years as of June 30, 2019.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered in to. The weighted average discount rate for leases was 3.49% as of June 30, 2019.

The total operating lease costs were $233,000 and $475,000 for the three and six months ended June 30, 2019, respectively, and $244,000 and $493,000 for the three and six months ended June 30, 2018, respectively.

The short-term lease costs and cash payments on operating leases were $0 and $225 for the three months ended June 30, 2019 respectively. The right-of-use asset, included in other assets, and lease liabilities, included in other liabilities, were $8.5 million and $9.0 million as of June 30, 2019 respectively.

Total estimated rental commitments for the operating leases were as follows as of June 30, 2019:

Remainder of 2019	$	452
2020		982
2021		941
2022		864
2023		840
Thereafter		11,379
Total	$	15,458

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Future minimum commitments under non-cancelable operating leases were as follows as of December 31, 2018:

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

A reconciliation of the undiscounted cash flows in the maturity analysis above and the lease liability recognized in the consolidated balance sheet as of June 30, 2019, is shown below.

Undiscounted cash flows	$	15,458
Undiscounted cash flows associated with new lease effective 1/1/2020		(2,496	)
Discount effect of cash flows		(3,920	)
Total	$	9,042

On February 28, 2019, the Company entered into a new lease agreement with an effective date of January 1, 2020, which will result in an additional right-of-use asset and lease liability of approximately $2.0 million.

11. Deposits

A summary of deposit balances is as follows:

	June 30, 2019		December 31, 2018
	(In Thousands)
Non-interest-bearing checking accounts	$	584,735	$	607,198
Interest-bearing checking and money market accounts		1,088,694		1,040,471
Savings deposits		304,051		292,829
Retail certificates of deposit less than $250,000		610,345		591,822
Retail certificates of deposit greater than $250,000		92,812		88,562
	$	2,680,637	$	2,620,882

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12. Borrowings

First Defiance’s debt, FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:

	June 30, 2019			December 31, 2018
	(In Thousands)
FHLB Advances:
Single maturity fixed rate advances	$	84,000		$	59,000
Amortizable mortgage advances		1,149			1,213
Overnight advances		20,051			25,000
Fair value adjustment on acquired balances		(22	)		(24	)
Total	$	105,178		$	85,189
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083		$	36,083

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $15 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (Subordinated Debentures) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of Trust Affiliate II (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.5%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 3.91% as of June 30, 2019, and 4.29% as of December 31, 2018.

The Trust Preferred Securities issued by Trust Affiliate II are subject to mandatory redemption, in whole or part, upon repayment of the Subordinated Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature on June 15, 2037, but can be redeemed at the Company’s option at any time now.

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”), that issued $20 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of Trust Affiliate I (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 3.79% and 4.17% on June 30, 2019 and December 31, 2018, 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.

Interest on both issues of Trust Preferred Securities may be deferred for a period of up to five years at the option of the issuer.

Repurchase Agreements. We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agent.

The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of June 30, 2019 and December 31, 2018, is presented in the following tables.

	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
			(In Thousands)
At June 30, 2019
Repurchase agreements:
Mortgage-backed securities – residential	$	3,064	$	-	$	-	$	-	$	3,064
Total borrowings	$	3,064	$	-	$	-	$	-	$	3,064
Gross amount of recognized liabilities for repurchase agreements									$	3,064

	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
			(In Thousands)
At December 31, 2018
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

13. Commitments, Guarantees and Contingent Liabilities

Loan commitments are made to accommodate the financial needs of First Federal’s customers; however, there are no long-term, fixed-rate loan commitments that result in market risk. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers’ trade transactions.

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Both arrangements have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Company’s normal credit policies. Collateral (e.g., securities, receivables, inventory and equipment) is obtained based on management’s credit assessment of the customer.

The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of the periods stated below were as follows (In Thousands):

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	88,737	$	144,249	$	44,352	$	114,308
Unused lines of credit		7,804		397,825		7,523		382,189
Standby letters of credit		-		9,206		-		7,239
Total	$	96,541	$	551,280	$	51,875	$	503,736

Commitments to make loans are generally made for periods of 60 days or less. In addition to the above commitments, First Defiance had commitments to sell $37.1 million and $8.6 million of loans to Freddie Mac, Fannie Mae, FHLB or BB&T Mortgage at June 30, 2019, and December 31, 2018, respectively.

14. Income Taxes

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.

15. 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 $37.1 million and $8.6 million of interest rate lock commitments at June 30, 2019, and December 31, 2018, respectively. There were $37.1 million and $11.5 million of forward commitments for the future delivery of residential mortgage loans at June 30, 2019, and December 31, 2018, respectively.

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The fair value of these mortgage banking derivatives are reflected by a derivative asset recorded in other assets in the Consolidated Statements of Financial Condition. The table below provides data about the carrying values of these derivative instruments:

June 30, 2019

December 31, 2018

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

$

1,392

$

205

$

1,187

$

367

$

73

$

294

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	455	$	136	$	893	$	178

The above amounts are included in mortgage banking income with gain on sale of mortgage loans.

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16. Other Comprehensive Income

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

	Before Tax Amount		Tax (Expense) Benefit			Net of Tax Amount
	(In Thousands)
Three months ended June 30, 2019:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	3,289	$	(691	)	$	2,598
Reclassification adjustment for net gains included in net income		-		-			-
Defined benefit postretirement medical plan:
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan		-		-			-
Total other comprehensive loss	$	3,289	$	(691	)	$	2,598
Six months ended June 30, 2019:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	7,892	$	(1,659	)	$	6,233
Reclassification adjustment for net gains included in net income
Defined benefit postretirement medical plan:
Reclassification adjustment for deferred tax on defined benefit
Postretirement medical plan		-		82			82
Total other comprehensive loss	$	7,892	$	(1,577	)	$	6,315

	Before Tax Amount			Tax Expense (Benefit)		Net of Tax Amount
	(In Thousands)
Three months ended June 30, 2018:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(872	)	$	183	$	(689	)
Reclassification adjustment for net gains included in net income					-		-
Total other comprehensive loss	$	(872	)	$	183	$	(689	)
Six months ended June 30, 2018:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(4,429	)	$	930	$	(3,499	)
Reclassification adjustment for net gains included in net income		-			-		-
Total other comprehensive loss	$	(4,429	)	$	930	$	(3,499	)

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Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

							Accumulated
	Securities			Post-			Other
	Available			retirement			Comprehensive
	For Sale			Benefit			Income (Loss)
	(In Thousands)
Balance January 1, 2019	$	(2,057	)	$	(91	)	$	(2,148	)
Other comprehensive income  before reclassifications		6,233			-			6,233
Amounts reclassified from accumulated other comprehensive income		-			82			82
Net other comprehensive income during period		6,233			82			6,315
Balance June 30, 2019	$	4,176		$	(9	)	$	4,167
Balance January 1, 2018	$	601		$	(384	)	$	217
Other comprehensive income (loss) before reclassifications		(3,499	)		-			(3,499	)
Net other comprehensive income (loss) during period		(3,499	)		-			(3,499	)
Reclassification adjustment upon adoption of ASU 2018-02		129			(82	)		47
Balance June 30, 2018	$	(2,769	)	$	(466	)	$	(3,235	)

17. Affordable Housing Projects Tax Credit Partnership

The Company makes certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company is a limited partner in each LIHTC partnership. A separate unrelated third party is the general partner. Each limited partnership is managed by the general partner, who exercises full control over the affairs of the limited partnership. The general partner has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership. Duties entrusted to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to consent to certain transactions, the limited partner(s) may not participate in the operation, management, or control of the limited partnership’s business, transact any business in the limited partnership’s name or have any power to sign documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s) in the event the general partner fails to comply with the terms of the agreement or is negligent in performing its duties.

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The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership. In January of 2014, the FASB issued ASU 2014-01 “Accounting for Investments in Qualified Affordable Housing Projects.” The pronouncement permitted reporting entities to make an accounting policy election to account for these investments using the proportional amortization method if certain conditions exist. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and will recognize the net investment performance in the statement of income as a component of income tax expense (benefit). The Company utilized the proportional amortization method for all of its instruments. As of June 30, 2019, and December 31, 2018, the Company had $13.7 million and $11.3 million in qualified investments recorded in other assets and $8.8 million and $6.9 million in unfunded commitments recorded in other liabilities, respectively.

Unfunded Commitments

As of June 30, 2019, the expected payments for unfunded affordable housing commitments were as follows:

(dollars in thousands)	Amount
2019	$	1,806
2020		2,402
2021		2,318
2022		525
2023		409
Thereafter		1,334
Total Unfunded Commitments	$	8,794

The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the three months ended June 30, 2019 and 2018.

	Three Months Ended June 30,
(dollars in thousands)	2019		2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	328	$	254
Amortization expense in federal income taxes		284		234

	Six Months Ended June 30,
(dollars in thousands)	2019		2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	655	$	508
Amortization expense in federal income taxes		569		469

There were no impairment losses of LIHTC investments for the three and six months ended June 30, 2019 and 2018.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Certain statements contained in this quarterly report and other publicly available documents, including the documents incorporated herein by reference, are not statements of historical facts, including but not limited to statements that can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “intend”, “plan”, “seek”, “believe”, “protect”, “estimate”, “likely”, “should”, or “continue” or the negative thereof or other variations thereon or comparable terminology, and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of market and other factors. The Company assumes no obligation to update any forward-looking statements.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of the Company. Fully taxable-equivalent (“FTE”) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis.

Non-GAAP financial measures have inherent limitations, which are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To mitigate these limitations, The Company has practices in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and to ensure that our performance is properly reflected to facilitate consistent period-to-period comparisons. The Company’s method of calculating these non-GAAP measures may differ from methods used by other companies. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.

The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the three and six months ended June 30, 2019 and 2018.

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Non-GAAP Financial Measures – Net Interest Income on an

FTE basis, Net Interest Margin and Efficiency Ratio

	Three Months Ended  June 30,						Six Months Ended  June 30,
	2019			2018			2019			2018
	(In Thousands)
Net interest income (GAAP)	$	28,989		$	26,547		$	57,259		$	52,234
Add: FTE adjustment		249			251			496			489
Net interest income on a FTE basis (1)	$	29,238		$	26,798		$	57,755		$	52,723
Non-interest income-less securities gains/losses (2)		10,486			10,214			21,299			20,917
Non-interest expense (3)		24,235			22,665			49,101			45,916
Average interest-earning assets net of average
Unrealized gains/losses on securities (4)		2,912,278			2,717,956			2,892,695			2,691,498
Average interest-earning assets		2,914,587			2,714,328			2,892,964			2,689,216
Average unrealized gains/losses on securities		2,309			(3,628	)		269			(2,282	)
Ratios:
Net interest margin (1) / (4)		4.03	%		3.95	%		4.03	%		3.95	%
Efficiency ratio (3) / (1) + (2)		61.01	%		61.24	%		62.11	%		62.35	%

Critical Accounting Policies

First Defiance has established various accounting policies which govern the application of GAAP in the preparation of its financial statements. The significant accounting policies of First Defiance are described in the footnotes to the consolidated financial statements included in the Company’s 2018 Form 10-K. 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. Those policies which are identified and discussed in detail in the Company’s 2018 Form 10-K include the Allowance for Loan Losses, Goodwill, and the Valuation of Mortgage Servicing Rights. There have been no material changes in assumptions or judgments relative to those critical policies during the first six months of 2019.

General

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.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of one common share for each of the Company’s authorized and outstanding common shares. 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 Quarterly Report on Form 10-Q has been adjusted and is reflective of the stock split.

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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.

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 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 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 help minimize the risk allocable to each participating insurer.

Regulation - 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.

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.

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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 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 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, and 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 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.

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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 June 30, 2019, First Federal met the ratio requirements in effect to be deemed "well-capitalized."

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.

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.

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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 Trusted Advisor initiative. 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.

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 meet 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 (“SBA”) lending programs and implemented a program targeting the small business customer. 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 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, 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 with both our retail and commercial customers. First Federal has initiated a pricing strategy that considers the whole relationship of the customer. First Federal will continue 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.

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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 expansion 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.

Investments - First Defiance invests in U.S. Treasury and federal government agency obligations, obligations of municipal and other political subdivisions, mortgage-backed securities which are issued by federal agencies, corporate bonds, and collateralized mortgage obligations (“CMOs”) and real estate mortgage investment conduits (“REMICs”). Management determines the appropriate classification of all such securities at the time of purchase in accordance with FASB ASC Topic 320, Investments –Debt and Equity Securities.

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. Securities classified as available-for-sale, which are stated at fair value, had a recorded value of $296.1 million at June 30, 2019. The available-for-sale portfolio included obligations of U.S. federal government corporations and agencies ($2.5 million), certain municipal obligations ($101.5 million), CMOs/REMICs ($99.9 million), corporate bonds ($13.0 million), and mortgage backed securities ($79.2 million). Securities are classified as held-to-maturity when First Defiance has the positive intent and ability to hold the security to maturity. Held-to-maturity securities are stated at amortized cost and had a recorded value of $485,000 at June 30, 2019.

In accordance with ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income.

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Lending - 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 Company’s 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 ensure that the appraiser is not influenced by the account officer in any way in making their 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 necessary, based on First Federal’s assessment of the appraisal, such as age, market, etc., First Federal will discount this 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 carrying and 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.

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.

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.

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.

As stated above, once a collateral dependent loan is identified as non-performing, First Federal generally gets an appraisal.

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.

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For loans where First Federal determines that an updated appraisal is not necessary, other means are used to verify the value of the real estate, such as recent sales of similar properties on which First Federal had loans as well as calls to appraisers, brokers, realtors and investors. 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, 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 reserve in the ALLL. For those loans measured for impairment utilizing the fair value of the collateral, any shortfall is charged off.

Earnings - The profitability of First Defiance is primarily dependent on its net interest income and non-interest income. Net interest income is the difference between interest income on interest-earning assets, principally loans and securities, and interest expense on interest-bearing deposits, Federal Home Loan Bank of Cincinnati (“FHLB”) advances, and other borrowings. The Company’s non-interest income is mainly derived from service fees and other charges, mortgage banking income, and insurance commissions. First Defiance’s earnings also depend on the provision for loan losses, non-interest expenses (such as employee compensation and benefits, occupancy and equipment expense, deposit insurance premiums, and miscellaneous other expenses) and federal income tax expense.

Changes in Financial Condition

At June 30, 2019, First Defiance's total assets, deposits and stockholders’ equity amounted to $3.28 billion, $2.68 billion and $407.2 million, respectively, compared to $3.18 billion, $2.62 billion and $399.6 million, respectively, at December 31, 2018.

Net loans receivable (excluding loans held for sale) increased $83.6 million to $2.6 billion. The variance in loans receivable between June 30, 2019, and December 31, 2018, includes an increase of $58.6 million in construction loans, a $21.0 million increase in commercial loans, a $3.3 million increase in commercial real estate loans, a $3.3 million increase in multi-family residential loans and a $0.9 million increase in consumer loans. That growth was slightly offset by a $2.3 million decrease in home equity and improvement loans and a $0.6 million decrease in residential real estate loans.

The investment securities portfolio increased $2.0 million to $296.6 million at June 30, 2019 from $294.6 million at December 31, 2018. The increase is a result of $11.2 million of securities being purchased during the first six months of 2019 as well as a $7.9 million increase in the market value of available-for-sale securities during the period ended June 30, 2019. This was offset by $16.4 million of securities maturing or being called in the first half of 2019 and $0.6 million in amortization.

Deposits increased $59.8 million from $2.62 billion at December 31, 2018, to $2.68 billion as of June 30, 2019. Interest bearing demand and money market deposits increased $48.2 million to $1.09 billion, retail time deposits increased $22.8 million to $703.2 million and savings deposits increased $11.2 million to $304.1 million. These increases were partially offset by a $22.5 million decrease in non-interest bearing demand deposits to $584.7 million.

Stockholders’ equity increased $7.6 million from $399.6 million at December 31, 2018, to $407.2 million at June 30, 2019. The increase in stockholders’ equity was primarily the result of recording net income of $23.7 million and $6.3 million in other comprehensive gain. The increase was partially offset by the repurchase of 515,977 shares of common stock totaling $15.1 million and $7.5 million of common stock dividends being paid.

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Average Balances, Net Interest Income and Yields Earned and Rates Paid

The following table presents for the periods indicated the total dollar amount of interest from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in thousands of dollars and rates, and the net interest margin. The table reports interest income from tax-exempt loans and investment on a fully tax-equivalent basis. All average balances are based upon daily balances (dollars in thousands).

	Three Months Ended June 30,
	2019							2018
	Average				Yield/			Average				Yield/
	Balance		Interest(1)		Rate(2)			Balance		Interest(1)		Rate(2)
Interest-earning assets:
Loans receivable	$	2,561,341	$	32,683		5.12	%	$	2,337,294	$	27,685		4.75	%
Securities (3)		299,235		2,364		3.19			280,131		2,265		3.20
Interest bearing deposits		41,934		260		2.49			80,914		373		1.85
FHLB stock		12,077		183		6.08			15,989		227		5.69
Total interest-earning assets		2,914,587		35,490		4.89			2,714,328		30,550		4.51
Non-interest-earning assets		309,410							304,480
Total assets	$	3,223,997						$	3,018,808
Interest-bearing liabilities:
Deposits	$	2,093,751	$	5,581		1.07	%	$	1,933,409	$	3,144		0.65	%
FHLB advances and other		62,466		304		1.95			67,261		282		1.68
Subordinated debentures		36,083		350		3.89			36,198		320		3.55
Securities sold under  repurchase agreements		4,607		17		1.48			9,140		6		0.26
Total interest-bearing liabilities		2,196,907		6,252		1.14			2,046,008		3,752		0.74
Non-interest bearing deposits		584,309		-					554,021		-
Total including non-interest bearing demand deposits		2,781,216		6,252		0.90			2,600,029		3,752		0.58
Other non-interest-bearing liabilities		44,169							37,614
Total liabilities		2,825,385							2,637,643
Stockholders’ equity		398,612							381,165
Total liabilities and stock- Holders’ equity	$	3,223,997						$	3,018,808
Net interest income; interest rate spread			$	29,238		3.75	%			$	26,798		3.77	%
Net interest margin (4)						4.03	%						3.95	%
Average interest-earning assets to average interest-bearing liabilities						133	%						133	%

(1) Interest on certain tax-exempt loans and securities is not taxable for federal income tax purposes. 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%.

(2) Annualized

(3) Securities yield is annualized interest income divided by the average balance of securities, excluding average unrealized gains/losses. See Non-GAAP Financial Measure discussion for further details.

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

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	Six Months Ended June 30,
	2019							2018
	Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (2)			Balance		Interest (1)		Rate (2)
Interest-earning assets:
Loans receivable	$	2,539,312	$	63,921		5.08	%	$	2,326,805	$	54,236		4.70	%
Securities (3)		297,530		4,792		3.25			271,864		4,329		3.21
Interest bearing deposits		43,343		545		2.54			74,557		670		1.81
FHLB stock		12,779		398		6.28			15,990		458		5.78
Total interest-earning assets		2,892,964		69,656		4.86			2,689,216		59,693		4.48
Non-interest-earning assets		310,540							309,120
Total assets	$	3,203,504						$	2,998,336
Interest-bearing liabilities:
Deposits	$	2,077,387	$	10,586		1.03	%	$	1,911,199	$	5,755		0.61	%
FHLB advances		60,710		580		1.93			73,092		601		1.66
Subordinated debentures		36,083		714		3.99			36,195		600		3.34
Securities sold under  repurchase agreements		5,019		21		0.84			12,561		14		0.22
Total interest-bearing liabilities		2,179,199		11,901		1.10			2,033,047		6,970		0.69
Non-interest bearing deposits		582,722		-					549,735		-
Total including non-interest bearing demand deposits		2,761,921		11,901		0.87			2,582,782		6,970		0.54
Other non-interest-bearing liabilities		44,708							37,975
Total liabilities		2,806,629							2,620,757
Stockholders' equity		396,875							377,579
Total liabilities and stock- holders' equity	$	3,203,504						$	2,998,336
Net interest income; interest rate spread			$	57,755		3.76	%			$	52,723		3.79	%
Net interest margin (4)						4.03	%						3.95	%
Average interest-earning assets to average interest-bearing liabilities						133	%						132	%

(1) Interest on certain tax-exempt loans and securities is not taxable for Federal income tax purposes. 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%.

(2) Annualized

(3) Securities yield represents annualized interest income divided by the average balance of securities, excluding average unrealized gains/losses. See Non-GAAP Financial Measure discussion for further details.

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

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Results of Operations

Three Months Ended June 30, 2019 and 2018

On a consolidated basis, First Defiance’s net income for the quarter ended June 30, 2019, was $12.2 million compared to net income of $11.1 million for the comparable period in 2018. On a per share basis, basic earnings per share were $0.62 and diluted earnings per common share were $0.61 for the three months ended June 30, 2019, compared to basic and diluted earnings per share of $0.54 for the quarter ended June 30, 2018.

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 $29.0 million for the quarter ended June 30, 2019, up from $26.5 million for the same period in 2018. The tax-equivalent net interest margin was 4.03% for the quarter ended June 30, 2019, an increase from 3.95% for the same period in 2018. The increase in margin between the 2019 and 2018 second quarters was primarily due to an increase in average earning assets and an increase in rates. The yield on interest-earning assets was 4.89% for the quarter ended June 30, 2019, up 38 basis points from 4.51% for the same period in 2018. The cost of interest-bearing liabilities between the two periods increased 40 basis points to 1.14% in the second quarter of 2019 from 0.74% in the second quarter of 2018.

Total interest income increased $4.9 million to $35.2 million for the quarter ended June 30, 2019, from $30.3 million for the quarter ended June 30, 2018. This is due to solid loan growth and an increase in rates. Income from loans increased to $32.7 million for the quarter ended June 30, 2019, compared to $27.7 million for the same period in 2018 due to average loan growth of $224.0 million. The increase in the loan portfolio yield to 5.12% for the three months ended June 30, 2019 from 4.75% for the same period in 2018, was due mainly to increasing interest rates and management’s continued discipline on loan pricing. Interest income from investments increased $99,000 in the second quarter of 2019 to $2.1 million. The yield decreased slightly to 3.19% for the three months ended June 30, 2019, compared to 3.20% for the same period in 2018. Income from interest bearing deposits and FHLB stock decreased to $260,000 and $183,000 respectively in the second quarter of 2019 compared to $373,000 and $227,000 for the same period in 2018 as decreased volumes offset the increase in interest rates.

Interest expense increased by $2.5 million in the second quarter of 2019 compared to the same period in 2018, to $6.3 million from $3.8 million. The cost of interest bearing liabilities increased 40 basis points from 0.74% at June 30, 2018 to 1.14% at June 30, 2019. Interest expense related to interest-bearing deposits was $5.6 million in the second quarter of 2019 compared to $3.1 million for the same period in 2018. Interest expense recognized by the Company related to FHLB advances was $304,000 in the second quarter of 2019 compared to $282,000 for the same period in 2018 as decreased volumes offset the increase in interest rates. Expenses on subordinated debentures and notes payable were $350,000 and $17,000 respectively in the second quarter of 2019 compared to $320,000 and $6,000 respectively for the same period in 2018.

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Allowance for Loan and Lease Losses (“ALLL”)

The ALLL 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 ALLL 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 ALLL 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 Company’s 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 ALLL associated with these types of loans.

The ALLL 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. If the loan is impaired and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is impaired and collateral dependent, then any shortfall is usually charged off. The Company also considers the impacts of any SBA or Farm Service Agency guarantees. The specific reserve portion of the ALLL was $490,000 at June 30, 2019, and $595,000 at December 31, 2018.

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 potential 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 a loss migration measurement for each loan portfolio segment with differentiation between loan risk grades in calculating the general reserve component for non-impaired loans. The Company’s historical loss calculation uses an average of all four-year loss migration periods to the present beginning with data from the second quarter 2011. Management believes this provides a 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 increased $100,000 to $6.0 million at June 30, 2019, from $5.9 million at December 31, 2018.

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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, TDRs, and other loan modifications.

9) Changes in the political and regulatory environment.

The qualitative analysis indicated a general reserve of $22.5 million at June 30, 2019 compared to $21.8 million at December 31, 2018. Management reviewed the overall economic, environmental and risk factors and determined that it was appropriate to make adjustments to these sub-factors based on that review.

The economic factors for all loan segments decreased in the first six months of 2019, due to the favorable economic trends and the continued strength of collateral values.

The environmental factors for the commercial real estate, commercial loan and construction loan segments increased in the first six months of 2019, mainly due to increases in credit concentrations and deviations.

The risk factors for the residential and home equity loan segments were increased slightly while the risk factors for the construction loans decreased slightly in the first six months of 2019.

First Defiance’s general reserve percentages for main loan segments not otherwise classified ranged from 0.44% for construction loans to 1.44% for home equity and improvement loans at June 30, 2019.

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As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the increase in net charge-offs in the quarter, the Company’s provision for loan losses for the second quarter of 2019 was $282,000 compared to $423,000 for the same period in 2018. The ALLL was $28.9 million at June 30, 2019 and $28.3 million at December 31, 2018. The allowance for loans losses represented 1.10% of loans, net of undisbursed loan funds and deferred fees and costs, at June 30, 2019 and 1.12% at December 31, 2018. In management’s opinion, the overall ALLL of $28.9 million as of June 30, 2019, is adequate to cover probable incurred losses.

Management also assesses the value of real estate owned 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 the three and six month periods ended June 30, 2019, there were write-downs of real estate held for sale in the amounts of $0 and $264,000, respectively. Management believes that the values recorded at June 30, 2019, for real estate owned and repossessed assets represent the realizable value of such assets.

Total classified loans decreased to $42.1 million at June 30, 2019, compared to $50.8 million at December 31, 2018, a decrease of $8.7 million due to payoffs and upgrades of classified relationships during the first six months of 2019.

First Defiance’s ratio of ALLL to non-performing loans was 188.7% at June 30, 2019, compared with 149.0% at December 31, 2018. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for those loans at June 30, 2019, are appropriate. Of the $15.3 million in non-accrual loans at June 30, 2019, $9.4 million or 63.2% are less than 90 days past due.

At June 30, 2019, First Defiance had total non-performing assets of $15.3 million, compared to $20.2 million at December 31, 2018. Non-performing assets include loans that are on non-accrual, OREO and other assets held for sale. Non-performing assets at June 30, 2019, and December 31, 2018, by category were as follows:

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Table 1 – Nonperforming Asset

	June 30,			December 31,
	2019			2018
	(In Thousands)
Non-performing loans:
One to four family residential real estate	$	3,194		$	3,640
Non-residential and multi-family residential real estate		8,233			10,357
Commercial		3,337			4,500
Construction		-			-
Home equity and improvement		550			393
Consumer finance		20			126
Total non-performing loans		15,334			19,016
Real estate owned		-			1,205
Total repossessed assets		-			1,205
Total Nonperforming assets	$	15,334		$	20,221
TDR loans, accruing	$	10,308		$	11,573
Total nonperforming assets as a percentage of total assets		0.47	%		0.64	%
Total nonperforming loans as a percentage of total loans*		0.58	%		0.75	%
Total nonperforming assets as a percentage of total loans plus REO*		0.58	%		0.80	%
ALLL as a percent of total nonperforming assets		188.69	%		140.11	%

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

Non-performing loans in the commercial loan category represented 0.63% of the total loans in that category at June 30, 2019, compared to 0.88% for the same category at December 31, 2018. Non-performing loans in the non-residential and multi-family residential real estate loan category were 0.58% of the total loans in this category at June 30, 2019, compared to 0.74% at December 31, 2018. Non-performing loans in the residential loan category represented 0.99% of the total loans in that category at June 30, 2019, compared to 1.13% for the same category at December 31, 2018.

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.

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The following table details net charge-offs and nonaccrual loans by loan type.

Table 2 – Net Charge-offs and Non-Accruals by Loan Type

	For the Six Months Ended June 30, 2019						As of June 30, 2019
	Net
	Charge-offs (Recovery)			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	13			(11.93	)%	$	3,194		20.83	%
Construction		-			0.00	%		-		0.00	%
Multi-Family residential and Commercial real estate		(372	)		341.28	%		8,233		53.69	%
Commercial		92			(84.40	)%		3,337		21.76	%
Consumer Finance		145			(133.02	)%		20		0.13	%
Home equity and improvement		13			(11.93	)%		550		3.59	%
Total	$	(109	)		100.00	%	$	15,334		100.00	%

	For the Six Months Ended June 30, 2018						As of June 30, 2018
	Net
	Charge-offs (Recovery)			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	36			(2.75	)%	$	2,411		13.15	%
Construction		-			0.00	%		-		0.00	%
Commercial real estate		97			(7.41	)%		10,240		55.84	%
Commercial		(1,606	)		122.60	%		5,145		28.05	%
Consumer		90			(6.87	)%		65		0.35	%
Home equity and improvement		73			(5.57	)%		479		2.61	%
Total	$	(1,310	)		100.00	%	$	18,340		100.00	%

Table 3 – ALLL Activity

	For the Quarter Ended
	2nd 2019			1st 2019		4th 2018		3rd 2018		2nd 2018
	(In Thousands)
Allowance at beginning of period	$	28,164		$	28,331	$	27,639	$	27,321	$	27,267
Provision (credit) for loan losses		282			212		472		1,376		423
Charge-offs:
Residential		11			172		31		136		78
Construction		-			-		-		-		-
Multi-Family residential and Commercial real estate		15			-		30		1,048		254
Commercial		13			187		15		528		84
Consumer finance		33			142		105		25		72
Home equity and improvement		64			33		75		36		41
Total charge-offs		136			534		256		1,773		529
Recoveries		624			155		476		715		160
Net charge-offs		(488	)		379		220		1,058		369
Ending allowance	$	28,934		$	28,164	$	28,331	$	27,639	$	27,321

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The following table sets forth information concerning the allocation of First Federal’s ALLL by loan categories at the dates indicated.

Table 4 – ALLL Allocation by Loan Category

	June 30, 2019					March 31, 2019					December 31, 2018					September 30, 2018					June 30, 2018
			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)
Residential	$	2,793		11.67	%	$	2,811		11.96	%	$	2,881		12.11	%	$	2,824		12.04	%	$	2,682		12.18	%
Construction		887		12.16	%		731		11.32	%		682		9.97	%		615		10.54	%		737		11.25	%
Multi-Family residential and Commercial real estate		15,251		51.12	%		15,069		51.87	%		15,142		52.71	%		14,680		52.39	%		14,166		50.85	%
Commercial		7,888		19.21	%		7,276		18.95	%		7,281		19.12	%		7,161		18.81	%		7,455		19.39	%
Consumer		352		1.28	%		349		1.27	%		319		1.29	%		288		1.25	%		249		1.18	%
Home equity and improvement		1,763		4.56	%		1,928		4.63	%		2,026		4.80	%		2,071		4.97	%		2,032		5.15	%
	$	28,934		100.00	%	$	28,164		100.00	%	$	28,331		100.00	%	$	27,639		100.00	%	$	27,321		100.00	%

Key Asset Quality Ratio Trends

Table 5 – Key Asset Quality Ratio Trends

	2nd Qtr 2019			1st Qtr 2019			4th Qtr 2018			3rd Qtr 2018			2nd Qtr 2018
Allowance for loan losses / loans*		1.10	%		1.10	%		1.12	%		1.13	%		1.15	%
Allowance for loan losses / non-performing assets		188.69	%		151.53	%		140.11	%		122.27	%		135.69	%
Allowance for loan losses / non-performing loans		188.69	%		159.61	%		148.99	%		132.06	%		148.97	%
Non-performing assets / loans plus OREO*		0.58	%		0.73	%		0.80	%		0.92	%		0.84	%
Non-performing assets / total assets		0.47	%		0.58	%		0.64	%		0.73	%		0.66	%
Net charge-offs / average loans (annualized)		(0.08	)%		0.06	%		(0.04	)%		0.18	%		0.06	%

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

Non-Interest Income.

Total non-interest income increased $272,000 in the second quarter of 2019 to $10.5 million from $10.2 million for the same period in 2018.

Service Fees. Service fees and other charges increased by $5,000 in the second quarter of 2019 compared to the same period in 2018.

Overdrawn balances, net of an 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 non-interest income rather than interest income. Fee income recorded for the quarters ending June 30, 2019 and 2018 related to the overdraft privilege product, net of adjustments to the allowance for uncollectible overdrafts, was $582,000 and $615,000, respectively. Accounts charged off are included in non-interest expense. The allowance for uncollectible overdrafts was $13,000 at June 30, 2019, $34,000 at December 31, 2018, and $16,000 at June 30, 2018.

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Mortgage Banking Activity. Mortgage banking income increased to $2.1 million in the second quarter of 2019 from $2.0 million in the second quarter of 2018. Gains from the sale of mortgage loans increased to $1.8 million in the second quarter of 2019 from $1.4 million in the second quarter of 2018. Mortgage loan servicing revenue remained flat at $0.9 million in the second quarters of 2019 and 2018. First Defiance had a negative change in the valuation adjustment in mortgage servicing assets of $190,000 in the second quarter of 2019 compared with a positive adjustment of $47,000 in the second quarter of 2018.

Insurance Commission Income. Income from the sale of insurance products was $3.6 million in the second quarter of 2019, up from $3.5 million in the second quarter of 2018, a 3.5% increase.

Bank-Owned Life Insurance. Income from bank-owned life insurance was $527,000 for the second quarter of 2019, down from $566,000 in the second quarter of 2018. This decrease was primarily a result of a $75,000 decrease in death benefits received in the second quarter of 2019 versus the second quarter of 2018.

Non-Interest Expense.

Non-interest expense increased $1.6 million to $24.2 million for the second quarter of 2019 compared to $22.7 million for the same period in 2018. The increase is mainly attributable to the increase in compensation and benefits of $1.5 million further explained in the section below.

Compensation and Benefits. Compensation and benefits increased to $14.4 million in the second quarter of 2019, compared to $12.9 million in the second quarter of 2018. The increase in compensation and benefits from a year ago is mainly due to additions to staff to support growth strategies, merit increases, and higher medical benefit costs.

Occupancy. Occupancy expense increased by $278,000 to $2.3 million for the quarter ended June 30 2019, compared to the same period in 2018. This can be attributed to continued growth strategies.

Data Processing. Data processing cost was $2.3 million in the second quarter of 2019, up from $2.1 million in the second quarter of 2018.

Other Non-Interest Expenses. Other non-interest expense of $4.2 million in the second quarter of 2019 decreased $430,000 from $4.6 million in the second quarter of 2018. The decrease in other non-interest expenses from a year ago is primarily due to a $105,000 increase in the liabilities of the deferred compensation plan in the second quarter of 2019 compared to a $445,000 increase for the same period in 2018.

The efficiency ratio, considering tax equivalent interest income and excluding securities gains and losses, for the second quarter of 2019 was 61.01% compared to 61.24% for the second quarter of 2018.

69

Six Months Ended June 30, 2019 and 2018

On a consolidated basis, First Defiance’s net income for the six months ended June 30, 2019 was $23.7 million compared to income of $22.8 million for the same period in 2018. On a per share basis, basic and diluted earnings per common share for the six months ended June 30, 2019 were both $1.19, compared to basic and diluted earnings per common share of $1.12 for the same period in 2018.

Net Interest Income

Net interest income was $57.3 million for the first six months of 2019 compared with $52.2 million in the first six months of 2018. Average interest-earning assets increased to $2.89 billion in the first six months of 2019 compared to $2.69 billion in the first six months of 2018.

For the six month period ended June 30, 2019, total interest income was $69.2 million compared to $59.2 million for the same period in 2018. Interest expense increased by $4.9 million to $11.9 million for the six months ended June 30, 2019 compared to $7.0 million for the same period in 2018.

Net interest margin for the first six months of 2019 was 4.03%, up 8 basis points from the 3.95% margin reported in the six month period ended June 30, 2018.

Provision for Loan Losses

The provision for loan losses was $494,000 for the six months ended June 30, 2019, compared to a credit of $672,000 during the six months ended June 30, 2018. Charge-offs for the first half of 2019 were $670,000 and recoveries of previously charged off loans totaled $779,000 for net recoveries of $109,000. By comparison, $845,000 of charge-offs were recorded in the same period of 2018 and $2.2 million of recoveries were realized for net recoveries of $1.3 million.

Non-Interest Income

Total non-interest income increased $382,000 to $21.3 million for the six months ended June 30, 2019 from $20.9 million recognized for the same period in 2018.

Service Fees. Service fees and other charges were $6.3 million for the first six months of 2019, a decrease of $119,000 from $6.4 million for the same period in 2018.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans increased $223,000 to $4.0 million for the six months ended June 30, 2019 from $3.8 million for the same period in 2018. Gains realized from the sale of mortgage loans increased $612,000 to $3.1 million for the first six months of 2019 from $2.5 million for the same period in 2018. Mortgage loan servicing revenue remained steady at $1.88 million in both the first half of 2019 and 2018. The Company recorded a negative valuation adjustment of $303,000 in the first six months of 2019 compared to a positive adjustment of $83,000 in the first six months of 2018.

Insurance Commission Income. Income from the sale of insurance and investment products was $7.73 million in the first six months of 2019, a decrease of $39,000 from $7.77 million in the first six months of 2018.

Other Non-Interest Income. Other non-interest income for the first six months of 2019 was $1.3 million, up from $658,000 in the first six months of 2018 primarily due to a $619,000 increase in the assets of the deferred compensation plan compared to a $112,000 decrease for the same period in 2018. This was mainly due to improved stock market performance in the first six months of 2019.

70

Non-Interest Expense

Non-interest expense was $49.1 million for the first six months of 2019, up from $45.9 million for the same period in 2018.

Compensation and Benefits. Compensation and benefits increased to $28.5 million for the six months ended June 30, 2019, compared to $26.1 million for the same period in 2018. The increase is mainly related to merit increases, additional increases to minimum pay levels, higher incentive compensation, increases to staff related to growth strategies and higher medical costs.

Occupancy. Occupancy expense increased by $448,000 to $4.5 million for the six months ended June 30 2019, compared to the same period in 2018. This can be attributed to continued growth strategies.

Data Processing. Data processing cost was $4.6 million in the first half of 2019, up from $4.2 million in the first half of 2018.

Other Non-Interest Expenses. Other non-interest expenses increased $97,000 to $9.3 million for the first six months of 2019 from $9.2 million for the same period in 2018. The increase in other non-interest expense is primarily due to a $196,000 increase in debit card reward program

The efficiency ratio for the first six months of 2019 was 62.11% compared to 62.35% for the same period in 2018.

Income Taxes

The Tax Cuts and Jobs Act was enacted on December 22, 2017, establishing a new, flat corporate federal statutory income tax rate of 21% effective January 1, 2018.

First Defiance computes federal income tax expense in accordance with ASC Topic 740, Subtopic 942, which resulted in an effective tax rate of 18.24% for the six months ended June 30, 2019 compared to 18.14% for the same period in 2018. The tax rate is lower than the statutory 21% tax rate for the Company mainly because of investments in tax-exempt securities. The earnings on tax-exempt securities are not subject to federal income tax.

Liquidity

As a regulated financial institution, First Federal is required to maintain appropriate levels of “liquid” assets to meet short-term funding requirements.

First Defiance had $13.0 million of cash provided by operating activities during the first six months of 2019. The Company's cash provided by operating activities primarily resulted from the origination of loans held for sale and net income mostly offset by the proceeds on the sale of loans.

71

At June 30, 2019, First Federal had $233.0 million in outstanding loan commitments and loans in process to be funded generally within the next six months and an additional $414.8 million committed under existing consumer and commercial lines of credit and standby letters of credit. Also at that date, First Federal had commitments to sell $37.1 million of loans held-for-sale. First Defiance believes that it has adequate resources to fund commitments as they arise and that it can adjust the rate on savings certificates to retain deposits in changing interest rate environments. If First Defiance requires funds beyond its internal funding capabilities, advances from the FHLB and other financial institutions are available.

Liquidity risk arises from the possibility that the Company may not be able to meet its financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Company’s Board of Directors has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. This policy designates First Federal’s Asset/Liability Committee (“ALCO”) as the body responsible for meeting these objectives. The ALCO reviews liquidity on a monthly basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by the Company’s Chief Financial Officer and Controller.

Capital Resources

Capital is managed at First Federal and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity and operational risks inherent in the business, as well as flexibility needed for future growth and new business opportunities.

In July 2013, the federal banking agencies 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 the Company and the Bank on January 1, 2016, and were subject to a phase-in period through January 1, 2019, minimum requirements increased for both quantity and quality of capital held by the Company and the Bank. The rules include a new minimum CET1 capital to risk-weighted assets ratio of 4.5% and a capital conservation buffer of 0.625% of risk-weighted assets during 2016, 1.25% during the year 2017, 1.875% during the year 2018, and increasing each year until fully phased-in during 2019 at 2.50%, effectively resulting 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 Company met each of the well capitalized ratio guidelines at June 30, 2019. The following table indicates the capital ratios for First Defiance (consolidated) and First Federal at June 30, 2019, and December 31, 2018. (In Thousands):

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June 30, 2019
	Actual					Minimum Required for Adequately Capitalized					Minimum Required for Well Capitalized
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated	$	305,745		10.55	%	$	130,455		4.5	%		N/A		N/A
First Federal	$	326,472		11.29	%	$	130,155		4.5	%	$	188,002		6.5	%
Tier 1 Capital (1)
Consolidated	$	340,745		10.92	%	$	124,854		4.0	%		N/A		N/A
First Federal	$	326,472		10.50	%	$	124,419		4.0	%	$	155,524		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (1)
Consolidated	$	340,745		11.75	%	$	173,940		6.0	%		N/A		N/A
First Federal	$	326,472		11.29	%	$	173,541		6.0	%	$	231,388		8.0	%
Total Capital (to Risk Weighted Assets) (1)
Consolidated	$	369,680		12.75	%	$	231,920		8.0	%		N/A		N/A
First Federal	$	355,406		12.29	%	$	231,388		8.0	%	$	289,234		10.0	%

(1) Excludes capital conservation buffer of 2.50% as of March 31, 2019.

(2) Core capital is computed as a percentage of adjusted total assets of $3.12 billion for consolidated and $3.11 billion for First Federal, respectively. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.90 billion for consolidated and $2.89 billion for First Federal, respectively.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in detail in the 2018 Form 10-K, First Defiance’s ability to maximize net income is dependent on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of First Defiance are monetary in nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company. First Defiance does not use off-balance sheet derivatives to enhance its risk management, nor does it engage in trading activities beyond the sale of mortgage loans.

First Defiance monitors its exposure to 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.

The table below presents, for the twelve months subsequent to June 30, 2019 and December 31, 2018, 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 June 30, 2019, net interest income sensitivity to changes in interest rates for the twelve months subsequent to June 30, 2019, remained relatively stable for the ramp and shock compared to the sensitivity profile for the twelve months subsequent to December 31, 2018.

Net Interest Income Sensitivity Profile
	Impact on Future Annual Net Interest Income
(dollars in thousands)	June 30, 2019					December 31, 2018
Gradual Change in Interest Rates
+200	$	2,027		1.70	%	$	1,910		1.61	%
+100		1,106		0.93	%		981		0.83	%
-100		(2,323	)	-1.95	%		(2,025	)	-1.71	%
-200		(6,511	)	-5.45	%		(6,236	)	-5.27	%
Immediate Change in Interest Rates
+200	$	4,584		3.84	%	$	3,424		2.89	%
+100		2,521		2.11	%		1,865		1.57	%
-100		(4,995	)	-4.18	%		(5,057	)	-4.27	%
-200		(14,113	)	-11.82	%		(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 Company’s Board mandated guidelines as of June 30, 2019, except for the down 200 basis points over the first twelve months in a dynamic and static shock balance sheet and the down 200 basis points over the cumulative 24 months in both a dynamic and static 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 guidelines.

74

In addition to the simulation analysis, First Defiance also uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE 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 rates beyond 200 basis points as of June 30, 2019, was considered to be unlikely given the current interest rate environment and, therefore, was not included in this analysis. The results of this analysis are reflected in the following tables for the six months ended June 30, 2019, and the year-ended December 31, 2018.

June 30, 2019
Economic Value of Equity
Change in Rates	$ Amount		$ Change			% Change
	(Dollars in Thousands)
+400 bp		718,641		86,204			13.63	%
+ 300 bp		705,339		72,902			11.53	%
+ 200 bp		689,531		57,093			9.03	%
+ 100 bp		666,329		33,892			5.36	%
0 bp		632,437		-			-
- 100 bp		578,773		(53,665	)		(8.49	)%
- 200 bp		505,420		(127,018	)		(20.08	)%

December 31, 2018
Economic Value of Equity
Change in Rates	$ Amount		$ Change			% Change
	(Dollars in Thousands)
+400 bp		751,259		66,752			9.75	%
+ 300 bp		741,404		56,897			8.31	%
+ 200 bp		729,505		44,998			6.57	%
+ 100 bp		710,688		26,181			3.82	%
0 bp		684,507		-			-
- 100 bp		642,625		(41,882	)		(6.12	)%
-200 bp		578,124		(106,383	)		(15.54	)%

Item 4. Controls and Procedures

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, including those disclosure controls and procedures designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2019. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

No changes occurred in the Company’s internal controls over financial reporting during the quarter ended June 30, 2019, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

75

FIRST DEFIANCE FINANCIAL CORP.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Neither First Defiance nor any of its subsidiaries is engaged in any legal proceedings of a material nature.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company had no unregistered sales of equity securities during the quarter ended June 30, 2019.

The following table provides information regarding First Defiance’s purchases of its common stock during the three-month period ended June 30, 2019:

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  that May Yet Be Purchased Under the Plans or Programs(1)
Beginning Balance, March 31, 2019								515,000
April 1 – April 30, 2019		-	$	-		-		515,000
May 1 – May 31, 2019		-		-		-		515,000
June 1 – June 30, 2019		-		-		-		515,000
Total		-	$	-		-		515,000

(1) On May 23, 2019, the Company announced that its Board of Directors authorized a program for the repurchase of up to 5% of the outstanding common shares, or 500,000 shares. There is no expiration date for the repurchase program.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

76

Item 6. Exhibits

Exhibit 3.1	Articles of Incorporation of First Defiance (1)
Exhibit 3.2	Amendment to Articles of Incorporation of First Defiance (2)
Exhibit 3.3	Code of Regulations of First Defiance (3)
Exhibit 10.1	Employment Agreement, dated as of May 1, 2019, among First Defiance Financial Corp., First Federal Bank of the Midwest, and Paul D. Nungester, Jr. (4)
Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101	The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 is formatted in eXtensible Business Reporting Language (“XBRL”): (i) Unaudited Consolidated Condensed Statements of Financial Condition at June 30, 2019 and December 31, 2018, (ii) Unaudited Consolidated Condensed Statements of Income for the Three and Six Months ended June 30, 2019 and 2018 (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the Three and Six Months ended June 30, 2019 and 2018, (iv) Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the Six Months ended June 30, 2019 and 2018, (v) Unaudited Consolidated Condensed Statements of Cash Flows for the Six Months ended June 30, 2019 and 2018 and (vi) Notes to Unaudited Consolidated Condensed Financial Statements.

(1) Incorporated by reference to the like numbered exhibit in the Registrant’s Form S-3 (File No. 333-163014), filed on November 10, 2009.

(2) Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K (File No. 000-26850), filed on June 22, 2018.

(3) Incorporated by reference to Exhibit 4.3 of the Registrant’s Form S-8 POS (File No. 333-197203), filed on July 17, 2018.

(4) Incorporated by reference to Exhibit 10.1 in Form 10-Q filed May 7, 2019 (File No. 000-26850).

77

FIRST DEFIANCE FINANCIAL CORP.

SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
Date:  August 9, 2019	By:	/s/ Donald P. Hileman
		Donald P. Hileman
		President and
		Chief Executive Officer
Date:  August 9, 2019	By:	/s/ Paul D. Nungester, Jr.
		Paul D. Nungester, Jr.
		Executive Vice President and
		Chief Financial Officer

78

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Donald P. Hileman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Defiance Financial Corp.;

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(s) 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(s) 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.

Date:  August 9, 2019	/s/ Donald P. Hileman
	Donald P. Hileman
	President and
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Paul D. Nungester, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Defiance Financial Corp.;

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(s) 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(s) 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.

Date:  August 9, 2019	/s/ Paul D. Nungester, Jr.
	Paul D. Nungester, Jr.
	Executive Vice President and
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

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 Quarterly Report of First Defiance Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald P. Hileman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:

1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the Company's financial condition and results of operations.

Date: August 9, 2019	/s/ Donald P. Hileman
	Donald P. Hileman
	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

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 Quarterly Report of First Defiance Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul D. Nungester, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:

1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the Company's financial condition and results of operations.

Date: August 9, 2019	/s/ Paul D. Nungester, Jr.
	Paul D. Nungester, Jr.
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Jul. 31, 2019
Document And Entity Information
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Entity Registrant Name	FIRST DEFIANCE FINANCIAL CORP
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		19,728,023
Entity Central Index Key	0000946647
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Trading Symbol	FDEF

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Consolidated Condensed Statements of Financial Condition - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Cash and cash equivalents:
Cash and amounts due from depository institutions	$ 50,597	$ 55,962
Federal funds sold	33,000	43,000
Cash and cash equivalents at beginning of year	83,597	98,962
Securities:
Available-for-sale, carried at fair value	296,115	294,076
Held-to-maturity, carried at amortized cost (fair value $484 and $526 at June 30, 2019 and December 31, 2018, respectively)	485	526
Marketable Securities, Total	296,600	294,602
Loans held for sale	14,509	6,613
Loans receivable, net of allowance of $28,934 at June 30, 2019 and $28,331 at December 31, 2018, respectively	2,595,285	2,511,708
Mortgage servicing rights	9,855	10,119
Accrued interest receivable	10,771	9,641
Federal Home Loan Bank stock	11,915	14,217
Bank owned life insurance	75,086	67,660
Premises and equipment	39,959	40,670
Real estate and other assets held for sale	0	1,205
Goodwill	98,569	98,569
Core deposit and other intangibles	3,816	4,391
Other assets	37,590	23,365
Total assets	3,277,552	3,181,722
Liabilities:
Deposits	2,680,637	2,620,882
Advances from the Federal Home Loan Bank	105,178	85,189
Subordinated debentures	36,083	36,083
Securities sold under repurchase agreements	3,064	5,741
Advance payments by borrowers	3,550	3,652
Deferred taxes	1,593	264
Other liabilities	40,231	30,322
Total liabilities	2,870,336	2,782,133
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; 25,371,086 and 25,398,992 shares issued and 19,727,630 and 20,171,392 shares outstanding at June 30, 2019 and December 31, 2018, respectively	127	127
Additional paid-in capital	161,205	161,593
Accumulated other comprehensive income (loss), net of tax of $1,108 and $(468), respectively	4,167	(2,148)
Retained earnings	311,576	295,588
Treasury stock, at cost, 5,643,456 shares at June 30, 2019 and 5,227,600 shares at December 31, 2018	(69,859)	(55,571)
Total stockholders' equity	407,216	399,589
Total liabilities and stockholders' equity	$ 3,277,552	$ 3,181,722

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Consolidated Condensed Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Held-to-maturity, fair value (in dollars)	$ 484	$ 526
Loans receivable, allowance (in dollars)	$ 28,934	$ 28,331
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	25,371,086	25,398,992
Common stock, shares outstanding	19,727,630	20,171,392
Accumulated other comprehensive income (loss), tax effect (in dollars)	$ 1,108	$ (468)
Treasury stock, shares	5,643,456	5,227,600
Preferred stock
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
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 Condensed Statements of Income - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest Income
Loans		$ 32,660	$ 27,660	$ 63,874	$ 54,186
Investment securities:
Taxable		1,289	1,189	2,655	2,238
Non-taxable		849	850	1,688	1,652
Interest-bearing deposits		260	373	545	670
FHLB stock dividends		183	227	398	458
Total interest income		35,241	30,299	69,160	59,204
Interest Expense
Deposits		5,581	3,144	10,586	5,755
FHLB advances and other		304	282	580	601
Subordinated debentures		350	320	714	600
Notes payable		17	6	21	14
Total interest expense		6,252	3,752	11,901	6,970
Net interest income		28,989	26,547	57,259	52,234
Provision for loan losses		282	423	494	(672)
Net interest income after provision for loan losses		28,707	26,124	56,765	52,906
Non-interest Income
Service fees and other charges		3,301	3,296	6,308	6,427
Insurance commissions		3,616	3,493	7,731	7,770
Mortgage banking income		2,137	2,013	3,978	3,755
Gain on sale of non-mortgage loans		21	43	110	267
Trust income		476	522	999	1,074
Income from Bank Owned Life Insurance		527	566	919	966
Other non-interest income		408	281	1,254	658
Total non-interest income		10,486	10,214	21,299	20,917
Non-interest Expense
Compensation and benefits		14,398	12,885	28,483	26,134
Occupancy		2,304	2,026	4,545	4,097
FDIC insurance premium		258	202	531	562
Financial institutions tax		556	531	1,112	1,062
Data processing		2,267	2,083	4,564	4,188
Amortization of intangibles		276	332	575	679
Other non-interest expense		4,176	4,606	9,291	9,194
Total non-interest expense		24,235	22,665	49,101	45,916
Income before income taxes		14,958	13,673	28,963	27,907
Federal income taxes		2,759	2,564	5,282	5,061
Net Income		$ 12,199	$ 11,109	$ 23,681	$ 22,846
Earnings per common share
Basic		$ 0.62	$ 0.54	$ 1.19	$ 1.12
Diluted		0.61	0.54	1.19	1.12
Dividends declared per share		$ 0.19	$ 0.150	$ 0.38	$ 0.300
Average common shares outstanding
Basic	[1]	19,780	20,388	19,897	20,359
Diluted		19,860	20,492	19,976	20,466

[1] Share and per share data in above table has been adjusted for a 2-for-1 stock split on July 12, 2018.

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Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Consolidated Condensed Statements of Comprehensive Income
Net income	$ 12,199	$ 11,109	$ 23,681	$ 22,846
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale	3,289	(872)	7,892	(4,429)
Income tax expense (benefit)	(691)	183	(1,659)	930
Net of tax amount	2,598	(689)	6,233	(3,499)
Change in unrealized gain/(loss) on postretirement benefit:
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan	0	0	82	0
Net of tax amount	0	0	82	0
Total other comprehensive income (loss)	2,598	(689)	6,315	(3,499)
Comprehensive income	$ 14,797	$ 10,420	$ 29,996	$ 19,347

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Consolidated Statement of Changes in Stockholders' Equity - USD ($) $ in Thousands		Preferred stock	Common Stock [Member]		Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2017		$ 0	$ 127		$ 160,940	$ 217	$ 262,900	$ (50,898)	$ 373,286
Balance (in shares) at Dec. 31, 2017	[1]		20,312,082
Net income		0	$ 0	[1]	0	0	11,737	0	11,737
Other comprehensive income (loss)		0	0	[1]	0	(2,810)	0	0	(2,810)
Adoption of ASU 2018-02 - See Note 2		0	0	[1]	0	47	(47)	0	0
Stock based compensation expenses		0	0	[1]	84	0	0	0	84
Shares issued under stock option plan		0	$ 0		(33)	0	(36)	125	56
Shares issued under stock option plan (in shares)	[1]		11,276
Restricted share activity under stock incentive plans		0	$ 0		(458)	0	(81)	426	(113)
Restricted share activity under stock incentive plans (in shares)	[1]		39,696
Shares issued from direct stock sales		0	$ 0		14	0	0	7	21
Shares issued from direct stock sales (in shares)	[1]		744
Common stock dividends declared		0	$ 0	[1]	0	0	(3,047)	0	(3,047)
Balance at Mar. 31, 2018		0	$ 127		160,547	(2,546)	271,426	(50,340)	379,214
Balance (in shares) at Mar. 31, 2018	[1]		20,363,798
Balance at Dec. 31, 2017		0	$ 127		160,940	217	262,900	(50,898)	373,286
Balance (in shares) at Dec. 31, 2017	[1]		20,312,082
Net income									22,846
Other comprehensive income (loss)									(3,499)
Balance at Jun. 30, 2018		0	$ 127		160,847	(3,235)	279,122	(49,941)	386,920
Balance (in shares) at Jun. 30, 2018	[1]		20,396,178
Balance at Mar. 31, 2018		0	$ 127		160,547	(2,546)	271,426	(50,340)	379,214
Balance (in shares) at Mar. 31, 2018	[1]		20,363,798
Net income		0	$ 0	[1]	0	0	11,109	0	11,109
Other comprehensive income (loss)		0	0	[1]	0	(689)	0	0	(689)
Stock based compensation expenses		0	0	[1]	88	0	0	0	88
Shares issued under stock option plan		0	$ 0		(60)	0	(234)	349	55
Shares issued under stock option plan (in shares)	[1]		27,352
Restricted share activity under stock incentive plans		0	$ 0		253	0	(120)	40	173
Restricted share activity under stock incentive plans (in shares)	[1]		4,104
Shares issued from direct stock sales		0	$ 0		19	0	0	10	29
Shares issued from direct stock sales (in shares)	[1]		924
Common stock dividends declared		0	$ 0	[1]	0	0	(3,059)	0	(3,059)
Balance at Jun. 30, 2018		0	$ 127		160,847	(3,235)	279,122	(49,941)	386,920
Balance (in shares) at Jun. 30, 2018	[1]		20,396,178
Balance at Dec. 31, 2018		0	$ 127		161,593	(2,148)	295,588	(55,571)	399,589
Balance (in shares) at Dec. 31, 2018	[1]		20,171,392
Net income		0	$ 0	[1]	0	0	11,482	0	11,482
Other comprehensive income (loss)		0	0	[1]	0	3,717	0	0	3,717
Deferred compensation plan		0	0	[1]	(22)	0	0	42	20
Stock based compensation expenses		0	0	[1]	11	0	0	0	11
Shares issued under stock option plan		0	$ 0		(22)	0	(5)	212	185
Shares issued under stock option plan (in shares)	[1]		17,822
Restricted share activity under stock incentive plans		0	$ 0		(751)	0	0	440	(311)
Restricted share activity under stock incentive plans (in shares)	[1]		38,890
Shares issued from direct stock sales		0	$ 0		19	0	0	12	31
Shares issued from direct stock sales (in shares)	[1]		1,065
Shares repurchased		0	$ 0		0	0	0	(15,147)	(15,147)
Shares repurchased (In Shares)	[1]		(515,977)
Common stock dividends declared		0	$ 0	[1]	0	0	(3,788)	0	(3,788)
Balance at Mar. 31, 2019		0	$ 127		160,828	1,569	303,277	(70,012)	395,789
Balance (in shares) at Mar. 31, 2019	[1]		19,713,192
Balance at Dec. 31, 2018		0	$ 127		161,593	(2,148)	295,588	(55,571)	399,589
Balance (in shares) at Dec. 31, 2018	[1]		20,171,392
Net income									23,681
Other comprehensive income (loss)									6,315
Balance at Jun. 30, 2019		0	$ 127		161,205	4,167	311,576	(69,859)	407,216
Balance (in shares) at Jun. 30, 2019	[1]		19,727,630
Balance at Mar. 31, 2019		0	$ 127		160,828	1,569	303,277	(70,012)	395,789
Balance (in shares) at Mar. 31, 2019	[1]		19,713,192
Net income		0	$ 0	[1]	0	0	12,199	0	12,199
Other comprehensive income (loss)		0	0	[1]	0	2,598	0	0	2,598
Deferred compensation plan		0	0	[1]	(12)	0	0	29	17
Stock based compensation expenses		0	0	[1]	255	0	0	0	255
Shares issued under stock option plan		0	$ 0		(9)	0	0	15	6
Shares issued under stock option plan (in shares)	[1]		1,200
Restricted share activity under stock incentive plans		0	$ 0		129	0	(153)	98	74
Restricted share activity under stock incentive plans (in shares)	[1]		12,304
Shares issued from direct stock sales		0	$ 0		14	0	0	11	25
Shares issued from direct stock sales (in shares)	[1]		934
Common stock dividends declared		0	$ 0	[1]	0	0	(3,747)	0	(3,747)
Balance at Jun. 30, 2019		$ 0	$ 127		$ 161,205	$ 4,167	$ 311,576	$ (69,859)	$ 407,216
Balance (in shares) at Jun. 30, 2019	[1]		19,727,630

[1] Share data has been adjusted to reflect a 2-for-1 stock split on July 12, 2018

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) - shares	3 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018
Restricted Stock [Member]
Stock Repurchased and Retired (in shares)	2,533	25,195	0	17,818
Employee Stock Option [Member]
Stock Repurchased and Retired (in shares)	0	178	7,648	1,224

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Consolidated Condensed Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating Activities
Net income	$ 23,681	$ 22,846
Items not requiring (providing) cash:
Provision for loan losses	494	(672)
Depreciation	2,073	1,719
Amortization of mortgage servicing rights, net of impairment charges/recoveries	980	586
Amortization of core deposit and other intangible assets	575	679
Net accretion of premiums and discounts on loans and deposits	(450)	(192)
Amortization of premiums and discounts on securities	633	588
Change in deferred taxes	(246)	70
Proceeds from the sale of loans held for sale	99,438	100,481
Originations of loans held for sale	(104,974)	(103,730)
Gain from sale of loans	(3,186)	(2,731)
Loss on sale or write down of property plant and equipment	10	0
Gain/loss on sale / write-down of real estate and other assets held for sale	278	529
Stock option expense	266	172
Restricted stock (income)/expense	(239)	60
Income from bank owned life insurance	(919)	(966)
Excess tax benefit on stock compensation plans	(106)	(158)
Changes in:
Accrued interest receivable	(1,130)	(769)
Other assets	(5,417)	(2,219)
Other liabilities	1,246	(3,382)
Net cash provided by operating activities	13,007	12,911
Investing Activities
Proceeds from maturities of held-to-maturity securities	38	41
Proceeds from maturities, calls and pay-downs of available-for-sale securities	16,432	12,519
Proceeds from sale of premises and equipment, real estate and other assets held for sale	1,073	343
Proceeds from sale of non-mortgage loans	14,378	14,086
Purchases of available-for-sale securities	(11,211)	(42,839)
Proceeds from Federal Home Loan stock redemption	2,302	3
Proceeds from sale of bank owned life insurance	0	17,689
Purchases of premises and equipment, net	(1,372)	(1,946)
Investment in bank owned life insurance	(6,600)	0
Proceeds from bank owned life insurance death benefit	93	336
Net increase in loans receivable	(98,035)	(49,941)
Net cash used by investing activities	(82,902)	(49,709)
Financing Activities
Net increase in deposits and advance payments by borrowers	59,652	53,612
Repayment of Federal Home Loan Bank advances	(35,062)	(28,557)
Proceeds from Federal Home Loan Bank advances	35,000	30,000
Net Change in Federal Home Loan Bank Advances	20,051	0
Decrease in securities sold under repurchase agreements	(2,677)	(19,120)
Net cash paid for repurchase of common stock	(15,147)	0
Proceeds from exercise of stock options	191	111
Proceeds from direct stock sales	57	50
Cash dividends paid on common stock	(7,535)	(6,106)
Net cash provided by financing activities	54,530	29,990
Increase in cash and cash equivalents	(15,365)	(6,808)
Cash and cash equivalents at beginning of period	98,962	113,693
Cash and cash equivalents at end of period	83,597	106,885
Supplemental cash flow information:
Interest paid	11,811	6,901
Income taxes paid	4,200	5,250
Initial recognition of right-of-use asset	8,808	0
Initial recognition of lease liability	9,339	0
Transfers from loans to real estate and other assets held for sale	146	930
Securities purchased but not yet settled	$ 0	$ 397

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Basis of Presentation

6 Months Ended

Jun. 30, 2019

Basis of Presentation

Basis of Presentation

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” or the “Bank”), First Insurance Group of the Midwest, Inc. (“First Insurance”), and First Defiance Risk Management Inc. (“First Defiance Risk Management”). All significant intercompany transactions and balances are eliminated in consolidation.

First Federal is primarily engaged in 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 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 is a wholly-owned insurance company subsidiary of the Company that insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.  First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

The consolidated condensed statement of financial condition at December 31, 2018, has been derived from the audited financial statements at that date, which were included in First Defiance’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

The accompanying consolidated condensed financial statements as of June 30, 2019, and for the three and six month periods ended June 30, 2019 and 2018 have been prepared by First Defiance without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the 2018 Form 10-K. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and six month periods ended June 30, 2019, are not necessarily indicative of the results that may be expected for the entire year.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of one common share 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 Quarterly Report on Form 10-Q has been adjusted and is reflective of the stock split.

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Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Significant Accounting Policies

Significant Accounting Policies

2. Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with 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 by the weighted average number of shares of common stock outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for the calculation. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, restricted stock awards and stock grants.

Goodwill and Other Intangibles

Goodwill resulting from business combinations prior to January 1, 2009, represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected November 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on First Defiance’s balance sheet.

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank, insurance and branch acquisitions. They are initially recorded at fair value and then amortized on an accelerated basis over their estimated lives, which range from five years for non-compete agreements to 10 to 20 years for core deposit and customer relationship intangibles.

Accounting Standards Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet. For public companies, this update was effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of 2019. Upon adoption, the Company elected a practical expedient which allows existing leases to retain their classification as operating leases. The Company has elected to account for lease and related nonlease components as a single lease component. The Company has also elected to not recognize right-of-use assets and lease liabilities arising from short-term leases, which are twelve months or less. Implementation of the guidance resulted in the recording of a right-of-use asset and lease liability on the balance sheet; however it does not have a material impact on the Company's other consolidated financial statements. See additional disclosures in Note 10.

Accounting Standards Updates

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 are not 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; however, the Company does not currently plan to adopt this ASU early. As a result of this ASU, the Company could experience an increase in its allowance. 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). Interagency guidance issued in December 2018 allows for a three-year phase-in of the cumulative-effect adjustment for regulatory capital reporting purposes. 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.  The Company is currently running parallel computations in 2019 and continues to evaluate the impact of adoption of this ASU.

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Fair Value

6 Months Ended

Jun. 30, 2019

Fair Value

Fair Value

3. Fair Value

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

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 2 include U.S. federal 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 investor’s required return.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell.  Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted from 0% to 30% to account for other factors that may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used, which include but are not limited to:  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

June 30, 2019	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	—	$	2,533	$	—	$	2,533
Mortgage-backed - residential		—		79,204		—		79,204
REMICs		—		2,412		—		2,412
Collateralized mortgage obligations-residential		—		97,526		—		97,526
Preferred Stock		1		—		—		1
Corporate bonds		—		12,986		—		12,986
Obligations of state and political subdivisions		—		101,453		—		101,453
Mortgage banking derivative - asset		—		1,392		—		1,392
Mortgage banking derivative - liability		—		205		—		205

December 31, 2018	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	—	$	2,503	$	—	$	2,503
Mortgage-backed - residential		—		74,710		—		74,710
REMICs		—		2,709		—		2,709
Collateralized mortgage obligations-residential		—		101,461		—		101,461
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

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

							Total Fair
June 30, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Value
	(In Thousands)
Impaired loans
Commercial real estate	$	—	$	—	$	459	$	459
Commercial		—		—		205		205
Total impaired loans		—		—		664		664
Mortgage servicing rights		—		288		—		288

							Total Fair
December 31, 2018	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		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
Commercial real estate		—		—		705		705
Total real estate held for sale		—		—		705		705

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair				Range of		Weighted
	Value		Valuation Technique	Unobservable Inputs	Inputs		Average
	(Dollars in Thousands)
Impaired Loans- Applies to all loan classes	$	664	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10 - 40	%	19.3	%

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				Range of		Weighted
	Value		Valuation Technique	Unobservable Inputs	Inputs		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	%

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $664,000 with a $91,000 valuation allowance and a fair value of $1.8 million with a $9,000 valuation allowance at June 30, 2019, and December 31, 2018, respectively. Provision expense of $52,000 and $176,000 were included in earnings for the three and six months ended June 30, 2019. A provision recovery of $72,000 for the three months ended June 30, 2018 and a provision expense of $61,000 for the six months ended June 30, 2018 were included in earnings.

Mortgage servicing rights, which are carried at the lower of cost or fair value, had a fair value of $288,000 with a valuation allowance of $603,000 and a fair value of $629,000 with a valuation allowance of $300,000 at June 30, 2019, and December 31, 2018, respectively. Charges of $190,000 and $303,000 for the three and six months ended June 30, 2019 and recoveries of $47,000 and $83,000 for the three and six months ended June 30, 2018, respectively, were included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair value of real estate held for sale was $0 and $264,000 for the three and six months ended June 30, 2019, respectively, which was recorded directly as an adjustment to current earnings through non-interest expense. The change in fair value of real estate held for sale was $0 and $544,000 for the three and six months ended June 30, 2018.

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 June 30, 2019, and December 31, 2018. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of First Defiance.

Much of the information used to arrive at “fair value” is highly subjective and judgmental in nature and therefore the results may not be precise. Subjective factors include, among other things, estimated cash flows, risk characteristics and interest rates, all of which are subject to change. With the exception of investment securities, the Company’s financial instruments are not readily marketable and market prices do not exist. Since negotiated prices for the instruments, which are not readily marketable, depend greatly on the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these instruments could be significantly different.

The carrying amount of cash and cash equivalents and notes payable, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

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

The Company adopted the amendments to ASU 2016-01 relating to the loan portfolio in the first quarter of 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. 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 value.

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

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

FHLB advances with maturities greater than 90 days are valued based on a 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 June 30, 2019.

					Fair Value Measurements at June 30, 2019
					(In Thousands)
	Carrying
	Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	83,597	$	83,597	$	83,597	$	—	$	—
Investment securities		296,600		296,599		1		296,598		—
Federal Home Loan Bank Stock		11,915		N/A		N/A		N/A		N/A
Loans, net, including loans  held for sale		2,609,794		2,631,763		—		14,982		2,616,781
Accrued interest receivable		10,771		10,771		3		1,225		9,543
Financial Liabilities:
Deposits	$	2,680,637	$	2,681,088	$	584,735	$	2,096,353	$	—
Advances from Federal Home Loan Bank		105,178		105,063		—		105,063		—
Securities sold under repurchase agreements		3,064		3,064		—		3,064		—
Subordinated debentures		36,083		32,330		—		—		32,330

					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

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Stock Compensation Plans

6 Months Ended

Jun. 30, 2019

Stock Compensation Plans

Stock Compensation Plans

4. 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 June 30, 2019, 20,200 options to acquire First Defiance shares were outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted vest 20% per year. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

The Company approved a Short-Term Incentive Plan (“STIP”) and a Long-Term Equity Incentive Plan (“LTIP”) for selected members of management.

Under the 2018 and 2019 STIPs, the participants could earn between 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 the payment.

Under each LTIP, the participants could 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 41,676 and 69,014 RSUs to the participants in the 2018 and 2019 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 48,363 RSUs were issued to the participants of the 2016 LTIP in the first quarter of 2019 for the three year performance period ended December 31, 2018.

In the six months ended June 30, 2019, the Company also granted to employees 13,916 RSUs and 24,651 shares of restricted stock. Of the 24,651 restricted shares granted, 5,258 were issued to directors and have a one-year vesting period. The remaining 19,393 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 on the date of the grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

There were no options granted during the three or six months ended June 30, 2019, or June 30, 2018.

Following is stock option activity under the plans during the six months ended June 30, 2019:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate Intrinsic
		Exercise		Contractual	Value
	Options Outstanding	Price		Term (in years)	(in 000’s)
Options outstanding, January 1, 2019	39,400	$	14.00
Forfeited or cancelled	—		—
Exercised	(19,200)		10.15
Granted	—		—
Options outstanding, June 30, 2019	20,200	$	17.66	5.27	$	221
Vested or expected to vest at June 30, 2019	20,200	$	17.66	5.27	$	221
Exercisable at June 30, 2019	14,500	$	17.48	4.90	$	161

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Proceeds of options exercised	$	6	$	55	$	191	$	111
Related tax benefit recognized		—		6		4		28
Intrinsic value of options exercised		30		781		390		1,034

As of June 30, 2019, there was $27,000 of total unrecognized compensation cost related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 1.3 years.

At June 30, 2019, 160,995 RSUs and 48,919 restricted stock grants were unvested. Compensation expense is recognized over the performance period based on the achievements of targets as established under the plan documents. A total expense of $437,000 and $960,000 was recorded during the three and six months ended June 30, 2019 compared to an expense of $343,000 and $907,000 for the three and six months ended June 30, 2018. There was approximately $457,000 and $961,000 included within other liabilities at June 30, 2019 and December 31, 2018, respectively, related to the STIP.

	Restricted Stock Units			Stock Grants
		Weighted-Average			Weighted-Average
		Grant Date			Grant Date
Unvested Shares	Shares	Fair Value		Shares	Fair Value
Unvested at January 1, 2019	144,586	$	23.94	30,372	$	28.48
Granted	82,930		25.61	78,922		22.25
Vested	(54,771)		20.13	(60,375)		21.17
Forfeited	(11,750)		25.63	—		—
Unvested at June 30, 2019	160,995	$	25.72	48,919	$	27.18

The maximum amount of compensation expense that may be recorded for the 2019 STIP and the active LTIPs at March 31, 2019, is approximately $4.8 million. However, the estimated expense expected to be recorded as of June 30, 2019, based on the performance measures in the plans, is $3.8 million of which $2.0 million is unrecognized at June 30, 2019, and will be recognized over the remaining performance periods.

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Dividends on Common Stock

6 Months Ended

Jun. 30, 2019

Dividends on Common Stock

Dividend on Common Stock

5. Dividends on Common Stock

First Defiance declared and paid a $0.19 per common stock dividend in the first and second quarters of 2019 and declared and paid a  $0.15 per common stock dividend in the first and second quarters of 2018.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2019

Earnings Per Common Share

Earnings Per Common Share

6. Earnings Per Common Share

Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e., unvested restricted stock), not subject to performance based measures.

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands, except per share data)
Basic Earnings Per Share: Net income available to common shareholders	$	12,199	$	11,109	$	23,681	$	22,846
Less: Income allocated to participating securities		1		1		2		2
Net income allocated to common shareholders		12,198		11,108		23,679		22,844
Weighted average common shares outstanding including participating securities(1)		19,791		20,399		19,908		20,370
Less: Participating securities		11		11		11		11
Average common shares(1)		19,780		20,388		19,897		20,359
Basic earnings per common share	$	0.62	$	0.54		1.19		1.12
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	12,198	$	11,108	$	23,679	$	22,844
Weighted average common shares outstanding for basic earnings per common share(1)		19,780		20,388		19,897		20,359
Add: Dilutive effects of stock options		80		104		79		107
Average shares and dilutive potential common shares(1)		19,860		20,492		19,976		20,466
Diluted earnings per common share	$	0.61	$	0.54		1.19		1.12

(1)Share and per share data in above table has been adjusted for a 2-for-1 stock split on July 12, 2018.

There were 6,171 shares for both the three and six month periods in 2019 that were excluded from the diluted earnings per common share calculation as they were anti-dilutive.  There were no anti-dilutive shares for both the three and six month periods in 2018 excluded subject to issue upon exercise of options.

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Investment Securities

6 Months Ended

Jun. 30, 2019

Investment Securities

Investment Securities

7. Investment Securities

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

					Gross
	Amortized		Gross		Unrealized
	Cost		Unrealized Gains		Losses		Fair Value
At June 30, 2019	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S.  government corporations and agencies	$	2,519	$	14	$	—	$	2,533
Mortgage-backed securities – residential		78,553		876		(225)		79,204
REMICs		2,390		22		—		2,412
Collateralized mortgage obligations		96,574		1,062		(110)		97,526
Preferred stock		—		1		—		1
Corporate bonds		12,906		97		(17)		12,986
Obligations of state and political subdivisions		97,886		3,572		(5)		101,453
Total Available-for-Sale	$	290,828	$	5,644	$	(357)	$	296,115

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
	(In Thousands)
Held-to-Maturity Securities*:
FHLMC certificates	$	7	$	—	$	—	$	7
FNMA certificates		25		—		(1)		24
GNMA certificates		9		—		—		9
Obligations of state and political subdivisions		444		—		—		444
Total Held-to Maturity	$	485	$	—	$	(1)	$	484

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
At December 31, 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

* FHLMC, FNMA, and GNMA certificates are residential mortgage-backed securities.

The amortized cost and fair value of the investment securities portfolio at June 30, 2019, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMO”) and REMICs, which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	5,594	$	5,614	$	—	$	—
Due after one year through five years		17,876		18,079		—		—
Due after five years through ten years		33,585		34,483		444		444
Due after ten years		56,256		58,797		—		—
MBS/CMO/REMIC		177,517		179,142		41		40
	$	290,828	$	296,115	$	485	$	484

Investment securities with a carrying amount of $154.2 million at June 30, 2019, were pledged as collateral on public deposits, securities sold under repurchase agreements and the Federal Reserve discount window.

As of June 30, 2019, the Company’s investment portfolio consisted of 434 securities, 39 of which were in an unrealized loss position.

The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2019, and December 31, 2018:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loses
	(In Thousands)
At June 30, 2019
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities-residential		2,038		(14)		23,742		(211)		25,780		(225)
Collateralized mortgage obligations		—		—		11,497		(110)		11,497		(110)
Corporate bonds		871		(17)		—		—		871		(17)
Obligations of state and political subdivisions		—		—		1,442		(5)		1,442		(5)
Held to maturity securities:		—		—		16		(1)		16		(1)
Total temporarily impaired securities	$	2,909	$	(31)	$	36,697	$	(327)	$	39,606	$	(358)

	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)
Total temporarily impaired securities	$	40,928	$	(341)	$	137,099	$	(3,807)	$	178,027	$	(4,148)

There were no realized gains from the sales and calls of investment securities in the three and six month periods ending June 30, 2019 and 2018.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least quarterly, and more frequently when economic or market conditions warrant such an evaluation. The investment portfolio is evaluated for OTTI by segregating the portfolio into two general segments. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under FASB ASC Topic 320, Investments-Debt and Equity Securities. Certain collateralized debt obligations (“CDOs”) are evaluated for OTTI under FASB ASC Topic 325, Investment – Other.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected compared to the book value of the security and is recognized in earnings. The amount of OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.

With the exception of corporate bonds, the above securities all have fixed interest rates, and all securities have defined maturities. Their fair value is sensitive to movements in market interest rates. First Defiance has the ability and intent to hold these investments for a time necessary to recover the amortized cost without impacting its liquidity position and it is not more than likely that the Company will be required to sell the investments before anticipated recovery.

In the second quarter of 2019 and 2018, management determined there was no OTTI.

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Loans

6 Months Ended

Jun. 30, 2019

Loans

Loans

8. Loans

Loans receivable consist of the following:

	June 30,		December 31,
	2019		2018
Real Estate:	(In Thousands)
Secured by 1‑4 family residential	$	322,123	$	322,686
Secured by multi-family residential		281,679		278,358
Secured by commercial real estate		1,129,784		1,126,452
Construction		335,847		265,772
		2,069,433		1,993,268
Other Loans:
Commercial		530,528		509,577
Home equity and improvement		125,860		128,152
Consumer finance		35,350		34,405
		691,738		672,134
Total loans		2,761,171		2,665,402
Deduct:
Undisbursed loan funds		(134,794)		(123,293)
Net deferred loan origination fees and costs		(2,158)		(2,070)
Allowance for loan loss		(28,934)		(28,331)
Totals	$	2,595,285	$	2,511,708

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

The following table discloses allowance for loan loss activity for the quarters ended June 30, 2019 and 2018 by portfolio segment (In Thousands):

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Quarter Ended June 30, 2019	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,811	$	3,068	$	12,001	$	731	$	7,276	$	1,928	$	349	$	28,164
Charge-Offs		(11)		0		(15)		0		(13)		(64)		(33)		(136)
Recoveries		156		24		269		0		94		60		21		624
Provisions		(163)		10		(106)		156		531		(161)		15		282
Ending Allowance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Quarter Ended June 30, 2018	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,534	$	2,983	$	10,773	$	667	$	7,838	$	2,209	$	263	$	27,267
Charge-Offs		(78)		0		(254)		0		(84)		(41)		(72)		(529)
Recoveries		34		2		26		0		30		57		11		160
Provisions		192		(72)		708		70		(329)		(193)		47		423
Ending Allowance	$	2,682	$	2,913	$	11,253	$	737	$	7,455	$	2,032	$	249	$	27,321

The following table discloses allowance for loan loss activity for the year-to-date periods ended June 30, 2019 and June 30, 2018 by portfolio segment (In Thousands):

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Year-to-date Period Ended June 30, 2019	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,881	$	3,101	$	12,041	$	682	$	7,281	$	2,026	$	319	$	28,331
Charge-Offs		(183)		0		(15)		0		(200)		(97)		(175)		(670)
Recoveries		170		36		353		0		106		84		30		779
Provisions		(75)		(35)		(230)		205		701		(250)		178		494
Ending Allowance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Year-to-date Period Ended June 30, 2018	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,532	$	2,702	$	10,354	$	647	$	7,965	$	2,255	$	228	$	26,683
Charge-Offs		(94)		0		(309)		0		(181)		(158)		(103)		(845)
Recoveries		58		2		210		0		1,787		85		13		2,155
Provisions		186		209		998		90		(2,116)		(150)		111		(672)
Ending Allowance	$	2,682	$	2,913	$	11,253	$	737	$	7,455	$	2,032	$	249	$	27,321

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 June 30, 2019 (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	$	196	$	2	$	65	$	—	$	161	$	66	$	—	$	490
Collectively evaluated for impairment		2,597		3,100		12,084		887		7,727		1,697		352		28,444
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Total ending allowance balance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934
Loans:
Loans individually evaluated for impairment	$	7,230	$	179	$	24,144	$	—	$	8,749	$	881	$	22	$	41,205
Loans collectively evaluated for impairment		314,359		281,595		1,108,728		200,767		523,640		125,921		35,476		2,590,486
Loans acquired with deteriorated credit quality		1,003		293		652		—		119		—		—		2,067
Total ending loans balance	$	322,592	$	282,067	$	1,133,524	$	200,767	$	532,508	$	126,802	$	35,498	$	2,633,758

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 average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans (In Thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019						2019
			Interest		Cash Basis				Interest		Cash Basis
	Average		Income		Income		Average		Income		Income
	Balance		Recognized		Recognized		Balance		Recognized		Recognized
Residential Owner Occupied	$	5,212	$	46	$	44	$	4,882	$	110	$	104
Residential Non Owner Occupied		2,040		26		26		2,060		56		56
Total Residential Real Estate		7,252		72		70		6,942		166		160
Construction		—		—		—		—		—		—
Multi-Family		305		7		7		819		27		27
CRE Owner Occupied		7,514		57		45		7,439		223		177
CRE Non Owner Occupied		1,942		18		18		1,966		51		44
Agriculture Land		13,734		170		94		13,319		376		291
Other CRE		796		19		17		975		53		50
Total Commercial Real Estate		23,986		264		174		23,699		703		562
Commercial Working Capital		7,594		83		71		7,842		226		162
Commercial Other		1,549		21		21		1,709		48		45
Total Commercial		9,143		104		92		9,551		274		207
Home Equity and  Improvement		889		6		5		905		20		18
Consumer Finance		25		—		—		30		1		1
Total Impaired Loans	$	41,600	$	453	$	348	$	41,946	$	1,191	$	975

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans (In Thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018						2018
			Interest		Cash Basis				Interest		Cash Basis
	Average		Income		Income		Average		Income		Income
	Balance		Recognized		Recognized		Balance		Recognized		Recognized
Residential Owner Occupied	$	4,598	$	40	$	38	$	4,619	$	72	$	69
Residential Non Owner Occupied		2,392		30		30		2,450		74		71
Total Residential Real Estate		6,990		70		68		7,069		146		140
Construction		—		—		—		—		—		—
Multi-Family		1,600		22		22		1,825		49		48
CRE Owner Occupied		8,352		78		72		10,789		122		107
CRE Non Owner Occupied		2,642		23		23		3,062		57		57
Agriculture Land		14,478		155		110		12,997		250		152
Other CRE		1,329		25		22		1,407		50		42
Total Commercial Real Estate		26,801		281		227		28,255		479		358
Commercial Working Capital		8,788		81		72		6,998		105		96
Commercial Other		3,046		29		29		4,073		54		52
Total Commercial		11,834		110		101		11,071		159		148
Home Equity and  Improvement		1,019		9		9		1,247		20		20
Consumer Finance		35		1		1		37		2		2
Total Impaired Loans	$	48,279	$	493	$	428	$	49,504	$	855	$	716

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

	June 30, 2019						December 31, 2018
					Allowance						Allowance
	Unpaid				for Loan		Unpaid				for Loan
	Principal		Recorded		Losses		Principal		Recorded		Losses
	Balance*		Investment		Allocated		Balance*		Investment		Allocated
With no allowance recorded:
Residential Owner Occupied	$	384	$	385	$	—	$	901	$	775	$	—
Residential Non Owner Occupied		891		894		—		950		955		—
Total 1‑4 Family Residential Real Estate		1,275		1,279		—		1,851		1,730		—
Multi-Family Residential Real Estate		135		136		—		1,296		1,302		—
CRE Owner Occupied		6,953		5,813		—		7,464		6,202		—
CRE Non Owner Occupied		1,750		1,585		—		1,824		1,659		—
Agriculture Land		13,276		13,470		—		14,915		14,994		—
Other CRE		449		453		—		464		462		—
Total Commercial Real Estate		22,428		21,321		—		24,667		23,317		—
Construction		—		—		—		—		—		—
Commercial Working Capital		6,309		6,333		—		7,569		7,498		—
Commercial Other		1,407		1,400		—		2,095		2,100		—
Total Commercial		7,716		7,733		—		9,664		9,598		—
Home Equity and Home Improvement		—		—		—		—		—		—
Consumer Finance		—		—		—		—		—		—
Total loans with no allowance recorded	$	31,554	$	30,469	$	—	$	37,478	$	35,947	$	—
With an allowance recorded:
Residential Owner Occupied	$	5,004	$	4,843	$	172	$	3,926	$	3,884	$	148
Residential Non Owner Occupied		1,104		1,108		24		1,152		1,160		27
Total 1‑4 Family Residential Real Estate		6,108		5,951		196		5,078		5,044		175
Multi-Family Residential Real Estate		43		43		2		44		44		3
CRE Owner Occupied		2,110		1,628		29		2,419		1,935		38
CRE Non Owner Occupied		334		337		14		350		353		16
Agriculture Land		552		555		5		37		38		2
Other CRE		522		303		17		1,107		691		39
Total Commercial Real Estate		3,518		2,823		65		3,913		3,017		95
Construction		—		—		—		—		—		—
Commercial Working Capital		866		869		147		525		528		55
Commercial Other		144		147		14		560		352		24
Total Commercial		1,010		1,016		161		1,085		880		79
Home Equity and Home Improvement		926		881		66		1,013		963		242
Consumer Finance		22		22		—		45		45		1
Total loans with an allowance recorded	$	11,627	$	10,736	$	490	$	11,178	$	9,993	$	595

* 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:

	June 30,		December 31,
	2019		2018
	(In Thousands)
Non-accrual loans	$	15,334	$	19,016
Loans over 90 days past due and still accruing		—		—
Total non-performing loans		15,334		19,016
Real estate and other assets held for sale		—		1,205
Total non-performing assets	$	15,334	$	20,221
Troubled debt restructuring, still accruing	$	10,308	$	11,573

The following table presents the aging of the recorded investment in past due and non- accrual loans as of June 30, 2019, by class of loans (In Thousands):

											Total
									Total		Non-
	Current		30‑59 days		60‑89 days		90+ days		Past Due		Accrual
Residential Owner Occupied	$	201,501	$	1,015	$	844	$	984	$	2,843	$	2,931
Residential Non Owner Occupied		118,191		33		3		21		57		249
Total 1‑4 Family Residential Real Estate		319,692		1,048		847		1,005		2,900		3,180
Multi-Family Residential Real Estate		282,067		—		—		—		—		—
CRE Owner Occupied		409,221		244		104		489		837		3,214
CRE Non Owner Occupied		549,736		—		108		481		589		639
Agriculture Land		127,030		222		103		—		325		4,351
Other Commercial Real Estate		45,775				—		11		11		29
Total Commercial Real Estate		1,131,762		466		315		981		1,762		8,233
Construction		200,767		—		—		—		—		—
Commercial Working Capital		234,347		140		—		2,681		2,821		2,914
Commercial Other		294,958		105		59		218		382		423
Total Commercial		529,305		245		59		2,899		3,203		3,337
Home Equity/Home Improvement		125,556		946		186		114		1,246		552
Consumer Finance		35,247		232		—		19		251		20
Total Loans	$	2,624,396	$	2,937	$	1,407	$	5,018	$	9,362	$	15,322

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):

											Total
									Total		Non-
	Current		30‑59 days		60‑89 days		90+ days		Past Due		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

Troubled Debt Restructurings

As of June 30, 2019, and December 31, 2018, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $17.3 million and $19.2 million, respectively. The Company allocated $399,000 and $581,000 of specific reserves to those loans at June 30, 2019, and December 31, 2018, respectively, and had committed to lend additional amounts totaling up to $315,000 and $169,000 at June 30, 2019, and December 31, 2018, respectively.

The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Each TDR is uniquely designed to meet the specific needs of the borrower. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral or an additional guarantor is often requested when granting a concession. Commercial mortgage loans modified in a TDR often involve temporary interest-only payments, re-amortization of remaining debt in order to lower payments and sometimes reducing the interest rate lower than the current market rate. Residential mortgage loans modified in a TDR are comprised of loans where monthly payments are lowered, either through interest rate reductions or principal only payments for a period of time, to accommodate the borrowers’ financial needs, interest is capitalized into principal, or the term and amortization are extended. Home equity modifications are made infrequently and usually involve providing an interest rate that is lower than the borrower would be able to obtain due to credit issues. All retail loans where the borrower is in bankruptcy are classified as TDRs regardless of whether or not a concession is made.

Of the loans modified in a TDR as of June 30, 2019, $6.9 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following tables present loans by class modified as TDRs that occurred during the three and six month periods ending June 30, 2019, and June 30, 2018:

	Loans Modified as a TDR for the Three			Loans Modified as a TDR for the Six
	Months Ended June 30, 2019			Months Ended June 30, 2019
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	4	$	434	7	$	907
1‑4 Family Non Owner Occupied	—		—	—		—
Multi Family	—		—	—		—
CRE Owner Occupied	—		—	—		—
CRE Non Owner Occupied	—		—	—		—
Agriculture Land	—		—	—		—
Other CRE	—		—	—		—
Commercial Working Capital	1		46	1		46
Commercial Other	—		—	1		13
Home Equity and Improvement	1		26	2		26
Consumer Finance	1		1	2		1
Total	7	$	507	13	$	993

The loans described above increased the allowance for loan and lease losses (“ALLL”) by $27,000 in the three month period ending June 30, 2019, and increased the ALLL by $21,000 in the six month period ending June 30, 2019.

	Loans Modified as a TDR for the Three			Loans Modified as a TDR for the Six
	Months Ended June 30, 2018			Months Ended June 30, 2018
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	9	$	481	12	$	624
1‑4 Family Non Owner Occupied	1		75	2		142
Multi Family	0		—	0		—
CRE Owner Occupied	5		1,554	7		2,181
CRE Non Owner Occupied	1		47	1		47
Agriculture Land	0		—	0		—
Other CRE	0		—	0		—
Commercial Working Capital	1		150	5		2,816
Commercial Other	0		—	0		—
Home Equity and Improvement	2		20	2		20
Consumer Finance	0		—	0		—
Total	19	$	2,327	29	$	5,830

The loans described above decreased the allowance for loan and lease losses (“ALLL”) by $16,000 in the three month period ending June 30, 2018 and decreased the ALLL by $21,000 in the six month period ending June 30, 2018.

Of the 2019 modifications, six were made a TDR due to bankruptcy and seven were made a TDR because the current debt was refinanced due to maturity or for payment relief.

The following tables present loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and six month periods ended June 30, 2019, and June 30, 2018:

	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	1	$	92	2	$	168
1‑4 Family Non Owner Occupied	1		21	1		21
CRE Owner Occupied	—		—	—		—
CRE Non Owner Occupied	—		—	—		—
Agriculture Land	—		—	—		—
Other CRE	—		—	—		—
Commercial Working Capital or Other	—		—	3		2,311
Commercial Other	—		—	—		—
Home Equity and Improvement	—		—	1		61
Consumer Finance	—		—	—		—
Total	2	$	113	1	$	2,561

The TDRs that subsequently defaulted described above increased the allowance for loan losses by $5,000  and $4,000 for the three and six month period ended June 30, 2019.

	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	0	$	—	0	$	—
1‑4 Family Non Owner Occupied	0		—	0		—
CRE Owner Occupied	0		—	0		—
CRE Non Owner Occupied	0		—	0		—
Agriculture Land	0		—	0		—
Other CRE	0		—	0		—
Commercial Working Capital or Other	0		—	0		—
Commercial Other	0		—	1		196
Home Equity and Improvement	0		—	0		—
Consumer Finance	0		—	0		—
Total	0	$	—	1	$	196

The TDRs that subsequently defaulted described above had no effect on the ALLL for the three and six month period ended June 30, 2018.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are analyzed individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogenous mortgage, home equity and consumer loans. This analysis is performed on a quarterly basis. First Defiance uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Not Graded. Loans classified as not graded are generally smaller balance residential real estate, home equity and consumer installment loans which are originated primarily by using an automated underwriting system. These loans are monitored based on their delinquency status and are evaluated individually only if they are seriously delinquent.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (In Thousands):

Class	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
1‑4 Family Owner Occupied	$	8,741	$	87	$	3,400	$	—	$	192,116	$	204,344
1‑4 Family Non Owner Occupied		109,285		604		2,691		—		5,668		118,248
Total 1‑4 Family Real Estate		118,026		691		6,091		—		197,784		322,592
Multi-Family Residential Real Estate		281,210		—		751		—		106		282,067
CRE Owner Occupied		388,488		13,825		7,668		—		77		410,058
CRE Non Owner Occupied		542,751		4,963		2,611		—		—		550,325
Agriculture Land		110,181		2,253		14,921		—		—		127,355
Other CRE		43,374		579		843		—		990		45,786
Total Commercial Real Estate		1,084,794		21,620		26,043		—		1,067		1,133,524
Construction		178,822		1,603		—		—		20,342		200,767
Commercial Working Capital		220,234		10,006		6,928		—		—		237,168
Commercial Other		285,150		8,028		2,162		—		—		295,340
Total Commercial		505,384		18,034		9,090		—		—		532,508
Home Equity and Home Improvement		—		—		422		—		126,380		126,802
Consumer Finance		—		—		81		—		35,417		35,498
Total Loans	$	2,168,236	$	41,948	$	42,478	$	—	$	381,096	$	2,633,758

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

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance of those loans is as follows (In Thousands):

	June 30, 2019		December 31, 2018
1‑4 Family Residential Real Estate	$	1,029	$	1,045
Multi-Family Residential Real Estate		293		300
Commercial Real Estate Loans		741		899
Commercial		181		227
Consumer		—		—
Total Outstanding Balance	$	2,244	$	2,471
Recorded Investment, net of allowance of $0	$	2,067	$	2,331

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

	2019		2018
Balance at January 1	$	468	$	804
New Loans Purchased		—		—
Accretion of Income		(18)		(56)
Reclassification from Non-accretable		—		—
Charge-off of Accretable Yield		—		(10)
Balance at June 30	$	450	$	738

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the six months ended June 30, 2019 or 2018. No allowances for loan losses were reversed during the same period.

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $705,000 as of June 30, 2019 and $796,000 as of December 31, 2018.

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Mortgage Banking

6 Months Ended

Jun. 30, 2019

Mortgage Banking

Mortgage Banking

9. Mortgage Banking

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands)
Gain from sale of mortgage loans	$	1,775	$	1,383	$	3,076	$	2,464
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		943		933		1,882		1,877
Amortization of mortgage servicing rights		(391)		(350)		(677)		(669)
Mortgage servicing rights valuation adjustments		(190)		47		(303)		83
		362		630		902		1,291
Net revenue from sale and servicing of mortgage loans	$	2,137	$	2,013	$	3,978	$	3,755

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.42 billion at June 30, 2019 and $1.41 billion at December 31, 2018.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,411	$	10,245	$	10,419	$	10,240
Loans sold, servicing retained		438		402		716		726
Amortization		(391)		(350)		(677)		(669)
Carrying value before valuation allowance at end of period		10,458		10,297		10,458		10,297
Valuation allowance:
Balance at beginning of period		(413)		(396)		(300)		(432)
Impairment recovery (charges)		(190)		47		(303)		83
Balance at end of period		(603)		(349)		(603)		(349)
Net carrying value of MSRs at end of period	$	9,855	$	9,948	$	9,855	$	9,948
Fair value of MSRs at end of period	$	9,925	$	10,488	$	9,925	$	10,488

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily estimable.

The Company has established an accrual for secondary market buy-back activity. A liability of $43,000 was accrued at both June 30, 2019, and December 31, 2018, respectively. There was no expense or credit recognized related to the accrual in the three or six months ended June 30, 2019 or 2018.

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Leases

6 Months Ended

Jun. 30, 2019

Leases

Leases

10. Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.  The Company chose to use the effective date approach.  As such, all periods presented after January 1, 2019 are under ASC 842 whereas periods presented prior to January 1, 2019 are in accordance with prior lease accounting of ASC 840.  Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods before January 1, 2019.

As of June 30, 2019, the Company has entered into lease agreements covering seven 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.  The lease agreements have maturity dates ranging from December 2019 to December 2039, some of which include options for multiple five and ten year extensions.  The weighted average remaining life of the lease term for these leases was 17.80 years as of June 30, 2019.

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered in to.  The weighted average discount rate for leases was 3.49% as of June 30, 2019.

The total operating lease costs were $233,000 and $475,000 for the three and six months ended June 30, 2019, respectively, and $244,000 and $493,000 for the three and six months ended June 30, 2018, respectively.

The short-term lease costs and cash payments on operating leases were $0 and $225 for the three months ended June 30, 2019 respectively.  The right-of-use asset, included in other assets, and lease liabilities, included in other liabilities, were $8.5 million and $9.0 million as of June 30, 2019 respectively.

Total estimated rental commitments for the operating leases were as follows as of June 30, 2019:

Remainder of 2019	$	452
2020		982
2021		941
2022		864
2023		840
Thereafter		11,379
Total	$	15,458

Future minimum commitments under non-cancelable operating leases were as follows as of December 31, 2018:

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

A reconciliation of the undiscounted cash flows in the maturity analysis above and the lease liability recognized in the consolidated balance sheet as of June 30, 2019, is shown below.

Undiscounted cash flows	$	15,458
Undiscounted cash flows associated with new lease effective 1/1/2020		(2,496)
Discount effect of cash flows		(3,920)
Total	$	9,042

On February 28, 2019, the Company entered into a new lease agreement with an effective date of January 1, 2020, which will result in an additional right-of-use asset and lease liability of approximately $2.0 million.

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Deposits

6 Months Ended

Jun. 30, 2019

Deposits

Deposits

11. Deposits

A summary of deposit balances is as follows:

	June 30,		December 31,
	2019		2018
	(In Thousands)
Non-interest-bearing checking accounts	$	584,735	$	607,198
Interest-bearing checking and money market accounts		1,088,694		1,040,471
Savings deposits		304,051		292,829
Retail certificates of deposit less than $250,000		610,345		591,822
Retail certificates of deposit greater than $250,000		92,812		88,562
	$	2,680,637	$	2,620,882

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Borrowings

6 Months Ended

Jun. 30, 2019

Borrowings

Borrowings

12. Borrowings

First Defiance’s debt, FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:

	June 30,		December 31,
	2019		2018
	(In Thousands)
FHLB Advances:
Single maturity fixed rate advances	$	84,000	$	59,000
Amortizable mortgage advances		1,149		1,213
Overnight advances		20,051		25,000
Fair value adjustment on acquired balances		(22)		(24)
Total	$	105,178	$	85,189
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $15 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (Subordinated Debentures) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of Trust Affiliate II (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.5%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 3.91% as of June 30, 2019, and 4.29% as of December 31, 2018.

The Trust Preferred Securities issued by Trust Affiliate II are subject to mandatory redemption, in whole or part, upon repayment of the Subordinated Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature on June 15, 2037, but can be redeemed at the Company’s option at any time now.

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”), that issued $20 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of Trust Affiliate I (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 3.79% and 4.17% on June 30, 2019 and December 31, 2018, respectively.

The Trust Preferred Securities issued by Trust Affiliate I are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures. The Company has entered into an agreement that fully and unconditionally guarantees the Trust Preferred Securities subject to the terms of the guarantee. The Trust Preferred Securities and Subordinated Debentures mature on December 15, 2035, but can be redeemed at the Company’s option at any time now.

The subordinated debentures may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

Interest on both issues of Trust Preferred Securities may be deferred for a period of up to five years at the option of the issuer.

Repurchase Agreements. We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agent.

The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of June 30, 2019 and December 31, 2018, is presented in the following tables.

							Greater
	Overnight and		Up to 30				than 90
	Continuous		Days		30‑90 Days		Days		Total
At June 30, 2019		(In Thousands)
Repurchase agreements:
Mortgage-backed securities – residential	$	3,064	$	—	$	—	$	—	$	3,064
Total borrowings	$	3,064	$	—	$	—	$	—	$	3,064
Gross amount of recognized liabilities for repurchase agreements									$	3,064

							Greater
	Overnight and		Up to 30				than 90
	Continuous		Days		30‑90 Days		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

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Commitments, Guarantees and Contingent Liabilities

6 Months Ended

Jun. 30, 2019

Commitments, Guarantees and Contingent Liabilities

Commitments, Guarantees and Contingent Liabilities

13. Commitments, Guarantees and Contingent Liabilities

Loan commitments are made to accommodate the financial needs of First Federal’s customers; however, there are no long-term, fixed-rate loan commitments that result in market risk. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers’ trade transactions.

Both arrangements have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Company’s normal credit policies. Collateral (e.g., securities, receivables, inventory and equipment) is obtained based on management’s credit assessment of the customer.

The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of the periods stated below were as follows (In Thousands):

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	88,737	$	144,249	$	44,352	$	114,308
Unused lines of credit		7,804		397,825		7,523		382,189
Standby letters of credit		—		9,206		—		7,239
Total	$	96,541	$	551,280	$	51,875	$	503,736

Commitments to make loans are generally made for periods of 60 days or less. In addition to the above commitments, First Defiance had commitments to sell $37.1 million and $8.6 million of loans to Freddie Mac, Fannie Mae, FHLB or BB&T Mortgage at June 30, 2019, and December 31, 2018, respectively.

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Taxes

Income Taxes

14. Income Taxes

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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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2019

Derivative Financial Instruments

Derivative Financial Instruments

15. 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 $37.1 million and $8.6 million of interest rate lock commitments at June 30, 2019, and December 31, 2018, respectively. There were $37.1 million and $11.5 million of forward commitments for the future delivery of residential mortgage loans at June 30, 2019, and December 31, 2018, respectively.

The fair value of these mortgage banking derivatives are reflected by a derivative asset recorded in other assets in the Consolidated Statements of Financial Condition. The table below provides data about the carrying values of these derivative instruments:

June 30, 2019

December 31, 2018

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

$

1,392

$

205

$

1,187

$

367

$

73

$

294

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	455	$	136	$	893	$	178

The above amounts are included in mortgage banking income with gain on sale of mortgage loans.

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Other Comprehensive Income

6 Months Ended

Jun. 30, 2019

Other Comprehensive Income

Other Comprehensive Income

16. Other Comprehensive Income

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

	Before Tax		Tax (Expense)		Net of Tax
	Amount		Benefit		Amount
Three months ended June 30, 2019:	(In Thousands)
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	3,289	$	(691)	$	2,598
Reclassification adjustment for net gains included in net income		—		—		—
Defined benefit postretirement medical plan:
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan		—		—		—
Total other comprehensive loss	$	3,289	$	(691)	$	2,598
Six months ended June 30, 2019:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	7,892	$	(1,659)	$	6,233
Reclassification adjustment for net gains included in net income
Defined benefit postretirement medical plan:
Reclassification adjustment for deferred tax on defined benefit Postretirement medical plan		—		82		82
Total other comprehensive loss	$	7,892	$	(1,577)	$	6,315

	Before Tax		Tax Expense		Net of Tax
	Amount		(Benefit)		Amount
Three months ended June 30, 2018:	(In Thousands)
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(872)	$	183	$	(689)
Reclassification adjustment for net gains included in net income				—		—
Total other comprehensive loss	$	(872)	$	183	$	(689)
Six months ended June 30, 2018:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(4,429)	$	930	$	(3,499)
Reclassification adjustment for net gains included in net income		—		—		—
Total other comprehensive loss	$	(4,429)	$	930	$	(3,499)

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

					Accumulated
	Securities		Post-		Other
	Available		retirement		Comprehensive
	For Sale		Benefit		Income (Loss)
	(In Thousands)
Balance January 1, 2019	$	(2,057)	$	(91)	$	(2,148)
Other comprehensive income  before reclassifications		6,233		—		6,233
Amounts reclassified from accumulated other comprehensive income		—		82		82
Net other comprehensive income during period		6,233		82		6,315
Balance June 30, 2019	$	4,176	$	(9)	$	4,167
Balance January 1, 2018	$	601	$	(384)	$	217
Other comprehensive income (loss) before reclassifications		(3,499)		—		(3,499)
Net other comprehensive income (loss) during period		(3,499)		—		(3,499)
Reclassification adjustment upon adoption of ASU 2018‑02		129		(82)		47
Balance June 30, 2018	$	(2,769)	$	(466)	$	(3,235)

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Affordable Housing Projects Tax Credit Partnership

6 Months Ended

Jun. 30, 2019

Affordable Housing Projects Tax Credit Partnership

Affordable Housing Projects Tax Credit Partnership

17. Affordable Housing Projects Tax Credit Partnership

The Company makes certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company is a limited partner in each LIHTC partnership. A separate unrelated third party is the general partner. Each limited partnership is managed by the general partner, who exercises full control over the affairs of the limited partnership. The general partner has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership. Duties entrusted to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to consent to certain transactions, the limited partner(s) may not participate in the operation, management, or control of the limited partnership’s business, transact any business in the limited partnership’s name or have any power to sign documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s) in the event the general partner fails to comply with the terms of the agreement or is negligent in performing its duties.

The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership. In January of 2014, the FASB issued ASU 2014‑01 “Accounting for Investments in Qualified Affordable Housing Projects.” The pronouncement permitted reporting entities to make an accounting policy election to account for these investments using the proportional amortization method if certain conditions exist. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and will recognize the net investment performance in the statement of income as a component of income tax expense (benefit). The Company utilized the proportional amortization method for all of its instruments. As of June 30, 2019, and December 31, 2018, the Company had $13.7 million and $11.3 million in qualified investments recorded in other assets and $8.8 million and $6.9 million in unfunded commitments recorded in other liabilities, respectively.

Unfunded Commitments

As of June 30, 2019, the expected payments for unfunded affordable housing commitments were as follows:

(dollars in thousands)	Amount
2019	$	1,806
2020		2,402
2021		2,318
2022		525
2023		409
Thereafter		1,334
Total Unfunded Commitments	$	8,794

The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the three months ended June 30, 2019 and 2018.

	Three Months Ended June 30,
(dollars in thousands)	2019		2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	328	$	254
Amortization expense in federal income taxes		284		234

	Six Months Ended June 30,
(dollars in thousands)	2019		2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	655	$	508
Amortization expense in federal income taxes		569		469

There were no impairment losses of LIHTC investments for the three and six months ended June 30, 2019 and 2018.

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Significant Accounting Policies

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with 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

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for the calculation. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, restricted stock awards and stock grants.

Goodwill and Other Intangibles

Goodwill and Other Intangibles

Goodwill resulting from business combinations prior to January 1, 2009, represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected November 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on First Defiance’s balance sheet.

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank, insurance and branch acquisitions. They are initially recorded at fair value and then amortized on an accelerated basis over their estimated lives, which range from five years for non-compete agreements to 10 to 20 years for core deposit and customer relationship intangibles.

Accounting Standards Adopted in 2019

Accounting Standards Adopted in 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet. For public companies, this update was effective for interim and annual periods beginning after December 15, 2018. The Company adopted this guidance in the first quarter of 2019. Upon adoption, the Company elected a practical expedient which allows existing leases to retain their classification as operating leases. The Company has elected to account for lease and related nonlease components as a single lease component. The Company has also elected to not recognize right-of-use assets and lease liabilities arising from short-term leases, which are twelve months or less. Implementation of the guidance resulted in the recording of a right-of-use asset and lease liability on the balance sheet; however it does not have a material impact on the Company's other consolidated financial statements. See additional disclosures in Note 10.

Accounting Standards Updates

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 are not 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; however, the Company does not currently plan to adopt this ASU early. As a result of this ASU, the Company could experience an increase in its allowance. 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). Interagency guidance issued in December 2018 allows for a three-year phase-in of the cumulative-effect adjustment for regulatory capital reporting purposes. 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.  The Company is currently running parallel computations in 2019 and continues to evaluate the impact of adoption of this ASU.

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Fair Value (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value

Schedule of financial assets measured at fair value on a recurring basis

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

June 30, 2019	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	—	$	2,533	$	—	$	2,533
Mortgage-backed - residential		—		79,204		—		79,204
REMICs		—		2,412		—		2,412
Collateralized mortgage obligations-residential		—		97,526		—		97,526
Preferred Stock		1		—		—		1
Corporate bonds		—		12,986		—		12,986
Obligations of state and political subdivisions		—		101,453		—		101,453
Mortgage banking derivative - asset		—		1,392		—		1,392
Mortgage banking derivative - liability		—		205		—		205

December 31, 2018	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	—	$	2,503	$	—	$	2,503
Mortgage-backed - residential		—		74,710		—		74,710
REMICs		—		2,709		—		2,709
Collateralized mortgage obligations-residential		—		101,461		—		101,461
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

Schedule of financial assets measured at fair value on a non-recurring basis

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

							Total Fair
June 30, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Value
	(In Thousands)
Impaired loans
Commercial real estate	$	—	$	—	$	459	$	459
Commercial		—		—		205		205
Total impaired loans		—		—		664		664
Mortgage servicing rights		—		288		—		288

							Total Fair
December 31, 2018	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		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
Commercial real estate		—		—		705		705
Total real estate held for sale		—		—		705		705

Schedule of Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair				Range of		Weighted
	Value		Valuation Technique	Unobservable Inputs	Inputs		Average
	(Dollars in Thousands)
Impaired Loans- Applies to all loan classes	$	664	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10 - 40	%	19.3	%

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				Range of		Weighted
	Value		Valuation Technique	Unobservable Inputs	Inputs		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	%

Schedule of FHLB advances with maturities

FHLB advances with maturities greater than 90 days are valued based on a 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 June 30, 2019.

					Fair Value Measurements at June 30, 2019
					(In Thousands)
	Carrying
	Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	83,597	$	83,597	$	83,597	$	—	$	—
Investment securities		296,600		296,599		1		296,598		—
Federal Home Loan Bank Stock		11,915		N/A		N/A		N/A		N/A
Loans, net, including loans  held for sale		2,609,794		2,631,763		—		14,982		2,616,781
Accrued interest receivable		10,771		10,771		3		1,225		9,543
Financial Liabilities:
Deposits	$	2,680,637	$	2,681,088	$	584,735	$	2,096,353	$	—
Advances from Federal Home Loan Bank		105,178		105,063		—		105,063		—
Securities sold under repurchase agreements		3,064		3,064		—		3,064		—
Subordinated debentures		36,083		32,330		—		—		32,330

					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

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Stock Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2019

Stock Compensation Plans

Schedule of stock option activity under the plans

Following is stock option activity under the plans during the six months ended June 30, 2019:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate Intrinsic
		Exercise		Contractual	Value
	Options Outstanding	Price		Term (in years)	(in 000’s)
Options outstanding, January 1, 2019	39,400	$	14.00
Forfeited or cancelled	—		—
Exercised	(19,200)		10.15
Granted	—		—
Options outstanding, June 30, 2019	20,200	$	17.66	5.27	$	221
Vested or expected to vest at June 30, 2019	20,200	$	17.66	5.27	$	221
Exercisable at June 30, 2019	14,500	$	17.48	4.90	$	161

Schedule of proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised

Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Proceeds of options exercised	$	6	$	55	$	191	$	111
Related tax benefit recognized		—		6		4		28
Intrinsic value of options exercised		30		781		390		1,034

Schedule of restricted stock units and stock grants

There was approximately $457,000 and $961,000 included within other liabilities at June 30, 2019 and December 31, 2018, respectively, related to the STIP.

	Restricted Stock Units			Stock Grants
		Weighted-Average			Weighted-Average
		Grant Date			Grant Date
Unvested Shares	Shares	Fair Value		Shares	Fair Value
Unvested at January 1, 2019	144,586	$	23.94	30,372	$	28.48
Granted	82,930		25.61	78,922		22.25
Vested	(54,771)		20.13	(60,375)		21.17
Forfeited	(11,750)		25.63	—		—
Unvested at June 30, 2019	160,995	$	25.72	48,919	$	27.18

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Common Share

Schedule of computation of basic and diluted earnings per common share

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands, except per share data)
Basic Earnings Per Share: Net income available to common shareholders	$	12,199	$	11,109	$	23,681	$	22,846
Less: Income allocated to participating securities		1		1		2		2
Net income allocated to common shareholders		12,198		11,108		23,679		22,844
Weighted average common shares outstanding including participating securities(1)		19,791		20,399		19,908		20,370
Less: Participating securities		11		11		11		11
Average common shares(1)		19,780		20,388		19,897		20,359
Basic earnings per common share	$	0.62	$	0.54		1.19		1.12
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	12,198	$	11,108	$	23,679	$	22,844
Weighted average common shares outstanding for basic earnings per common share(1)		19,780		20,388		19,897		20,359
Add: Dilutive effects of stock options		80		104		79		107
Average shares and dilutive potential common shares(1)		19,860		20,492		19,976		20,466
Diluted earnings per common share	$	0.61	$	0.54		1.19		1.12

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2019

Investment Securities

Summary of available-for-sale and held-to-maturity securities

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

					Gross
	Amortized		Gross		Unrealized
	Cost		Unrealized Gains		Losses		Fair Value
At June 30, 2019	(In Thousands)
Available-for-Sale Securities:
Obligations of U.S.  government corporations and agencies	$	2,519	$	14	$	—	$	2,533
Mortgage-backed securities – residential		78,553		876		(225)		79,204
REMICs		2,390		22		—		2,412
Collateralized mortgage obligations		96,574		1,062		(110)		97,526
Preferred stock		—		1		—		1
Corporate bonds		12,906		97		(17)		12,986
Obligations of state and political subdivisions		97,886		3,572		(5)		101,453
Total Available-for-Sale	$	290,828	$	5,644	$	(357)	$	296,115

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
	(In Thousands)
Held-to-Maturity Securities*:
FHLMC certificates	$	7	$	—	$	—	$	7
FNMA certificates		25		—		(1)		24
GNMA certificates		9		—		—		9
Obligations of state and political subdivisions		444		—		—		444
Total Held-to Maturity	$	485	$	—	$	(1)	$	484

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In Thousands)
At December 31, 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

* FHLMC, FNMA, and GNMA certificates are residential mortgage-backed securities.

Schedule of securities may mature earlier than their weighted-average contractual maturities

These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	5,594	$	5,614	$	—	$	—
Due after one year through five years		17,876		18,079		—		—
Due after five years through ten years		33,585		34,483		444		444
Due after ten years		56,256		58,797		—		—
MBS/CMO/REMIC		177,517		179,142		41		40
	$	290,828	$	296,115	$	485	$	484

Schedule of securities that were in an unrealized loss position

The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2019, and December 31, 2018:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loses
	(In Thousands)
At June 30, 2019
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities-residential		2,038		(14)		23,742		(211)		25,780		(225)
Collateralized mortgage obligations		—		—		11,497		(110)		11,497		(110)
Corporate bonds		871		(17)		—		—		871		(17)
Obligations of state and political subdivisions		—		—		1,442		(5)		1,442		(5)
Held to maturity securities:		—		—		16		(1)		16		(1)
Total temporarily impaired securities	$	2,909	$	(31)	$	36,697	$	(327)	$	39,606	$	(358)

	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)
Total temporarily impaired securities	$	40,928	$	(341)	$	137,099	$	(3,807)	$	178,027	$	(4,148)

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Loans (Tables)

6 Months Ended

Jun. 30, 2019

Loans

Schedule of loans receivable

Loans receivable consist of the following:

	June 30,		December 31,
	2019		2018
Real Estate:	(In Thousands)
Secured by 1‑4 family residential	$	322,123	$	322,686
Secured by multi-family residential		281,679		278,358
Secured by commercial real estate		1,129,784		1,126,452
Construction		335,847		265,772
		2,069,433		1,993,268
Other Loans:
Commercial		530,528		509,577
Home equity and improvement		125,860		128,152
Consumer finance		35,350		34,405
		691,738		672,134
Total loans		2,761,171		2,665,402
Deduct:
Undisbursed loan funds		(134,794)		(123,293)
Net deferred loan origination fees and costs		(2,158)		(2,070)
Allowance for loan loss		(28,934)		(28,331)
Totals	$	2,595,285	$	2,511,708

Schedule of allowance for loan loss activity

The following table discloses allowance for loan loss activity for the quarters ended June 30, 2019 and 2018 by portfolio segment (In Thousands):

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Quarter Ended June 30, 2019	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,811	$	3,068	$	12,001	$	731	$	7,276	$	1,928	$	349	$	28,164
Charge-Offs		(11)		0		(15)		0		(13)		(64)		(33)		(136)
Recoveries		156		24		269		0		94		60		21		624
Provisions		(163)		10		(106)		156		531		(161)		15		282
Ending Allowance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Quarter Ended June 30, 2018	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,534	$	2,983	$	10,773	$	667	$	7,838	$	2,209	$	263	$	27,267
Charge-Offs		(78)		0		(254)		0		(84)		(41)		(72)		(529)
Recoveries		34		2		26		0		30		57		11		160
Provisions		192		(72)		708		70		(329)		(193)		47		423
Ending Allowance	$	2,682	$	2,913	$	11,253	$	737	$	7,455	$	2,032	$	249	$	27,321

The following table discloses allowance for loan loss activity for the year-to-date periods ended June 30, 2019 and June 30, 2018 by portfolio segment (In Thousands):

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Year-to-date Period Ended June 30, 2019	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,881	$	3,101	$	12,041	$	682	$	7,281	$	2,026	$	319	$	28,331
Charge-Offs		(183)		0		(15)		0		(200)		(97)		(175)		(670)
Recoveries		170		36		353		0		106		84		30		779
Provisions		(75)		(35)		(230)		205		701		(250)		178		494
Ending Allowance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934

			Multi-
	1‑4 Family		Family								Home Equity
	Residential		Residential		Commercial						and		Consumer
Year-to-date Period Ended June 30, 2018	Real Estate		Real Estate		Real Estate		Construction		Commercial		Improvement		Finance		Total
Beginning Allowance	$	2,532	$	2,702	$	10,354	$	647	$	7,965	$	2,255	$	228	$	26,683
Charge-Offs		(94)		0		(309)		0		(181)		(158)		(103)		(845)
Recoveries		58		2		210		0		1,787		85		13		2,155
Provisions		186		209		998		90		(2,116)		(150)		111		(672)
Ending Allowance	$	2,682	$	2,913	$	11,253	$	737	$	7,455	$	2,032	$	249	$	27,321

Schedule of balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method

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 June 30, 2019 (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	$	196	$	2	$	65	$	—	$	161	$	66	$	—	$	490
Collectively evaluated for impairment		2,597		3,100		12,084		887		7,727		1,697		352		28,444
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—
Total ending allowance balance	$	2,793	$	3,102	$	12,149	$	887	$	7,888	$	1,763	$	352	$	28,934
Loans:
Loans individually evaluated for impairment	$	7,230	$	179	$	24,144	$	—	$	8,749	$	881	$	22	$	41,205
Loans collectively evaluated for impairment		314,359		281,595		1,108,728		200,767		523,640		125,921		35,476		2,590,486
Loans acquired with deteriorated credit quality		1,003		293		652		—		119		—		—		2,067
Total ending loans balance	$	322,592	$	282,067	$	1,133,524	$	200,767	$	532,508	$	126,802	$	35,498	$	2,633,758

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

Schedule of presents the average balance, interest income recognized and cash basis income recognized on impaired loans

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans (In Thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019						2019
			Interest		Cash Basis				Interest		Cash Basis
	Average		Income		Income		Average		Income		Income
	Balance		Recognized		Recognized		Balance		Recognized		Recognized
Residential Owner Occupied	$	5,212	$	46	$	44	$	4,882	$	110	$	104
Residential Non Owner Occupied		2,040		26		26		2,060		56		56
Total Residential Real Estate		7,252		72		70		6,942		166		160
Construction		—		—		—		—		—		—
Multi-Family		305		7		7		819		27		27
CRE Owner Occupied		7,514		57		45		7,439		223		177
CRE Non Owner Occupied		1,942		18		18		1,966		51		44
Agriculture Land		13,734		170		94		13,319		376		291
Other CRE		796		19		17		975		53		50
Total Commercial Real Estate		23,986		264		174		23,699		703		562
Commercial Working Capital		7,594		83		71		7,842		226		162
Commercial Other		1,549		21		21		1,709		48		45
Total Commercial		9,143		104		92		9,551		274		207
Home Equity and  Improvement		889		6		5		905		20		18
Consumer Finance		25		—		—		30		1		1
Total Impaired Loans	$	41,600	$	453	$	348	$	41,946	$	1,191	$	975

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans (In Thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018						2018
			Interest		Cash Basis				Interest		Cash Basis
	Average		Income		Income		Average		Income		Income
	Balance		Recognized		Recognized		Balance		Recognized		Recognized
Residential Owner Occupied	$	4,598	$	40	$	38	$	4,619	$	72	$	69
Residential Non Owner Occupied		2,392		30		30		2,450		74		71
Total Residential Real Estate		6,990		70		68		7,069		146		140
Construction		—		—		—		—		—		—
Multi-Family		1,600		22		22		1,825		49		48
CRE Owner Occupied		8,352		78		72		10,789		122		107
CRE Non Owner Occupied		2,642		23		23		3,062		57		57
Agriculture Land		14,478		155		110		12,997		250		152
Other CRE		1,329		25		22		1,407		50		42
Total Commercial Real Estate		26,801		281		227		28,255		479		358
Commercial Working Capital		8,788		81		72		6,998		105		96
Commercial Other		3,046		29		29		4,073		54		52
Total Commercial		11,834		110		101		11,071		159		148
Home Equity and  Improvement		1,019		9		9		1,247		20		20
Consumer Finance		35		1		1		37		2		2
Total Impaired Loans	$	48,279	$	493	$	428	$	49,504	$	855	$	716

Schedule of loans individually evaluated for impairment by class of loans

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

	June 30, 2019						December 31, 2018
					Allowance						Allowance
	Unpaid				for Loan		Unpaid				for Loan
	Principal		Recorded		Losses		Principal		Recorded		Losses
	Balance*		Investment		Allocated		Balance*		Investment		Allocated
With no allowance recorded:
Residential Owner Occupied	$	384	$	385	$	—	$	901	$	775	$	—
Residential Non Owner Occupied		891		894		—		950		955		—
Total 1‑4 Family Residential Real Estate		1,275		1,279		—		1,851		1,730		—
Multi-Family Residential Real Estate		135		136		—		1,296		1,302		—
CRE Owner Occupied		6,953		5,813		—		7,464		6,202		—
CRE Non Owner Occupied		1,750		1,585		—		1,824		1,659		—
Agriculture Land		13,276		13,470		—		14,915		14,994		—
Other CRE		449		453		—		464		462		—
Total Commercial Real Estate		22,428		21,321		—		24,667		23,317		—
Construction		—		—		—		—		—		—
Commercial Working Capital		6,309		6,333		—		7,569		7,498		—
Commercial Other		1,407		1,400		—		2,095		2,100		—
Total Commercial		7,716		7,733		—		9,664		9,598		—
Home Equity and Home Improvement		—		—		—		—		—		—
Consumer Finance		—		—		—		—		—		—
Total loans with no allowance recorded	$	31,554	$	30,469	$	—	$	37,478	$	35,947	$	—
With an allowance recorded:
Residential Owner Occupied	$	5,004	$	4,843	$	172	$	3,926	$	3,884	$	148
Residential Non Owner Occupied		1,104		1,108		24		1,152		1,160		27
Total 1‑4 Family Residential Real Estate		6,108		5,951		196		5,078		5,044		175
Multi-Family Residential Real Estate		43		43		2		44		44		3
CRE Owner Occupied		2,110		1,628		29		2,419		1,935		38
CRE Non Owner Occupied		334		337		14		350		353		16
Agriculture Land		552		555		5		37		38		2
Other CRE		522		303		17		1,107		691		39
Total Commercial Real Estate		3,518		2,823		65		3,913		3,017		95
Construction		—		—		—		—		—		—
Commercial Working Capital		866		869		147		525		528		55
Commercial Other		144		147		14		560		352		24
Total Commercial		1,010		1,016		161		1,085		880		79
Home Equity and Home Improvement		926		881		66		1,013		963		242
Consumer Finance		22		22		—		45		45		1
Total loans with an allowance recorded	$	11,627	$	10,736	$	490	$	11,178	$	9,993	$	595

* Presented gross of charge-offs

Schedule of current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned

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:

	June 30,		December 31,
	2019		2018
	(In Thousands)
Non-accrual loans	$	15,334	$	19,016
Loans over 90 days past due and still accruing		—		—
Total non-performing loans		15,334		19,016
Real estate and other assets held for sale		—		1,205
Total non-performing assets	$	15,334	$	20,221
Troubled debt restructuring, still accruing	$	10,308	$	11,573

Schedule of aging of the recorded investment in past due and non- accrual loans

The following table presents the aging of the recorded investment in past due and non- accrual loans as of June 30, 2019, by class of loans (In Thousands):

											Total
									Total		Non-
	Current		30‑59 days		60‑89 days		90+ days		Past Due		Accrual
Residential Owner Occupied	$	201,501	$	1,015	$	844	$	984	$	2,843	$	2,931
Residential Non Owner Occupied		118,191		33		3		21		57		249
Total 1‑4 Family Residential Real Estate		319,692		1,048		847		1,005		2,900		3,180
Multi-Family Residential Real Estate		282,067		—		—		—		—		—
CRE Owner Occupied		409,221		244		104		489		837		3,214
CRE Non Owner Occupied		549,736		—		108		481		589		639
Agriculture Land		127,030		222		103		—		325		4,351
Other Commercial Real Estate		45,775				—		11		11		29
Total Commercial Real Estate		1,131,762		466		315		981		1,762		8,233
Construction		200,767		—		—		—		—		—
Commercial Working Capital		234,347		140		—		2,681		2,821		2,914
Commercial Other		294,958		105		59		218		382		423
Total Commercial		529,305		245		59		2,899		3,203		3,337
Home Equity/Home Improvement		125,556		946		186		114		1,246		552
Consumer Finance		35,247		232		—		19		251		20
Total Loans	$	2,624,396	$	2,937	$	1,407	$	5,018	$	9,362	$	15,322

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):

											Total
									Total		Non-
	Current		30‑59 days		60‑89 days		90+ days		Past Due		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

Schedule of present loans by class modified as TDRs that occurred

The following tables present loans by class modified as TDRs that occurred during the three and six month periods ending June 30, 2019, and June 30, 2018:

	Loans Modified as a TDR for the Three			Loans Modified as a TDR for the Six
	Months Ended June 30, 2019			Months Ended June 30, 2019
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	4	$	434	7	$	907
1‑4 Family Non Owner Occupied	—		—	—		—
Multi Family	—		—	—		—
CRE Owner Occupied	—		—	—		—
CRE Non Owner Occupied	—		—	—		—
Agriculture Land	—		—	—		—
Other CRE	—		—	—		—
Commercial Working Capital	1		46	1		46
Commercial Other	—		—	1		13
Home Equity and Improvement	1		26	2		26
Consumer Finance	1		1	2		1
Total	7	$	507	13	$	993

The loans described above increased the allowance for loan and lease losses (“ALLL”) by $27,000 in the three month period ending June 30, 2019, and increased the ALLL by $21,000 in the six month period ending June 30, 2019.

	Loans Modified as a TDR for the Three			Loans Modified as a TDR for the Six
	Months Ended June 30, 2018			Months Ended June 30, 2018
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	9	$	481	12	$	624
1‑4 Family Non Owner Occupied	1		75	2		142
Multi Family	0		—	0		—
CRE Owner Occupied	5		1,554	7		2,181
CRE Non Owner Occupied	1		47	1		47
Agriculture Land	0		—	0		—
Other CRE	0		—	0		—
Commercial Working Capital	1		150	5		2,816
Commercial Other	0		—	0		—
Home Equity and Improvement	2		20	2		20
Consumer Finance	0		—	0		—
Total	19	$	2,327	29	$	5,830

Schedule of present loans by class modified as TDRs for which there was a payment default within twelve months

The following tables present loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and six month periods ended June 30, 2019, and June 30, 2018:

	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	1	$	92	2	$	168
1‑4 Family Non Owner Occupied	1		21	1		21
CRE Owner Occupied	—		—	—		—
CRE Non Owner Occupied	—		—	—		—
Agriculture Land	—		—	—		—
Other CRE	—		—	—		—
Commercial Working Capital or Other	—		—	3		2,311
Commercial Other	—		—	—		—
Home Equity and Improvement	—		—	1		61
Consumer Finance	—		—	—		—
Total	2	$	113	1	$	2,561

The TDRs that subsequently defaulted described above increased the allowance for loan losses by $5,000  and $4,000 for the three and six month period ended June 30, 2019.

	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
	($ in thousands)			($ in thousands)
	Number of	Recorded Investment		Number of	Recorded Investment
Troubled Debt Restructurings That Subsequently Defaulted	Loans	(as of period end)		Loans	(as of period end)
1‑4 Family Owner Occupied	0	$	—	0	$	—
1‑4 Family Non Owner Occupied	0		—	0		—
CRE Owner Occupied	0		—	0		—
CRE Non Owner Occupied	0		—	0		—
Agriculture Land	0		—	0		—
Other CRE	0		—	0		—
Commercial Working Capital or Other	0		—	0		—
Commercial Other	0		—	1		196
Home Equity and Improvement	0		—	0		—
Consumer Finance	0		—	0		—
Total	0	$	—	1	$	196

Schedule of risk category of loans by class of loans

As of June 30, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (In Thousands):

Class	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
1‑4 Family Owner Occupied	$	8,741	$	87	$	3,400	$	—	$	192,116	$	204,344
1‑4 Family Non Owner Occupied		109,285		604		2,691		—		5,668		118,248
Total 1‑4 Family Real Estate		118,026		691		6,091		—		197,784		322,592
Multi-Family Residential Real Estate		281,210		—		751		—		106		282,067
CRE Owner Occupied		388,488		13,825		7,668		—		77		410,058
CRE Non Owner Occupied		542,751		4,963		2,611		—		—		550,325
Agriculture Land		110,181		2,253		14,921		—		—		127,355
Other CRE		43,374		579		843		—		990		45,786
Total Commercial Real Estate		1,084,794		21,620		26,043		—		1,067		1,133,524
Construction		178,822		1,603		—		—		20,342		200,767
Commercial Working Capital		220,234		10,006		6,928		—		—		237,168
Commercial Other		285,150		8,028		2,162		—		—		295,340
Total Commercial		505,384		18,034		9,090		—		—		532,508
Home Equity and Home Improvement		—		—		422		—		126,380		126,802
Consumer Finance		—		—		81		—		35,417		35,498
Total Loans	$	2,168,236	$	41,948	$	42,478	$	—	$	381,096	$	2,633,758

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

Schedule of outstanding balance of loans

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance of those loans is as follows (In Thousands):

Schedule of accretable yield, or income expected to be collected

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

	2019		2018
Balance at January 1	$	468	$	804
New Loans Purchased		—		—
Accretion of Income		(18)		(56)
Reclassification from Non-accretable		—		—
Charge-off of Accretable Yield		—		(10)
Balance at June 30	$	450	$	738

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Mortgage Banking (Tables)

6 Months Ended

Jun. 30, 2019

Mortgage Banking

Schedule of net revenues from the sales and servicing of mortgage loans

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands)
Gain from sale of mortgage loans	$	1,775	$	1,383	$	3,076	$	2,464
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		943		933		1,882		1,877
Amortization of mortgage servicing rights		(391)		(350)		(677)		(669)
Mortgage servicing rights valuation adjustments		(190)		47		(303)		83
		362		630		902		1,291
Net revenue from sale and servicing of mortgage loans	$	2,137	$	2,013	$	3,978	$	3,755

Schedule of capitalized mortgage and valuation allowance

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,411	$	10,245	$	10,419	$	10,240
Loans sold, servicing retained		438		402		716		726
Amortization		(391)		(350)		(677)		(669)
Carrying value before valuation allowance at end of period		10,458		10,297		10,458		10,297
Valuation allowance:
Balance at beginning of period		(413)		(396)		(300)		(432)
Impairment recovery (charges)		(190)		47		(303)		83
Balance at end of period		(603)		(349)		(603)		(349)
Net carrying value of MSRs at end of period	$	9,855	$	9,948	$	9,855	$	9,948
Fair value of MSRs at end of period	$	9,925	$	10,488	$	9,925	$	10,488

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases

Schedule of lessee operating lease liability maturity

Total estimated rental commitments for the operating leases were as follows as of June 30, 2019:

Remainder of 2019	$	452
2020		982
2021		941
2022		864
2023		840
Thereafter		11,379
Total	$	15,458

Schedule of future minimum rental payments for operating leases

Future minimum commitments under non-cancelable operating leases were as follows as of December 31, 2018:

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

Schedule of reconciliation of undiscounted cash flows to lease liability

A reconciliation of the undiscounted cash flows in the maturity analysis above and the lease liability recognized in the consolidated balance sheet as of June 30, 2019, is shown below.

Undiscounted cash flows	$	15,458
Undiscounted cash flows associated with new lease effective 1/1/2020		(2,496)
Discount effect of cash flows		(3,920)
Total	$	9,042

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Deposits (Tables)

6 Months Ended

Jun. 30, 2019

Deposits

Summary of deposit

A summary of deposit balances is as follows:

	June 30,		December 31,
	2019		2018
	(In Thousands)
Non-interest-bearing checking accounts	$	584,735	$	607,198
Interest-bearing checking and money market accounts		1,088,694		1,040,471
Savings deposits		304,051		292,829
Retail certificates of deposit less than $250,000		610,345		591,822
Retail certificates of deposit greater than $250,000		92,812		88,562
	$	2,680,637	$	2,620,882

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Borrowings (Tables)

6 Months Ended

Jun. 30, 2019

Borrowings

Schedule of federal home loan bank advances

First Defiance’s debt, FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:

	June 30,		December 31,
	2019		2018
	(In Thousands)
FHLB Advances:
Single maturity fixed rate advances	$	84,000	$	59,000
Amortizable mortgage advances		1,149		1,213
Overnight advances		20,051		25,000
Fair value adjustment on acquired balances		(22)		(24)
Total	$	105,178	$	85,189
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

Schedule of contractual maturity of the securities

The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheets as of June 30, 2019 and December 31, 2018, is presented in the following tables.

							Greater
	Overnight and		Up to 30				than 90
	Continuous		Days		30‑90 Days		Days		Total
At June 30, 2019		(In Thousands)
Repurchase agreements:
Mortgage-backed securities – residential	$	3,064	$	—	$	—	$	—	$	3,064
Total borrowings	$	3,064	$	—	$	—	$	—	$	3,064
Gross amount of recognized liabilities for repurchase agreements									$	3,064

							Greater
	Overnight and		Up to 30				than 90
	Continuous		Days		30‑90 Days		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

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Commitments, Guarantees and Contingent Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

Commitments, Guarantees and Contingent Liabilities

Schedule of line of credit facilities

The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of the periods stated below were as follows (In Thousands):

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	88,737	$	144,249	$	44,352	$	114,308
Unused lines of credit		7,804		397,825		7,523		382,189
Standby letters of credit		—		9,206		—		7,239
Total	$	96,541	$	551,280	$	51,875	$	503,736

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Derivative Financial Instruments

Schedule of carrying values of the derivative instruments

The table below provides data about the carrying values of these derivative instruments:

June 30, 2019

December 31, 2018

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

$

1,392

$

205

$

1,187

$

367

$

73

$

294

Schedule of amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	455	$	136	$	893	$	178

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Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2019

Other Comprehensive Income

Schedule of reclassification adjustments related to securities available for sale are included in gains on sale or call of securities

Reclassification adjustments related to securities available for sale are included in gains on sale or call of securities in the accompanying consolidated condensed statements of income.

	Before Tax		Tax (Expense)		Net of Tax
	Amount		Benefit		Amount
Three months ended June 30, 2019:	(In Thousands)
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	3,289	$	(691)	$	2,598
Reclassification adjustment for net gains included in net income		—		—		—
Defined benefit postretirement medical plan:
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan		—		—		—
Total other comprehensive loss	$	3,289	$	(691)	$	2,598
Six months ended June 30, 2019:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	7,892	$	(1,659)	$	6,233
Reclassification adjustment for net gains included in net income
Defined benefit postretirement medical plan:
Reclassification adjustment for deferred tax on defined benefit Postretirement medical plan		—		82		82
Total other comprehensive loss	$	7,892	$	(1,577)	$	6,315

	Before Tax		Tax Expense		Net of Tax
	Amount		(Benefit)		Amount
Three months ended June 30, 2018:	(In Thousands)
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(872)	$	183	$	(689)
Reclassification adjustment for net gains included in net income				—		—
Total other comprehensive loss	$	(872)	$	183	$	(689)
Six months ended June 30, 2018:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(4,429)	$	930	$	(3,499)
Reclassification adjustment for net gains included in net income		—		—		—
Total other comprehensive loss	$	(4,429)	$	930	$	(3,499)

Schedule of accumulated other comprehensive income (loss), net of tax

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

					Accumulated
	Securities		Post-		Other
	Available		retirement		Comprehensive
	For Sale		Benefit		Income (Loss)
	(In Thousands)
Balance January 1, 2019	$	(2,057)	$	(91)	$	(2,148)
Other comprehensive income  before reclassifications		6,233		—		6,233
Amounts reclassified from accumulated other comprehensive income		—		82		82
Net other comprehensive income during period		6,233		82		6,315
Balance June 30, 2019	$	4,176	$	(9)	$	4,167
Balance January 1, 2018	$	601	$	(384)	$	217
Other comprehensive income (loss) before reclassifications		(3,499)		—		(3,499)
Net other comprehensive income (loss) during period		(3,499)		—		(3,499)
Reclassification adjustment upon adoption of ASU 2018‑02		129		(82)		47
Balance June 30, 2018	$	(2,769)	$	(466)	$	(3,235)

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Affordable Housing Projects Tax Credit Partnership (Tables)

6 Months Ended

Jun. 30, 2019

Affordable Housing Projects Tax Credit Partnership

Schedule of expected payments for unfunded affordable housing commitments

As of June 30, 2019, the expected payments for unfunded affordable housing commitments were as follows:

(dollars in thousands)	Amount
2019	$	1,806
2020		2,402
2021		2,318
2022		525
2023		409
Thereafter		1,334
Total Unfunded Commitments	$	8,794

Schedule of tax credits and other tax benefits recognized and amortization expense related to affordable housing

The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the three months ended June 30, 2019 and 2018.

	Three Months Ended June 30,
(dollars in thousands)	2019		2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	328	$	254
Amortization expense in federal income taxes		284		234

	Six Months Ended June 30,
(dollars in thousands)	2019		2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	655	$	508
Amortization expense in federal income taxes		569		469

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Significant Accounting Policies (Details)	6 Months Ended
	Jun. 30, 2019
Noncompete Agreements [Member]
Property, Plant and Equipment [Line Items]
Finite-Lived Intangible Asset, Useful Life	5 years
Customer Contracts [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Finite-Lived Intangible Asset, Useful Life	20 years
Customer Contracts [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Finite-Lived Intangible Asset, Useful Life	10 years

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Fair Value - Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Available for sale securities:
Available for sale securities, Total Fair Value	$ 296,115	$ 294,076
Collateralized mortgage obligations- residential [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	97,526	101,461
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	97,526	101,461
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	2,533	2,503
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	2,533	2,503
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	79,204	74,710
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	79,204	74,710
Mortgage-backed - residential [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
REMICs [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	2,412	2,709
REMICs [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
REMICs [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	2,412	2,709
REMICs [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Preferred stock
Available for sale securities:
Available for sale securities, Total Fair Value	1
Preferred stock | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	1
Preferred stock | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0
Preferred stock | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0
Corporate bonds [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	12,986	12,806
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	12,986	12,806
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	101,453	99,887
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	101,453	99,887
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage banking derivative - asset [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	1,392	367
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	1,392	367
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	205	73
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	205	73
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 - Assets and Liabilities Measured on a Non-Recurring Basis (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Impaired loans
Total impaired loans	$ 664,000	$ 1,775,000
Mortgage servicing rights	288,000	629,000
Real estate held for sale
Total real estate held for sale		705,000
Commercial Real Estate [Member]
Impaired loans
Total impaired loans	459,000	1,456,000
Real estate held for sale
Total real estate held for sale		705,000
Commercial [Member]
Impaired loans
Total impaired loans	205,000	319,000
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
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
Fair Value, Inputs, Level 1 [Member] | Commercial [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 2 [Member]
Impaired loans
Total impaired loans	0	0
Mortgage servicing rights	288,000	629,000
Real estate held for sale
Total real estate held for sale		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
Fair Value, Inputs, Level 2 [Member] | Commercial [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 3 [Member]
Impaired loans
Total impaired loans	664,000	1,775,000
Mortgage servicing rights	0	0
Real estate held for sale
Total real estate held for sale		705,000
Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	459,000	1,456,000
Real estate held for sale
Total real estate held for sale		705,000
Fair Value, Inputs, Level 3 [Member] | Commercial [Member]
Impaired loans
Total impaired loans	$ 205,000	$ 319,000

XML

Fair Value - Assets Measured on Recurring and Nonrecurring Basis (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Impaired Loans- Applies to all loan classes, Fair Value	$ 664	$ 1,775
Real estate held for sale - Applies to all classes, Fair Value		705
Range Of Input 10-40% [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Trust preferred stock, Fair Value	$ 664
Fair Value Measurements, Valuation Processes, Description	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	40.00%
Fair Value Measurement Weighted Average Range	19.30%
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
Fair Value Measurements, Valuation Processes, Description		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
Fair Value Measurements, Valuation Processes, Description		Appraisals which utilize sales comparison, net income and cost approach
Unobservable Inputs, Fair Value		Discounts for changes in market conditions
Fair Value Measurement Range Of Input		20.00%
Fair Value Measurement Weighted Average Range		20.00%

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Fair Value - Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Financial Assets, Carrying Value:
Cash and cash equivalents, Carrying Value	$ 83,597	$ 98,962	$ 106,885	$ 113,693
Investment securities, Carrying Value	296,600	294,602
Federal Home Loan Bank Stock, Carrying Value	11,915	14,217
Loans, including loans held for sale, Carrying Value	2,609,794	2,518,321
Accrued interest receivable, Carrying Value	10,771	9,641
Financial Liabilities, Carrying Value:
Deposits, Carrying Value	2,680,637	2,620,882
Advances from Federal Home Loan Bank, Carrying Value	105,178	85,189
Securities sold under repurchase agreements, Carrying Value	3,064	5,741
Subordinated debentures, Carrying Value	36,083	36,083
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	83,597	98,962
Investment securities, Fair Value	296,599	294,602
Loans, including loans held for sale, Fair Value	2,631,763	2,501,096
Accrued interest receivable, Fair Value	10,771	9,641
Financial Liabilities, Fair Value:
Deposits, Fair Value	2,681,088	2,613,965
Advances from Federal Home Loan Bank, Fair Value	105,063	84,281
Securities sold under repurchase agreements, Fair Value	3,064	5,741
Subordinated debentures, Fair Value	32,330	28,854
Fair Value, Inputs, Level 1 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	83,597	98,962
Investment securities, Fair Value	1	0
Loans, including loans held for sale, Fair Value	0	0
Accrued interest receivable, Fair Value	3	18
Financial Liabilities, Fair Value:
Deposits, Fair Value	584,735	607,198
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	296,598	294,602
Loans, including loans held for sale, Fair Value	14,982	6,865
Accrued interest receivable, Fair Value	1,225	1,168
Financial Liabilities, Fair Value:
Deposits, Fair Value	2,096,353	2,006,767
Advances from Federal Home Loan Bank, Fair Value	105,063	84,281
Securities sold under repurchase agreements, Fair Value	3,064	5,741
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, including loans held for sale, Fair Value	2,616,781	2,494,231
Accrued interest receivable, Fair Value	9,543	8,455
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	$ 32,330	$ 28,854

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Fair Value - Additional information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Fair Value Option Quantitative Disclosures [Line Items]
Impaired Financing Receivable, Recorded Investment	$ 664,000		$ 664,000		$ 1,775,000
Impaired Financing Receivable, Related Allowance	490,000		490,000		595,000
Impaired Financing Receivables, Provisional Expenses	52,000	$ 72,000	176,000	$ 61,000
Mortgage Servicing Rights at Fair Value	288,000		288,000		629,000
Valuation Allowance of Mortgage Servicing Rights	603,000		603,000		300,000
Proceeds from Collection of Loans Receivable	190,000	47,000	303,000	83,000
Real Estate Held-for-sale, Increase (Decrease) in Fair Value	0	$ 0	264,000	$ 544,000
Collateral Dependent Loan [Member]
Fair Value Option Quantitative Disclosures [Line Items]
Impaired Financing Receivable, Recorded Investment	664,000		664,000		1,800,000
Impaired Financing Receivable, Related Allowance	$ 91,000		$ 91,000		$ 9,000
Minimum [Member] | Real Estate held for sale [Member]
Fair Value Option Quantitative Disclosures [Line Items]
Fair Value Input Discount Rate			0.00%
Maximum [Member] | Real Estate held for sale [Member]
Fair Value Option Quantitative Disclosures [Line Items]
Fair Value Input Discount Rate			30.00%

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Stock Compensation Plans - Stock option activity (Details) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($) $ / shares shares
Stock Compensation Plans
Options Outstanding, January 1, 2019 | shares	39,400
Options Outstanding, Forfeited or cancelled | shares	0
Options Outstanding, Exercised | shares	(19,200)
Options Outstanding, Granted | shares	0
Options outstanding, June 30,2019 | shares	20,200
Options Outstanding, Vested or expected to vest at June 30,2019 | shares	20,200
Options Outstanding, Exercisable at June 30,2019 | shares	14,500
Weighted Average Exercise Price, Outstanding, January 1, 2019 | $ / shares	$ 14.00
Weighted Average Exercise Price, Forfeited or cancelled | $ / shares	0
Weighted Average Exercise Price, Exercised | $ / shares	10.15
Weighted Average Exercise Price, Granted | $ / shares	0
Weighted Average Exercise Price, outstanding, June 30, 2019 | $ / shares	17.66
Weighted Average Exercise Price, Vested or expected to vest at June 30, 2019 | $ / shares	17.66
Weighted Average Exercise Price, Exercisable at June 30, 2019 | $ / shares	$ 17.48
Weighted Average Remaining Contractual Term (in years), outstanding, June 30, 2019	5 years 3 months 7 days
Weighted Average Remaining Contractual Term (in years), Vested or expected to vest at June 30, 2019	5 years 3 months 7 days
Weighted Average Remaining Contractual Term (in years), Exercisable at June 30, 2019	4 years 10 months 24 days
Aggregate Intrinsic Value, outstanding, June 30, 2019 | $	$ 221
Aggregate Intrinsic Value, Vested or expected to vest at June 30, 2019 | $	221
Aggregate Intrinsic Value, Exercisable at June 30, 2019 | $	$ 161

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Stock Compensation Plans - Tax benefits realized (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Stock Compensation Plans
Proceeds of options exercised	$ 6	$ 55	$ 191	$ 111
Related tax benefit recognized	0	6	4	28
Intrinsic value of options exercised	$ 30	$ 781	$ 390	$ 1,034

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Stock Compensation Plans - Restricted stock grants (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Restricted Stock Units (RSUs) [Member]
Shares, Unvested at January 1, 2019 | shares	144,586
Shares, Granted | shares	82,930
Shares, Vested | shares	(54,771)
Shares, Forfeited | shares	(11,750)
Shares, Unvested at June 30, 2019 | shares	160,995
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2019 | $ / shares	$ 23.94
Weighted-Average Grant Date Fair Value, Granted | $ / shares	25.61
Weighted-Average Grant Date Fair Value, Vested | $ / shares	20.13
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares	25.63
Weighted-Average Grant Date Fair Value, Unvested at June 30, 2019 | $ / shares	$ 25.72
Stock Grants [Member]
Shares, Unvested at January 1, 2019 | shares	30,372
Shares, Granted | shares	78,922
Shares, Vested | shares	(60,375)
Shares, Forfeited | shares	0
Shares, Unvested at June 30, 2019 | shares	48,919
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2019 | $ / shares	$ 28.48
Weighted-Average Grant Date Fair Value, Granted | $ / shares	22.25
Weighted-Average Grant Date Fair Value, Vested | $ / shares	21.17
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares	0
Weighted-Average Grant Date Fair Value, Unvested at June 30, 2019 | $ / shares	$ 27.18

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Stock Compensation Plans - Additional information (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018	Mar. 31, 2019	Feb. 27, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	20,200		20,200		39,400
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.
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 27,000		$ 27,000
Employee Service Share Based Compensation Nonvested Awards, Total Compensation Cost Not Yet Recognized, Period For Recognition (in years)			1 year 3 months 18 days
Allocated Share-based Compensation Expense	437,000	$ 343,000	$ 960,000	$ 907,000
Compensation Expense, Maximum						$ 4,800,000
Estimated Compensation Expense, Excepted	3,800,000		3,800,000
Unrecognized Compensation Expense	$ 2,000,000		$ 2,000,000
Share-based Compensation Award, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			5,258
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			13,916
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	160,995		160,995
Restricted Stock Units (RSUs) [Member] | Share-based Compensation Award, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			19,393
Equity Plan 2010 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized							900,000
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			48,363
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]
Share-based Compensation, Performance Period			3 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				41,676
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%		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%		20.00%
Short Term Equity Incentive Plan 2015 [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.
Short Term Equity Incentive Plan 2015 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate	45.00%		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%		10.00%
Long Term Equity Incentive Plan 2016 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			69,014
Short Term Equity Incentive Plan 2017 [Member]
Allocated Share-based Compensation Expense			$ 457,000		$ 961,000
Stock Option Grant 2009 Member
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Vested Percentage, Year			20.00%
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			24,651
Stock Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	48,919		48,919		30,372
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			78,922
Stock Grants [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	48,919		48,919

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Dividends on Common Stock (Details) - $ / shares	3 Months Ended				6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Dividends on Common Stock
Common Stock, Dividends, Per Share, Cash Paid	$ 0.19	$ 0.19	$ 0.15	$ 0.15
Common Stock, Dividends, Per Share, Declared	$ 0.19		$ 0.150		$ 0.38	$ 0.300

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Earnings Per Common Share - Computation of basic and diluted earnings per common share (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended				6 Months Ended
		Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Basic Earnings Per Share:
Net income available to common shareholders		$ 12,199	$ 11,482	$ 11,109	$ 11,737	$ 23,681	$ 22,846
Less: Income allocated to participating securities		1		1		2	2
Net income allocated to common shareholders		$ 12,198		$ 11,108		$ 23,679	$ 22,844
Weighted average common shares outstanding including participating securities	[1]	19,791		20,399		19,908	20,370
Less: Participating securities		11		11		11	11
Average common shares	[1]	19,780		20,388		19,897	20,359
Basic earnings per common share		$ 0.62		$ 0.54		$ 1.19	$ 1.12
Diluted Earnings Per Share:
Net income allocated to common shareholders		$ 12,198		$ 11,108		$ 23,679	$ 22,844
Weighted average common shares outstanding for basic earnings per common share	[1]	19,780		20,388		19,897	20,359
Add: Dilutive effects of stock options		80		104		79	107
Average shares and dilutive potential common shares	[1]	19,860		20,492		19,976	20,466
Diluted earnings per common share		$ 0.61		$ 0.54		$ 1.19	$ 1.12

[1] Share and per share data in above table has been adjusted for a 2-for-1 stock split on July 12, 2018.

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Earnings Per Common Share - Additional Information (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share, Basic [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	6,171	0	6,171	0

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Investment Securities - Summary of available-for-sale and held-to-maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	$ 290,828	$ 296,681
Available-for-Sale Securities, Gross Unrealized Gains	5,644	1,543
Available-for-Sale Securities, Gross Unrealized Losses	(357)	(4,148)
Available-for-Sale Securities, Fair Value	296,115	294,076
Held-to-Maturity Securities
Held-to-Maturity Securities, Amortized Cost	485	526
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	(1)	0
Held-to-Maturity Securities, Fair Value	484	526
Obligations of U.S. government corporations and agencies [Member]
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	2,519	2,519
Available-for-Sale Securities, Gross Unrealized Gains	14	2
Available-for-Sale Securities, Gross Unrealized Losses	0	(18)
Available-for-Sale Securities, Fair Value	2,533	2,503
Mortgage-backed - residential [Member]
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	78,553	76,165
Available-for-Sale Securities, Gross Unrealized Gains	876	111
Available-for-Sale Securities, Gross Unrealized Losses	(225)	(1,566)
Available-for-Sale Securities, Fair Value	79,204	74,710
REMICs [Member]
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	2,390	2,712
Available-for-Sale Securities, Gross Unrealized Gains	22	4
Available-for-Sale Securities, Gross Unrealized Losses	0	(7)
Available-for-Sale Securities, Fair Value	2,412	2,709
Collateralized mortgage obligations [Member]
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	96,574	103,026
Available-for-Sale Securities, Gross Unrealized Gains	1,062	124
Available-for-Sale Securities, Gross Unrealized Losses	(110)	(1,689)
Available-for-Sale Securities, Fair Value	97,526	101,461
Preferred stock
Available-for-sale Securities
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, Fair Value	1
Corporate bonds [Member]
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	12,906	12,910
Available-for-Sale Securities, Gross Unrealized Gains	97	44
Available-for-Sale Securities, Gross Unrealized Losses	(17)	(148)
Available-for-Sale Securities, Fair Value	12,986	12,806
Obligations of state and political subdivisions [Member]
Available-for-sale Securities
Available-for-Sale Securities, Amortized Cost	97,886	99,349
Available-for-Sale Securities, Gross Unrealized Gains	3,572	1,258
Available-for-Sale Securities, Gross Unrealized Losses	(5)	(720)
Available-for-Sale Securities, Fair Value	101,453	99,887
Held-to-Maturity Securities
Held-to-Maturity Securities, Amortized Cost	444	475
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	444	475
FHLMC certificates [Member]
Held-to-Maturity Securities
Held-to-Maturity Securities, Amortized Cost	7	8
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	7	8
FNMA certificates [Member]
Held-to-Maturity Securities
Held-to-Maturity Securities, Amortized Cost	25	31
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	(1)	0
Held-to-Maturity Securities, Fair Value	24	31
GNMA certificates [Member]
Held-to-Maturity Securities
Held-to-Maturity Securities, Amortized Cost	9	12
Held-to-Maturity Securities, Gross Unrealized Gains	0	0
Held-to-Maturity Securities, Gross Unrealized Losses	0	0
Held-to-Maturity Securities, Fair Value	$ 9	$ 12

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Investment Securities - Investments Classified by Contractual Maturity Date (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Investment Securities
Available-for-sale, Due in one year or less, Amortized Cost	$ 5,594
Available-for-sale, Due after one year through five years, Amortized Cost	17,876
Available-for-sale, Due after five years through ten years, Amortized Cost	33,585
Available-for-sale, Due after ten years, Amortized Cost	56,256
Available-for-sale, MBS/CMO/REMIC, Amortized Cost	177,517
Available-for-sale, Amortized Cost	290,828
Available-for-sale, Due in one year or less, Fair Value	5,614
Available-for-sale, Due after one year through five years, Fair Value	18,079
Available-for-sale, Due after five years through ten years, Fair Value	34,483
Available-for-sale, Due after ten years, Fair Value	58,797
Available-for-sale, MBS/CMO/REMIC, Fair Value	179,142
Available-for-sale, Fair Value	296,115	$ 294,076
Held-to-maturity Securities, Due in one year or less, Amortized Cost	0
Held-to-maturity Securities, Due after one year through five years, Amortized Cost	0
Held-to-maturity Securities, Due after five years through ten years, Amortized Cost	444
Held-to-maturity Securities, Due after ten years, Amorized Cost	0
Held-to-maturity, MBS/CMO/REMIC, Amortized Cost	41
Held-to-maturity, Amortized Cost	485	526
Held-to-maturity Securities, Due in one year or less, Fair Value	0
Held-to-maturity Securities, Due after one year through five years, Fair Value	0
Held-to-maturity Securites, Due after five years through ten years, Fair Value	444
Held-to-maturity Securities, Due after ten years, Fair Value	0
Held-to-maturity, MBS/CMO/REMIC, Fair Value	40
Held-to-maturity, Fair Value	$ 484	$ 526

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Investment Securities - Unrealized Gain (Loss) on Investments (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Held to maturity securities:
Held-to-maturity Securities, Duration of Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 0
Held-to-maturity Securities, Duration of Unrealized Loss Position, Less than 12 Months, Gross Unrealized Loss	0
Held-to-maturity Securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Fair Value	16
Held-to-maturity Securities, Duration of Unrealized Loss Position, 12 Months or Longer, Gross Unrealized Loss	(1)
Held-to-maturity Securities, Duration of Unrealized Loss Position, Fair Value	16
Held-to-maturity Securities, Duration of Unrealized Loss Position, Gross Unrealized Loss	(1)
Total temporarily impaired securities, Duration Unrealized Loss Position, Less Than Twelve Months, Fair Value	2,909	$ 40,928
Total temporarily impaired securities, Duration of Unrealized Loss Position, Less Than 12 Months, Gross Unrealized Loss	(31)	(341)
Total temporarily impaired securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Fair Value	36,697	137,099
Total temporarily impaired securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Gross Unrealized Loss	(327)	(3,807)
Total temporarily impaired securities, Duration of Unrealized Loss Position, Fair Value	39,606	178,027
Total temporarily impaired securities, Duration of Unrealized Loss Position, Unrealized Loss	(358)	(4,148)
Mortgage-backed - residential [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	2,038	11,589
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(14)	(71)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	23,742	48,665
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(211)	(1,495)
Available-for-sale securities, Total, Fair Value	25,780	60,254
Available-for-sale securities, Total, Unrealized Loss	(225)	(1,566)
REMICs [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value		0
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss		0
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value		857
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss		(7)
Available-for-sale securities, Total, Fair Value		857
Available-for-sale securities, Total, Unrealized Loss		(7)
Collateralized mortgage obligations [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	0	11,613
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	0	(53)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	11,497	70,585
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(110)	(1,636)
Available-for-sale securities, Total, Fair Value	11,497	82,198
Available-for-sale securities, Total, Unrealized Loss	(110)	(1,689)
Corporate bonds [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	871	5,752
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(17)	(148)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0	0
Available-for-sale securities, Total, Fair Value	871	5,752
Available-for-sale securities, Total, Unrealized Loss	(17)	(148)
Obligations of state and political subdivisions [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	0	11,974
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	0	(69)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	1,442	16,492
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(5)	(651)
Available-for-sale securities, Total, Fair Value	1,442	28,466
Available-for-sale securities, Total, Unrealized Loss	(5)	(720)
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	0	500
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0	(18)
Available-for-sale securities, Total, Fair Value	0	500
Available-for-sale securities, Total, Unrealized Loss	$ 0	$ (18)

XML

Investment Securities - Additional Information (Details) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2019 USD ($)	Mar. 31, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)
Investment Securities
Security Owned and Pledged as Collateral Carrying Value	$ 154,200			$ 154,200
Investment Portfolio, Number of Securities	434			434
Investment Portfolio, Number of Securities, Unrealized Loss	39			39
Realized Investment Gains (Losses)	$ 0		$ 0	$ 0	$ 0
Realized Investment Gains Losses Net Of Tax		$ 0	0	0	0
OTTI	$ 0		$ 0	$ 0	$ 0

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Loans - Loans receivable (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Real Estate:
Real Estate	$ 2,069,433		$ 1,993,268
Other Loans:
Total loans	2,761,171		2,665,402
Deduct:
Undisbursed loan funds	(134,794)		(123,293)
Net deferred loan origination fees and costs	(2,158)		(2,070)
Allowance for loan loss	(28,934)	$ (28,164)	(28,331)	$ (27,321)	$ (27,267)	$ (26,683)
Totals	2,595,285		2,511,708
Other Loan [Member]
Other Loans:
Total loans	691,738		672,134
One to Four Family Residential Real Estate [Member]
Real Estate:
Real Estate	322,123		322,686
Multi Family Residential [Member]
Real Estate:
Real Estate	281,679		278,358
Commercial Real Estate [Member]
Real Estate:
Real Estate	1,129,784		1,126,452
Construction Loans [Member]
Real Estate:
Real Estate	335,847		265,772
Commercial [Member]
Other Loans:
Total loans	530,528		509,577
Home Equity and Home Improvement [Member]
Other Loans:
Total loans	125,860		128,152
Consumer Finance [Member]
Other Loans:
Total loans	$ 35,350		$ 34,405

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Loans - Allowance for loan loss activity (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	$ 28,164	$ 27,267	$ 28,331	$ 26,683
Charge-Offs	(136)	(529)	(670)	(845)
Recoveries	624	160	779	2,155
Provisions	282	423	494	(672)
Ending Allowance	28,934	27,321	28,934	27,321
One to Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	2,811	2,534	2,881	2,532
Charge-Offs	(11)	(78)	(183)	(94)
Recoveries	156	34	170	58
Provisions	(163)	192	(75)	186
Ending Allowance	2,793	2,682	2,793	2,682
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	3,068	2,983	3,101	2,702
Charge-Offs	0	0	0	0
Recoveries	24	2	36	2
Provisions	10	(72)	(35)	209
Ending Allowance	3,102	2,913	3,102	2,913
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	12,001	10,773	12,041	10,354
Charge-Offs	(15)	(254)	(15)	(309)
Recoveries	269	26	353	210
Provisions	(106)	708	(230)	998
Ending Allowance	12,149	11,253	12,149	11,253
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	731	667	682	647
Charge-Offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	156	70	205	90
Ending Allowance	887	737	887	737
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	7,276	7,838	7,281	7,965
Charge-Offs	(13)	(84)	(200)	(181)
Recoveries	94	30	106	1,787
Provisions	531	(329)	701	(2,116)
Ending Allowance	7,888	7,455	7,888	7,455
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	1,928	2,209	2,026	2,255
Charge-Offs	(64)	(41)	(97)	(158)
Recoveries	60	57	84	85
Provisions	(161)	(193)	(250)	(150)
Ending Allowance	1,763	2,032	1,763	2,032
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	349	263	319	228
Charge-Offs	(33)	(72)	(175)	(103)
Recoveries	21	11	30	13
Provisions	15	47	178	111
Ending Allowance	$ 352	$ 249	$ 352	$ 249

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Loans - Allowance for loan losses and the recorded investment (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 490	$ 595
Collectively evaluated for impairment	28,444	27,736
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	28,934	28,331
Loans:
Loans individually evaluated for impairment	41,205	45,940
Loans collectively evaluated for impairment	2,590,486	2,500,222
Loans acquired with deteriorated credit quality	2,067	2,331
Total ending loans balance	2,633,758	2,548,493
One to Four Family Residential Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	196	175
Collectively evaluated for impairment	2,597	2,706
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	2,793	2,881
Loans:
Loans individually evaluated for impairment	7,230	6,774
Loans collectively evaluated for impairment	314,359	315,385
Loans acquired with deteriorated credit quality	1,003	1,012
Total ending loans balance	322,592	323,171
Multi Family Residential Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	2	3
Collectively evaluated for impairment	3,100	3,098
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	3,102	3,101
Loans:
Loans individually evaluated for impairment	179	1,347
Loans collectively evaluated for impairment	281,595	277,105
Loans acquired with deteriorated credit quality	293	296
Total ending loans balance	282,067	278,748
Commercial Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	65	95
Collectively evaluated for impairment	12,084	11,946
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	12,149	12,041
Loans:
Loans individually evaluated for impairment	24,144	26,334
Loans collectively evaluated for impairment	1,108,728	1,102,355
Loans acquired with deteriorated credit quality	652	846
Total ending loans balance	1,133,524	1,129,535
Construction Loans [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	887	682
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	887	682
Loans:
Loans individually evaluated for impairment	0	0
Loans collectively evaluated for impairment	200,767	142,096
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	200,767	142,096
Commercial [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	161	79
Collectively evaluated for impairment	7,727	7,202
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	7,888	7,281
Loans:
Loans individually evaluated for impairment	8,749	10,477
Loans collectively evaluated for impairment	523,640	500,730
Loans acquired with deteriorated credit quality	119	177
Total ending loans balance	532,508	511,384
Home Equity and Home Improvement [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	66	242
Collectively evaluated for impairment	1,697	1,784
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	1,763	2,026
Loans:
Loans individually evaluated for impairment	881	963
Loans collectively evaluated for impairment	125,921	128,065
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	126,802	129,028
Consumer Finance [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	1
Collectively evaluated for impairment	352	318
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	352	319
Loans:
Loans individually evaluated for impairment	22	45
Loans collectively evaluated for impairment	35,476	34,486
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	$ 35,498	$ 34,531

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Loans - Impaired Financing Receivables (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Dec. 31, 2018
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	$ 31,554	$ 37,478
Recorded Investment, With no allowance		30,469	35,947
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	11,627	11,178
Recorded Investment, With an Allowance		10,736	9,993
Allowance for Loan Losses Allocated, With an Allowance		490	595
Residential Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	384	901
Recorded Investment, With no allowance		385	775
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	5,004	3,926
Recorded Investment, With an Allowance		4,843	3,884
Allowance for Loan Losses Allocated, With an Allowance		172	148
Residential Non Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	891	950
Recorded Investment, With no allowance		894	955
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	1,104	1,152
Recorded Investment, With an Allowance		1,108	1,160
Allowance for Loan Losses Allocated, With an Allowance		24	27
One to Four Family Residential Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	1,275	1,851
Recorded Investment, With no allowance		1,279	1,730
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	6,108	5,078
Recorded Investment, With an Allowance		5,951	5,044
Allowance for Loan Losses Allocated, With an Allowance		196	175
Multi Family Residential Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	135	1,296
Recorded Investment, With no allowance		136	1,302
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	43	44
Recorded Investment, With an Allowance		43	44
Allowance for Loan Losses Allocated, With an Allowance		2	3
Commercial Real Estate Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	6,953	7,464
Recorded Investment, With no allowance		5,813	6,202
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	2,110	2,419
Recorded Investment, With an Allowance		1,628	1,935
Allowance for Loan Losses Allocated, With an Allowance		29	38
Commercial Real Estate Non Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	1,750	1,824
Recorded Investment, With no allowance		1,585	1,659
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	334	350
Recorded Investment, With an Allowance		337	353
Allowance for Loan Losses Allocated, With an Allowance		14	16
Agriculture Land [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	13,276	14,915
Recorded Investment, With no allowance		13,470	14,994
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	552	37
Recorded Investment, With an Allowance		555	38
Allowance for Loan Losses Allocated, With an Allowance		5	2
Commercial Real Estate Other Receivables [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	449	464
Recorded Investment, With no allowance		453	462
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	522	1,107
Recorded Investment, With an Allowance		303	691
Allowance for Loan Losses Allocated, With an Allowance		17	39
Commercial Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	22,428	24,667
Recorded Investment, With no allowance		21,321	23,317
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	3,518	3,913
Recorded Investment, With an Allowance		2,823	3,017
Allowance for Loan Losses Allocated, With an Allowance		65	95
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]	6,309	7,569
Recorded Investment, With no allowance		6,333	7,498
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	866	525
Recorded Investment, With an Allowance		869	528
Allowance for Loan Losses Allocated, With an Allowance		147	55
Commercial Loans Other [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	1,407	2,095
Recorded Investment, With no allowance		1,400	2,100
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	144	560
Recorded Investment, With an Allowance		147	352
Allowance for Loan Losses Allocated, With an Allowance		14	24
Commercial [Member]
Impaired loans
Unpaid Principal Balance, With no allowance	[1]	7,716	9,664
Recorded Investment, With no allowance		7,733	9,598
Allowance for Loan Losses Allocated, With no allowance		0	0
Unpaid Principal Balance, With an Allowance	[1]	1,010	1,085
Recorded Investment, With an Allowance		1,016	880
Allowance for Loan Losses Allocated, With an Allowance		161	79
Home Equity and Home Improvement [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]	926	1,013
Recorded Investment, With an Allowance		881	963
Allowance for Loan Losses Allocated, With an Allowance		66	242
Consumer Finance [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]	22	45
Recorded Investment, With an Allowance		22	45
Allowance for Loan Losses Allocated, With an Allowance		$ 0	$ 1

[1] Presented gross of charge-offs

XML

Loans - Loans Receivable, Impaired, Interest Income, Cash Basis Method (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	$ 41,600	$ 48,279	$ 41,946	$ 49,504
Interest Income Recognized	453	493	1,191	855
Cash Basis Income Recognized	348	428	975	716
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	5,212	4,598	4,882	4,619
Interest Income Recognized	46	40	110	72
Cash Basis Income Recognized	44	38	104	69
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	2,040	2,392	2,060	2,450
Interest Income Recognized	26	30	56	74
Cash Basis Income Recognized	26	30	56	71
One to Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	7,252	6,990	6,942	7,069
Interest Income Recognized	72	70	166	146
Cash Basis Income Recognized	70	68	160	140
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	0	0	0	0
Interest Income Recognized	0	0	0	0
Cash Basis Income Recognized	0	0	0	0
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	305	1,600	819	1,825
Interest Income Recognized	7	22	27	49
Cash Basis Income Recognized	7	22	27	48
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	7,514	8,352	7,439	10,789
Interest Income Recognized	57	78	223	122
Cash Basis Income Recognized	45	72	177	107
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,942	2,642	1,966	3,062
Interest Income Recognized	18	23	51	57
Cash Basis Income Recognized	18	23	44	57
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	13,734	14,478	13,319	12,997
Interest Income Recognized	170	155	376	250
Cash Basis Income Recognized	94	110	291	152
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	796	1,329	975	1,407
Interest Income Recognized	19	25	53	50
Cash Basis Income Recognized	17	22	50	42
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	23,986	26,801	23,699	28,255
Interest Income Recognized	264	281	703	479
Cash Basis Income Recognized	174	227	562	358
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	7,594	8,788	7,842	6,998
Interest Income Recognized	83	81	226	105
Cash Basis Income Recognized	71	72	162	96
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,549	3,046	1,709	4,073
Interest Income Recognized	21	29	48	54
Cash Basis Income Recognized	21	29	45	52
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	9,143	11,834	9,551	11,071
Interest Income Recognized	104	110	274	159
Cash Basis Income Recognized	92	101	207	148
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	889	1,019	905	1,247
Interest Income Recognized	6	9	20	20
Cash Basis Income Recognized	5	9	18	20
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	25	35	30	37
Interest Income Recognized	0	1	1	2
Cash Basis Income Recognized	$ 0	$ 1	$ 1	$ 2

XML

Loans - Schedule of Financing Receivables, Non Accrual Status (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	$ 2,624,396	$ 2,534,997
Total Past Due	9,362	13,496
Total Non Accrual	15,322	19,002
Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,937	2,966
Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,407	1,697
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	5,018	8,833
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	201,501	199,664
Total Past Due	2,843	3,110
Total Non Accrual	2,931	3,266
Residential Owner Occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,015	887
Residential Owner Occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	844	821
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	984	1,402
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	118,191	119,988
Total Past Due	57	409
Total Non Accrual	249	363
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	33	64
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	3	180
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	21	165
One to Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	319,692	319,652
Total Past Due	2,900	3,519
Total Non Accrual	3,180	3,629
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	1,048	951
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	847	1,001
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	1,005	1,567
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	282,067	278,748
Total Past Due	0	0
Total Non Accrual	0	102
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	0
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	409,221	416,879
Total Past Due	837	490
Total Non Accrual	3,214	4,377
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	244	52
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	104	300
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	489	138
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	549,736	534,823
Total Past Due	589	125
Total Non Accrual	639	620
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	0	6
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	108	119
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	481	0
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	127,030	129,040
Total Past Due	325	2,935
Total Non Accrual	4,351	5,253
Agriculture Land [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	222	66
Agriculture Land [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	103	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	0	2,869
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	45,775	45,232
Total Past Due	11	11
Total Non Accrual	29	0
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	0	11
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	11	0
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	1,131,762	1,125,974
Total Past Due	1,762	3,561
Total Non Accrual	8,233	10,250
Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	466	135
Commercial Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	315	419
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	981	3,007
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	200,767	142,096
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	234,347	217,832
Total Past Due	2,821	4,106
Total Non Accrual	2,914	4,021
Commercial Working Capital [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	140	268
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	0
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	2,681	3,838
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	294,958	289,125
Total Past Due	382	321
Total Non Accrual	423	480
Commercial Loans Other [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	105	32
Commercial Loans Other [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	59	54
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	218	235
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	529,305	506,957
Total Past Due	3,203	4,427
Total Non Accrual	3,337	4,501
Commercial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	245	300
Commercial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	59	54
Commercial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,899	4,073
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	35,247	34,224
Total Past Due	251	307
Total Non Accrual	20	126
Consumer Finance [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	232	134
Consumer Finance [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	77
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	19	96
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	125,556	127,346
Total Past Due	1,246	1,682
Total Non Accrual	552	394
Home Equity and Home Improvement [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	946	1,446
Home Equity and Home Improvement [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	186	146
Home Equity and Home Improvement [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	$ 114	$ 90

XML

Loans - Schedule of Non-Performing Loans and Real Estate Owned (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Loans
Non-accrual loans	$ 15,334	$ 19,016
Loans over 90 days past due and still accruing	0	0
Total non-performing loans	15,334	19,016
Real estate and other assets held for sale	0	1,205
Total non-performing assets	15,334	20,221
Troubled debt restructuring, still accruing	$ 10,308	$ 11,573

XML

Loans - Troubled Debt Restructurings on Financing Receivables (Details) - TDRs [Member] $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	7	19	13	29
Troubled Debt Restructurings, Recorded Investment	$ 507	$ 2,327	$ 993	$ 5,830
1-4 Family Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	4	9	7	12
Troubled Debt Restructurings, Recorded Investment	$ 434	$ 481	$ 907	$ 624
1-4 Family Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	1	0	2
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 75	$ 0	$ 142
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	0	0	0
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	5	0	7
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 1,554	$ 0	$ 2,181
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	1	0	1
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 47	$ 0	$ 47
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	0	0	0
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	0	0	0
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Other Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	1	1	1	5
Troubled Debt Restructurings, Recorded Investment	$ 46	$ 150	$ 46	$ 2,816
Commercial Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	0	0	1	0
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 0	$ 13	$ 0
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	1	2	2	2
Troubled Debt Restructurings, Recorded Investment	$ 26	$ 20	$ 26	$ 20
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans	1	0	2	0
Troubled Debt Restructurings, Recorded Investment	$ 1	$ 0	$ 1	$ 0

XML

Loans - Financing Receivable Credit Quality Indicators (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 2,633,758	$ 2,548,493
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,168,236	2,089,444
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	41,948	27,851
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	42,478	51,040
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	381,096	380,158
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	204,344	202,774
Residential Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	8,741	9,419
Residential Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	87	91
Residential Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	3,400	3,130
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	192,116	190,134
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	118,248	120,397
Residential Non Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	109,285	109,885
Residential Non Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	604	700
Residential Non Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,691	3,087
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	5,668	6,725
One to Four Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	322,592	323,171
One to Four Family Residential Real Estate [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	118,026	119,304
One to Four Family Residential Real Estate [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	691	791
One to Four Family Residential Real Estate [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	6,091	6,217
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	197,784	196,859
Multi Family Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	282,067	278,748
Multi Family Residential Real Estate [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	281,210	276,594
Multi Family Residential Real Estate [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Multi Family Residential Real Estate [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	751	2,047
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	106	107
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	410,058	417,368
Commercial Real Estate Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	388,488	402,008
Commercial Real Estate Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	13,825	5,724
Commercial Real Estate Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	7,668	9,547
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	77	89
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	550,325	534,946
Commercial Real Estate Non Owner Occupied [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	542,751	529,842
Commercial Real Estate Non Owner Occupied [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	4,963	2,807
Commercial Real Estate Non Owner Occupied [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,611	2,297
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	127,355	131,976
Agriculture Land [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	110,181	111,595
Agriculture Land [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,253	4,023
Agriculture Land [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	14,921	16,358
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	45,786	45,245
Commercial Real Estate Other Receivable [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	43,374	42,189
Commercial Real Estate Other Receivable [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	579	730
Commercial Real Estate Other Receivable [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	843	1,244
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	990	1,082
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,133,524	1,129,535
Commercial Real Estate [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,084,794	1,085,634
Commercial Real Estate [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	21,620	13,284
Commercial Real Estate [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	26,043	29,446
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	1,067	1,171
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	200,767	142,096
Construction Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	178,822	122,775
Construction Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,603	219
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	20,342	19,102
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	237,168	221,938
Commercial Working Capital [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	220,234	205,903
Commercial Working Capital [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	10,006	6,546
Commercial Working Capital [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	6,928	9,489
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	295,340	289,446
Commercial Loans Other [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	285,150	279,234
Commercial Loans Other [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	8,028	7,011
Commercial Loans Other [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,162	3,201
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 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	532,508	511,384
Commercial [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	505,384	485,137
Commercial [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	18,034	13,557
Commercial [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	9,090	12,690
Commercial [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	0	0
Commercial [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	126,802	129,028
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	422	434
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	126,380	128,594
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	35,498	34,531
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	81	206
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	$ 35,417	$ 34,325

XML

Loans - Schedule of Deterioration of Credit Quality Contractual Purchased Loans (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Notes Receivable Net Acquired With Deteriorated Credit Quality	$ 2,067	$ 2,331
Recorded Investment, allowance	0
One to Four Family Residential Real Estate [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	1,003	1,012
Multi Family Residential Real Estate [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	293	296
Commercial Real Estate [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	652	846
Commercial [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	119	177
Loan Purchase [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	2,244	2,471
Notes Receivable Net Acquired With Recorded Investment Net Of Allowance	2,067	2,331
Loan Purchase [Member] | One to Four Family Residential Real Estate [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	1,029	1,045
Loan Purchase [Member] | Multi Family Residential Real Estate [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	293	300
Loan Purchase [Member] | Commercial Real Estate [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	741	899
Loan Purchase [Member] | Commercial [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	181	227
Loan Purchase [Member] | Consumer [Member]
Notes Receivable Net Acquired With Deteriorated Credit Quality	$ 0	$ 0

XML

Loans - Accretable yield, or income expected (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Loans
Balance at January 1	$ 468	$ 804
New Loans Purchased	0	0
Accretion of Income	(18)	(56)
Reclassifications from Non-accretable	0	0
Charge-off of Accretable Yield	0	(10)
Balance at June 30	$ 450	$ 738

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Loans - Troubled Debt Restructurings on Payments (Details) - Subsequently Defaulted [Member] $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	2	0	1	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 113	$ 0	$ 2,561	$ 196
1-4 Family Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	1	0	2	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 92	$ 0	$ 168	$ 0
1-4 Family Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	1	0	1	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 21	$ 0	$ 21	$ 0
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	0	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 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	0	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	0	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 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	0	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 0	$ 0	$ 0
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	0	0	3	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 0	$ 2,311	$ 0
Commercial Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	0	0	0	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 0	$ 0	$ 196
Home Equity and Home Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	0	0	1	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 0	$ 61	$ 0
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans	0	0	0	0
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment	$ 0	$ 0	$ 0	$ 0

XML

Loans - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Financing Receivable, Allowance for Credit Losses, Period Increase (Increase)	$ 27,000	$ 16,000	$ 21,000	$ 21,000
Loans and Leases Receivable, Loans in Process	134,794,000		134,794,000		$ 123,293,000
Allowances for loan losses reversed			0	$ 0
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Loans in Process	705,000		705,000		796,000
TDRs [Member]
Financing Receivable, Modifications, Recorded Investment	17,300,000		17,300,000		19,200,000
Specified Reserves, Provision for Troubled Debt Restructurings	399,000		399,000		581,000
Loans and Leases Receivable, Impaired, Commitment to Lend	315,000		315,000		$ 169,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down			6,900,000
TDRs [Member] | Subsequently Defaulted [Member]
Financing Receivable, Allowance for Credit Losses, Period Increase (Increase)	$ 5,000		$ 4,000

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Mortgage Banking - Net revenues (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Mortgage Banking
Gain from sale of mortgage loans	$ 1,775	$ 1,383	$ 3,076	$ 2,464
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue	943	933	1,882	1,877
Amortization of mortgage servicing rights	(391)	(350)	(677)	(669)
Mortgage servicing rights valuation adjustments	(190)	47	(303)	83
Mortgage loans servicing revenue (expense), Total	362	630	902	1,291
Net revenue from sale and servicing of mortgage loans	$ 2,137	$ 2,013	$ 3,978	$ 3,755

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Mortgage Banking - Capitalized Mortgage and Valuation Allowance (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Mortgage servicing assets:
Balance at beginning of period	$ 10,411	$ 10,245	$ 10,419	$ 10,240
Loans sold, servicing retained	438	402	716	726
Amortization	(391)	(350)	(677)	(669)
Carrying value before valuation allowance at end of period	10,458	10,297	10,458	10,297
Valuation allowance:
Balance at beginning of period	(413)	(396)	(300)	(432)
Impairment recovery (charges)	(190)	47	(303)	83
Balance at end of period	(603)	(349)	(603)	(349)
Net carrying value of MSRs at end of period	9,855	9,948	9,855	9,948
Fair value of MSRs at end of period	$ 9,925	$ 10,488	$ 9,925	$ 10,488

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Mortgage Banking - Additional information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Mortgage Banking
Residential Mortgage Loans, Unpaid Balance	$ 1,420,000,000		$ 1,420,000,000		$ 1,410,000,000
Accrued Liabilities and Other Liabilities	43,000		43,000		$ 43,000
Expenses (credit) relating to secondary market buy-back activity	$ 0	$ 0	$ 0	$ 0

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Leases - Rental commitments (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Leases
Remainder of 2019	$ 452
2020	982
2021	941
2022	864
2023	840
Thereafter	11,379
Total	$ 15,458

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Leases - Future Minimum Commitments (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Leases
2019	$ 967
2020	884
2021	843
2022	768
2023	739
Thereafter	8,078
Total	$ 12,279

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Leases - Reconciliation of the Undiscounted Cash Flows (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Leases
Undiscounted cash flows	$ 15,458
Undiscounted cash flows associated with new lease effective 1/1/2020	(2,496)
Discount effect of cash flows	(3,920)
Total	$ 9,042

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Leases - Additional Information (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) lease	Jun. 30, 2018 USD ($)	Feb. 28, 2019 USD ($)
Operating Lease, Weighted Average Remaining Lease Term	17 years 9 months 18 days		17 years 9 months 18 days
Operating Lease, Weighted Average Discount Rate, Percent	3.49%		3.49%
Operating Lease, Cost | $	$ 233,000	$ 244,000	$ 475,000	$ 493,000
Short-term Lease, Cost | $	0
Operating Lease, Payments | $	225,000
Lessee Operating lease Not Yet Commenced Operating Lease Right Of Use Asset | $					$ 2,000,000
Number of first insurance offices leases | lease			7
Number of banking center locations leases | lease			5
Number of loan production office leases | lease			1
Number of land leases | lease			2
Number of land leases used for parking | lease			1
Number of land leases for future branch development and stand-alone automated teller machine sites | lease			1
Option extensions			true
Other Assets [Member]
Operating Lease, Right-of-Use Asset | $	8,500,000		$ 8,500,000
Other Liabilities [Member]
Operating Lease, Right-of-Use Asset | $	$ 9,000,000		$ 9,000,000
Minimum [Member]
Lessee, Operating Lease, Renewal Term	5 years		5 years
Maximum [Member]
Lessee, Operating Lease, Renewal Term	10 years		10 years

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Deposits (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Deposits
Non-interest-bearing checking accounts	$ 584,735	$ 607,198
Interest-bearing checking and money market accounts	1,088,694	1,040,471
Savings deposits	304,051	292,829
Retail certificates of deposit less than $250,000	610,345	591,822
Retail certificates of deposit greater than $250,000	92,812	88,562
Total	$ 2,680,637	$ 2,620,882

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Borrowings - Federal Home Loan Bank Advances Disclosure (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
FHLB Advances:
Single maturity fixed rate advances	$ 84,000	$ 59,000
Amortizable mortgage advances	1,149	1,213
Overnight advances	20,051	25,000
Fair value adjustment on acquired balances	(22)	(24)
Total	105,178	85,189
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$ 36,083	$ 36,083

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Borrowings - Contractual maturity of the securities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$ 3,064	$ 5,741
Gross amount of recognized liabilities for repurchase agreements	3,064	5,741
Mortgage Backed Securities, Other [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	3,064	4,199
Collateralized mortgage obligations [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end		1,542
Maturity Overnight [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	3,064	5,741
Maturity Overnight [Member] | Mortgage Backed Securities, Other [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	3,064	4,199
Maturity Overnight [Member] | Collateralized mortgage obligations [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end		1,542
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] | Mortgage Backed Securities, Other [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity Less than 30 Days [Member] | Collateralized mortgage obligations [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end		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] | Mortgage Backed Securities, Other [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	0	0
Maturity 30 to 90 Days [Member] | Collateralized mortgage obligations [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end		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] | Mortgage Backed Securities, Other [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end	$ 0	0
Maturity Greater than 90 Days [Member] | Collateralized mortgage obligations [Member]
Securities sold under agreement to repurchase
Amounts outstanding at year-end		$ 0

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Borrowings - Additional Information (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Period for interest deferral on trust preferred securities	5 years
Trust Affiliate I [Member]
Issuance Of Trust Preferred Securities	$ 20.0
Issuance Of Subordinated Debentures	$ 20.6
Coupon Rate On Preferred Securities, Period End	3.79%	4.17%
Preferred Securities Variable Interest Rate	LIBOR rate plus 1.38%.
Trust Affiliate II [Member]
Issuance Of Trust Preferred Securities	$ 15.0
Issuance Of Subordinated Debentures	$ 15.5
Coupon Rate On Preferred Securities, Period End	3.91%	4.29%
Preferred Securities Variable Interest Rate	LIBOR rate plus 1.5%.

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Commitments, Guarantees and Contingent Liabilities - Maximum obligation to extend credit (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Commitments, Guarantees and Contingent Liabilities
Fixed Rate, Commitments to make loans	$ 88,737	$ 44,352
Fixed Rate, Unused lines of credit	7,804	7,523
Fixed Rate, Standby letters of credit	0	0
Fixed Rate, Total	96,541	51,875
Variable Rate, Commitments to make loans	144,249	114,308
Variable Rate, Unused lines of credit	397,825	382,189
Variable Rate, Standby letters of credit	9,206	7,239
Variable Rate, Total	$ 551,280	$ 503,736

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Commitments, Guarantees and Contingent Liabilities - Additional Information (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Commitments, Guarantees and Contingent Liabilities
Commitments and Loans, Available to Sell	$ 37.1	$ 8.6

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Derivative Financial Instruments - Carrying values (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives Assets, Carrying Value	$ 1,392	$ 367
Mortgage Banking Derivatives Liabilities, Carrying Value	205	73
Mortgage Banking Derivatives, Derivatives Net Carrying Value	$ 1,187	$ 294

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Derivative Financial Instruments - Amount of gains and losses recognized (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives - Gain (Loss)	$ 455	$ 136	$ 893	$ 178

XML

Derivative Financial Instruments - Additional Information (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Derivative Financial Instruments
Interest Rate Derivative Instruments Not Designated as Hedging Instruments at Fair Value, Net	$ 37.1	$ 8.6
Notional Amount of Interest Rate Derivative Instruments Not Designated as Hedging Instruments	$ 37.1	$ 11.5

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Other Comprehensive Income - Reclassification adjustments (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Securities available for sale and transferred securities: Before Tax Amount
Change in net unrealized gain/loss during the period	$ 3,289		$ (872)		$ 7,892	$ (4,429)
Reclassification adjustment for net gains included in net income	0		0		0	0
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan	0				0
Total other comprehensive income (loss)	3,289		(872)		7,892	(4,429)
Securities available for sale and transferred securities: Tax (Expense) Benefit
Change in net unrealized gain/loss during the period	(691)		183		(1,659)	930
Reclassification adjustment for net gains included in net income	0		0		0	0
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan	0				82
Total other comprehensive income (loss)	(691)		183		(1,577)	930
Securities available for sale and transferred securities: Net of Tax Amount
Change in net unrealized gain/loss during the period	2,598		(689)		6,233	(3,499)
Reclassification adjustment for net gains included in net income	0		0		0	0
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan	0				82
Total other comprehensive income (loss)	$ 2,598	$ 3,717	$ (689)	$ (2,810)	$ 6,315	$ (3,499)

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Other Comprehensive Income - Activity in AOCI, net of tax (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Other Comprehensive Income
Securities Available For Sale, Beginning balance	$ (2,057)	$ 601
Securities Available For Sale, Other comprehensive income before reclassifications	6,233	(3,499)
Securities Available For Sale, Amounts reclassified from accumulated other comprehensive loss	0
Securities Available For Sale, Net other comprehensive income during period	6,233	(3,499)
Securities Available For Sale, Reclassification adjustment upon adoption of ASU 2018-02		129
Securities Available For Sale, Ending balance	4,176	(2,769)
Post-retirement Benefit, Beginning balance	(91)	(384)
Post-retirement Benefit, Other comprehensive income before reclassifications	0	0
Post-retirement Benefit, Amounts reclassified from accumulated other comprehensive income	82
Post-retirement Benefit, Net other comprehensive income during period	82	0
Post-retirement Benefit, Reclassification adjustment upon adoption of ASU 2018-02		(82)
Post-retirement Benefit, Ending balance	(9)	(466)
Accumulated Other Comprehensive Income (Loss), Beginning balance	(2,148)	217
Accumulated Other Comprehensive Income (Loss), Other comprehensive income before reclassifications	6,233	(3,499)
Accumulated Other Comprehensive Income (Loss), Amounts reclassified from accumulated other comprehensive income	82
Accumulated Other Comprehensive Income (Loss), Net other comprehensive income during period	6,315	(3,499)
Accumulated Other Comprehensive Income (Loss), Reclassification adjustment upon adoption of ASU 2018-02		47
Accumulated Other Comprehensive Income (Loss), Ending balance	$ 4,167	$ (3,235)

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Affordable Housing Projects Tax Credit Partnership - Expected payments for unfunded affordable housing commitments (Details) - Unfunded Commitments [Member] $ in Thousands	Jun. 30, 2019 USD ($)
Schedule of Equity Method Investments [Line Items]
2019	$ 1,806
2020	2,402
2021	2,318
2022	525
2023	409
Thereafter	1,334
Total Unfunded Commitments	$ 8,794

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Affordable Housing Projects Tax Credit Partnership - Tax credits and other tax benefits (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Proportional Amortization Method
Tax credits and other tax benefits recognized	$ 328	$ 254	$ 655	$ 508
Amortization expense in federal income taxes	$ 284	$ 234	$ 569	$ 469

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Affordable Housing Projects Tax Credit Partnership - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Investments in Affordable Housing Projects [Abstract]
Impairment losses of LIHTC investments	$ 0	$ 0	$ 0	$ 0
Other Assets [Member]
Investments in Affordable Housing Projects [Abstract]
Amortization Method Qualified Affordable Housing Project Investments	13,700		13,700		$ 11,300
Other Liabilities [Member]
Investments in Affordable Housing Projects [Abstract]
Qualified Affordable Housing Project Investments, Commitment	$ 8,800		$ 8,800		$ 6,900