10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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 incorporation or organization)	(I.R.S. Employer Identification No.)
601 Clinton Street Defiance, OH	43512
(Address of principal executive offices)	(Zip Code)

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

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

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

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  ☒    No  ☐

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

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

Large accelerated filer	☐	Accelerated filer	☒
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  ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  ☐

As of June 5, 2020, the registrant had 37,285,731 shares of common stock, $.01 par value per share, outstanding.

Explanatory Note

In accordance with the Securities and Exchange Commission Order Under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies, SEC Release No. 34-88465, dated March 25, 2020 (the “Order”), First Defiance relied on the relief provided by the Order to delay the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “First Quarter Form 10-Q”) by up to 45 days. We experienced significant disruptions to our business and operations as a result of the COVID-19 pandemic. In particular, we have a majority of our employees working remotely, including most of our finance staff. In addition, we rely on several third parties to perform analyses related to the preparation of our financial statements, and those third parties have also experienced disruptions to their operations due to COVID-19. Accordingly, we relied on the Order to postpone the filing of our First Quarter Form 10-Q to provide us with additional time to develop and process our financial information as well as prepare additional required disclosures related to COVID -19.  

Pursuant to the requirements of the Order, we filed a Form 8-K with the Commission on April 29, 2020, indicating our intention to rely upon the Order with respect to the filing of this Form 10-Q. This Form 10-Q is being filed within the 45-day extension period provided by the Order.

2

FIRST DEFIANCE FINANCIAL CORP.

INDEX

		Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Condensed Financial Statements (Unaudited):	2
	Consolidated Condensed Statements of Financial Condition – March 31, 2020 and December 31, 2019	2
	Consolidated Condensed Statements of Income Three months ended March 31, 2020 and 2019	4
	Consolidated Condensed Statements of Comprehensive Income – Three months ended March 31, 2020 and 2019	5
	Consolidated Condensed Statements of Changes in Stockholders’ Equity – Three months ended March 31, 2020 and 2019	6
	Consolidated Condensed Statements of Cash Flows - Three months ended March 31, 2020 and 2019	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3	Quantitative and Qualitative Disclosures about Market Risk	65
Item 4	Controls and Procedures	67
PART II - OTHER INFORMATION:
Item 1	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3	Defaults upon Senior Securities	73
Item 4	Mine Safety Disclosures	73
Item 5	Other Information	73
Item 6	Exhibits	73
	Signatures	75

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)

	March 31, 2020		December 31, 2019
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	79,000	$	46,254
Interest-bearing deposits		66,217		85,000
		145,217		131,254
Securities available-for-sale, carried at fair value		534,206		283,448
Loans held for sale, carried at fair value		58,222		—
Loans held for sale, at lower of cost or market		27,372		18,008
Loans receivable, net of allowance for credit losses of $85,859 at March 31, 2020 and $31,243 at December 31, 2019, respectively		5,028,058		2,746,321
Mortgage servicing rights		15,742		10,267
Accrued interest receivable		19,048		10,244
Federal Home Loan Bank stock		89,252		11,915
Bank owned life insurance		142,259		75,544
Premises and equipment		59,870		39,563
Real estate and other assets held for sale		548		100
Goodwill		317,520		100,069
Core deposit and other intangibles		35,540		3,772
Other assets		66,088		38,487
Total assets	$	6,538,942	$	3,468,992

(continued)

2

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

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

	March 31, 2020			December 31, 2019
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	4,994,148		$	2,870,325
Advances from the Federal Home Loan Bank		486,000			85,063
Subordinated debentures		36,083			36,083
Securities sold under repurchase agreements		1,961			2,999
Advance payments by borrowers		23,962			5,491
Deferred taxes		3,642			905
Other liabilities		76,303			41,959
Total liabilities		5,622,099			3,042,825
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;    43,297,259 and 25,371,086  shares issued and 37,286,574 and 19,729,886    shares outstanding at March 31, 2020 and December 31, 2019, respectively		306			127
Additional paid-in capital		687,996			161,955
Accumulated other comprehensive income (loss), net of tax of $3,208 and $1,221,    respectively		12,068			4,595
Retained earnings		295,467			329,175
Treasury stock, at cost, 6,011,529 shares at March 31, 2020 and 5,641,200 shares    at December 31, 2019		(78,994	)		(69,685	)
Total stockholders’ equity		916,843			426,167
Total liabilities and stockholders’ equity	$	6,538,942		$	3,468,992

See accompanying notes.

3

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of (Loss) Income

(UNAUDITED)

(Amounts in Thousands, except per share data)

	Three Months Ended March 31,
	2020			2019
Interest Income
Loans	$	51,460		$	31,214
Investment securities:
Taxable		1,834			1,365
Non-taxable		883			840
Interest-bearing deposits		230			285
FHLB stock dividends		115			215
Total interest income		54,522			33,919
Interest Expense
Deposits		7,771			5,005
FHLB advances and other		1,006			276
Subordinated debentures		273			364
Notes payable		9			4
Total interest expense		9,059			5,649
Net interest income		45,463			28,270
Credit loss expense		43,786			212
Net interest income after credit loss expense		1,677			28,058
Non-interest Income
Service fees and other charges		5,183			3,007
Insurance commissions		5,155			4,115
Mortgage banking income		848			1,841
Gain on sale of non-mortgage loans		234			89
Trust income		838			523
Income from Bank Owned Life Insurance		781			392
Other non-interest income		960			846
Total non-interest income		13,999			10,813
Non-interest Expense
Compensation and benefits		17,585			14,085
Occupancy		3,731			2,241
FDIC insurance premium		492			273
Financial institutions tax		834			556
Data processing		3,040			2,297
Acquisition related charges		11,486			—
Amortization of intangibles		1,245			299
Other non-interest expense		5,355			5,115
Total non-interest expense		43,768			24,866
Income before income taxes		(28,092	)		14,005
Federal income taxes		(5,610	)		2,523
Net (loss) income	$	(22,482	)	$	11,482
(Loss) earnings per common share
Basic	$	(0.71	)	$	0.57
Diluted	$	(0.71	)	$	0.57

See accompanying notes.

4

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income

(UNAUDITED)

(Amounts in Thousands)

	Three Months Ended March 31,
	2020			2019
Net (loss) income	$	(22,482	)	$	11,482
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale		9,458			4,603
Reclassification adjustment for securities gains included in net income		—			—
Income tax expense (benefit)		(1,985	)		(968	)
Net of tax amount		7,473			3,635
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)		7,473			3,717
Comprehensive (loss) income	$	(15,009	)	$	15,199

See accompanying notes.

5

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Statement of Changes in Stockholders’ Equity

(UNAUDITED)

(Amounts in Thousands, except share data)

	Preferred Stock		Common Stock Shares			Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings			Treasury Stock			Total Stockholders Equity
Balance at January 1, 2020	$	—		19,729,886		$	127	$	161,955		$	4,595	$	329,175		$	(69,685	)	$	426,167
Net (loss)														(22,482	)					(22,482	)
Other comprehensive income												7,473								7,473
Adoption of ASC 326														(2,566	)					(2,566	)
Deferred compensation plan				7,524					(94	)							94			—
Stock based compensation expenses									1,230								6			1,236
Capital stock issuance				17,927,017			179		526,696											526,875
Vesting of incentive plans				39,548					(1,989	)							493			(1,496	)
Restricted share issuance				13,349					198					(374	)		176			—
Restricted share forfeitures				(750	)															—
Shares issued from direct stock sales																				—
Shares repurchased				(430,000	)												(10,078	)		(10,078	)
Common stock dividends declared ($0.22 per share)														(8,286	)					(8,286	)
Balance at March 31, 2020	$	—		37,286,574		$	306	$	687,996		$	12,068	$	295,467		$	(78,994	)	$	916,843

	Preferred Stock		Common Stock Shares			Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total Stockholders Equity
Balance at January 1, 2019	$	—		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 ($0.19 per share)															(3,788	)					(3,788	)
Balance at March 31, 2019	$	—	$	19,713,192		$	127	$	160,828		$	1,569		$	303,277		$	(70,012	)	$	395,789

See accompanying notes.

6

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)

	Three Months Ended March 31,
	2020			2019
Operating Activities
Net (loss) income	$	(22,482	)	$	11,482
Items not requiring (providing) cash:
Provision for credit losses		43,786			212
Depreciation		1,631			1,031
Amortization of mortgage servicing rights, net of impairment charges/recoveries		5,648			399
Amortization of core deposit and other intangible assets		1,245			299
Net accretion of premiums and discounts on loans and deposits		(1,745	)		(155	)
Amortization of premiums and discounts on securities		633			285
Change in deferred taxes		77			155
Proceeds from the sale of loans held for sale		101,090			38,910
Originations of loans held for sale		(110,026	)		(37,513	)
Gain from sale of loans		(5,136	)		(1,390	)
Loss on sale or write down of property plant and equipment		0			10
Gain/loss on sale / write-down of real estate and other assets held for sale		10			249
Stock option expense		1,236			11
Restricted stock vesting		(1,496	)		(311	)
Income from bank owned life insurance		(781	)		(392	)
Excess tax benefit on stock compensation plans		—			(105	)
Changes in:
Accrued interest receivable		(438	)		(1,539	)
Other assets		(2,416	)		(3,609	)
Other liabilities		2,525			1,662
Net cash provided by operating activities		13,361			9,691
Investing Activities
Proceeds from maturities, calls and pay-downs of available-for-sale securities		19,389			6,673
Proceeds from sale of premises and equipment, real estate and other assets held for sale		481			161
Proceeds from sale of non-mortgage loans		3,241			1,749
Purchases of available-for-sale securities		—			(8,172	)
Purchases of Federal Home Loan stock		(64,584	)		—
Proceeds from Federal Home Loan stock redemption		—			1,982
Net cash from acquisition (Reference Footnote 18 Business Combinations)		52,448			—
Purchases of premises and equipment, net		(722	)		(793	)
Net increase in loans receivable		(44,623	)		(10,959	)
Net cash used by  investing activities		(34,370	)		(9,359	)
Financing Activities
Net increase in deposits and advance payments by borrowers		34,437			64,201
Net Proceeds from (repayment of) Federal Home Loan Bank advances		19,937			(30,031	)
Decrease in securities sold under repurchase agreements		(1,038	)		(2,228	)
Net cash paid for repurchase of common stock		(10,078	)		(15,147	)
Proceeds from exercise of stock options		—			185
Proceeds from direct stock sales		—			31
Cash dividends paid on common stock		(8,286	)		(3,788	)
Net cash provided by financing activities		34,972			13,223
Increase in cash and cash equivalents		13,963			13,555
Cash and cash equivalents at beginning of period		131,254			98,962
Cash and cash equivalents at end of period	$	145,217		$	112,517
Supplemental cash flow information:
Interest paid	$	9,028		$	5,593
Income taxes paid	$	—		$	—
Initial recognition of right-of-use asset	$	8,994		$	8,808
Initial recognition of lease liability	$	9,143		$	9,339
Initial recognition of ASC 326	$	2,566		$	—
Transfers from loans to real estate and other assets held for sale	$	37		$	146

See accompanying notes.

Refer to Note 18 – Business Combinations for non-cash activity.

7

FIRST DEFIANCE FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements (UNAUDITED)

March 31, 2020 and 2019

1. Basis of Presentation

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

On January 31, 2020, First Defiance completed its previously announced acquisition of United Community Financial Corp., an Ohio corporation (“UCFC”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 9, 2019, by and between First Defiance and UCFC. At the effective time of the merger (the “Merger”), UCFC merged with and into First Defiance, with First Defiance surviving the Merger.  Simultaneously with the completion of the Merger, First Defiance converted from a unitary thrift holding company to a bank holding company, making an election to be a financial holding company.

Immediately following the Merger, First Federal, acquired UCFC’s wholly owned bank subsidiary, Home Savings Bank (“Home Savings”).  Immediately prior to the merger of the banks, First Federal converted from a federal thrift into an Ohio state-chartered bank. In addition, immediately following the merger of the banks, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged into First Insurance, with First Insurance surviving the mergers. First Defiance acquired two additional subsidiaries in the Merger, HSB Capital, LLC and HSB Insurance, Inc.

The Bank 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, the Bank invests in U.S. Treasury and federal government agency obligations, obligations of states and political subdivisions, mortgage-backed securities that are issued by federal agencies, collateralized mortgage obligations (“CMOs”), and corporate bonds. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) System.

HSB Capital was formed as an Ohio limited liability company by UCFC during 2016 for the purpose of providing mezzanine funding for customers of Home Savings. Mezzanine loans are offered by HSB Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.  

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.  

8

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.

HSB Insurance, Inc. was formed on June 1, 2017 as a Delaware-based captive insurance company that insures against certain risks that are unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible; by pooling resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.  HSB Insurance, Inc. is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.

The consolidated condensed statement of financial condition at December 31, 2019, 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, 2019 (the “2019 Form 10-K”).

The accompanying consolidated condensed financial statements as of March 31, 2020, and for the three month periods ended March 31, 2020 and 2019 have been prepared by the Company 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 2019 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 month period ended March 31, 2020, are not necessarily indicative of the results that may be expected for the entire year.

2. Significant Accounting Policies

Accounting Standards Adopted in 2020

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment:  Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill

9

impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 became effective for the Company on January 1, 2020, and the amendments of this ASU will be applicable to the goodwill impairment testing for 2020.

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments:Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. The amendments of ASU 2016-13, and all subsequent ASUs issued by FASB to provide additional guidance and clarification related to this Topic, became effective for the Company on January 1, 2020.

As a result of adopting the amendments of ASU 2016-13, the Company recorded an increase to its allowance for credit losses of $2.4 million and an increase to its allowance for credit losses on off-balance sheet credit exposures of $0.9 million resulting in a one-time cumulative effect adjustment through retained earnings of $2.6 million net of $.7 million tax at the date of adoption. Future changes in the allowance for credit losses on off-balance sheet credit exposures will be recorded in other liabilities.  This adjustment included a qualitative adjustment to the allowance for credit losses related to loans and an allowance on off-balance sheet credit exposures. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

Accounting Standards not yet adopted:

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848): This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company anticipates being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact to the consolidated financial statements.

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

10

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.

Loans held for sale, carried at fair value – The Company elected the fair value option for all conventional residential one-to four-family loans held for sale and all permanent construction loans held for sale that were acquired from UCFC in the merger.  In addition, the Company has elected the fair value option for all loans held for sale originated after January 31, 2020.

The fair value of conventional loans held for sale is determined using the current 15 day forward contract price for either 15 or year conventional mortgages and the 60 day forward contract price for either 15

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or 30 year Federal Housing Authority mortgages (Level 2).  The fair value of permanent construction loans held for sale is determined using the current 60 day forward contract price for 15 or 30 years conventional mortgages which is then adjusted for unobservable market data such as estimated fall out rates and estimated time from origination to completion of construction (Level 3).

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).    

Purchased and written certificate of deposit option – The Company acquired purchased and written certificate of deposit options in its merger with UCFC.  These written and purchased options are mirror

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derivative instruments which are carried at fair value on the statement of financial condition.  The Company uses an independent third party that performs a market valuation analysis for purchased and written certificate of deposit options.  (Level 2)

Interest rate swaps – The Company periodically enters into interest rate swap agreements with its commercial customers who desire a fixed rate loan term that is longer than the Company is willing to extend.  The Company then enters into a reciprocal swap agreement with a third party that offsets the interest rate risk from the interest rate swap extended to the customer.  The interest rate swaps are derivative instruments which are carried at fair value on the statement of financial condition.  The Company uses an independent third party that performs a market valuation analysis for both swap positions. (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

March 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total FairValue
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and         agencies	$	—	$	30,282	$	—	$	30,282
Mortgage-backed securities		—		201,026		—		201,026
Collateralized mortgage obligations		—		137,608		—		137,608
Corporate bonds		—		22,067		—		22,067
Obligations of state and political subdivisions		—		137,393		5,830		143,223
Loans held for sale, at fair value		—		13,802		44,420		58,222
Purchased certificate of deposit option		—		86		—		86
Interest rate swaps		—		1,868		—		1,868
Mortgage banking derivative		—		4,073		—		4,073
Liabilities:		—						—
Written certificate of deposit option		—		86		—		86
Interest rate swaps		—		2,119		—		2,119
Mortgage banking derivative		—		586		—		586

December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total FairValue
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and   agencies	$	—	$	2,524	$	—	$	2,524
Mortgage-backed securities		—		89,647		—		89,647
REMICs		—		1,636		—		1,636
Collateralized mortgage obligations		—		82,101		—		82,101
Corporate bonds		—		12,101		—		12,101
Obligations of state and political subdivisions		—		92,028		3,411		95,439
Mortgage banking derivative - asset		—		892		—		892

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

March 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate		—		—		206		206
Commercial		—		—		228		228
Total impaired loans		—		—		434		434
Mortgage servicing rights		—		12,781		—		12,781

December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate	$	—	$	—	$	68	$	68
Commercial		—		—		38		38
Total impaired loans		—		—		106		106
Mortgage servicing rights		—		273		—		273

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2020, 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	$	434	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-20%		10.86	%

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 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	$	80	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-13%		10.86	%

The Company has elected the fair value option for new applications taken post January 31, 2020, and subsequently originated for residential mortgage and permanent construction loans held for sale.  These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans.  Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policies.  None of these loans are 90 or more days past due nor on nonaccrual status as of March 31, 2020.  There were no loans at December 31, 2019, where the fair value option had been elected.  

The aggregate fair value of these loans at March 31, 2020 was $58.2 million and they had a contractual balance of $52.6 million for this same period.  The $5.6 million difference between these two figures was recorded in gains and losses on the sale of loans held for sale during the quarter ended March 31, 2020.

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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 March 31, 2020, and December 31, 2019. 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’s 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 1 classification. The carrying value of subordinated debentures was considered to be the carrying value as the debt is floating rate and can be prepaid at any time without penalty.  

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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 March 31, 2020.

			Fair Value Measurements at March 31, 2020
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	145,217	$	145,217	$	145,217	$	—	$	—
Investment securities		534,206		534,206		—		528,376		5,830
Federal Home Loan Bank Stock		89,252	N/A		N/A		N/A		N/A
Loans receivable, net		5,028,058		5,141,454		—		—		5,141,454
Loans held for sale, carried at fair value		58,222		58,222		—		13,802		44,420
Loans held for sale, carried at lower of cost or market		27,372		28,383		—		28,383		—
Financial Liabilities:
Deposits	$	4,994,148	$	5,003,154	$	3,717,546	$	1,285,608	$	—
Advances from Federal Home Loan Bank		486,000		487,027		—		487,027		—
Securities sold under repurchase agreements		1,961		1,961		—		1,961		—
Subordinated debentures		36,083		36,083		—		36,083		—

			Fair Value Measurements at December 31, 2019
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	131,254	$	131,254	$	131,254	$	—	$	—
Investment securities		283,448		283,448		—		280,037		3,411
FHLB Stock		11,915	N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		2,764,329		2,756,092		—		18,456		2,737,636
Financial Liabilities:
Deposits	$	2,870,325	$	2,871,166	$	2,131,537	$	739,629	$	—
Advances from FHLB		85,063		85,003		—		85,003		—
Securities sold under repurchase agreements		2,999		2,999		2,999		—		—
Subordinated debentures		36,083		36,083		—		36,083		—

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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. In addition, as a result of the Merger, First Defiance assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan and UCFC’s 2015 Long Term Incentive Plan (the “UCFC 2015 Plan”).  First Defiance also assumed the UCFC 2015 Plan with respect to the available shares under the UCFC 2015 Plan as of the effective date of the Merger, with appropriate adjustments to the number of shares available to reflect the Merger. The stock options assumed from UCFC in the Merger will become exercisable solely to purchase shares of First Defiance, with appropriate adjustments to the number of shares subject to the assumed stock options and the exercise price of such stock options. 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 March 31, 2020, 57,683 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. Of this figure, 39,983 are associated with the conversion of all of the outstanding stock options on the books of UCFC into stock options of First Defiance at the same conversion price and ratio applied to UCFC common shares at January 31, 2020. Options granted in prior years 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 2019 and 2020 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 plans to grant these RSU’s to participants in the second quarter of 2020. 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.  

In the three months ended March 31, 2020, the Company also granted 13,349 shares of restricted stock to directors.  These shares have a one-year vesting period.

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Following is stock option activity under the plans during the three months ended March 31, 2020:

	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2020		17,700	$	17.60
Forfeited or cancelled		—		—
Exercised		—		—
Exchanged		39,983		16.00
Granted		—		—
Options outstanding, March 31, 2020		57,683	$	16.49		5.06	$	152
Vested or expected to vest at March 31, 2020		57,683	$	16.49		5.06	$	152
Exercisable at March 31, 2020		55,783	$	16.41		5.04	$	152

All of the 39,983 options exchanged are associated with the conversion of all of the outstanding stock options on the books of UCFC into stock options of First Defiance.

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

	Three Months Ended March 31,
	2020		2019
Proceeds of options exercised	$	—	$	185
Related tax benefit recognized		—		4
Intrinsic value of options exercised		—		360

As of March 31, 2020, there was $10,000 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 0.76 years.

At March 31, 2020, 46,129 RSUs and 60,650 restricted stock grants were unvested. Compensation expense related to RSUs and STIP is recognized over the performance period based on the achievements of targets as established under the plan documents. Total expense of $1.0 million was recorded during the three months ended March 31, 2020, compared to expense of $523,000 for the three months ended March 31, 2019.  There was approximately $858,000 and $1.2 million included within other liabilities at March 31, 2020 and December 31, 2019, respectively, related to the STIP.

	Restricted Stock Units					Stock Grants
Unvested Shares	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1, 2020		158,470		$	25.72		48,545		$	27.49
Granted		—			—		13,349			25.75
Vested		(86,050	)		25.48		(1,244	)		28.60
Forfeited		(26,291	)		25.58		—			—
Unvested at March 31, 2020		46,129		$	26.24		60,650		$	27.09

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The maximum amount of compensation expense that may be recorded for the active LTIPs at March 31, 2020, is approximately $2.7million.  However, the estimated expense expected to be recorded as of March 31, 2020, based on the performance measures in the plans, is $2.7 million, of which $2.5million is unrecognized at March 31, 2020, and will be recognized over the remaining performance periods.

5. Dividends on Common Stock

First Defiance declared and paid a $0.22 per common stock dividend in the first quarter of 2020 and declared and paid a $0.19 per common stock dividend in the first quarter of 2019.  

6. (Loss) Earnings Per Common Share

Basic (loss) earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which (loss) 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 (losses) 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 (loss) earnings per common share:

	Three Months Ended March 31,
	2020			2019
	(In Thousands, except per share data)
Basic (Loss) Earnings Per Share:
Net (loss) income available to common shareholders	$	(22,482	)	$	11,482
Less: (loss) income allocated to participating securities		(39	)		9
Net (loss) income allocated to common shareholders		(22,443	)		11,473
Weighted average common shares outstanding including    participating securities		31,721			20,030
Less: Participating securities		55			16
Average common shares		31,666			20,014
Basic (loss) earnings per common share	$	(0.71	)	$	0.57
Diluted (Loss) Earnings Per Share:
Net (loss) income allocated to common shareholders	$	(22,443	)	$	11,473
Weighted average common shares outstanding for basic (loss) earnings    per common share		31,666			20,014
Add: Dilutive effects of stock options		—			81
Average shares and dilutive potential common shares		31,666			20,095
Diluted (loss) earnings per common share	$	(0.71	)	$	0.57

Since net income allocated to common shareholders was negative for the quarter ended March 31, 2020, there is no dilutive effect of stock options included in the diluted (loss) earnings per common share calculation.  3,376 shares subject to issue upon exercise of options of in 2019 were excluded from the diluted earnings per common share calculation as they were anti-dilutive.  

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7. Investment Securities

The following is a summary of available-for-sale securities:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At March 31, 2020
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	28,871	$	1,411	$	—		$	30,282
Mortgage-backed securities		193,575		7,455		(4	)		201,026
Collateralized mortgage obligations		134,144		3,476		(12	)		137,608
Corporate bonds		22,381		74		(388	)		22,067
Obligations of state and political subdivisions		139,652		4,252		(681	)		143,223
Total Available-for-Sale	$	518,623	$	16,668	$	(1,085	)	$	534,206

As a result of the merger, securities with a fair value of $262.8 million were acquired on January 31, 2020.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At December 31, 2019
Available-for-sale
Obligations of U.S. government corporations and agencies	$	2,518	$	6	$	—		$	2,524
Mortgage-backed securities		88,380		1,380		(113	)		89,647
Collateralized mortgage obligations		83,008		814		(85	)		83,737
Corporate bonds		12,011		90		—			12,101
Obligations of state and political subdivisions		91,406		4,042		(9	)		95,439
Total Available-for-Sale	$	277,323	$	6,332	$	(207	)	$	283,448

The amortized cost and fair value of the investment securities portfolio at March 31, 2020, 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”) and collateralized mortgage obligations (“CMO”) 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.

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	Available-for-Sale
	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	4,393	$	4,391
Due after one year through five years		20,876		20,747
Due after five years through ten years		65,575		67,675
Due after ten years		100,060		102,759
MBS/CMO		327,719		338,634
	$	518,623	$	534,206

Investment securities with a carrying amount of $321.3 million at March 31, 2020, were pledged as collateral on public deposits, securities sold under repurchase agreements and the Federal Reserve discount window.

The following tables summarize First Defiance’s securities that were in an unrealized loss position at March 31, 2020, and December 31, 2019:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	(In Thousands)
At March 31, 2020
Available-for-sale securities:
Mortgage-backed securities		—		—		199		(4	)		199		(4	)
Collateralized mortgage obligations						8,793		(12	)		8,793		(12	)
Corporate bonds						16,933		(388	)		16,933		(388	)
Obligations of state and political subdivisions						38,674		(681	)		38,674		(681	)
Total temporarily impaired securities	$	—	$	—	$	64,599	$	(1,085	)	$	64,599	$	(1,085	)

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	(In Thousands)
At December 31, 2019
Available-for-sale securities:
Mortgage-backed securities-residential	$	13,830	$	(42	)	$	9,721	$	(71	)	$	23,551	$	(113	)
Collateralized mortgage obligations		7,448		(29	)		5,549		(56	)		12,997		(85	)
Obligations of state and political subdivisions		1,413		(9	)		-		-			1,413		(9	)
Total temporarily impaired securities	$	22,691	$	(80	)	$	15,270	$	(127	)	$	37,961	$	(207	)

There were no sales of securities during the three months ended March 31, 2020 or 2019.   

ASU 2016-13 makes targeted improvements to the accounting for credit losses on securities available for sale. The concept of other than-temporarily impaired has been replaced with the allowance for credit losses. Unlike securities held to maturity, securities available for sale are evaluated on an individual level and pooling of securities is not allowed.

21

Quarterly, the Company evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in orderto determine whether a decline in fair value resulted from a credit loss or other factors, the Company performs further analysis as outlinedbelow:

• Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.

• Any securities that are downgraded by a third party ratings company above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

• If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a discounted cash flow (DCF) analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value.  As of March 31, 2020, management had determined that no credit loss exists.  Accrued interest on AFS debt securities totaled $2.8 million at March 31, 2020 and is excluded from the ACLS.  Accrued interest on AFS debt securities is presented as a component of otherassets on the Company’s balance sheet.

8. Loans

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.  Loans receivable consist of the following:

	March 31, 2020			December 31, 2019
	(In Thousands)
Real Estate:
Residential	$	1,265,901		$	324,773
Commercial		2,200,266			1,506,026
Construction		521,442			305,305
		3,987,609			2,136,104
Other Loans:
Commercial		897,865			578,071
Home equity and improvement		301,146			122,864
Consumer finance		137,679			37,649
		1,336,690			738,584
Loans before deferred loan origination fees and costs		5,324,299			2,874,688
Deduct:
Undisbursed construction loan funds		(206,236	)		(126,108	)
Net deferred loan origination fees and costs		(4,146	)		(2,259	)
Allowance for credit losses		(85,859	)		(31,243	)
Total loans	$	5,028,058		$	2,715,078

22

The following table discloses allowance for credit loss activity for the quarters ended March 31, 2020 and 2019 by portfolio segment (In Thousands):  

Quarter Ended March 31, 2020	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,867		$	16,302		$	996		$	9,003		$	1,700		$	375		$	31,243
Impact of ASC 326 Adoption		1,765			3,682			(223	)		(2,263	)		(521	)		(86	)		2,354
Acquisition related allowance for credit loss (PCD)		1,077			4,053			—			2,272			248			48			7,698
Charge-Offs		(184	)		(16	)		—			(96	)		(30	)		(108	)		(434	)
Recoveries		101			340			—			669			42			60			1,212
Provisions(1)(2)		17,698			18,154			111			2,316			2,515			2,992			43,786
Ending Allowance	$	23,324		$	42,515		$	884		$	11,901		$	3,954		$	3,281		$	85,859

(1) Allowance/provision are not comparable to prior periods due to the adoption of CECL.

(2) Provision for the quarter ended March, 31, 2020 includes $25.9 million as a result of the Merger with UCFC in the first quarter

Quarter Ended March 31, 2019	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,881		$	15,142		$	682	$	7,281		$	2,026		$	319		$	28,331
Charge-Offs		(172	)		—			—		(187	)		(33	)		(142	)		(534	)
Recoveries		13			96			—		12			24			10			155
Provisions		89			(169	)		49		170			(89	)		162			212
Ending Allowance	$	2,811		$	15,069		$	731	$	7,276		$	1,928		$	349		$	28,164

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, 2019 (in thousands):

As of December 31, 2019	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Home Equity and Improvement		Consumer Finance		Total
Allowance for credit loss attributable to:
Individually evaluated for impairment	$	115	$	85	$	—	$	174	$	48	$	—	$	422
Collectively evaluated for impairment		2,752		16,217		996		8,829		1,652		375		30,821
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total Allowance	$	2,867	$	16,302	$	996	$	9,003	$	1,700	$	375	$	31,243
Loans:
Individually evaluated for impairment	$	7,049	$	21,132	$	—	$	6,655	$	759	$	28	$	35,623
Collectively evaluated for impairment		318,106		1,490,306		206,721		573,244		122,963		37,808		2,749,148
Acquired with deteriorated credit quality		989		921		—		12		—		—		1,922
Total loans	$	326,144	$	1,512,359	$	206,721	$	579,911	$	123,722	$	37,836	$	2,786,693

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the three months ended March 31, 2019 (in thousands):

23

	Three Months Ended March 31, 2019
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,552	$	64	$	60
Residential Non Owner Occupied		2,080		30		32
Total Residential Real Estate		6,632		94		92
CRE Owner Occupied		7,365		166		132
CRE Non Owner Occupied		1,989		33		26
Multi-Family Real Estate		1,332		20		20
Agriculture Land		12,903		206		197
Other CRE		1,154		34		33
Total Commercial Real Estate		24,743		459		408
Construction		—		—		—
Commercial Working Capital		8,089		143		91
Agriculture Production		—		—		—
Commercial Other		1,870		27		24
Total Commercial		9,959		170		115
Home Equity and Improvement		921		14		13
Consumer Finance		36		1		1
Total Impaired Loans	$	42,291	$	738	$	629

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of March 31, 2020 (in thousands):

	March 31, 2020
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	1,505	$	—	$	—	$	—	$	1,505
Commercial		18,688		—		—		—		18,688
Construction		—		—		—		—		—
Other Loans:
Commercial		440		4,010		1,285		332		6,067
Home equity and improvement		1		—		—		—		1
Consumer finance		—		—		—		72		72
Total	$	20,634	$	4,010	$	1,285	$	404	$	26,333

The following table presents loans individually evaluated for impairment by class of loans (in thousands):

24

	December 31, 2019
	Unpaid Principal Balance*		Recorded Investment		Allowance for Credit Loss Allocated
With no allowance recorded:
Residential Owner Occupied	$	86	$	86	$	—
Residential Non Owner Occupied		962		967		—
Total Residential Real Estate		1,048		1,053		—
CRE Owner Occupied		5,098		4,814		—
CRE Non Owner Occupied		1,815		1,006		—
Multi-Family Real Estate		128		130		—
Agriculture Land		12,734		12,792		—
Other CRE		—		—		—
Total Commercial Real Estate		19,775		18,742		—
Construction		—		—		—
Commercial Working Capital		5,417		5,435		—
Agriculture Production		—		—		—
Commercial Other		469		471		—
Total Commercial		5,886		5,906		—
Home Equity and Improvement		151		151		—
Consumer Finance		—		—		—
Total loans with no allowance recorded	$	26,860	$	25,852	$	—
With an allowance recorded:
Residential Owner Occupied	$	5,137	$	4,977	$	104
Residential Non Owner Occupied		1,014		1,019		11
Total Residential Real Estate		6,151		5,996		115
CRE Owner Occupied		2,085		1,623		60
CRE Non Owner Occupied		317		319		13
Multi-Family Real Estate		—		—		—
Agriculture Land		262		268		3
Other CRE		401		180		9
Total Commercial Real Estate		3,065		2,390		85
Construction		—		—		—
Commercial Working Capital		682		450		150
Agriculture Production		—		—		—
Commercial Other		318		299		24
Total Commercial		1,000		749		174
Home Equity and Improvement		654		608		48
Consumer Finance		28		28		—
Total loans with an allowance recorded	$	10,898	$	9,771	$	422

25

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  All loans greater than 90 days past due are placed on non-accrual status.  Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual purchase credit deteriorated (PCD) loans in its non-performing loans.  As such, the non-performing loans as of March 31, 2020 include PCD loans accounted for pursuant to ASC Topic 326 as these loans are individually evaluated.  The non-performing loans do not include PCD (formerly purchase credit impaired (PCI)) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool basis.  The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned as of the dates indicated:

	March 31, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans	$	32,593	$	13,437
Loans over 90 days past due and still accruing		99		—
Total non-performing loans		32,692		13,437
Real estate and other assets held for sale		548		100
Total non-performing assets	$	33,240	$	13,537
Troubled debt restructuring, still accruing	$	7,473	$	8,486

The following table presents the aging of the amortized cost in past due and non- accrual loans as of March 31, 2020, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential		1,242,282		2,649		1,303		—		3,952		2,985
Commercial		2,160,018		57		5		—		62		5,196
Construction		310,783		8		—		—		8		—
Other Loans:
Commercial		867,758		124		125		—		249		3,961
Home equity and improvement		292,442		2,490		218		—		2,708		—
Consumer finance		131,117		343		29		99		471		728
PCD		66,286		2,393		795		—		3,188		19,723
Total Loans	$	5,070,686	$	8,064	$	2,475	$	99	$	10,638	$	32,593

26

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2019, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non Accrual
Real Estate:
Residential		323,600		1,328		570		646		2,544		2,411
Commercial		1,509,132		339		172		2,716		3,227		7,609
Construction		206,721		—		—		—		—		—
Other Loans:
Commercial		576,988		273		206		2,444		2,923		2,961
Home equity and improvement		122,487		956		240		39		1,235		449
Consumer finance		37,622		143		64		7		214		7
Total Loans	$	2,776,550	$	3,039	$	1,252	$	5,852	$	10,143	$	13,437

Troubled Debt Restructurings

As of March 31, 2020, and December 31, 2019, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $13.8 million and $15.1 million, respectively.  The Company allocated $301,000 and $388,000 of specific reserves to those loans at March 31, 2020, and December 31, 2019, respectively, and had committed to lend additional amounts totaling up to $250,000 and $226,000 at March 31, 2020, and December 31, 2019, 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.

27

Of the loans modified in a TDR as of March 31, 2020, $6.3 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 month periods ending March 31, 2020, and March 31, 2019:

	Loans Modified as a TDR for the Three Months Ended March 31, 2020 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		2	$	378
Commercial		1		93
Construction		—		—
Other Loans:
Commercial		5		156
Home equity and improvement		1		26
Consumer finance		—		—
Total		9	$	653

The loans described above increased the allowance for credit losses (“ACL”) by $29,000 in the three month period ending March 31, 2020.     

	Loans Modified as a TDR for the Three Months Ended March 31, 2019 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	473
Commercial		—		—
Construction		—		—
Other Loans:
Commercial		1		14
Home equity and improvement		1		20
Consumer finance		1		7
Total		6	$	514

The loans described above decreased the ALLL by $6,000 in the three month period ending March 31, 2019.     

28

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 month periods ended March 31, 2020, and March 31, 2019:

	Three Months Ended March 31, 2020
	($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	268
Commercial		1		172
Construction		—		—
Other Loans:
Commercial		1		132
Home equity and improvement		1		146
Consumer finance		—		—
Total		6	$	718

The TDRs that subsequently defaulted described above had no effect on the ACL for the three month period ended March 31, 2020 and increased the ACL by $15,000 for the three month period ended March 31, 2020.

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.

	Three Months Ended March 31, 2019
	($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	76
Commercial		—		—
Construction		—		—
		—		—
Other Loans:		—		—
Commercial		3		2,544
Home equity and improvement		1		61
Consumer finance		—		—
Total		5	$	2,681

The TDRs that subsequently defaulted described above decreased the ALLL by $1,000 for the three month period ended March 31, 2019.

29

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 March 31, 2020, 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
Real Estate:
Residential		1,046,718		390		3,685		—		198,426		1,249,219
Commercial		2,108,684		28,045		27,272		—		1,275		2,165,276
Construction		290,253		—		—		—		20,538		310,791
Other Loans:
Commercial		839,917		20,477		11,574		—		—		871,968
Home equity and improvement		194,262		—		322		—		100,566		295,150
Consumer finance		100,059		—		31		13		32,213		132,316
PCD		27,851		21,151		40,195		—		—		89,197
Total Loans	$	4,607,744	$	70,063	$	83,079	$	13	$	353,018	$	5,113,917

30

As of December 31, 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
Real Estate:
Residential		159,539		415		3,479		—		162,711		326,144
Commercial		1,460,989		27,197		23,097		—		1,076		1,512,359
Construction		182,858		1,645		—		—		22,218		206,721
Other Loans:
Commercial		548,012		24,162		7,737		—		—		579,911
Home equity and improvement		—		—		315		—		123,407		123,722
Consumer finance		—		—		20		—		37,816		37,836
Total Loans	$	2,351,398	$	53,419	$	34,648	$	—	$	347,228	$	2,786,693

The table below presents the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed ($ in thousands):

31

	Term of loans by origination
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of March 31, 2020
Real Estate
Residential:
Risk Rating
Pass	$	58,175	$	162,634	$	206,799	$	190,256	$	186,702	$	437,887	$	2,691	$	1,245,144
Special Mention		—		97		58		—		123		98		14		390
Substandard		—		—		236		63		219		3,167		—		3,685
Doubtful		—		—		—		—		—		—		—		—
Total	$	58,175	$	162,731	$	207,093	$	190,319	$	187,044	$	441,152	$	2,705	$	1,249,219
Commercial:
Risk Rating
Pass	$	105,546	$	450,533	$	370,078	$	391,162	$	243,768	$	530,218	$	18,654	$	2,109,959
Special Mention		—		1,664		999		3,096		2,628		18,935		723		28,045
Substandard		—		291		1,607		2,497		1,340		18,839		2,698		27,272
Doubtful		—		—		—		—		—		—		—		—
Total	$	105,546	$	452,488	$	372,684	$	396,755	$	247,736	$	567,992	$	22,075	$	2,165,276
Construction:
Risk Rating
Pass	$	4,502	$	148,694	$	94,356	$	49,665	$	13,137	$	437	$	-	$	310,791
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	4,502	$	148,694	$	94,356	$	49,665	$	13,137	$	437	$	-	$	310,791
Other Loans
Commercial:
Risk Rating
Pass	$	55,857	$	191,337	$	108,146	$	61,628	$	34,192	$	43,359	$	345,398	$	839,917
Special Mention		25		881		129		2,970		60		592		15,820		20,477
Substandard		22		136		228		231		340		273		10,344		11,574
Doubtful		—		—		—		—		—		—		—		—
Total	$	55,904	$	192,354	$	108,503	$	64,829	$	34,592	$	44,224	$	371,562	$	871,968
Home equity and Improvement:
Risk Rating
Pass	$	2,741	$	10,976	$	5,857	$	9,960	$	9,489	$	36,520	$	219,285	$	294,828
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		80		242		322
Doubtful		—		—		—		—		—		—		—		—
Total	$	2,741	$	10,976	$	5,857	$	9,960	$	9,489	$	36,600	$	219,527	$	295,150
Consumer Finance:
Risk Rating
Pass	$	11,543	$	52,569	$	30,898	$	17,149	$	8,692	$	4,922	$	6,499	$	132,272
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		31		—		—		—		31
Doubtful		—		—		6		—		7		—		—		13

32

Total	$	11,543	$	52,569	$	30,904	$	17,180	$	8,699	$	4,922	$	6,499	$	132,316
PCD:
Risk Rating
Pass	$	-	$	292	$	546	$	1,015	$	783	$	16,847	$	8,368	$	27,851
Special Mention		—		24		2,783		9,697		1,496		4,441		2,710		21,151
Substandard		—		102		110		17,378		1,776		11,970		8,859		40,195
Doubtful		—		—		—		—		—		—		—		—
Total	$	-	$	418	$	3,439	$	28,090	$	4,055	$	33,258	$	19,937	$	89,197

Allowance for Credit Losses (ACL)

The Company has adopted ASU 2016-13 (Topic 326 – Credit Losses) to calculate the ACL which requires a projection of credit loss over the contract lifetime of the credit adjusted for prepayment tendencies. This valuation account is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loan.  The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans.  

The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s portfolio segments.  These segments are further disaggregated into the loan pools for monitoring.  When computing allowance levels, a model of risk characteristics, such as loss history and delinquency status, along with current conditions and a supportable forecast is used to determine credit loss assumptions.  

The Company is generally utilizing two methodologies to analyze loan pools, discounted cash flows (“DCF”) and probability of default/loss given default (“PD/LGD”).  

A default can be trigger by one of several different asset quality factors including past due status, non-accrual status or if the loan has had a charge-off.  The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate.  The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.  This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.  

The DCF methodology was selected as the most appropriate for loan segments with longer average lives and regular payment structures.  The DCF model has two key components, the loss driver analysis combined with a cash flow analysis.  The contractual cash flow is adjusted for PD/LGD and prepayment speed to establish a reserve level.  The prepayment studies are updated quarterly by a third-party for each applicable pool.  

The remaining life method was selected for the consumer loan segment since the pool contains loans with many different structures and payment streams and collateral.  The weighted average remaining life uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.  

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Portfolio Segments	Loan Pool	Methodology	Loss Drivers
Residential real estate	1-4 Family nonowner occupied	DCF	National unemployment
	1-4 Family owner occupied	DCF	National unemployment
Commercial real estate	Commercial real estate nonowner occupied	DCF	National unemployment
	Commercial real estate owner occupied	DCF	National unemployment
	Multi Family	DCF	National unemployment
	Agriculture Land	DCF	National unemployment
	Other commercial real estate	DCF	National unemployment
Construction secured by real estate	Construction	PD/LGD	Call report loss history
Commercial	Commercial working capital	PD/LGD	Call report loss history
	Agriculture production	PD/LGD	Call report loss history
	Other commercial	PD/LGD	Call report loss history
Home equity and improvement	Home equity and improvement	PD/LGD	Call report loss history
Consumer finance	Consumer finance	Remaining life	Call report loss history

According to the accounting standard an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner.   The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables for all loan segments.   Current policy dictates that a loan will be placed on nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows less than 1.2 times discounted collateral coverage based on a current assessment of the value of the collateral.

In addition to the ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the company must first establishes a loss expectation for extended (funded) commitments.  This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable, and considered by the company’s management as likely to fund over the life of the instrument.  At March 31, 2020, the Company had $1.3 billion in unfunded commitments and set aside $5.7 million in anticipated credit losses.  This reserve is recorded in other liabilities as opposed to the ACL.  

The determination of ACL is complex and the Company makes decisions on the effects of matters that are inherently uncertain.  Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgements as to the facts and circumstances related to particular situations or credits.  There may be significant changes in the ACL in future periods determined by prevailing factors at that point in time along with future forecasts.  

Purchased Loans

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As a result of the Merger, the Company acquired $2.3 billion in loans.  Par value of purchased loans follows (in thousands):

	2020
Par value of acquired loans at acquisition	$	2,314,588
Credit discount		34,610
Non-credit discount/(premium) at acquisition		(8,497	)
Purchase price of loans at acquisition	$	2,340,701

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit they are accounted for as purchase credit deteriorated (“PCD”). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, credit discount $7.7 million and a noncredit discount of $4.1 million. The outstanding balance at March 31, 2020 and related allowance on these loans is as follows (in thousands):

	Loan Balance		ACL Balance
	(In Thousands)
Real Estate:
Residential	$	17,651	$	1,345
Commercial		37,070		3,935
Construction		1,034		52
		55,755		5,332
Other Loans:
Commercial		25,921		2,255
Home equity and improvement		6,268		258
Consumer finance		1,253		64
		33,442		2,577
Total	$	89,197	$	7,909

At March 30, 2020 the Company had $2.0 million in loans that had previously been accounted for as purchase credit impaired.    

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $6.3 million as of March 31, 2020, and $981,000 as of December 31, 2019. The increase is a result of the merger with UCFC.  

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9. Mortgage Banking

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

	Three Months Ended March 31,
	2020			2019
	(In Thousands)
Gain from sale of mortgage loans	$	4,902		$	1,301
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		1,594			939
Amortization of mortgage servicing rights		(1,163	)		(286	)
Mortgage servicing rights valuation adjustments		(4,485	)		(113	)
		(4,054	)		540
Net revenue from sale and servicing of mortgage loans	$	848		$	1,841

The unpaid principal balance of residential mortgage loans serviced for third parties was $3.0 billion at March 31, 2020, and $1.46 billion at December 31, 2019.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020			2019
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,801		$	10,419
Loans sold, servicing retained		1,376			278
Mortgage servicing rights acquired		9,747			—
Amortization		(1,163	)		(286	)
Carrying value before valuation allowance at end of period		20,761			10,411
Valuation allowance:
Balance at beginning of period		(534	)		(300	)
Impairment recovery (charges)		(4,485	)		(113	)
Balance at end of period		(5,019	)		(413	)
Net carrying value of MSRs at end of period	$	15,742		$	9,998
Fair value of MSRs at end of period	$	16,105		$	10,264

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 March 31, 2020, and December 31, 2019, respectively.  There was no expense or credit recognized related to the accrual in the three months ended March 31, 2020 or 2019.  

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10. Leases

Due to the merger with UCFC, on January 31, 2020, the Company performed a valuation on UCFC’s leases to determine an initial right of use asset (ROU asset) and lease liability.  The Company recorded an initial ROU asset of $5.0 million and a lease liability of $5.1 million for these leases.  

The Company’s lease agreements have maturity dates ranging from December 2020 to September 2044, 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 17.58 years as of March 31, 2020 and 17.07 years as of December 31, 2019.  The weighted average discount rate for leases was 2.55% as of March 3, 2020 and 3.17% as of December 31, 2019.

The total operating lease costs were $517,000 for the three months ended March 31, 2020, and $243,000 for the three months ended March 31, 2019, respectively. The right-of-use asset, included in other assets, was $17.7 million and $8.9 million at March 31, 2020 and December 31, 2019, respectively.  The lease liabilities, included in other liabilities, were $18.2 million and $9.5 million as of March 31, 2020 and December 31, 2019, respectively.

Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

(in thousands)	March 31, 2020
2020	$	1,913
2021		2,295
2022		1,944
2023		1,539
2024		1,311
Thereafter		14,911
Total undiscounted minimum lease payments	$	23,913
Present value adjustment		(5,687	)
Total lease liabilities	$	18,226

11. Deposits

A summary of deposit balances is as follows:

	March 31, 2020		December 31, 2019
	(In Thousands)
Non-interest-bearing checking accounts	$	1,041,315	$	630,359
Interest-bearing checking and money market accounts		2,052,935		1,198,012
Savings deposits		623,331		303,166
Retail certificates of deposit less than $250,000		1,091,003		631,253
Retail certificates of deposit greater than $250,000		185,564		107,535
	$	4,994,148	$	2,870,325

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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:

	March 31, 2020		December 31, 2019
	(In Thousands)
FHLB Advances:
Single maturity fixed rate advances	$	486,000	$	83,999
Amortizable mortgage advances		—		1,085
Overnight advances		—		—
Fair value adjustment on acquired balances		—		(21	)
Total	$	486,000	$	85,063
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

The FHLB advances outstanding at March 31, 2020, have maturities of $451.0 million in 2020, $5.0 million in 2021 and $10.0 maturing in each of 2022, 2023 and 2024.

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 2.24% as of March 31, 2020, and 4.29% as of December 31, 2019.

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.

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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 2.12% and 4.17% on March 31, 2020 and December 31, 2019, 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 balance of repurchase agreements was $2.0 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively.  All of the repurchase agreements were overnight and continuous as of March 31, 2020 and December 31, 2019.  The repurchase agreements were collateralized by investment securities having a market value of $5.6 million and $5.8 at March 31, 2020 and December 31, 2019, respectively.

13. Commitments, Guarantees and Contingent Liabilities

Loan commitments are made to accommodate the financial needs of First Federal’s customers 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.

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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):

	March 31, 2020		December 31, 2019
Commitments to make loans	$	361,397	$	178,811
Unused lines of credit		895,487		433,109
Standby letters of credit		12,745		14,215
Total	$	1,269,629	$	626,135

Commitments to make loans are generally made for periods of 60 days or less.            

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 2015. The Company currently operates primarily in the states of Ohio, Michigan, Pennsylvania and West Virginia which tax financial institutions based on their equity rather than their income.

For further information on taxes refer to the discussion on CECL in Note 8. Loans and the Merger information in Note 18. Business Combinations.  

15. Derivative Financial Instruments

At March 31, 2020, the Company had approximately $262.9 million of interest rate lock commitments and $318.1 million of forward commitments for the future delivery of residential mortgage loans and forward sales of mortgage backed securities.  These commitments are considered derivatives.  The Company had $17.0 million of interest rate lock commitments and $34.4 million of forward commitments at December 31, 2019.   

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

March 31, 2020

December 31, 2019

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

$

4,073

$

586

$

3,487

$

883

$

(9

)

$

892

Interest Rate Swaps

The Company maintains an interest rate protection program for commercial loan customers that was acquired in the merger with UCFC.  Under this program, the Company provides a customer with a fixed rate loan while creating a variable rate asset for the Company by the customer entering into an interest rate swap

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with terms that match the loan.  The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution.  The Company had interest rate swaps associated with commercial loans with a notional value of $50.1 million and fair value of $1.9 million in other assets and $2.1 million in other liabilities at March 31, 2020.  The difference in fair value of $194,000 between the asset and liability represents a credit valuation adjustment that flows through noninterest income.  Since January 31, 2020, $108,000 of the $194,000 has flowed through noninterest income.  The remainder was part of the Merger consideration.  The Company had no interest rate swaps outstanding at December 31, 2019.

Equity Linked Time Deposit

The Company also acquired time deposits in its acquisition of UCFC that have written and purchased option derivatives to facilitate an equity linked time deposit product.  The time deposit provides the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Bank receives a known stream of funds based on the equity return (a purchase option).  The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated statement of financial condition.  At March 31, 2020, the balance of the equity linked time deposits was $9.6 million and the written and purchased options each had a fair value of $86,000.

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 March 31, 2020:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	9,458	$	(1,985	)	$	7,473
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	$	9,458	$	(1,985	)	$	7,473

	Before Tax Amount		Tax Expense (Benefit)			Net of Tax Amount
	(In Thousands)
Three months ended March 31, 2019:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	4,603	$	(968	)	$	3,635
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	$	4,603	$	(886	)	$	3,717

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

	Securities Available For Sale			Post- retirement Benefit			Accumulated Other Comprehensive Income (Loss)
	(In Thousands)
Balance January 1, 2020	$	4,839		$	(244	)	$	4,595
Other comprehensive income  before reclassifications		7,473			—			7,473
Amounts reclassified from accumulated other comprehensive income		—			—			—
Net other comprehensive income during period		7,473			—			7,473
Balance March 31, 2020	$	12,312		$	(244	)	$	12,068
Balance January 1, 2019	$	(2,057	)	$	(91	)	$	(2,148	)
Other comprehensive income (loss) before reclassifications		3,635			—			3,635
Amounts reclassified from accumulated other comprehensive income		—			82			82
Net other comprehensive income during period		3,635			82			3,717
Balance March 31, 2019	$	1,578		$	(9	)	$	1,569

17. Subsequent Event

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world.  Business and consumer customers of the Bank are experiencing varying degrees of financial distress, which is expected to increase over the coming months and will likely adversely affect their ability to pay interest and principal on their loans and the value of the collateral securing their obligations may decline.  These uncertainties may negatively impact the Statement of Financial Condition, the Statement of Income and the Statement of Cash Flows of the Company.

The Company responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing nearly $450 million to small businesses in our markets.  In addition, the Company continues to receive requests for payment deferrals on loans.  Through May, the Company approved approximately 600 deferrals totaling $611.3 million in net balances.  Almost half of the deferrals were for the full six month period with the next largest category being a three month deferral.  These actions may impact the Company’s performance during the remainder of 2020 although the specific details cannot be determined at this time.

18. Business Combinations

Effective January 31, 2020, the Company merged with UCFC and its subsidiaries, pursuant to the Merger Agreement.   Pursuant to the Merger Agreement, UCFC was merged with and into First Defiance.  Immediately following the Merger, Home Savings was merged with and into First Federal Bank of the Midwest, with First Federal surviving the Merger.  In addition, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged with the Company’s wholly-owned insurance subsidiary, First Insurance Group of the Midwest, Inc., with First Insurance Group of the Midwest, Inc. surviving the Merger.  UCFC’s consolidated assets and equity (unaudited) as of January 31, 2020 totaled $2.8 billion and $324.5 million, respectively.  The Company accounted for the transaction under the acquisition method of

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accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.  The fair value estimates included in these financial statements are based on preliminary valuations.  

In accordance with ASC 805, the Company expensed approximately $11.5 million of direct acquisition costs during the three months ended March 31, 2020, of which $4.7 million was to settle employment and benefit agreements and for personnel expenses related to operating the new UCFC locations.  The Company recorded $217.5 million of goodwill and $33.0 million of intangible assets in the first quarter of 2020. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.  The Merger was consistent with the Company’s strategy to enhance and expand its presence in northern Ohio.  The Merger offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded market area. The intangible assets are related to core deposits, which are being amortized over 10 years on an accelerated basis, and customer relationships, which are being amortized over 10 years on a straight-line basis.  For tax purposes, goodwill is non-deductible but will be evaluated annually for impairment.  The following table summarizes the fair value of the total consideration transferred as part of the Merger as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction.

	January 31, 2020
	(In Thousands)
Cash Consideration	$	132
Equity - Dollar Value of Issued Shares		526,875
Fair Value of Total Consideration Transferred		527,007
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents		52,580
Securities available for sale		262,753
Net loans, including loans held for sale and allowance		2,340,701
FHLB Stock		12,753
Office Properties and Equipment		21,216
Intangible Assets		33,014
Bank Owned Life Insurance		65,934
Mortgage Servicing Rights		9,747
Accrued Interest Receivable and Other Assets		34,452
Deposits - Non-Interest Bearing		(430,921	)
Deposits - Interest Bearing		(1,651,669	)
Advances from FHLB		(381,000	)
Deferred tax liability		(2,262	)
Accrued Interest Payable and Other Liabilities		(57,742	)
Total Identifiable Net Assets		309,556
Goodwill	$	217,451

As a result of the Merger and in accordance with the Merger Agreement, each share of UCFC common stock issued and outstanding immediately prior to the effective time was converted into 0.3715 share of First Defiance common stock.  No fractional shares of First Defiance common stock were issued in the Merger, and UCFC’s shareholders became entitled to receive cash in lieu of fractional shares. The Company issued 17,927,017 First Defiance common shares and paid approximately $0.1 million to UCFC shareholders as a result of the Merger.  The fair value of First Defiance common shares issued as part of the consideration paid for the UCFC

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common shares was determined based on the closing price of the Company’s common shares on the effective date of the Merger.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2019, after giving effect to certain adjustments.  The unaudited pro forma information for the three months ended March 31, 2020 and March 31, 2019 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.  The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

	Pro Forma Three Months Ended       March 31,
	2020			2019
	(In Thousands)
Net interest income	$	53,380		$	52,460
Provision for credit losses		(17,831	)		(273	)
Non-interest income		17,281			16,796
Non-interest expense		(41,141	)		(43,946	)
Income (loss) before income taxes		11,689			25,037
Income tax benefit (expense)		(2,734	)		(4,498	)
Net income (loss)	$	8,955		$	20,539
Diluted earnings per share	$	0.24		$	0.54

The above pro forma financial information related to 2020 excludes non-recurring merger costs that totaled $11.5 million on a pre-tax basis. The above pro forma financial information excludes the $25.9 million pre-tax provision expense recognized for the three months ended March 31, 2020 under CECL for acquired non-PCD loans as CECL was not effective as of the assumed transaction date of January 1, 2019.

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

Forward-Looking Information

This quarterly report may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 B of the Securities Exchange Act of 1934, as amended. Those statements may include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts and plans of First Defiance Financial Corp. (“First Defiance” or the “Company”) and its management, and specifically include statements regarding: changes in economic conditions; the nature, extent and timing of governmental actions and reforms; future movements of interest rates; the ability to benefit from a changing interest rate environment; the production levels of mortgage loan generation; the ability to continue to grow loans and deposits; the ability to sustain credit quality ratios at current or improved levels; continued strength in the market area for First Federal; the ability to sell real estate owned properties; and the ability to grow in existing and adjacent markets. These forward-looking statements involve numerous risks and uncertainties, including: impacts from the novel coronavirus (COVID-19) pandemic on our business, operations, customers and capital position; higher default rates on loans made to our customers related to COVID-19 and its impact on our customers’ operations and financial condition; the impact of COVID-19 on local, national and global economic conditions; unexpected changes in interest rates or disruptions in the mortgage market related to COVID-19 or responses to the health crisis; the effects of various governmental responses to the COVID-19 pandemic; those inherent in general and local banking, insurance and mortgage conditions; competitive factors specific to markets in which First Defiance and its subsidiaries operate; future interest rate levels; legislative and regulatory decisions or capital market conditions; and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the year ended December 31, 2019. One or more of these factors have affected or could in the future affect First Defiance’s business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements included in this quarterly report will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by First Defiance or any other persons, that our objectives and plans will be achieved. All forward-looking statements made in this quarterly report are based on information presently available to the management of First Defiance and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

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. The Company monitors the non-GAAP financial measures and the Company’s management believes they are helpful to investors because they provide an additional tool to use in evaluating the Company’s financial and business trends and operating results. In addition, the Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis and for budgeting and planning purposes. 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

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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 month periods ended March 31, 2020 and 2019.

Non-GAAP Financial Measures – Net Interest Income on an FTE basis, Net Interest Margin and Efficiency Ratio

	Three Months Ended March 31,
	2020			2019
	(In Thousands)
Net interest income (GAAP)	$	45,463		$	28,270
Add: FTE adjustment		251			247
Net interest income on a FTE basis (1)	$	45,714		$	28,517
Non-interest income-less securities gains/losses (2)		13,999			10,813
Non-interest expense (3)		43,768			24,866
Average interest-earning assets net of average
unrealized gains/losses on securities (4)		4,852,863			2,873,133
Average interest-earning assets		4,862,532			2,871,340
Average unrealized gains/losses on securities		9,669			(1,793	)
Ratios:
Net interest margin (1) / (4)		3.78	%		4.03	%
Efficiency ratio (3) / (1) + (2)		73.30	%		63.22	%

Critical Accounting Policies

The Company has established various accounting policies which govern the application of GAAP in the preparation of its financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements included in the 2019 Form 10-K and in Footnote 2 of this document. 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 2019 Form 10-K and in Footnote 2 of this document include the Allowance for Credit Losses, Goodwill, and the Valuation of Mortgage Servicing Rights.

General

First Defiance Financial Corp. is a financial holding company that conducts business through its  wholly owned subsidiaries, First Federal Bank of the Midwest (“First Federal” or the “Bank”), First Insurance Group of the Midwest, Inc. (“First Insurance”), First Defiance Risk Management Inc. (“First Defiance Risk Management”), HSB Capital, LLC (HSB Capital”), and HSB Insurance, Inc. (“HSB Insurance”).  

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On January 31, 2020, First Defiance completed its previously announced acquisition of United Community Financial Corp., an Ohio corporation (“UCFC”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 9, 2019, by and between First Defiance and UCFC. At the effective time of the merger (the “Merger”), UCFC merged with and into First Defiance, with First Defiance surviving the Merger.  Simultaneously with the completion of the Merger, First Defiance converted from a unitary thrift holding company to a bank holding company, making an election to be a financial holding company.

Immediately following the Merger, First Federal, acquired UCFC’s wholly owned bank subsidiary, Home Savings Bank.  Immediately prior to the merger of the banks, First Federal converted from a federal thrift into an Ohio state-chartered bank. In addition, immediately following the merger of the banks, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged into First Insurance, with First Insurance surviving the mergers.  The Company acquired two additional subsidiaries in the Merger, HSB Capital and HSB Insurance.

The Bank is an Ohio state chartered bank headquartered in Youngstown, Ohio. It conducts operations through 77 banking center offices, 12 loan offices and 3 wealth offices in Ohio, Michigan, Indiana, Pennsylvania and West Virginia.  

The Bank 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.

HSB Capital was formed as an Ohio limited-liability company by UCFC during 2016 for the purpose of providing mezzanine funding for customers of Home Savings. Mezzanine loans are offered by HSB Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.

First Insurance is a wholly owned subsidiary of the Company. First Insurance is an insurance agency that conducts business throughout the Company’s markets.  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.

HSB Insurance, Inc. was formed on June 1, 2017 as a Delaware-based captive insurance company that insures against certain risks that are unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible; by pooling resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.  HSB Insurance, Inc. is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.

Regulation – The Company is subject to regulation, examination and oversight by the Federal Reserve Board (“Federal Reserve”) and the SEC.  The Bank is subject to regulation, examination and oversight by the Federal Deposit Insurance Corporation (FDIC) and the Division of Financial Institutions of the Ohio Department of Commerce (ODFI).  In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau (the “CFPB”) which was established by the 2010 Dodd-Frank Wall Street Reform and

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Consumer Protection Act (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations.  The Company and the Bank must file periodic reports with the Federal Reserve, and examinations are conducted periodically by the Federal Reserve, the FDIC and the ODFI to determine whether the Company and the Bank are in compliance with various regulatory requirements and are operating in a safe and sound manner.

The Company 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 the Bank even before the enactment of the Regulatory Relief Act.

The Regulatory Relief Act also provides that the banking regulators must adopt regulations implementing the provision that banking organizations with assets of less than $10 billion are permitted to satisfy capital standards and be considered “well capitalized” under the prompt corrective action framework if their leverage ratios of tangible assets to average consolidated assets is between 8% and 10%, unless the bank’s federal banking agency determines that the organization’s risk profile warrants a more stringent leverage ratio.  The 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 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 – The Company is a financial holding company and is subject to the Federal Reserve regulations, examination, supervision and reporting requirements. Federal law generally prohibits a bank holding company from controlling any other institution without prior approval of the Federal Reserve, or from acquiring or retaining more than 5% of the voting shares of a bank or holding company thereof, which is not a subsidiary.

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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.  

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 ACL, 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”

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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.

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 March 31, 2020, the Bank 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 the Bank 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 March 31, 2019.  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.

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.

Business Strategy – The Company’s primary objective is to be a high-performing community-focused financial institution, well regarded in its market areas. The Company accomplishes this through emphasis on local decision making and empowering its employees with tools and knowledge to serve its customers’ needs. The Company believes this strategy results in greater customer loyalty and profitability through core relationships. The Company 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 the Company’s business strategy are commercial banking, consumer banking, including the

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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 the Company’s success. The Company 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. The Company’s client base tends to be small to middle market customers with annual gross revenues generally between $1 million and $50 million. The Company’s focus is also on securing multiple guarantors in addition to collateral where possible.  These customers require the Company to have a high degree of knowledge and understanding of their business in order to provide them with solutions to meet their financial needs. The Company believes this personal service model differentiates it from its competitors, particularly the larger regional institutions. The Company offers a wide variety of products to support commercial clients including remote deposit capture and other cash management services. The Company also believes that the small business customer is a strong market for it. The Company 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 – The Company 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. The Company 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. The Company 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 the Company seeks to reduce reliance on retail transaction fee income.

Deposit Growth – The Company’s focus has been to grow core deposits with an emphasis on total relationship banking with both our retail and commercial customers. The Company has initiated a pricing strategy that considers the whole relationship of the customer. The Company 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. The Company will look to grow its footprint in areas believed to further complement its overall market share and complement its strategy of being a high-performing community bank.

Asset Quality - Maintaining a strong credit culture is of the utmost importance. The Company 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. The Company is primarily a collateral lender with an emphasis on cash flow performance, while obtaining additional support from personal guarantees and secondary sources of repayment. The Company has directed its attention to loan types and markets that it knows well and in which it has historically been successful. The Company 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. The Company maintains a problem loan remediation process that focuses on detection and resolution. The Company maintains a strong process of internal control that subjects the loan portfolio to periodic internal reviews as well as independent third-party loan review.    

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Expansion Opportunities –The Company believes it is well positioned to take advantage of acquisitions or other business expansion opportunities in its market areas. The Company 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. The Company 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 – The Company 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”). 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.

The Company’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 are classified as held-to-maturity when the Company has the positive intent and ability to hold the security to maturity.

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.  The Company’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.

The Company 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, the Company reviews the most current appraisal on file and, if necessary, based on its assessment of the appraisal, such as age, market, etc., the Company 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 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, the Company 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, the Company 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 an estimate of the liquidation costs.

The Company 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 the Company’s experience with liquidating similar properties.  

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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.

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 the Company will consider an upgrade to performing status.   The Company may consider moving the loan to accruing status after approximately six months of satisfactory payment performance.

For loans where the Company 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 the Company had loans as well as calls to appraisers, brokers, realtors and investors.  The Company 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 the Company, 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, the Company 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 ACL.  For those loans measured for impairment utilizing the fair value of the collateral, any shortfall is charged off.

Earnings - The profitability of the Company 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. The Company’s earnings also depend on the provision for credit 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 March 31, 2020, the Company's total assets amounted to $6.5 billion compared to $3.5 billion at December 31, 2019.  The increase is primarily attributable to the Merger which added $2.8 billion in identified assets as of January 31, 2020.  

Gross loans receivable, excluding loans held for sale, were $5.1 billion at March 31, 2020, compared to $2.8 billion at December 31, 2019.  For the quarter, gross loans receivable grew $2.3 billion, including $2.2 billion from the Merger.  

The investment securities portfolio increased $250.8 million to $534.2 million at March 31, 2020 from $283.4 million at December 31, 2019.  The increase is a result of $262.8 million of available for sale securities acquired in the Merger and a $9.5 million increase in the market value of available-for-sale securities offset by runoff and amortization of $21.5 million during the quarter.  

Deposits increased $2.1 billion from $2.9 billion at December 31, 2019, to $5.0 billion as of March 31, 2020.   The increase was due to the deposits acquired in the Merger which added $430.9 million of non-interest deposits and $1.7 billion of interest-bearing deposits.

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Stockholders’ equity increased $490.2 million from $426.2million at December 31, 2019, to $916.4 million at March 31, 2020. The increase in stockholders’ equity wasprimarily the result of the Mergerand $7.5 million in other comprehensive gain. The increase was partially offset by the repurchase of 430,000 shares of common stock totaling $10.1 million, the net operating loss of $22.5 million and $8.3 million of common stock dividends 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 March 31,
	2020							2019
	Average				Yield/			Average				Yield/
	Balance		Interest(1)		Rate(2)			Balance		Interest(1)		Rate(2)
Interest-earning assets:
Loans receivable	$	4,317,857	$	51,485		4.80	%	$	2,517,283	$	31,238		5.03	%
Securities (3)		449,744		2,943		2.69			295,824		2,428		3.31
Interest bearing deposits		68,980		230		1.34			44,752		285		2.58
FHLB stock		25,951		115		1.78			13,481		215		6.47
Total interest-earning assets		4,862,532		54,773		4.54			2,871,340		34,166		4.82
Non-interest-earning assets		495,066							311,672
Total assets	$	5,357,598						$	3,183,012
Interest-bearing liabilities:
Deposits	$	3,343,833	$	7,771		0.93	%	$	2,061,023	$	5,005		0.98	%
FHLB advances and other		209,508		1,006		1.93			58,954		276		1.90
Subordinated debentures		36,083		273		3.04			36,083		364		4.09
Securities sold under repurchase agreements		2,359		9		1.53			5,431		4		0.30
Total interest-bearing liabilities		3,591,783		9,059		1.01			2,161,491		5,649		1.06
Non-interest bearing deposits		896,220		—		—			581,135		—
Total including non-interest bearing demand deposits		4,488,003		9,059		0.81			2,742,626		5,649		0.84
Other non-interest-bearing liabilities		82,758							45,248
Total liabilities		4,570,761							2,787,874
Stockholders’ equity		786,837							395,138
Total liabilities and stock-Holders’ equity	$	5,357,598						$	3,183,012
Net interest income; interest rate spread			$	45,714		3.53	%			$	28,517		3.76	%
Net interest margin (4)						3.78	%						4.03	%
Average interest-earning assets to average    interest-bearing liabilities						135	%						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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Results of Operations

Three Months Ended March 31, 2020 and 2019

On a consolidated basis, the Company reported a net loss for the quarter ended March 31, 2020 of $22.5 million compared to net income of $11.5 million for the comparable period in 2019. On a per share basis, the basic and diluted loss per share was $0.71 for the three months ended March 31, 2020 and basic and diluted earnings per common share were $0.57 for the three months ended March 31, 2019.  The year-to-year results are impacted by the Merger and include $43.8 million in credit loss expense, $25.9 million related to acquisition accounting, for an after-tax cost of $20.5 million.  The results for the first quarter of 2020 also included $11.5 million of acquisition-related charges, which had an after-tax cost of $9.5 million.  The results for the first quarter of 2020 include two months of activity for UCFC compared to none in 2019  

Net Interest Income

The Company’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 $45.5 million for the quarter ended March 31, 2020, up from $28.3 million for the same period in 2019. The tax-equivalent net interest margin was 3.78% for the quarter ended March 31, 2020, a decrease from 4.03% for the same period in 2019. The decrease in margin between the 2020 and 2019 first quarters was primarily due to a decrease in the yield on earning assets.  The decline in interest rates in the in 2019 and through the first quarter of 2020 was the primary reason for this decrease along with the Merger.  The yield on interest-earning assets was 4.54% for the quarter ended March 31, 2020, down 28 basis points from 4.82% for the same period in 2019.  The cost of interest-bearing liabilities between the two periods declined 5 basis points to 1.01% in the first quarter of 2020 from 1.06% in the first quarter of 2019.  

Total interest income increased $20.6 million to $54.5 million for the quarter ended March 31, 2020, from $33.9 million for the quarter ended March 31, 2019.  This increase is due to continued solid loan growth and the Merger which resulted in average earning asset growth of $2.0 billion year-over-year.  Income from loans increased to $51.5 million for the quarter ended March 31, 2020, compared to $31.2 million for the same period in 2019 due to average loan growth of $1.8 billion.  The decrease in the loan portfolio yield to 4.80% for the three months ended March 31, 2020 from 5.03% for the same period in 2019, was due mainly to declining rates.  Interest income from investments increased $512,000 in the first quarter of 2020 to $2.7 million compared to the same period in 2019. The yield decreased 62 basis points to 2.69% for the three months ended March 31, 2020, compared to 3.31% for the same period in 2019.  Income from interest bearing deposits decreased to $230,000 in the first quarter of 2020 compared to $285,000 for the same period in 2019 while income from FHLB stock decreased to $115,000 in the first quarter of 2020 compared to $215,000 for the same period in 2019.

Interest expense increased by $3.4 million in the first quarter of 2020 compared to the same period in 2019, to $9.1 million from $5.6 million.  This increase was due to growth in deposits along with the Merger. Interest expense related to interest-bearing deposits was $7.8 million in the first quarter of 2020 compared to $5.0 million for the same period in 2019. Interest expense recognized by the Company related to FHLB advances was $1.0 million in the first quarter of 2020 compared to $276,000 for the same period in 2019 as a result of increased volume from the merger. Expenses on subordinated debentures and notes payable were $273,000 and $9,000 respectively in the first quarter of 2020 compared to $364,000 and $4,000 respectively for the same period in 2019.

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Allowance for CreditLosses (“ACL”)

The Company adopted ASU 2016-13, the Current Expected Credit Loss (“CECL”) model on January 1, 2020.  Under CECL, a valuation reserve will be established in the ACL and maintained through expense in the provision for credit losses.  Upon adoption of CECL, the Company made a one-time adjustment, net of taxes, to retained earnings for $1.9 million.  The ACL represents management’s assessment of the estimated credit losses the Company will receive over the life of the loan. ACL requires a projection of credit losses over the contract lifetime of the credit adjusted for prepayment tendencies.  Management analyzes the adequacy of the ACL 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 ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit 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 50% or greater of the portfolio reviewed annually.  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 ACL associated with these types of loans.

The ACL is made up of two basic components. The first component of the allowance for credit 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 ACL was $683,000 at March 31, 2020, and $422,000 at December 31, 2019.

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 over the contractual lifetime of the loan adjusted for prepayment tendencies.  In addition the future economic environment is incorporated in projection with loss expectations to revert to the long-run historical mean after such time as management can no longer make or obtain a reasonable and supportable forecast.  For purposes of the general reserve analysis, the six loan portfolio segments are further segregated into thirteen different loan pools to allocate the ACL. Residential real estate is further segregated into owner occupied and nonowner occupied for ACL.   Commercial real estate is split into owner occupied, nonowner occupied, multifamily, agriculture land and other commercial real estate.  And commercial credits are comprised of commercial working capital, agriculture production and other commercial credits.  The Company utilizes three different methodologies to analyze loan pools.  

Discounted cash flows (DCF) was selected as the appropriate method for loan segments with longer average lives and regular payment structures.   This method is applied to a majority of the Company’s real estate loans.  DCF generates cash flow projections at the instrument level where payment expectations are adjusted for prepayment and curtailment to produce an expected cashflow stream.  This expected cashflow stream is compared to the net present value of expected cash flows to establish a valuation account for these loans.  

The probability of default/loss given default methodology was selected as most appropriate for loan segments with average lives of three years or less and/or irregular payment structures.  This methodology was used for home equity and commercial portfolios.   A loan is considered to default if one of the following is detected:

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• Becomes 90 days or more past due

• Is place on nonaccrual

• Is marked as a troubled debt restructuring

• Is partially or wholly charge-off

The default rate is measured on the current life of the loan segment using s weighted average of the four most recent quarters.  PD/LGD is determined on a dollar-ratio basis, measuring the ratio of net charged off principal to defaulted principal.  

The consumer portfolio contains loans with many different payment structures, payment streams and collateral.  The remaining life method was deemed most appropriate for these loans.  The weighted average remaining life uses an annual charge-off rate over several vintages to estimate credit losses.  The average annual charge-off rate is applied to the contractual term adjusted for prepayments.  

Additionally, CECL requires a reasonable and supportable forecast when establishing the ACL.  The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.  

The quantitative general allowance increased to $41.6 million at March 31, 2020, from $6.6 million at December 31, 2019.

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.

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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 $35.8 million at March 31, 2020 compared to $24.2 million at December 31, 2019.  The increase was mainly due to the Merger, which increased the pool of loans to which the qualitative reserves are applied, and changes in the economy.  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 increased in the first three months of 2020, due to a slight increase in local unemployment levels and uncertainty in global economic conditions.

The environmental factors for the commercial real estate, commercial loan and construction loan segments decreased in the first three months of 2020, mainly due to decreases in credit concentrations and strengthened credit function. The environmental factors for the home equity and improvement, consumer and residential loan segments remained flat in the first three months of 2020.

The risk factors for commercial real estate, construction, and consumer loans increased in the first three months of 2020 primarily due to unfavorable trends in external factors. The risk factors for commercial, home equity and improvement, and residential loans decreased in the first three months of 2020 primarily due to favorable trends in non-performing assets.

The Company’s general reserve percentages for main loan segments not otherwise classified ranged from 0.45% for construction loans to 2.46% for consumer loans at March 31, 2020.

Under CECL, when loans are purchased with evidence of more than insignificant deterioration of credit they are accounted for as purchase credit deteriorated (“PCD”).  PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded.  In addition, an adjustment is made to the ACL for the expected loss through retained earnings on the acquisition date.  These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement.  On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, a recorded adjustment on yield of $4.1 million and an increase to the ACL of $7.7million.  

As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the decrease in net charge-offs in the quarter, the Company’s provision for credit losses for the first quarter of 2020 was $43.8 million, including $25.9 million attributable to the acquisition, compared to  $0.2 million for the same period in 2019. The ACL was $85.9 million at March 31, 2020 and $31.2 million at December 31, 2019. The ACL represented 1.68% of loans, net of undisbursed loan funds and deferred fees and costs, at March 31, 2020 and 1.12% at December 31, 2019.  In management’s opinion, the overall ACL of $85.9 million as of March 31, 2020, is adequate to cover current estimated credit losses.  

Management also assesses the value of OREO as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In the three month period ended March 31, 2020, there were no write-downs of real estate held for sale. Management believes that the values recorded at March 31, 2020, for OREO and repossessed assets represent the realizable value of such assets.

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Total classified loans increased to $70.5 million at March 31, 2020, compared to $34.2 million at December 31, 2019, an increase of $36.3 million primarily due to the acquisition of HSB.  

The Company’s ratio of ALLL to non-performing loans was 263.4% at March 31, 2020, compared with 232.5% at December 31, 2019. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for those loans at March 31, 2020, are appropriate.  Of the $32.6 million in non-accrual loans at March 31, 2020, $16.9 million or 51.8% are less than 90 days past due.

At March 31, 2020, the Company had total non-performing assets of $33.1 million, compared to $13.6 million at December 31, 2019. Non-performing assets include loans that are on non-accrual, OREO and other assets held for sale.  Non-performing assets at March 31, 2020, and December 31, 2019, by category were as follows:

	March 31,			December 31,
	2020			2019
	(In Thousands)
Non-performing loans:
One to four family residential real estate	$	6,707		$	2,411
Non-residential and multi-family residential real estate		19,386			7,609
Commercial		3,961			2,961
Home equity and improvement		1,299			449
Consumer finance		1,240			7
Total non-performing loans		32,593			13,437
Real estate owned		548			100
Total repossessed assets		548			100
Total Nonperforming assets	$	33,141		$	13,537
TDR loans, accruing				$	8,486
Total nonperforming assets as a percentage of total assets		0.51	%		0.39	%
Total nonperforming loans as a percentage of total loans*					0.49	%
Total nonperforming assets as a percentage of total loans plus REO*		0.65	%		0.49	%
ACL as a percent of total nonperforming assets		259.07	%		230.80	%

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

Non-performing loans in the commercial loan category represented 0.44% of the total loans in that category at March 31, 2020, compared to 0.51% for the same category at December 31, 2019. Non-performing loans in the non-residential and multi-family residential real estate loan category were 0.88% of the total loans in this category at March 31, 2020, compared to 0.51% at December 31, 2019.   Non-performing loans in the residential loan category represented 0.53% of the total loans in that category at March 31, 2020, compared to 0.74% for the same category at December 31, 2019.

The Bank’s Special Assets 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 Special Asset 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.  

	For the Three Months Ended March 31, 2020						As of March 31, 2020
	Net Charge-offs (Recovery)			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	83			(10.67	)%	$	6,707		20.58	%
Construction		—			—			—		—
Multi-Family residential and Commercial real estate		(324	)		41.65	%		19,386		59.48	%
Commercial		(573	)		73.65	%		3,961		12.15	%
Consumer Finance		48			(6.17	)%		1,240		3.80	%
Home equity and improvement		(12	)		1.54	%		1,299		3.99	%
Total	$	(778	)		100.00	%	$	32,593		100.00	%

	For the Three Months Ended March 31, 2019						As of March 31, 2019
	Net Charge-offs (Recovery)			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non-Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	159			41.70	%	$	3,184		18.04	%
Construction		—			0.00	%		—		0.00	%
Commercial real estate		(96	)		(25.33	)%		9,460		53.61	%
Commercial		175			46.17	%		4,358		24.70	%
Consumer		132			35.09	%		38		0.22	%
Home equity and improvement		9			2.37	%		605		3.43	%
Total	$	379			100.00	%	$	17,645		100.00	%

	For the Quarter Ended
	1st 2020			4th 2019		3rd 2019		2nd 2019			1st 2019
	(In Thousands)
Allowance at beginning of period	$	31,243		$	30,250	$	28,934	$	28,164		$	28,331
Impact of ASC 326 adoption		2,354			—		—		—			—
Acquisition related allowance for credit losses (PCD)		7,698			—		—		—			—
Provision for credit losses		43,786			1,084		1,327		282			212
Charge-offs:
Residential		184			258		74		11			172
Multi-Family residential and Commercial real estate		16			133		—		15			—
Commercial		96			303		25		13			187
Consumer finance		108			34		80		33			142
Home equity and improvement		30			136		12		64			33
Total charge-offs		434			864		191		136			534
Recoveries		1,212			773		180		624			155
Net charge-offs		(778	)		91		11		(488	)		379
Ending allowance	$	85,859		$	31,243	$	30,250	$	28,934		$	28,164

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The following table sets forth information concerning the allocation of the Company’s ACL by loan categories at the dates indicated.

	March 31, 2020					December 31, 2019					September 30, 2019					June 30, 2019					March 31, 2019
	Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category
	(Dollars In Thousands)
Residential	$	23,324		23.78	%	$	2,867		11.30	%	$	2,938		11.94	%	$	2,793		11.67	%	$	2,811		11.96	%
Construction		884		9.79	%		996		10.60	%		1,103		11.13	%		887		12.16	%		731		11.32	%
Multi-Family residential and    Commercial real estate		42,515		41.32	%		16,302		52.40	%		16,195		51.70	%		15,251		51.12	%		15,069		51.87	%
Commercial		11,901		16.86	%		9,003		20.10	%		7,888		19.43	%		7,888		19.21	%		7,276		18.95	%
Consumer		3,281		2.59	%		375		1.30	%		374		1.32	%		352		1.28	%		349		1.27	%
Home equity and improvement		3,954		5.66	%		1,700		4.30	%		1,752		4.48	%		1,763		4.56	%		1,928		4.63	%
	$	85,859		100.00	%	$	31,243		100.00	%	$	30,250		100.00	%	$	28,934		100.00	%	$	28,164		100.00	%

Key Asset Quality Ratio Trends

	1st Qtr 2020			4th Qtr 2019			3rd Qtr 2019			2nd Qtr 2019			1st Qtr 2019
Allowance for credit losses / loans*		1.68	%		1.12	%		1.13	%		1.10	%		1.10	%
Allowance for credit losses / non-performing assets		259.07	%		230.42	%		206.10	%		188.69	%		151.53	%
Allowance for credit losses / non-performing loans		263.43	%		232.13	%		206.10	%		188.69	%		159.61	%
Non-performing assets / loans plus OREO*		0.65	%		0.49	%		0.55	%		0.58	%		0.73	%
Non-performing assets / total assets		0.51	%		0.39	%		0.44	%		0.47	%		0.58	%
Net charge-offs / average loans (annualized)		-0.07	%		0.01	%		0.00	%		(0.08	)%		0.06	%

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

Non-Interest Income.

Total non-interest income increased $3.2 million in the first quarter of 2020 to $14.0 million from $10.8 million for the same period in 2019.  

Service Fees. Service fees and other charges increased by $2.2 million in the first quarter of 2020 compared to the same period in 2019. The increase is due primarily to the Merger.

Mortgage Banking Activity.Mortgage banking income decreased to $0.8 million in the first quarter of 2020 from $1.8 million in the first quarter of 2019. Gains from the sale of mortgage loans increased to $4.9 million in the first quarter of 2020 from $1.3 million in the first quarter of 2019.  Mortgage loan servicing revenue increased to $1.6 million in the first quarter of 2020 from $0.9 million in the first quarter of 2019.  Amortization of mortgage servicing rights increased to $1.2 million in the first quarter of 2020 from $286,000 in the first quarter of 2019.  The Company had a negative change in the valuation adjustment in mortgage servicing assets of $4.5 million in the first quarter of 2020 compared with a negative adjustment of $113,000 in the first quarter of 2019.  The year-over-year change is primarily due to the significant decline in rates with the 10-year treasury declining 122 basis points during the first quarter of 2020 compared to a 28 basis point decline in the first quarter of 2019.  

Bank-Owned Life Insurance.  Income from bank-owned life insurance was $781,000 for the first quarter of 2020 compared to $392,000 in the first quarter of 2019.  This increase was primarily a result of the Merger.  

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Other Non-Interest Income.  Other non-interest income increased to $960,000 in the first quarter of 2020 from the same period in 2019 due mainly to the Merger.

Non-Interest Expense.

Non-interest expense increased $18.9 million to $43.8 million for the first quarter of 2020 compared to $24.9 million for the same period in 2019. The increase is mainly attributable to the Merger.  Acquisition related charges associated with the merger totaled $11.5 million in the first quarter of 2020.

Compensation and Benefits. Compensation and benefits increased to $17.6 million in the first quarter of 2020, compared to $14.1 million in the first quarter of 2019. The increase in compensation and benefits from a year ago is mainly due to the Merger offset by increased contra salary expense from greater loan origination volume.    

Occupancy.  Occupancy expense increased to $3.7 million in the first quarter of 2020 compared to $2.2 million in the first quarter of 2019.  The increase was due to the Merger with UCFC.  

Data Processing.   Data processing cost was $3.0 million in the first quarter of 2020, an increase of $0.7 million from $2.3 million in the first quarter of 2019. This is due to the Merger with UCFC.  

Amortization of Intangibles.   Expense from the amortization of intangibles increased to $1.2 million in the first quarter of 2020 from $0.3 million in the first quarter of 2019 due to the Merger with UCFC.  

Liquidity

As a regulated financial institution, the Company is required to maintain appropriate levels of “liquid” assets to meet short-term funding requirements.  The Company’s liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities.

The principal source of funds for the Company are deposits, loan repayments, maturities of securities, borrowings from financial institutions and other funds provided by operations.  The Bank also has the ability to borrow from the FHLB.  While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are more influenced by interest rates, general economic conditions and competition.  Investments in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (1) the need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets, and (4) objectives of the asset and liability management program.     

The Bank’s Asset/Liability Committee (ALCO) is responsible for establishing and monitoring liquidity guidelines, policies and procedures.  ALCO uses a variety of methods to monitor the liquidity position of the Bank including liquidity analyses that measure potential sources and uses of funds over future periods out to one year.  ALCO also performs contingency funding analyses to determine the Bank’s ability to meet potential liquidity needs under stress scenarios that cover varying time horizons ranging from immediate to longer term.

At March 31, 2020, the Bank had on-hand liquidity, defined as cash and cash equivalents, unencumbered securities and additional FHLB borrowing capacity, of $1.3 billion.

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 the Bank’s Asset/Liability Committee (“ALCO”) as the body

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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.

Capital Resources

Capital is managed at the Bank 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 2019, 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.

In the first quarter of 2020, the federal banking agencies approved the final rules implementing the Current Expected Credit Loss model known as CECL.  Under the final rules the Company had the ability to phase in the effects of the adoption of CECL which it chose not to elect.  The full effect of the adoption of CECL was absorbed in the Company’s March 31, 2020 capital calculations.

The Company met each of the well-capitalized ratio guidelines at March 31, 2020. The following table indicates the capital ratios for the Company (consolidated) and the Bank at March 31, 2020, and December 31, 2019. (In Thousands):

	March 31, 2020
	Actual					Minimum Required for Adequately Capitalized					Minimum Required for Well Capitalized
	Amount		Ratio			Amount		Ratio(1)			Amount		Ratio
CET1 Capital (to Risk-Weighted Assets)
Consolidated	$	556,796		10.48	%	$	238,991		4.5	%	N/A		N/A
First Federal	$	563,438		10.65	%	$	238,090		4.5	%	$	343,907		6.5	%
Tier 1 Capital (1)
Consolidated	$	591,796		11.85	%	$	199,761		4.0	%	N/A		N/A
First Federal	$	563,438		11.29	%	$	199,599		4.0	%	$	199,599		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (1)
Consolidated	$	591,796		11.14	%	$	318,655		6.0	%	N/A		N/A
First Federal	$	563,438		10.65	%	$	317,453		6.0	%	$	423,271		8.0	%
Total Capital (to Risk Weighted Assets) (1)
Consolidated	$	658,423		12.40	%	$	424,874		8.0	%	N/A		N/A
First Federal	$	629,817		11.90	%	$	423,271		8.0	%	$	529,088		10.0	%

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(1) Excludes capital conservation buffer of 2.50%.

	December 31, 2019
	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	$	322,813		10.60	%	$	137,001		4.5	%	N/A		N/A
First Federal	$	335,251		11.03	%	$	136,752		4.5	%	$	197,531		6.5	%
Tier 1 Capital (2)
Consolidated	$	357,813		10.78	%	$	132,805		4.0	%	N/A		N/A
First Federal	$	335,251		10.13	%	$	132,435		4.0	%	$	165,544		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (2)
Consolidated	$	357,813		11.75	%	$	182,667		6.0	%	N/A		N/A
First Federal	$	335,251		11.03	%	$	182,336		6.0	%	$	243,114		8.0	%
Total Capital (to Risk Weighted Assets) (2)
Consolidated	$	389,056		12.78	%	$	243,556		8.0	%	N/A		N/A
First Federal	$	366,494		12.06	%	$	243,114		8.0	%	$	303,893		10.0	%

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

(2) Core capital is computed as a percentage of adjusted total assets of $3.32 billion for consolidated and for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $3.04 billion for consolidated and for the Bank.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in detail in the 2019 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 March 31, 2020 and December 31, 2019, an estimate of the change in net interest income that would result from an 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 March 31, 2020, net interest income sensitivity to changes in

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interest rates for the twelve months subsequent to March 31, 2020,remained relatively stable for the shock compared to the sensitivity profile for the twelve months subsequent to December 31, 2019.

Net Interest Income Sensitivity Profile

	Impact on Future Annual Net Interest Income
(dollars in thousands)	March 31, 2020					December 31, 2019
Immediate Change in Interest Rates
+200	$	6,175		3.03	%	$	4,477		3.80	%
+100		4,298		2.11	%		2,487		2.11	%
-100		(2,970	)	-1.46	%		(5,335	)	-4.53	%

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 March 31, 2020.  

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.  The results of this analysis are reflected in the following tables for the quarter ended March 31, 2020, and the year ended December 31, 2019.

	March 31, 2020
	Economic Value of Equity
Change in Rates	$ Amount		$ Change		% Change
	(Dollars in Thousands)
+400 bp		1,155,092		189,516		19.63	%
+ 300 bp		1,153,709		188,133		19.48	%
+ 200 bp		1,141,487		175,911		18.22	%
+ 100 bp		1,100,496		134,920		13.97	%
0 bp		965,576		—		—

	December 31, 2019
	Economic Value of Equity
Change in Rates	$ Amount		$ Change			% Change
	(Dollars in Thousands)
+400 bp		769,381		107,066			16.17	%
+ 300 bp		753,286		90,971			13.74	%
+ 200 bp		729,852		67,537			10.20	%
+ 100 bp		701,004		38,689			5.84	%
0 bp		662,315		—			—
- 100 bp		601,361		(60,954	)		(9.20	)%

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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 March 31, 2020. 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 March 31, 2020, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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

We are supplementing the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission, with the following additional risk factor:

The outbreak of the novel coronavirus (“COVID-19”) has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

We have identified specific areas, such as MSR’s and Goodwill, which could be impacted by COVID-19.  We have assessed these specific items and determined they have not been significantly impacted as of the date of this report, but have the potential for future risk.  

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, increased unemployment levels and decreased consumer confidence generally. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. The COVID-19 pandemic could influence the recognition of credit losses in our loan portfolios and will increase our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. Furthermore, the pandemic could affect the stability of our deposit base as well as our capital and liquidity position, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, result in lost revenue and cause us to incur additional expenses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairments in future periods on goodwill or the securities we hold as well as reductions in other comprehensive income.

        The extent of the impact of the COVID-19 pandemic on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects will depend on a number of evolving factors, including:

•The duration, extent, and severity of the pandemic.  COVID-19 has not been contained and could affect significantly more households and businesses. The duration and severity of the pandemic continue to be impossible to predict.

•The response of governmental and nongovernmental authorities.  Many of the actions taken by authorities have been directed at curtailing personal and business activity to contain COVID-19 while

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simultaneously deploying fiscal-and monetary-policy measures to assist in mitigating the adverse effects on individuals and businesses.

•The effect on our customers, counterparties, employees, and third-party service providers.  COVID-19 and its associated consequences and uncertainties may affect individuals, households, and businesses differently and unevenly. In the near-term if not longer, however, our credit, operational, and other risks are generally expected to increase.

•The effect on economies and markets.  Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies and markets could suffer disruptions that are lasting.

•The success of hardship relief efforts to bridge the gap to reopening the economy.  The U.S. government has implemented programs to directly compensate individuals and grant or loan money to businesses in an effort to provide funding while the economy is shut down. Many banks, including First Federal Bank of the Midwest, have implemented hardship relief programs that include payment deferral and short-term funding options. The success of these programs could mute the effect on the Company’s credit losses, which may be difficult to determine.

In an effort to help our customers during this time, First Defiance has maintained full staffing of all branch drive-thru lanes, provided for branch lobby appointments, communicated with and encouraged our customers to use our free self-service tools such as ATMs and mobile/online technology, reduced or waived various customer fees, implemented loan payment deferral programs and participated in governmental stimulus programs such as the Small Business Administration Payment Protection Program (“PPP”). A significant number of our borrowers have enrolled in one of our programs to defer some or all loan payments for up to six months. These programs may negatively impact our revenue and other results of operations in the near term and, if not effective in mitigating the effect of COVID-19 on our customers, may adversely affect our business and results of operations more substantially over a longer period of time.

The sharp deterioration in the United States economy that has resulted from the COVID-19 pandemic and the actions taken by the federal and state governments to slow the spread of that virus have resulted in a significant increase in the unemployment rate throughout the United States, including in the local economies in which we conduct business. We anticipate that this increase in unemployment will affect the ability of some of our clients to repay their loans on a timely basis and will adversely affect the financial results of our commercial clients in localities with high unemployment, resulting in loan defaults and the possible impairments in the value of our collateral. These developments could adversely impact our results of operations and financial condition, although the extent of such impact cannot be determined at this time.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. Even after COVID-19 has subsided, we may continue to experience materially adverse impacts to our business. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Our participation in the PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.

Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the borrowers receiving PPP loans. We depend on our reputation as a trusted and responsible financial services company to compete effectively in the communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out

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of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business. Other banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be subject to the same or similar litigation. In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

Item 2. UnregisteredSales of Equity Securities and Use of Proceeds

The Company had no unregistered sales of equity securities during the quarter ended March 31, 2020.

The following table provides information regarding First Defiance’s purchases of its common stock during the three-month period ended March 31, 2020:

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, December 31, 2019								500,000
January 1 – January 31, 2020		—	$	—		—		500,000
February 1 – February 29, 2020		50,000		27.28		50,000		950,000
March 1 – March 31, 2020		380,000		22.93		380,000		570,000
Total		430,000		23.44		430,000		570,000

(1) On May 23, 2019, the Company announced that its Board of Directors authorized a program for the repurchase of up to 500,000 shares of its outstanding common stock.On February 18, 2020, the Company announced that its Board of Directors increased the program by an additional 500,000 shares.  There is no expiration date for the repurchase program.  

Item 3. Defaultsupon Senior Securities

Not applicable.

Item 4. Mine SafetyDisclosures

Not applicable.

Item 5. OtherInformation

None.

Item 6. Exhibits

Exhibit 3.1	Amended and Restated Articles of Incorporation of First Defiance  (reflecting all amendments filed with the Ohio Secretary of State) [restated for purposes of SEC reporting compliance only – not filed with the Ohio Secretary of State] (incorporated herein by reference to Exhibit 3.1 in Registrant’s Form 8-K filed February 3, 2020 (File No. 000-26850))
Exhibit 3.2*	Amended and Restated Code of Regulations of First Defiance (reflecting all amendments) (incorporated by reference to Exhibit 3.1 in Registrant’s Form 8-K filed June 3, 2020)

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Exhibit 10.1	Form of Amendment to Performance-Based Restricted Stock Unit Award Agreements by and between First Defiance Financial Corp. and Donald P. Hileman (incorporated herein by reference to Exhibit 10.1 in Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))
Exhibit 10.2	Form of Amendment to Performance-Based Restricted Stock Unit Award Agreements – Long Term Growth by and between First Defiance Financial Corp. and Donald P. Hileman (incorporated herein by reference to Exhibit 10.2 in Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))
Exhibit 10.3	Form of Amendment to Performance-Based Restricted Stock Unit Award Agreements (incorporated herein by reference to Exhibit 10.3 in Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))
Exhibit 10.4	Form of Amendment to Performance-Based Restricted Stock Unit Award Agreements – Long Term Growth (incorporated herein by reference to Exhibit 10.4 in Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850)).
Exhibit 10.5*	Form of Severance and Change in Control Agreement.
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 March 31, 2020 is formatted in eXtensible Business Reporting Language (“XBRL”): (i) Unaudited Consolidated Condensed Statements of Financial Condition at March 31, 2020 and December 31, 2019; (ii) Unaudited Consolidated Condensed Statements of Income for the Three and Three Months ended March 31, 2020 and 2019; (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the Three  Months ended March 31, 2020 and 2019; (iv) Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2020 and 2019; (v) Unaudited Consolidated Condensed Statements of Cash Flows for the Three Months ended March 31, 2020 and 2019; and (vi) Notes to Unaudited Consolidated Condensed Financial Statements.

* Filed herewith.

+ Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules and similar attachments have been omitted. The Registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.

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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:  June 18, 2020	By:	/s/ Donald P. Hileman
		Donald P. Hileman
		Chief Executive Officer

Date:  June 18, 2020	By:	/s/ Paul D. Nungester, Jr.
		Paul D. Nungester, Jr.
		Executive Vice President and
		Chief Financial Officer

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED CODE OF REGULATIONS

OF

FIRST DEFIANCE FINANCIAL CORP.

(as amended through May 28, 2020)

ARTICLE I

Principal Office

The principal office of First Defiance Financial Corp. (herein the “Corporation”) in Ohio is located at 601 Clinton Street, Defiance, Ohio 43512. The Corporation may also have offices at such other places within or without the State of Ohio as the Board of Directors shall from time to time determine.

ARTICLE II

Stockholders

SECTION 1. Place of Meetings. All annual and special meetings of stockholders shall be held at such place within or without the State in which the principal executive office of the Corporation is located as the Board of Directors may determine and as designated in the notice of such meeting.

SECTION 2. Annual Meeting. A meeting of the stockholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the Board of Directors may determine.

SECTION 3. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board, the president or the Board of Directors in accordance with the Corporation’s Articles of Incorporation.

SECTION 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the rules and procedures established by the Board of Directors. The Board of Directors shall designate, when present, either the Chairman of the Board or president to preside at such meetings.

SECTION 5. Notice of Meeting. Written notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than seven days nor more than sixty days before the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II, with postage thereon prepaid. If a stockholder is present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such stockholder shall be unnecessary. When any stockholders’ meeting, either annual or special, is adjourned, notice of adjournment need not be given if the time and place to which such meeting is adjourned are fixed and announced at such meeting.

Upon request in writing delivered either in person or by registered mail to the president or the secretary by any persons entitled to call a meeting of stockholders, the president or the secretary shall give written notice of the meeting to be held on a date not less than seven nor more than sixty days following the provision of such notice. If such notice is not given within fifteen days after the delivery or mailing of such request, the persons calling the meeting may fix the time of the meeting and give notice thereof as provided in the preceding paragraph, or cause notice to be given by any designated representative.

SECTION 6. Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors shall fix in advance a date as the record date for any such determination of stockholders. Such date in any case shallnot be a date earlier than the date on which the record date is fixed and shall not be more than sixty days and, in case of a meeting of stockholders, not less than twenty days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

SECTION 7. Voting Lists. The Corporation shall make available upon the request of any stockholder at any meeting of stockholders, a complete record of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders.

SECTION 8. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding voting shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

SECTION 9. Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the Board of Directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. Every appointment of a proxy shall be revocable unless such appointment is coupled with an interest.

SECTION 10. Voting. Every stockholder entitled to vote shall be entitled to one vote for each share of stock held by him. Unless otherwise provided in the Articles of Incorporation, by applicable law, or by this Code of Regulations, a majority of those votes cast by stockholders at a lawful meeting shall be sufficient to pass on a transaction or matter.

SECTION 11. Voting of Shares in the Name of Two or More Persons. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the stockholders of the Corporation any one or more of such stockholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting and, an equal number of votes shall be cast for and against any proposal if a majority cannot agree.

SECTION 12. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, and except to the extent inconsistent with applicable law, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian, conservator or a trustee in bankruptcy may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee, other than a trustee in bankruptcy, shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred.

Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

SECTION 13. Inspectors of Election. In advance of any meeting of stockholders, the Board of Directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the Board of Directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the Chairman of the Board or the president may, and on the request of not less than ten percent of the votes represented at the meeting shall, make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting or at the meeting by the Chairman of the Board or the president.

Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders.

ARTICLE III

Officers

SECTION 1. Positions. The officers of the Corporation shall be a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may also designate the Chairman of the Board as an officer. The president shall be the chief executive officer, unless the Board of Directors designates another person as the chief executive officer. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The Board of Directors may designate one or more vice presidents as executive vice president or senior vice president. The Board of Directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the Board of Directors may from time to time authorize or determine. In the absence of action by the Board of Directors, the officers shall have such powers and duties as generally pertain to their respective offices.

SECTION 2. Election and Term of Office. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the stockholders or at such other meeting of the Board of Directors as is determined by the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The Board of Directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law, but no such contract shall impair the right of the Board of Directors to remove any officer at any time in accordance with Section 3 of this Article III.

SECTION 3. Removal. Any officer may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed.

SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

ARTICLE IV

Contracts, Loans, Checks and Deposits

SECTION 1. Contracts. To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation’s Articles of Incorporation or this Code of Regulations with respect to certificates for shares, the Board of Directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authorization may be general or confined to specific instances.

SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.

SECTION 3. Checks, Drafts. Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by the Board of Directors.

SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the Board of Directors may select.

ARTICLE V

Certificates for Shares and Their Transfer

SECTION 1. Uncertificated Shares of Stock; Stock Certificates. To the extent permitted by applicable law and unless otherwise provided by the Corporation’s Articles of Incorporation, the Board of Directors may provide by resolution that some or all of any or all classes and series of shares of capital stock in the Corporation shall be issued in uncertificated form pursuant to customary arrangements for issuing shares in such uncertificated form. Any such resolution shall not apply to shares then represented by a certificate until such certificate is surrendered to the Corporation, nor shall such a resolution apply to a certificated share issued in exchange for an uncertificated share. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner of the shares a written notice containing the information required to be set forth or stated on certificates pursuant to applicable law. In case any such officer who has signed any such certificate shall have ceased to be such officer before such certificate is delivered by the Corporation, it may nevertheless be issued and delivered by the Corporation with the same effect as if such officer had not ceased to be such at the date of its delivery. Any certificate representing the stock of the Corporation shall be in such form as shall be approved by the Board of Directors and shall conform to the requirements of the laws of the State of Ohio.

SECTION 2. Form of Share Certificates. All certificates representing shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any stockholder upon request and without charge within five days after receipt of written request therefor a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series.

Each certificate representing shares shall state upon the face thereof: that the Corporation is organized under the laws of the State of Ohio; the name of the person to whom issued; the number of shares represented by such certificate; the date of issue; the designation of the series or class, if any, which such certificate represents. Other matters in regard to the form of the certificates shall be determined by the Board of Directors.

SECTION 3. Payment of Shares. No certificate shall be issued for any shares until such share is fully paid.

SECTION 4. Form of Payment for Shares. The consideration for the issuance of shares shall be paid in accordance with the provisions of the Corporation’s Articles of Incorporation.

SECTION 5. Transfer of Shares. Transfers of uncertificated shares of the Corporation shall be made on the books of the Corporation only by the holder thereof in person or by attorney upon presentment of proper evidence of succession, assignation or authority to transfer in accordance with customary procedures for transferring shares in uncertificated form. Transfers of certificated shares of the Corporation shall be made on the books of the Corporation only by the person named in the certificate, or by an attorney lawfully constituted in writing, and upon surrender and cancellation of a certificate or certificates for a like number of shares of the same class or series of stock, with duly executed assignment and power of transfer endorsed thereon or attached thereto, and with such proof of the authenticity of the signatures as the Corporation or its agents may reasonably require. No transfer of shares of the Corporation shall be valid until such transfer shall have been made upon the books of the Corporation.

SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

SECTION 7. Lost Certificates.  In case any certificate of shares of the Corporation shall be lost, stolen or destroyed, the Board of Directors, in its discretion, or any officer or officers thereunto duly authorized by the Board of Directors, may authorize the issue of a substitute certificate or substitute stock in uncertificated form in the place of the certificate so lost, stolen or destroyed; provided, however, that in each such case, the applicant for a substitute certificate or substitute share of the Corporation in uncertificated form shall furnish to the Corporation evidence to the Corporation, which determines in its discretion is satisfactory, of the loss, theft, or destruction of such certificate and of the ownership thereof, and also such security or indemnity as may be required.

SECTION 8. Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VI

Fiscal Year; Annual Audit

The fiscal year of the Corporation shall be determined by the Board of Directors. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the Board of Directors.

ARTICLE VII

Dividends

Subject to the provisions of the Articles of Incorporation and applicable law, the Board of Directors may, at any regular or special meeting, declare dividends on the Corporation’s outstanding capital stock. Dividends may be paid in cash, in property or in the Corporation’s own stock.

ARTICLE VIII

Corporate Seal

The corporate seal of the Corporation shall be in such form as the Board of Directors shall prescribe.

ARTICLE IX

Amendments

In accordance with the Corporation’s Articles of Incorporation, this Code of Regulations may be repealed, altered, amended or rescinded by the stockholders of the Corporation by vote of not less than a majority of the outstanding voting power of the Corporation entitled to vote at a meeting of the stockholders called for that purpose. In addition, this Code of Regulations may be repealed, altered, amended or rescinded by the affirmative vote of a majority of the authorized number of directors.

ARTICLE X

Board of Directors

SECTION 1. General Powers. The business and affairs of the Corporation shall be under the direction of its Board of Directors. The Board of Directors shall annually elect a Chairman of the Board from among its members.

SECTION 2. Number and Classification. The number of members of the Board of Directors (such number referred to herein as the “authorized number of directors”) may be increased or decreased by resolution of the Board of Directors within the range set forth in the Corporation’s Articles of Incorporation. The Board of Directors shall be divided into classes in accordance with the provisions of the Corporation’s Articles of Incorporation.

SECTION 3. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Section immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.

SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or the Chief Executive Officer, or by one-third of the directors. The persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by such persons.

Members of the Board of Directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person.

SECTION 5. Notice. Written notice of any special meeting shall be given to each director at least two days previous thereto if delivered personally or by email, or at least five days previous thereto if delivered by mail at the address of the director on the records of the Corporation. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed, or when sent if by email. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, unless, prior to or at the commencement of such meeting, such director objects to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 6. Quorum. A majority of the number of directors fixed by Section 2 of this Article X shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this Article X.

SECTION 7. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater number is prescribed by this Code of Regulations, the Articles of Incorporation, or the laws of Ohio.

SECTION 8. Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

SECTION 9. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the Chairman of the Board or the Chief Executive Officer. Unless otherwise specified therein such resignation shall take effect upon the acceptance thereof by the Chairman of the Board or the Chief Executive Officer.

SECTION 10. Vacancies. Vacancies occurring in the Board of Directors shall be filled in accordance with the provisions of the Corporation’s Articles of Incorporation. A director elected to fill a vacancy shall be elected to serve until the annual meeting of stockholders at which the term of the class to which the director has been chosen expires.

SECTION 11. Presumption of Assent. Unless Ohio law provides otherwise, a director of the Corporation who is present at a meeting of the Board of Directors at which action on any Corporation matter is taken shall be presumed to have assented to the action taken unless (i) he objects at the beginning of the meeting (or promptly upon his arrival) to holding the meeting or transacting business at the meeting; (ii) his dissent or abstention from the action taken is entered in the minutes of the meeting; or (iii) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

SECTION 12. Compensation. The Board of Directors may, by resolution, from time to time establish the compensation to be paid to directors for their service as such. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the Board of Directors may determine.

ARTICLE XI

Committees of the Board of Directors

The Board of Directors may, by resolution passed by a majority of the authorized number of directors, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of not less than three directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

The Board of Directors shall have power, by the affirmative vote of a majority of the number of directors fixed by Article X, Section 2, at any time to change the members of, to fill vacancies in, and to discharge any committee of the Board. Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the Board, the Chairman of the Board, the Chief Executive Officer, the Chairman of such committee, or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the Board called for that purpose.

ARTICLE XII

Certain Governance Matters

SECTION 1. Interpretation. The provisions of this Article XII shall apply notwithstanding anything to the contrary set forth in this Code of Regulations. In the event of any inconsistency between any provision of this Article XII and any other provision of this Code of Regulations, such provision of this Article XII shall control.

SECTION 2. Office of the Bank. The main office of the Corporation’s subsidiary, First Federal Bank of the Midwest, herein the “Bank,” will be located in Youngstown, Ohio.

SECTION 3. Officers of the Corporation. Notwithstanding any other provision of this Code of Regulations, the Board of Directors shall, subject to the next succeeding paragraph in this Section 3, elect the following individuals to the following officer positions for the periods of time set forth opposite their names, pursuant to Section 7.14(d) of the Agreement and Plan of Merger between the Corporation and United Community Financial Corp. (“United Community”), dated September 9, 2019 (the “Agreement”) (terms capitalized but not otherwise defined in this Code of Regulations shall have the meaning given to them in the Agreement):

Name	Position	Term
Donald Hileman	Executive Chairman of the Board of Directors	Beginning on a date during the period commencing January 1, 2021 and ending June 30, 2021, as determined by the Board of Directors, or any such earlier date as of which Donald Hileman ceases for any reason to serve as Chief Executive Officer (the “Succession Date”). Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations.
Donald Hileman	Chief Executive Officer	Beginning at the Effective Time. Ending on the Succession Date.
Gary Small	Chief Executive Officer	Beginning on the Succession Date. Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations.
Gary Small	President	Beginning at the Effective Time. Continuing at and following the Succession Date and ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations.

The removal of any of these individuals from, or the failure to appoint or re-elect the individuals to, the positions listed above or set forth in any of their respective employment agreements with the Corporation, any modification to any of their respective duties, authority or reporting relationships and any amendment to or termination of any employment agreements entered into by the Corporation with the foregoing individuals shall require the affirmative vote of three-fourths of the authorized number of directors until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’

successors selected and appointed pursuant to this subsection), the Corporation shall not appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors.

SECTION 4. Officers of the Bank. The Corporation shall, subject to the next succeeding paragraph in this Section 4, cause the Bank to elect the following individuals to the following officer positions at the Bank for the periods of time set forth opposite their names, pursuant to Section 7.14(d) of the Agreement:

Name	Position	Term
Donald Hileman	Executive Chairman of the Board of Directors of the Bank	Beginning on the Succession Date. Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations and the organizational documents of the Bank.
Donald Hileman	Chief Executive Officer	Beginning at the Effective Time. Ending on the Succession Date.
Gary Small	Chief Executive Officer	Beginning on the Succession Date. Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations and the organizational documents of the Bank.
Gary Small	President	Beginning at the Effective Time. Continuing at and following the Succession Date and ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations and the organizational documents of the Bank.

The Corporation shall cause the Bank not to remove any of these individuals from, or fail to appoint or re-elect the individuals to, the positions listed above or set forth in any of their respective employment agreements with the Bank, or modify any of their respective duties, authority or reporting relationships or amend or terminate any employment agreements entered into by the Bank with the foregoing individuals, in each case, without the affirmative vote of three-fourths of the authorized number of directors of the Corporation until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall cause the Bank not to appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

SECTION 5. Amendments to this Code of Regulations. Prior to the second anniversary of the Succession Date, any repeal, alteration, amendment or rescindment of Article I or this Article XII of this Code of Regulations by the Board of Directors shall require (and any such repeal, alteration, amendment or rescindment may be proposed or recommended by the Board of Directors for adoption by the stockholders of the Corporation only by) the affirmative vote of three-fourths of the authorized number of directors. Prior to the second anniversary of the Succession Date,

the Corporation may not exercise its authority, in its capacity as sole stockholder of the Bank, to (and the Corporation shall cause the Bank not to) modify, amend or repeal any of the provisions of the organizational documents of the Bank implementing the provisions of this Article XII, or implement or adopt any provisions of the organizational documents of the Bank inconsistent with the foregoing, in each case, without the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

SECTION 6. Board of Directors of the Corporation. In accordance with Section 7.14(c) of the Agreement, the following provisions shall govern directors to the exclusion of any provision in this Code of Regulations to the contrary. At the Effective Time, the Board of Directors of the Corporation, as the Surviving Entity, shall consist of thirteen directors who shall consist of: (i) Donald Hileman, John Bookmyer, and five other persons who served as directors of the Corporation or the Bank immediately prior to the Effective Time and are designated by the Corporation (each, a “Corporation-Related Director,” which term shall include any directors who are subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a Corporation-Related Director, as applicable, in accordance with this Article XII, Section 6); and (ii) Gary Small, Richard Schiraldi, and four other persons who served as directors of United Community or Home Savings Bank immediately prior to the Effective Time and are designated by United Community (each, a “United Community-Related Director,” which term shall include any directors who are subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a United Community-Related Director in accordance with this Article XII, Section 6).

The directors shall be divided into three classes. Immediately following the Effective Time, the Class I directors shall consist of two Corporation-Related Directors and two United Community-Related Directors. The initial Class I directors shall hold office for an initial term expiring at the 2022 annual meeting of stockholders, and Class I directors shall thereafter be elected to three-year terms. Upon the expiration of their initial term, the initial Class I directors shall be nominated by the Board of Directors, provided that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2025 annual meeting of stockholders. If, prior to the second anniversary of the Succession Date, any of the initial Class I directors shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors with an individual selected by the United Community-Related Directors (if such director was a United Community-Related Director) or the Corporation-Related Directors (if such director was a Corporation-Related Director) in good faith in a manner intended to preserve the principles of representation in this Code of Regulations, provided that such individual is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, which such individual, if appointed to the Board of Directors prior to the 2022 annual meeting of stockholders, will be nominated by the Board of Directors for reelection at such annual meeting for an additional term to expire at the 2025 annual meeting of stockholders, provided again that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties.

Immediately following the Effective Time, the Class II directors shall consist of two Corporation-Related Directors and two United Community-Related Directors. The initial Class II directors shall hold office for an initial term expiring at the 2021 annual meeting of stockholders, and Class II directors shall thereafter be elected to three-year terms. Upon the expiration of their initial terms, the initial Class II directors shall be nominated by the Board of Directors, provided that such nominations are reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2024 annual meeting of stockholders. If, prior to the second anniversary of the Succession Date, any of the initial Class II directors shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors with an individual selected by the United Community-Related Directors (if such director was a United Community-Related Director) or the Corporation-Related Directors (if such director was a Corporation-Related Director) in good faith in a manner intended to preserve the principles of representation in this Code of Regulations, provided that such individual is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, which such individual, if appointed to the Board of Directors prior to the 2021 annual meeting of stockholders, will be nominated by the Board of Directors for reelection at such annual meeting for an additional term to expire at the 2024 annual meeting of stockholders, provided again that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties.

Immediately following the Effective Time, the Class III directors shall consist of three Corporation-Related Directors and two United Community-Related Director. The initial Class III directors shall hold office for an initial term expiring at the 2020 annual meeting of stockholders, and Class III directors shall thereafter be elected to three-year terms. Upon the expiration of their initial term, the initial Class III directors shall be nominated by theBoard of Directors, provided that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2023 annual meeting of stockholders. If, prior to the second anniversary of the Succession Date, any of the initial Class III directors shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors with an individual selected by the United Community-Related Directors (if such director was a United Community-Related Director) or the Corporation-Related Directors (if such director was a Corporation-Related Director) in good faith in a manner intended to preserve the principles of representation in this Code of Regulations, provided that such individual is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, which such individual, if appointed to the Board of Directors prior to the 2020 annual meeting of stockholders, will be nominated by the Board of Directors for reelection at such annual meeting for an additional term to expire at the 2023 annual meeting of stockholders, provided again that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties.

In addition, John Bookmyer shall serve as Chairman of the Board of Directors for a term beginning at the Effective Time and until the Succession Date and Richard Schiraldi shall serve as Vice Chairman of the Board of Directors for a term beginning at the Effective Time and continuing on and following the Succession Date until the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations. The removal of any of these individuals from, or the failure to appoint or re-elect the individuals to, the positions listed in the foregoing sentence shall require the affirmative vote of three-fourths of the authorized number of directors until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall not appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors.

Notwithstanding anything to the contrary herein, prior to the second anniversary of the Succession Date, the Corporation may not increase or decrease the authorized number of directors or increase, decrease or change the classification of any class of directors, in each case, without the affirmative vote of three-fourths of the authorized number of directors.

SECTION 7. Board of Directors of the Bank. At the Effective Time, the Corporation shall cause the Board of Directors of the Bank, as the surviving bank, to consist of thirteen directors who shall consist of: (i) Donald Hileman, John Bookmyer, and five other persons who served as directors of the Corporation or the Bank immediately prior to the Effective Time (each, a “Corporation-Related Bank Director,” which term shall include any directors who were subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a Corporation-Related Bank Director in accordance with this Article XII, Section 7); and (ii) Gary Small, Richard Schiraldi, and four other persons who served as directors of United Community or Home Savings Bank immediately prior to the Effective Time (each, a “United Community-Related Bank Director,” which term shall include any directors who were subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a United Community-Related Bank Director in accordance with this Article XII, Section 7). If, prior to the second anniversary of the Succession Date, any of the directors of the Bank shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors of the Bank with an individual selected by the United Community-Related Bank Directors (if such director was a United Community-Related Bank Director) or the Corporation-Related Bank Directors (if such director was a Corporation-Related Bank Director), in each case, in good faith in a manner intended to preserve the principles of representation in this Code of Regulations. Prior to the second anniversary of the Succession Date, the Corporation shall cause the Board of Directors of the Bank not to (a) fail to re-elect any of the United Community-Related Bank Directors or Corporation-Related Bank Directors or (b) increase or decrease the number of directors of the Board of Directors of the Bank, in each case, without the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

In addition, the Corporation shall cause the Bank to appoint John Bookmyer as Chairman of the Board of Directors of the Bank for a term beginning at the Effective Time and until the Succession Date and Richard Schiraldi as Vice Chairman of the Board of Directors of the Bank for a term beginning at the Effective Time and continuing on and following the Succession Date until the date on which his successor shall have been duly elected and qualified or untilhis death or until he shall resign or shall have been removed in accordance with this Code of Regulations. The removal of any of these individuals from, or the failure to appoint or re-elect the individuals to, the positions listed in the foregoing sentence shall require the affirmative vote of three-fourths of the authorized number of directors of the Corporation until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall cause the Bank not to appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

SECTION 8. Committees of the Board of Directors of the Corporation. At the Effective Time, the Corporation shall have an Audit Committee, a Governance and Nominating Committee, a Compensation Committee, and a Risk Committee. The Chairman of each of the Audit Committee and the Risk Committee shall be a Corporation-Related Director. The Chairman of each of the Governance and Nominating Committee and the Compensation Committee shall be a United Community-Related Director.

EX-10.5

Exhibit 10.5

SEVERANCE AND CHANGE IN CONTROL AGREEMENT

THIS SEVERANCE AND CHANGE IN CONTROL AGREEMENT (this “Agreement”), is entered into this ___ day of _____, 20__ (“Effective Date”) by and among United Community Financial Corp., a bank holding company incorporated under Ohio law (“UCFC”), Home Savings Bank, an Ohio charted bank (“Home Savings”) (collectively with UCFC, the “Company”) and _________, an individual (hereinafter referred to as the “Executive”).

WITNESSETH:

WHEREAS, the Executive and the Company desire to enter into this Agreement to provide Executive with the opportunity to receive severance protections in connection with termination of employment or a Change in Control (defined below) of the Company. The purpose of the Agreement is to retain talent and to assure the present and future continuity, objectivity and dedication of management in the event of any Change in Control in order to maximize the value of the Company on a Change in Control.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, the Company and the Executive, each party intending to be legally bound, hereby agree as follows:

1.Term.

(a)Term. Upon the terms and subject to the conditions of this Agreement, the Agreement shall be effective on the Effective Date and shall end one year from the date thereof (the “Term”), except as otherwise provided in Section 1(b).  The Term may be terminated as set forth in this Section 2 of this Agreement.

(b)Renewal.  The Term of this Agreement shall be extended automatically for an additional period of 12 months, unless either the Company or the Executive provides the other party with written notice that the Term shall not be so extended within at least 90 days prior to the end of the Term.

2.Termination of Employment and this Agreement.  For purposes of this Agreement, any reference to the Executive’s “termination of employment” (or any form thereof) shall mean the Executive’s “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and Treasury Regulation §1.409A-1(h).

(a)Death of Executive.  The Term will terminate upon the Executive’s termination of employment due to his death, and the Executive’s beneficiary (as designated by the Executive in writing with the Company prior to the Executive’s death) will be entitled to the following payments and benefits:

(i) Any Base Salary that is accrued but unpaid and any business expenses that are unreimbursed – all, as of the date of termination of employment, paid within 30 days after the date of the Executive’s death;

(ii) Any rights and benefits (if any) provided under any employee benefit plans and programs of the Company, determined in accordance with the applicable terms and provisions ofsuch plans and programs (the payments described in Sections 2(a)(i) and (ii) are hereinafter collectively referred to as the “Accrued Obligations”); and

(iii) An amount equal to 3 months of Executive’s Base Salary, paid within 60 days of death.

In the absence of a beneficiary designation by the Executive, or, if the Executive’s designated beneficiary does not survive the Executive, payments and benefits described in this Section 2(a) will be paid to the Executive’s estate.

(b)Disability.  For purposes of this Agreement, “Permanent Disability” means a physical or mental impairment that renders the Executive incapable of performing the essential functions of the Executive’s job, on a full-time basis, even taking into account reasonable accommodation required by law, as determined by a physician who is selected by the agreement of the Executive and the Company, for a period of greater than 150 days.

(i) During any period that the Executive fails to perform the Executive’s duties hereunder as a result of a Permanent Disability (“Disability Period”), the Executive will continue to receive the Executive’s Base Salary at the rate then in effect for such period until the Executive’s employment is terminated; provided, however, that payments of Base Salary so made to the Executive will be reduced by the sum of the amounts, if any, that were payable to the Executive at or before the time of any such salary payment under any disability benefit plan or plans of the Company and that were not previously applied to reduce any payment of Base Salary.

(ii) The Company shall pay the Executive a lump sum payment equal to [18] months of COBRA premiums for the coverage Executive had in place, if any, at the date of termination of employment, at the rate of premium in effect at the time of such eligibility, paid within 60 days of such eligibility.

(iii) In the event that the Company elects to terminate the Executive’s employment due to Disability, the Executive will be entitled to payment of the Accrued Obligations as described in Section 2(a);

(iv) In the event that the Company elects to terminate the Executive’s employment due to Disability, the Executive will be entitled to payment of an amount equal to ___ times the Executive’s Base Salary plus an amount equal to ___ times target annual incentive compensation in effect on the date of the Executive’s termination of employment, provided that for purposes of this Section 2(b)(iv), Base Salary shall not be reduced for any disability benefits as described under Section 2(b)(i) (nor shall Base Salary be deemed to include any disability benefits payable under Sections 2(b)(ii) – (v)). Except as otherwise prohibited by applicable Federal or state law or regulation and as otherwise mutually agreed to by the Executive and the Company, the payment due under this Section 2(b)(iv)

2

2

shall be paid immediately following the date of termination and be made in accordance with the Company’s normal payroll practices.

(v) In the event that the Company elects to terminate the Executive’s employment due to Disability, the Executive will also be entitled to payment of any accrued but unpaid annual incentive award, which shall be paid pursuant to the terms of the applicable incentive plan.

(c)For Cause Termination.  In the event that the Company terminates the Executive’s employment for “Cause,” the Term of this Agreement shall end as of such termination of employment, and the Executive will only be entitled to payment of the Accrued Obligations in accordance with the schedule described in Section 2(a).  For purposes of this Agreement, “Cause” means:

(i) the Executive’s continued intentional failure or refusal to perform substantially the Executive’s assigned duties (other than as a result of total or partial incapacity due to physical or mental illness) for a period of ten days following written notice by the Company to the Executive of such failure;

(ii) the Executive’s engagement in willful misconduct, including without limitation, fraud, embezzlement, theft or dishonesty in the course of the Executive’s employment with the Company;

(iii) the Executive’s conviction of, or plea of guilty or nolo contendere to a felony or a crime other than a felony, which felony or crime involves moral turpitude or a breach of trust or fiduciary duty owed to the Company or any of their Affiliates; or

(iv) the Executive’s disclosure of trade secrets or material, non-public confidential information of the Company or any of its Affiliates in violation of the Company’s or its Affiliates’ policies that applies to the Executive or any agreement with the Company or any of its Affiliates in respect of confidentiality, nondisclosure or otherwise.

(d)Termination Without Cause.  If the Executive’s employment is terminated by the Company for any reason other than the reasons set forth in subsections (a), (b), (c), (e) or (f) of this Section 2, the Executive will be entitled to the following payments and benefits:

(i) Payment of the Accrued Obligations as described in Section 2(a);

(ii) Payment of an amount equal to ___ times the Executive’s Base Salary plus an amount equal to ___ times target annual incentive compensation in effect on the date of the Executive’s termination of employment, provided that for purposes of this Section 2(d)(ii), Base Salary shall not be reduced for any disability benefits as described under Section 2(b)(i) (nor shall Base Salary be deemed to include any disability benefits payable under Sections 2(b)(ii) – (v)).  Except as otherwise prohibited by applicable Federal or state law or regulation and as otherwise mutually agreed to by the Executive and the Company, the payment due under this

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Section 2(d)(ii) shall be paid immediately following the date of termination and be made in accordance with the Company’s normal payroll practices.

(iii) Payment of any accrued but unpaid annual incentive award, which shall be paid pursuant to the terms of the applicable incentive plan; and

(iv) A lump sum payment equal to 18 months of COBRA premiums for the coverage Executive had in place, if any, at the date of termination of employment, at the rate of premium in effect at the date of termination of employment, paid within 60 days of termination of employment.

(e)Good Reason Termination.  The Executive may resign and terminate the Term and the Executive’s employment with the Company for “Good Reason” upon not less than 30 days prior written notice to the Company if the Company fails to fully cure the effect of such condition within 30 days following receipt of Executive’s written notice.

(i) For purposes of this Agreement, the Executive will have “Good Reason” to terminate the Executive’s employment with the Company if any of the following events occur without the Executive’s consent:

(A) A material diminution in the Executive’s Base Salary;

(B) A material reduction by the Company of Executive’s duties, responsibilities, authority, or reporting relationship such that Executive no longer serves in as substantive, senior executive role for the Company comparable in stature to Executive’s current role;

(C) A material diminution in title;

(D) A material change in the geographic location in which the Executive must perform services under this Agreement.  For purposes of this Agreement, a material change in the geographic location shall mean the relocation of the Executive’s principal place of employment to a new location that is over 50 miles from the former location(s);

(E) The Company provides 90 days’ notice to the Executive that it will not renew the Agreement or offer the Executive a substantially similar agreement; or

(F) Any other action or inaction that constitutes a material breach of this Agreement.

Notwithstanding the foregoing, Good Reason shall cease to exist for an event on the 90th day following the later of its occurrence or the Executive’s knowledge thereof, unless the Executive has given the Company written notice of the Executive’s intent to terminate prior to such date.

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The mere occurrence of a Change in Control shall not constitute “Good Reason” for the Executive to voluntarily terminate the Term and the Executive’s employment.

(ii) In the event that the Executive terminates the Executive’s employment with the Company for Good Reason pursuant to Section 2(e)(i)(A), or (D)-(F), the Term of this Agreement shall end as of such termination from employment, and the Executive will be entitled to:

(A) Payment of the Accrued Obligations as described in Section 2(a);

(B) Payment of an amount equal to ___ times the Executive’s Base Salary plus an amount equal to ___ times target annual incentive compensation in effect on the date of the Executive’s termination of employment, provided that for purposes of this Section 2(e)(ii), Base Salary shall not be reduced for any disability benefits as described under Section 2(b)(i) (nor shall Base Salary be deemed to include any disability benefits payable under Sections 2(b)(ii) – (v)).  Except as otherwise prohibited by applicable Federal or state law or regulation and as otherwise mutually agreed to by the Executive and the Company, the payment due under this Section 2(e)(ii) shall be paid immediately following the date of termination and be made in accordance with the Company’s normal payroll practices.

(C) Payment of any accrued but unpaid annual incentive award, which shall be paid pursuant to the terms of the applicable incentive plan; and

(D) A lump sum payment equal to 18 months of COBRA premiums for the coverage Executive had in place, if any, at the date of termination of employment, at the rate of premium in effect at the date of termination of employment, paid within 60 days of termination of employment.

(iii) In the event that the Executive terminates the Executive’s employment with the Company for Good Reason pursuant to Section 2(e)(i)(B) or (C), the Term of this Agreement shall end as of such termination from employment, and the Executive will be entitled to the payments and benefits described above in Sections 2(e)(ii)(A), (C) and (D), and further entitled to:

(A) Payment of an amount equal to ___ times the Executive’s Base Salary plus an amount equal to ___ times target annual incentive compensation in effect on the date of the Executive’s termination of employment, provided that for purposes of this Section 2(e)(iii), Base Salary shall not be reduced for any disability benefits as described under Section 2(b)(i) (nor shall Base Salary be deemed to include any disability benefits payable under Sections 2(b)(ii) – (v)). Except as otherwise prohibited by applicable Federal or state

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law or regulation and as otherwise mutually agreed to by the Executive and the Company, the payment due under this Section 2(e)(iii) shall be paid immediately following the date of termination and be made in accordance with the Company’s normal payroll practices.

(f)Termination in Connection with Change In Control.  In the event that during the Term, a Change in Control of the Company occurs and, within 9 months prior or 12 months following such Change in Control, this Agreement and the Executive’s employment is terminated by the Company or its successor without Cause as described in Section 2(d) or is terminated for Good Reason by the Executive as described in Section 2(e), then in lieu of any payment that might be provided under such Section 2(d) or 2(e), as applicable, of this Agreement, the Executive will be entitled to the following payments and benefits from the Company or its successors:

(i) Payment of the Accrued Obligations as described in Section 2(a);

(ii) Payment of an amount equal to ___ times the Executive’s Base Salary plus an amount equal to ___ times target annual incentive compensation in effect on the date of the Executive’s termination of employment, provided that for purposes of this Section 2(f)(ii), Base Salary shall not be reduced for any disability benefits as described under Section 2(b)(i) (nor shall Base Salary be deemed to include any disability benefits payable under Sections 2(b)(ii) – (v)).  Except as otherwise prohibited by applicable Federal or state law or regulation and as otherwise reasonably requested by the Executive, the payment due under this Section 2(f)(ii) shall be paid immediately following the date of termination and be made in accordance with the Company’s normal payroll practices.

(iii) Payment of any accrued but unpaid annual incentive award, which shall be paid pursuant to the terms of the applicable incentive plan; and

(iv) A lump sum payment equal to 18 months of COBRA premiums for the coverage Executive had in place, if any, at the date of termination of employment, at the rate of premium in effect at the date of termination of employment, paid within 60 days of termination of employment.

(g)Definition of Change in Control.  For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following events:

(i) The date any one person, or more than one person acting as a group acquires ownership of shares of UCFC possessing 25% or more of the total voting power of the shares of UCFC;

(ii) The date that any one person, or more than one person acting as a group, acquires the ability to control the election of a majority of the directors of UCFC or Home Savings;

(iii) The date a majority of the members of the Board of UCFC or Home Savings is replaced during any 12-month period by directors whose

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appointment or election is not endorsed by a majority of the members of such Board before the date of the appointment or election; or

(iv) The acquisition by any person, or more than one person acting as a group, of “control” of UCFC or Home Savings within the meaning of 12 C.F.R. Section 303.81(c).

For purposes of this subsection (g), the term “person” refers to an individual or corporation, partnership, trust, association, limited liability company or other organization, but does not include the Executive and any person or persons with whom the Executive is “acting in concert” within the meaning of 12 C.F.R. Section 303.81(b).

(h)Treatment of Taxes.  If payments provided under this Agreement, when combined with payments and benefits under all other plans and programs maintained by the Company, constitute “parachute payments” within the meaning of Code Section 280G, the Company or its successor will reduce the Executive’s payments and benefits under this Agreement and/or the other plans and programs maintained by the Company so that the Executive’s total payments and benefits under this Agreement and all other plans and programs will be $1.00 less than the amount that would be considered a “parachute payment.”  Any reduction pursuant to this Section 2(h) shall be applied consistent with the requirements of Code Section 409A.  In addition, in the event of any subsequent inquiries regarding the treatment of tax payments under this Section 2(h), the parties will agree to the procedures to be followed in order to deal with such inquiries.

(i)Release.  As a condition to receiving any payments, other than payment of the Accrued Obligations and accrued but unpaid bonus (if any), pursuant to this Agreement, the Executive agrees to release the Company and all of its Affiliates, employees and directors from any and all claims that the Executive may have against the Company and all of its Affiliates, employees and directors up to and including the date the Executive signs a Waiver and Release of Claims (“Release”) in the form provided by the Company, which form shall provide for such waivers and/or revocation periods as are required by, or advisable under, applicable Federal law and/or regulation, and which Release shall be substantially similar to the Form of General Release set forth in Appendix A to this Agreement.  Notwithstanding anything to the contrary in this Agreement, the Executive acknowledges that the Executive is not entitled to receive, and will not receive, any payments pursuant to this Agreement unless and until the Executive provides the Company with said Release prior to the first date that payment is to be made or is to commence; and if the release execution period begins in one taxable year and ends in another taxable year, payment shall not be made until the beginning of the second taxable year.

(j)Coordination of Benefits.  If the Executive’s employment is terminated for any reason described in Sections 2(b), 2(d) or 2(e) and, after such termination, Executive becomes entitled to payments under Section 2(f), the Executive shall receive the payments described in Section 2(f), at the time and in the form described in Section 2(f), less the amount of any payments previously paid that are described in Sections 2(b)(ii)-(v), 2(d) or 2(e).

(k)Attorney’s Fees. It is the intent of the Company that the Executive obtain the benefits of this Agreement without reduction due to the need to expend funds to pay legal fees or expenses to enforce this Agreement. Therefore, in the event the Executive determines it is necessary to expend such funds to obtain any payments due hereunder in a timely manner, the Company shall promptly advance all reasonable legal fees and expenses incurred by Executive to

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obtain such payments. The Executive shall repay such funds to such Company if and only if Executive brings a legal action to enforce this Agreement and a final non-appealable order is entered in such action that all of Executive's claims are frivolous.

3.Withholding.  All payments required to be made by the Company hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to Federal, State and local tax and other payroll deductions as the Company may reasonably determine should be withheld pursuant to any applicable law or regulation.

4.Special Regulatory Events.  Notwithstanding anything to the contrary contained herein, the Executive acknowledges and agrees that any payments made to the Executive pursuant to this Agreement are subject to and conditioned on compliance with the provisions of 12 U.S.C. §1828(k) and Part 359 of the Federal Deposit Insurance Corporation (FDIC) regulations (12 C.F.R. Part 359), which contain certain prohibitions and limitations on the making of “golden parachute” and certain indemnification payments by FDIC-insured institutions and their holding companies. In the event any payments to the Executive pursuant to this Agreement are prohibited or limited by the provisions of such statute or regulation, UCFC or Home Savings, as the case may be, will use its commercially reasonable efforts to obtain the consent of the appropriate regulatory authorities to the payment to the Executive of the maximum amount that is permitted (up to the full amount due under the terms of this Agreement).

5.Consolidation, Merger or Sale of Assets.  Nothing in this Agreement shall preclude the Company from consolidating with, merging into, or transferring all, or substantially all, of their assets to another corporation that assumes all their obligations and undertakings hereunder.  Upon such a consolidation, merger or transfer of assets, the term “Company” as used herein, shall mean such other corporation or entity, and this Agreement shall continue in full force and effect.

6.Non-Solicitation Covenant.  The Executive agrees that, during the Term, including any extension thereof, and for a period of one year following the Executive’s termination of employment, the Executive shall not, without the express written consent of the Company:

(a)Call upon or solicit, either for the Executive or for any other person or firm that engages in competition with any business operation actively conducted by the Company or any Affiliate during the Term, any customer with whom the Company or any Affiliate directly conducts business during the Term; or interfere with any relationship, contractual or otherwise, between the Company or any Affiliate and any customer with whom the Company or any Affiliate directly conducts business during the Term; or

(b)Induce or solicit any person who is at the date of termination or was during the 12 months preceding termination an employee, officer or agent of the Company or any Affiliate to terminate said relationship, except as pursuant to Executive’s duties for the Company.

In the event of a breach by the Executive of any covenant set forth in this Section 6, the term of such covenant will be extended by the period of the duration of such breach and such covenant as so extended will survive any termination of this Agreement.

The restrictions on solicitation provided herein shall be in addition to any restrictions on solicitation contained in any other agreement between the Company and the Executive and may be enforced by the Company and/or any successor thereto, by an action to recover payments

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made under this Agreement, an action for injunction, and/or an action for damages.  The provisions of this Section 6 constitute an essential element of this Agreement, without which the Company would not have entered into this Agreement.  Notwithstanding any other remedy available to the Company at law or at equity, the parties hereto agree that the Company or any successor thereto, will have the right, at any and all times, to seek injunctive relief in order to enforce the terms and conditions of this Section 6.

If the scope of any restriction contained in this Section 6 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction will be enforced to the maximum extent permitted by law, and the Executive hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.

7.Confidential Information.  The Executive will hold in a fiduciary capacity, for the benefit of the Company, all secret or confidential information, knowledge, and data relating to the Company and their Affiliates (“Confidential Information”), that shall have been obtained by the Executive in connection the Executive’s employment with the Company and that is not public knowledge (other than by acts by the Executive or the Executive’s representatives in violation of this Agreement).  During the Term and after termination of the Executive’s employment with the Company, the Executive will not, without the prior written consent of the Company, communicate or divulge any material non-public Confidential Information to anyone other than the Company or those designated by them, unless the communication of such information, knowledge or data is required pursuant to a compulsory proceeding in which the Executive’s failure to provide such information, knowledge, or data would subject the Executive to criminal or civil sanctions and then only if the Executive provides notice to the Company prior to disclosure.

The restrictions imposed on the release of information described in this Section 7 may be enforced by the Company and/or any successor thereto, by an action for injunction or an action for damages.  The provisions of this Section 7 constitute an essential element of this Agreement, without which the Company would not have entered into this Agreement.  Notwithstanding any other remedy available to the Company at law or at equity, the parties hereto agree that the Company or any successor thereto, will have the right, at any and all times, to seek injunctive relief in order to enforce the terms and conditions of this Section 7.

If the scope of any restriction contained in this Section 7 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction will be enforced to the maximum extent permitted by law, and the Executive hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.

8.Non-Assignability. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, his beneficiaries or legal representatives without the Company’s prior written consent; provided, however, that nothing in this Section 8 shall preclude the Executive from designating a beneficiary to receive any benefits payable hereunder upon his death or the executors, administrators or legal representatives of the Executive or his estate from assigning any rights hereunder to the person or persons entitled thereto.

9.No Attachment.  Except as required by law, no right to receive payment under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy, or similar

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process of assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect.

10.Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their successors and assigns.

11.Amendment of Agreement.  This Agreement may not be modified or amended, except by an instrument in writing signed by the parties hereto.

12.Waiver.  No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.  No such written waiver shall be deemed a continuing waiver, unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than the act specifically waived.

13.Severability.  If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect the other provisions of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect.  If this Agreement is held invalid or cannot be enforced, then any prior Agreement between the Company (or any predecessor thereof) and the Executive shall be deemed reinstated to the full extent permitted by law, as this Agreement had not been executed.

14.Headings.  The headings of the paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

15.Effect of Prior Agreements.  This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment agreement between the Company or any predecessor of the Company and the Executive.

16.Governing Law.  This Agreement has been executed and delivered in the State of Ohio and its validity, interpretation, performance, and enforcement shall be governed by the laws of the State of Ohio, except to the extent that federal law is governing.  

17.WAIVER OF JURY TRIAL.  THE COMPANY AND EXECUTIVE, EACH AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR RELATED TO, THIS AGREEMENT.  NO PARTY SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

18.Notices.  Any notice required or permitted under this Agreement shall be in writing and either delivered personally or sent by nationally recognized overnight courier, express mail, or certified or registered mail, postage prepaid, return receipt requested, at the following respective address unless the party notifies the other party in writing of a change of address:

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If to the Company:

Chief Executive Officer

The Home Savings and Loan Company of Youngstown, Ohio

275 West Federal Street

Youngstown, Ohio 44503-1203

With a copy to:

General Counsel

The Home Savings and Loan Company of Youngstown, Ohio

275 West Federal Street

Youngstown, Ohio 44503-1203

If to the Executive:

________________

________________

________________

A notice delivered personally shall be deemed delivered and effective as of the date of delivery.  A notice sent by overnight courier or express mail shall be deemed delivered and effective one (1) business day after it is deposited with the postal authority or commercial carrier.  A notice sent by certified or registered mail shall be deemed delivered and effective two (2) business days after it is deposited with the postal authority.

19.Code Section 409A Requirements.

(a)Treatment of Reimbursements and/or In-Kind Benefits.  Notwithstanding anything in this Agreement to the contrary, any reimbursements or in-kind benefits provided under this Agreement (including any reimbursement for or provision or in-kind medical benefits beyond the period of time described in Treasury Regulation §1.409A-1(b)(9)) shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirements that: (1) any reimbursement is for expenses incurred during the period of time specified in this Agreement, (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year of the Executive may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Executive, (3) the reimbursement of an eligible expense will be made no later than the last day of the Executive’s taxable year following the year in which the expense is incurred, and (4) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

(b)Six-Month Distribution Delay for Specified Employees.  Notwithstanding anything in this Agreement to the contrary, in the event that the Executive is a “specified employee” (as defined in Code Section 409A) of the Company, or their Affiliates, as determined pursuant to the Company’s policies for identifying specified employees, on the date of the Executive’s termination of employment and the Executive is entitled to a payment and/or a benefit under this Agreement that is required to be delayed pursuant to Code

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Section 409A(a)(2)(B)(i), then such payment or benefit, as applicable, shall not be paid or provided (or begin to be paid or provided) until the first day of the seventh month following the date of the Executive’s termination of employment (or, if earlier, the date of the Executive’s death).  The first payment that can be made to the Executive following such period shall include the cumulative amount of any payments or benefits that could not be paid or provided during such period due to the application of Code Section 409A(a)(2)(B)(i).

(c)Compliance with Code Section 409A.  The parties intend that this Agreement comply with, or be exempt from, the requirements of Code Section 409A, as applicable, and, to the maximum extent permitted by law, shall administer, operate and construe this Agreement accordingly.  For purposes of the limitations on nonqualified deferred compensation under Code Section 409A, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the deferral election rules of Code Section 409A and the exclusion from Code Section 409A for certain “short-term deferrals”.  Any amounts payable solely on account of an “involuntary separation from service” within the meaning of Code Section 409A shall be excludible from the requirements of Code Section 409A, either as “separation pay” or as a “short-term deferral” to the maximum possible extent.  Nothing herein shall be construed as the guarantee of any particular tax treatment to the Executive, and none of the Company, their Boards of Directors, or any Affiliates shall have any liability with respect to any failure to comply with the requirements of Code Section 409A.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

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IN WITNESS WHEREOF, the Company have caused this Agreement to be executed by its duly authorized officer and the Executive has signed this Agreement, each as of the day and year first above written.

HOME SAVINGS BANK

By:_________________________________

Name:Gary M. Small

Title: President & Chief Executive Officer

UNITED COMMUNITY FINANCIAL CORP.

By:______________________________

Name: Gary M. Small

Title:President & Chief Executive Officer

____________________________________

Name:

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Appendix A

FORM OF WAIVER AND RELEASE

The parties to this Waiver and Release (this “Agreement”), United Community Financial Corp., a bank holding company incorporated under Ohio law (“UCFC”), Home Savings Bank, an Ohio chartered bank (“Home Savings”) and their respective affiliates, parents, successors, predecessors, and subsidiaries (collectively, the “Company”) and _________, an individual (hereinafter referred to as the “Executive”) agree that:

The Company employed Employee on an at-will basis, meaning that Employee or the Company could terminate the employment relationship at any time and for any reason, not contrary to law.  Employee and the Company now wish to terminate their employment relationship effective _____________, 20__ (the “Separation Date”) in a manner that is satisfactory to both Employee and the Company.  

Executive and the Company, for the good and valuable consideration stated below, the sufficiency of which is acknowledged, agree as follows:

1.In exchange for the Company’s promises in this Agreement, Executive, including Executive’s heirs, administrators, executors, spouse, if any, successors, estate, representatives and assigns and all others claiming by or through Executive, voluntarily and knowingly releases the Company, parent companies, their subsidiaries, divisions, affiliates, related companies, predecessors, successors, partners, members, directors, officers, trustees, employees, independent contractors, consultants, stockholders, owners, attorneys, agents, benefit plans, subrogees, insurers, representatives and assigns, whether alleged to have acted in their official capacities or personally (collectively, the “Released Parties”) completely and forever, from any and all claims, causes of action, suits, contracts, promises, or demands of any kind, which Executive may now have, whether known or unknown, intentional or otherwise, from the beginning of time to the Effective Date of this Agreement, with the sole and limited exception of the rights and claims reserved in Paragraph 2.1.  The Effective Date of this Agreement is the date it is signed by Executive.  

2.Executive understands and agrees that this Agreement covers all claims described in Paragraph 1, including, but not limited to, any alleged violation of:

• the Civil Rights Act of 1991;

• Title VII of the Civil Rights Act of 1964, as amended;

• Americans with Disabilities Act;

• Employee Retirement Income Security Act;

• the Worker Adjustment and Retraining Notification Act;

• the Family Medical Leave Act;

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• the Age Discrimination in Employment Act as amended by the Older Workers Benefit Protection Act;

• the Fair Labor Standards Act, to the extent permitted by law;

• the Occupational Safety and Health Act of 1970;

• The Ohio Fair Employment Practices Law, including but not limited to O.R.C. Title 41 § 4112.01 et seq;

• the Ohio Fair Employment Practices Law, ORC, Title 41 § 4112-01 et seq., as amended;

• the Ohio Commission Policies Statement on Aids;

• the Ohio Equal Pay Law, O.R.C. Title 41 § 4111.13, 4111.17, and 4111.99, et seq., as amended;

• retaliation for exercise of rights under the Ohio Workers’ Compensation Law;

• Workers’ Compensation Anti-Retaliation Act, Ohio Rev. Code § 4123.90;

• Whistleblower Protection Act for Public Employees, Ohio Rev. Code § 124.341;

• Ohio Whistleblower Statute, Ohio Rev. Code § 4113.52;

• Ohio State Wage Payment and Work Hour Laws - Ohio Rev. Code Ann. § 4111.01, et seq.;

• Ohio Political Action of Employees Laws;

• Ohio Witness and Juror Leave Laws - Ohio Rev. Code Ann. § 2313.18, et seq.;

• Ohio Voting Leave Laws - Ohio Rev. Code Ann. § 3599.06, et seq.;

• Ohio Military Family Medical Leave Act - Ohio Rev. Code Ann. §5906.01, et seq.;

• and any other federal, state or local civil, labor, pension, wage-hour or human rights law, federal or state public policy, contract or tort law;

• any claim arising under federal or state common law, including, but not limited to, constructive or wrongful discharge or intentional or negligent infliction of emotional distress;

• and any claim for costs or attorney’s fees.

2.1This Agreement does not include, and Executive does not waive, any rights or claims:  (1) which may arise after Executive signs this Agreement; (2) for alleged workplace injuries or occupational disease that arise under any state’s workers’ compensation laws (Executive does waive and fully release the Released Parties from any claims under Ohio Rev.

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Code § 4123.90); (3) for benefits in which Executive has a vested right under any pension plans; (4) which cannot be released by law; (5) to enforce this Agreement; or (6) to participate in any proceedings before an administrative agency responsible for enforcing labor and/or employment laws, e.g., the Equal Employment Opportunity Commission.  Executive agrees, however, to waive and release any right to receive any monetary award from such proceedings.  Nothing in this Agreement (including the confidentiality and non-disparagement provisions) shall be construed to limit Executive’s right to participate in administrative proceedings, as described in this Paragraph 2.1, to provide information to an agency responsible for enforcing unemployment compensation laws, or to file an action to enforce this Agreement.

This Agreement does not include, and Employee does not waive, any rights or claims:  (1) which may arise after Employee signs this Agreement; (2) for alleged workplace injuries or occupational disease that arise under any state’s workers’ compensation laws; (3) which cannot be released by law; (4) to enforce this Agreement; or (5) to participate in any proceedings before and administrative agency responsible for enforcing labor and/or employment laws, e.g., the Equal Employment Opportunity Commission.  Employee agrees, however, to waive and release any right to receive any monetary award from proceedings before the Equal Employment Opportunity Commission and parallel state agencies.

Nothing in this Agreement (including the confidentiality and non-disparagement provisions) shall be construed to limit Employee’s right to (1) respond accurately and fully to any question, inquiry or request for information when required by legal process or from initiating communications directly with, or responding to any inquiry from, or providing testimony before, any self-regulatory organization or state or federal regulatory authority, regarding the Company, Employee’s employment, or this Agreement.  Employee is not required to contact the Company regarding the subject matter of any such communications before engaging in such communications; (2) disclose information to an administrative agency responsible for enforcing labor and/or employment laws; or (3) to provide information to an agency responsible for enforcing unemployment compensation laws.

3.Executive agrees to keep the terms of this Agreement confidential and not to disclose the terms of this Agreement to any third party at any time, other than to Executive’s attorneys, taxing authorities, accountants, or as otherwise required by law.  Executive agrees to use Executive’s best efforts to ensure that the terms of this Agreement are kept confidential by Executive’s spouse, heirs, assigns, attorneys, etc.  

3.1Executive is not prohibited from disclosing the terms of this Agreement to Executive’s spouse, if any, attorney, if any, or accountant, in a proceeding to enforce its terms, or as otherwise required by law or court order.  Should Executive receive legal papers or process that Executive believes would require Executive to disclose the terms of this Agreement, Executive agrees to notify, in writing and within 7 days of Executive’s receipt of such legal papers or process, Jude J. Nohra, Executive Vice President, General Counsel & Secretary, Home Savings Bank, 275 W. Federal Street, Youngstown, Ohio 44503, 330.742.0572.

4.In exchange for Executive’s promises contained herein, the Company agrees to pay Executive in accordance with the Severance and Change in Control Agreement.

5.The parties agree that if any provision of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable,

A-3

including the general release language, the provision declared illegal or unenforceable will immediately become null and void, leaving the remainder of this Agreement in full force and effect.

6.Executive declares and expressly warrants that Executive is not Medicare eligible, that Executive is not a Medicare beneficiary, and that Executive is not within 30 months of becoming Medicare eligible; that Executive is not 65 years of age or older; that Executive is not suffering from end stage renal failure or amyotrophic lateral sclerosis; that Executive has not received Social Security benefits for 24 months or longer; and/or that Executive has not applied for Social Security benefits, and/or has not been denied Social Security disability benefits and is not appealing any denial of Social Security disability benefits.

6.1Executive affirms, covenants and warrants that Executive has made no claim for illness or injury against, nor is Executive aware of any facts supporting any claim against, the Released Parties under which the Released Parties could be liable for medical expenses incurred by Executive before or after the execution of this Agreement.

6.2Because Executiveis not a Medicare recipient as of the date of this release, Executiveis aware of no medical expenses that Medicare paid and for which the Released Parties are or could be liable now or in the future.  Executiveagrees and affirms that, to the best of Executive’s knowledge, no liens of any governmental entities, including those for Medicare conditional payments, exist.

7.In compliance with the Older Workers Benefit Protection Act, Executive is hereby advised to consult with an attorney regarding the terms, meaning and impact of this Agreement.  

7.1In addition, Executive understands and agrees that: (a) by signing this Agreement, Executive waives and releases any claims Executive might have against any of the Released Parties, including, but not limited to, any claims under the Age Discrimination in Employment Act of 1967; (b) Executive has twenty-one (21) days from the date of receipt of this Agreement to consider whether or not to execute this Agreement, which Executive waives by virtue of Executive’s execution of the Agreement during the consideration period; and (c) after Executive signs this Agreement and it becomes effective, Executive has seven days from that date to change Executive’s mind and revoke the Agreement.  To revoke the Agreement, Executive must clearly communicate Executive’s decision in writing as provided in Paragraph 3.1 by the seventh day following the Effective Date of this Agreement.  Executive understands and agrees that should Executive revoke Executive’s release and waiver as to claims under the Age Discrimination in Employment Act of 1967, as amended, the Company’s obligations under this Agreement will become null and void.

8.Executive agrees that Executive will not, in any way, disparage the Company or any of the Released Parties.  The Company agrees that they will not, in any way, disparage Executive.  

A-4

Further, Executive and the Company agree that they will not make, nor solicit, any comments, statements, or the like to the media, or to others, that may be considered to be derogatory or detrimental to the good name or business reputation of Executive or the Company.

9.Executive acknowledges that, through Executive’s employment with the Company, Executive has acquired and had access to the Company’s confidential and proprietary business information and trade secrets (“Confidential Information”).  Executive acknowledges and agrees that the Company prohibit the use or disclosure of its Confidential Information and that the Company have taken all reasonable steps necessary to protect the secrecy of such Confidential Information.  Executive acknowledges and agrees that “Confidential Information” includes any data or information that is valuable to the Company and not generally known to competitors of the Company or other outsiders, regardless of whether the confidential information is in printed, written or electronic form, retained in Executive’s memory or has been compiled or created by Executive, including but not limited to: business plans; product designs, drawings and formulas; test and development data; customer or prospective customer, vendor, supplier and distributor information; financial information; marketing strategies; pending projects and proposals; personnel and payroll records; pricing data; contract terms; proprietary production processes; third party information that we have a duty to maintain as confidential; and other business-related information, which, if made available to our competitors or the public, would be advantageous to such competitors and detrimental to the Company.  Executive agrees that Executive has not and in the future will not use, or disclose to any third party, Confidential Information, unless compelled by law after reasonable advance notice to the Company, and further agrees to return all documents, disks, CDs, DVDs, drives, storage devices or any other item or source containing Confidential Information, or any other of the Company’s property, to the Company upon execution of this Agreement.  Employee understands that he shall not be held criminally or civilly liable under any Federal or state trade secret law for the disclosure of a trade secret that:  (1) is made (a) in confidence to a Federal, state, or local government official, either directly or indirectly, or to an attorney, and (b) solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  Employee also understands that disclosure of trade secrets to attorneys, made under seal, or pursuant to court order is also protected in certain circumstances under 18 U.S. Code §1833. If Executive has any question regarding what data or information would be considered by the Company to be Confidential Information subject to this provision, Executive agrees to contact Jude J. Nohra, Executive Vice President, General Counsel & Secretary, Home Savings Bank, 275 W. Federal Street, Youngstown, Ohio 44503, 330.742.0572.

10.This Agreement contains the complete understanding between the parties.  The parties agree that no promises or agreements will be binding or will modify this understanding unless in writing and signed by both parties. This release shall not affect the validity or enforceability of any prior written agreements by and between Company and Executive.

11.THE COMPANY AND EXECUTIVE, EACH AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR

A-5

RELATED TO, THIS AGREEMENT.  NO PARTY SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

12.This Agreement may be executed in multiple counterparts, each of which will be considered an original, and all of which will be considered a single memorandum.  If Executive signs a facsimile copy of this Agreement, Executive also will provide the Company with a conforming original copy.

13.The validity, construction, and interpretation of this Agreement and the rights and duties of the parties to this Agreement will be governed by the laws of the State of Ohio without regard to any state conflict of law rules.

The parties agree that they have read this Agreement, understand and agree to its terms, and have knowingly and voluntarily signed it on the dates written below.

“Executive”

By:

Name:

HOME SAVINGS BANK

By:

Name:

Title:

UNITED COMMUNITY FINANCIAL CORP.

By:

Name:

Title:

A-6

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:	June 18, 2020	/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:	June 18, 2020	/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 March 31, 2020 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:	June 18, 2020	/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 March 31, 2020 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:	June 18, 2020	/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.

 

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Accounting Standards Adopted in 2020

Accounting Standards Adopted in 2020

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment:  Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 became effective for the Company on January 1, 2020, and the amendments of this ASU will be applicable to the goodwill impairment testing for 2020.

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments:Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. The amendments of ASU 2016-13, and all subsequent ASUs issued by FASB to provide additional guidance and clarification related to this Topic, became effective for the Company on January 1, 2020.

As a result of adopting the amendments of ASU 2016-13, the Company recorded an increase to its allowance for credit losses of $2.4 million and an increase to its allowance for credit losses on off-balance sheet credit exposures of $0.9 million resulting in a one-time cumulative effect adjustment through retained earnings of $2.6 million net of $.7 million tax at the date of adoption. Future changes in the allowance for credit losses on off-balance sheet credit exposures will be recorded in other liabilities.  This adjustment included a qualitative adjustment to the allowance for credit losses related to loans and an allowance on off-balance sheet credit exposures. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

Accounting Standards Not Yet Adopted

Accounting Standards not yet adopted:

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848): This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company anticipates being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact to the consolidated financial statements.

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Derivative Financial Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

15. Derivative Financial Instruments

At March 31, 2020, the Company had approximately $262.9 million of interest rate lock commitments and $318.1 million of forward commitments for the future delivery of residential mortgage loans and forward sales of mortgage backed securities.  These commitments are considered derivatives.  The Company had $17.0 million of interest rate lock commitments and $34.4 million of forward commitments at December 31, 2019.   

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

March 31, 2020

December 31, 2019

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

$

4,073

$

586

$

3,487

$

883

$

(9

)

$

892

Interest Rate Swaps

The Company maintains an interest rate protection program for commercial loan customers that was acquired in the merger with UCFC.  Under this program, the Company provides a customer with a fixed rate loan while creating a variable rate asset for the Company by the customer entering into an interest rate swap with terms that match the loan.  The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution.  The Company had interest rate swaps associated with commercial loans with a notional value of $50.1 million and fair value of $1.9 million in other assets and $2.1 million in other liabilities at March 31, 2020.  The difference in fair value of $194,000 between the asset and liability represents a credit valuation adjustment that flows through noninterest income.  Since January 31, 2020, $108,000 of the $194,000 has flowed through noninterest income.  The remainder was part of the Merger consideration.  The Company had no interest rate swaps outstanding at December 31, 2019.

Equity Linked Time Deposit

The Company also acquired time deposits in its acquisition of UCFC that have written and purchased option derivatives to facilitate an equity linked time deposit product.  The time deposit provides the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Bank receives a known stream of funds based on the equity return (a purchase option).  The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated statement of financial condition.  At March 31, 2020, the balance of the equity linked time deposits was $9.6 million and the written and purchased options each had a fair value of $86,000.

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Loans - Impaired Financing Receivables (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	$ 26,860
Recorded Investment, With no allowance	25,852
Unpaid Principal Balance, With an Allowance	10,898
Recorded Investment, With an Allowance	9,771
Allowance for Loan Losses Allocated, With an Allowance	422
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	86
Recorded Investment, With no allowance	86
Unpaid Principal Balance, With an Allowance	5,137
Recorded Investment, With an Allowance	4,977
Allowance for Loan Losses Allocated, With an Allowance	104
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	962
Recorded Investment, With no allowance	967
Unpaid Principal Balance, With an Allowance	1,014
Recorded Investment, With an Allowance	1,019
Allowance for Loan Losses Allocated, With an Allowance	11
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	1,048
Recorded Investment, With no allowance	1,053
Unpaid Principal Balance, With an Allowance	6,151
Recorded Investment, With an Allowance	5,996
Allowance for Loan Losses Allocated, With an Allowance	115
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	5,098
Recorded Investment, With no allowance	4,814
Unpaid Principal Balance, With an Allowance	2,085
Recorded Investment, With an Allowance	1,623
Allowance for Loan Losses Allocated, With an Allowance	60
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	1,815
Recorded Investment, With no allowance	1,006
Unpaid Principal Balance, With an Allowance	317
Recorded Investment, With an Allowance	319
Allowance for Loan Losses Allocated, With an Allowance	13
Multi-Family Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	128
Recorded Investment, With no allowance	130
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	12,734
Recorded Investment, With no allowance	12,792
Unpaid Principal Balance, With an Allowance	262
Recorded Investment, With an Allowance	268
Allowance for Loan Losses Allocated, With an Allowance	3
Other Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With an Allowance	401
Recorded Investment, With an Allowance	180
Allowance for Loan Losses Allocated, With an Allowance	9
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	19,775
Recorded Investment, With no allowance	18,742
Unpaid Principal Balance, With an Allowance	3,065
Recorded Investment, With an Allowance	2,390
Allowance for Loan Losses Allocated, With an Allowance	85
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	5,417
Recorded Investment, With no allowance	5,435
Unpaid Principal Balance, With an Allowance	682
Recorded Investment, With an Allowance	450
Allowance for Loan Losses Allocated, With an Allowance	150
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	469
Recorded Investment, With no allowance	471
Unpaid Principal Balance, With an Allowance	318
Recorded Investment, With an Allowance	299
Allowance for Loan Losses Allocated, With an Allowance	24
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	151
Recorded Investment, With no allowance	151
Unpaid Principal Balance, With an Allowance	654
Recorded Investment, With an Allowance	608
Allowance for Loan Losses Allocated, With an Allowance	48
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With no allowance	5,886
Recorded Investment, With no allowance	5,906
Unpaid Principal Balance, With an Allowance	1,000
Recorded Investment, With an Allowance	749
Allowance for Loan Losses Allocated, With an Allowance	174
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Unpaid Principal Balance, With an Allowance	28
Recorded Investment, With an Allowance	$ 28

XML

Business Combinations - Additional Information (Details) $ in Thousands		1 Months Ended	3 Months Ended
	Sep. 09, 2019 shares	Jan. 31, 2020 USD ($) shares	Mar. 31, 2020 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)
Business Combination, Acquisition Related Costs			$ 11,486
Labor and Related Expense			17,585	$ 14,085
Goodwill			$ 317,520		$ 100,069
Number of entities for merger			2
Noncash Merger Related Costs			$ 11,500
Provision expense for loan losses			25,900
UCFC [Member]
Business Combination Recognized Identifiable Assets Acquired And Liabilities Assumed Assets		$ 2,800,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Liabilities		324,500
Business Combination, Acquisition Related Costs			11,500
Labor and Related Expense			4,700
Goodwill		217,451	217,500
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill		$ 33,014	$ 33,000
Outstanding shares converted into common stock | shares	0.3715
Capital stock issuance (in shares) | shares		17,927,017
Payments to Acquire Businesses, Gross		$ 132
UCFC [Member] | Customer Relationships [Member]
Number of years for amortization expense			10 years

XML

Loans - Allowance for credit loss activity - Additional Information (Details) $ in Millions	3 Months Ended
	Mar. 31, 2020 USD ($)
UCFC [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Merger with UCFC	$ 25.9

XML

Loans - Troubled Debt Restructurings on Financing Receivables (Details) - TDRs [Member] $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) Loan	Mar. 31, 2019 USD ($) Loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Loan	9	6
Troubled Debt Restructurings, Recorded Investment | $	$ 653	$ 514
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Loan	2	3
Troubled Debt Restructurings, Recorded Investment | $	$ 378	$ 473
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Loan	1
Troubled Debt Restructurings, Recorded Investment | $	$ 93
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Loan	1	1
Troubled Debt Restructurings, Recorded Investment | $	$ 26	$ 20
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Loan	5	1
Troubled Debt Restructurings, Recorded Investment | $	$ 156	$ 14
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings, Number of Loans | Loan		1
Troubled Debt Restructurings, Recorded Investment | $		$ 7

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Significant Accounting Policies - Additional information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Accounting Standards Update 2018-13 [Member]
Property Plant And Equipment [Line Items]
Accounting standards update, adoption date	Jan. 01, 2020
Accounting Standards Update 2017-04 [Member]
Property Plant And Equipment [Line Items]
Accounting standards update, adoption date	Jan. 01, 2020
ASC 326 [Member]
Property Plant And Equipment [Line Items]
Increase in allowance for credit losses	$ 2,400
Off-balance sheet credit exposures	900
Cumulative effect adjustment through retained earnings, net of tax	2,566
Cumulative effect adjustment through retained earnings, tax	$ 7,000

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Fair Value - Assets Measured on Recurring and Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Impaired Loans- Applies to all loan classes, Fair Value	$ 434	$ 106
Range of Input 10-20 % [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Impaired Loans- Applies to all loan classes, Fair Value	$ 434
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	20.00%
Fair Value Measurement Weighted Average Range	10.86%
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		$ 80
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%

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Mortgage Banking - Capitalized Mortgage and Valuation Allowance (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Mortgage servicing assets:
Balance at beginning of period	$ 10,801	$ 10,419
Loans sold, servicing retained	1,376	278
Mortgage servicing rights acquired	9,747
Amortization	(1,163)	(286)
Carrying value before valuation allowance at end of period	20,761	10,411
Valuation allowance:
Balance at beginning of period	(534)	(300)
Impairment recovery (charges)	(4,485)	(113)
Balance at end of period	(5,019)	(413)
Net carrying value of MSRs at end of period	15,742	9,998
Fair value of MSRs at end of period	$ 16,105	$ 10,264

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Other Comprehensive Income - Reclassification adjustments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$ 9,458	$ 4,603
Total other comprehensive loss	9,458	4,603
Change in net unrealized gain/loss during the period	7,473	3,635
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan		82
Total other comprehensive income (loss)	7,473	3,717
Securities available for sale and transferred securities: Tax (Expense) Benefit
Change in net unrealized gain/loss during the period	(1,985)	(968)
Reclassification adjustment for deferred tax on defined benefit postretirement medical plan		82
Total other comprehensive income	(1,985)	(886)
Securities available for sale and transferred securities: Before Tax Amount
Change in net unrealized gain/loss during the period	9,458	4,603
Total other comprehensive loss	$ 9,458	$ 4,603

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Loans - Troubled Debt Restructurings on Payments (Details) - Subsequently Defaulted [Member] $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) Loan	Mar. 31, 2019 USD ($) Loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Loan	6	5
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 718	$ 2,681
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Loan	3	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 268	$ 76
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Loan	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 172
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Loan	1	3
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 132	$ 2,544
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructurings That Subsequently Defaulted, Number of Loans | Loan	1	1
Troubled Debt Restructurings That Subsequently Defaulted, Recorded Investment | $	$ 146	$ 61

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Leases - Schedule of Undiscounted Cash Flows Included in Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Leases [Abstract]
2020	$ 1,913
2021	2,295
2022	1,944
2023	1,539
2024	1,311
Thereafter	14,911
Total undiscounted minimum lease payments	23,913
Present value adjustment	(5,687)
Total lease liabilities	$ 18,226	$ 9,500

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Commitments, Guarantees and Contingent Liabilities - Maximum obligation to extend credit (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Commitments And Contingencies Disclosure [Abstract]
Commitments to make loans	$ 361,397	$ 178,811
Unused lines of credit	895,487	433,109
Standby letters of credit	12,745	14,215
Total	$ 1,269,629	$ 626,135

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Loans - Schedule of Deterioration of Credit Quality Contractual Purchased Loans (Details) - Loan Purchase [Member] - USD ($) $ in Thousands	Mar. 31, 2020	Jan. 31, 2020
Par value of acquired loans at acquisition	$ 2,314,588	$ 79,100
Credit discount	34,610
Non-credit discount/(premium) at acquisition	(8,497)
Purchase price of loans at acquisition	$ 2,340,701

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Investment Securities - Schedule of Investments Classified by Contractual Maturity Date (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Marketable Securities [Abstract]
Available-for-sale, Due in one year or less, Amortized Cost	$ 4,393
Available-for-sale, Due after one year through five years, Amortized Cost	20,876
Available-for-sale, Due after five years through ten years, Amortized Cost	65,575
Available-for-sale, Due after ten years, Amortized Cost	100,060
Available-for-sale, MBS/CMO, Amortized Cost	327,719
Available-for-Sale Securities, Amortized Cost	518,623	$ 277,323
Available-for-sale, Due in one year or less, Fair Value	4,391
Available-for-sale, Due after one year through five years, Fair Value	20,747
Available-for-sale, Due after five years through ten years, Fair Value	67,675
Available-for-sale, Due after ten years, Fair Value	102,759
Available-for-sale,MBS/CMO, Fair Value	338,634
Available-for-sale, Fair Value	$ 534,206	$ 283,448

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Dividends declared per share | $ / shares	$ 0.19
Employee Stock Option [Member]
Stock Repurchased and Retired (in shares)	178
Restricted Stock [Member]
Stock Repurchased and Retired (in shares)	25,195

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(Loss) Earnings Per Common Share - Computation of basic and diluted (loss) earnings per common share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Basic (Loss) Earnings Per Share:
Net (loss) income available to common shareholders	$ (22,482)	$ 11,482
Less: (loss) income allocated to participating securities	(39)	9
Net (loss) income allocated to common shareholders	$ (22,443)	$ 11,473
Weighted average common shares outstanding including participating securities	31,721	20,030
Less: Participating securities	55	16
Average common shares	31,666	20,014
Basic (loss) earnings per common share	$ (0.71)	$ 0.57
Diluted (Loss) Earnings Per Share:
Net (loss) income allocated to common shareholders	$ (22,443)	$ 11,473
Weighted average common shares outstanding for basic (loss) earnings per common share	31,666	20,014
Add: Dilutive effects of stock options		81
Average shares and dilutive potential common shares	31,666	20,095
Diluted (loss) earnings per common share	$ (0.71)	$ 0.57

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Consolidated Condensed Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans receivable, net of allowance for credit losses (in dollars)	$ 85,859	$ 31,243
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
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	43,297,259	25,371,086
Common stock, shares outstanding	37,286,574	19,729,886
Accumulated other comprehensive income (loss), tax effect (in dollars)	$ 3,208	$ 1,221
Treasury stock, shares	6,011,529	5,641,200
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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Loans (Tables)

3 Months Ended

Mar. 31, 2020

Loans And Leases Receivable Net Reported Amount [Abstract]

Schedule of loans receivable

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.  Loans receivable consist of the following:

	March 31, 2020			December 31, 2019
	(In Thousands)
Real Estate:
Residential	$	1,265,901		$	324,773
Commercial		2,200,266			1,506,026
Construction		521,442			305,305
		3,987,609			2,136,104
Other Loans:
Commercial		897,865			578,071
Home equity and improvement		301,146			122,864
Consumer finance		137,679			37,649
		1,336,690			738,584
Loans before deferred loan origination fees and costs		5,324,299			2,874,688
Deduct:
Undisbursed construction loan funds		(206,236	)		(126,108	)
Net deferred loan origination fees and costs		(4,146	)		(2,259	)
Allowance for credit losses		(85,859	)		(31,243	)
Total loans	$	5,028,058		$	2,715,078

Schedule of allowance for loan loss activity

The following table discloses allowance for credit loss activity for the quarters ended March 31, 2020 and 2019 by portfolio segment (In Thousands):  

Quarter Ended March 31, 2020	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,867		$	16,302		$	996		$	9,003		$	1,700		$	375		$	31,243
Impact of ASC 326 Adoption		1,765			3,682			(223	)		(2,263	)		(521	)		(86	)		2,354
Acquisition related allowance for credit loss (PCD)		1,077			4,053			—			2,272			248			48			7,698
Charge-Offs		(184	)		(16	)		—			(96	)		(30	)		(108	)		(434	)
Recoveries		101			340			—			669			42			60			1,212
Provisions(1)(2)		17,698			18,154			111			2,316			2,515			2,992			43,786
Ending Allowance	$	23,324		$	42,515		$	884		$	11,901		$	3,954		$	3,281		$	85,859

(1) Allowance/provision are not comparable to prior periods due to the adoption of CECL.

(2) Provision for the quarter ended March, 31, 2020 includes $25.9 million as a result of the Merger with UCFC in the first quarter

Quarter Ended March 31, 2019	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,881		$	15,142		$	682	$	7,281		$	2,026		$	319		$	28,331
Charge-Offs		(172	)		—			—		(187	)		(33	)		(142	)		(534	)
Recoveries		13			96			—		12			24			10			155
Provisions		89			(169	)		49		170			(89	)		162			212
Ending Allowance	$	2,811		$	15,069		$	731	$	7,276		$	1,928		$	349		$	28,164

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 December 31, 2019 (in thousands):

As of December 31, 2019	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Home Equity and Improvement		Consumer Finance		Total
Allowance for credit loss attributable to:
Individually evaluated for impairment	$	115	$	85	$	—	$	174	$	48	$	—	$	422
Collectively evaluated for impairment		2,752		16,217		996		8,829		1,652		375		30,821
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total Allowance	$	2,867	$	16,302	$	996	$	9,003	$	1,700	$	375	$	31,243
Loans:
Individually evaluated for impairment	$	7,049	$	21,132	$	—	$	6,655	$	759	$	28	$	35,623
Collectively evaluated for impairment		318,106		1,490,306		206,721		573,244		122,963		37,808		2,749,148
Acquired with deteriorated credit quality		989		921		—		12		—		—		1,922
Total loans	$	326,144	$	1,512,359	$	206,721	$	579,911	$	123,722	$	37,836	$	2,786,693

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 for the three months ended March 31, 2019 (in thousands):

	Three Months Ended March 31, 2019
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,552	$	64	$	60
Residential Non Owner Occupied		2,080		30		32
Total Residential Real Estate		6,632		94		92
CRE Owner Occupied		7,365		166		132
CRE Non Owner Occupied		1,989		33		26
Multi-Family Real Estate		1,332		20		20
Agriculture Land		12,903		206		197
Other CRE		1,154		34		33
Total Commercial Real Estate		24,743		459		408
Construction		—		—		—
Commercial Working Capital		8,089		143		91
Agriculture Production		—		—		—
Commercial Other		1,870		27		24
Total Commercial		9,959		170		115
Home Equity and Improvement		921		14		13
Consumer Finance		36		1		1
Total Impaired Loans	$	42,291	$	738	$	629

Summary of amortized cost basis of collateral-dependent loans by class of loans and collateral type

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of March 31, 2020 (in thousands):

	March 31, 2020
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	1,505	$	—	$	—	$	—	$	1,505
Commercial		18,688		—		—		—		18,688
Construction		—		—		—		—		—
Other Loans:
Commercial		440		4,010		1,285		332		6,067
Home equity and improvement		1		—		—		—		1
Consumer finance		—		—		—		72		72
Total	$	20,634	$	4,010	$	1,285	$	404	$	26,333

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):

	December 31, 2019
	Unpaid Principal Balance*		Recorded Investment		Allowance for Credit Loss Allocated
With no allowance recorded:
Residential Owner Occupied	$	86	$	86	$	—
Residential Non Owner Occupied		962		967		—
Total Residential Real Estate		1,048		1,053		—
CRE Owner Occupied		5,098		4,814		—
CRE Non Owner Occupied		1,815		1,006		—
Multi-Family Real Estate		128		130		—
Agriculture Land		12,734		12,792		—
Other CRE		—		—		—
Total Commercial Real Estate		19,775		18,742		—
Construction		—		—		—
Commercial Working Capital		5,417		5,435		—
Agriculture Production		—		—		—
Commercial Other		469		471		—
Total Commercial		5,886		5,906		—
Home Equity and Improvement		151		151		—
Consumer Finance		—		—		—
Total loans with no allowance recorded	$	26,860	$	25,852	$	—
With an allowance recorded:
Residential Owner Occupied	$	5,137	$	4,977	$	104
Residential Non Owner Occupied		1,014		1,019		11
Total Residential Real Estate		6,151		5,996		115
CRE Owner Occupied		2,085		1,623		60
CRE Non Owner Occupied		317		319		13
Multi-Family Real Estate		—		—		—
Agriculture Land		262		268		3
Other CRE		401		180		9
Total Commercial Real Estate		3,065		2,390		85
Construction		—		—		—
Commercial Working Capital		682		450		150
Agriculture Production		—		—		—
Commercial Other		318		299		24
Total Commercial		1,000		749		174
Home Equity and Improvement		654		608		48
Consumer Finance		28		28		—
Total loans with an allowance recorded	$	10,898	$	9,771	$	422

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

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  All loans greater than 90 days past due are placed on non-accrual status.  Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual purchase credit deteriorated (PCD) loans in its non-performing loans.  As such, the non-performing loans as of March 31, 2020 include PCD loans accounted for pursuant to ASC Topic 326 as these loans are individually evaluated.  The non-performing loans do not include PCD (formerly purchase credit impaired (PCI)) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool basis.  The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned as of the dates indicated:

	March 31, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans	$	32,593	$	13,437
Loans over 90 days past due and still accruing		99		—
Total non-performing loans		32,692		13,437
Real estate and other assets held for sale		548		100
Total non-performing assets	$	33,240	$	13,537
Troubled debt restructuring, still accruing	$	7,473	$	8,486

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

The following table presents the aging of the amortized cost in past due and non- accrual loans as of March 31, 2020, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential		1,242,282		2,649		1,303		—		3,952		2,985
Commercial		2,160,018		57		5		—		62		5,196
Construction		310,783		8		—		—		8		—
Other Loans:
Commercial		867,758		124		125		—		249		3,961
Home equity and improvement		292,442		2,490		218		—		2,708		—
Consumer finance		131,117		343		29		99		471		728
PCD		66,286		2,393		795		—		3,188		19,723
Total Loans	$	5,070,686	$	8,064	$	2,475	$	99	$	10,638	$	32,593

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2019, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non Accrual
Real Estate:
Residential		323,600		1,328		570		646		2,544		2,411
Commercial		1,509,132		339		172		2,716		3,227		7,609
Construction		206,721		—		—		—		—		—
Other Loans:
Commercial		576,988		273		206		2,444		2,923		2,961
Home equity and improvement		122,487		956		240		39		1,235		449
Consumer finance		37,622		143		64		7		214		7
Total Loans	$	2,776,550	$	3,039	$	1,252	$	5,852	$	10,143	$	13,437

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 month periods ending March 31, 2020, and March 31, 2019:

	Loans Modified as a TDR for the Three Months Ended March 31, 2020 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		2	$	378
Commercial		1		93
Construction		—		—
Other Loans:
Commercial		5		156
Home equity and improvement		1		26
Consumer finance		—		—
Total		9	$	653

The loans described above increased the allowance for credit losses (“ACL”) by $29,000 in the three month period ending March 31, 2020.     

	Loans Modified as a TDR for the Three Months Ended March 31, 2019 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	473
Commercial		—		—
Construction		—		—
Other Loans:
Commercial		1		14
Home equity and improvement		1		20
Consumer finance		1		7
Total		6	$	514

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 month periods ended March 31, 2020, and March 31, 2019:

	Three Months Ended March 31, 2020
	($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	268
Commercial		1		172
Construction		—		—
Other Loans:
Commercial		1		132
Home equity and improvement		1		146
Consumer finance		—		—
Total		6	$	718

The TDRs that subsequently defaulted described above had no effect on the ACL for the three month period ended March 31, 2020 and increased the ACL by $15,000 for the three month period ended March 31, 2020.

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.

	Three Months Ended March 31, 2019
	($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	76
Commercial		—		—
Construction		—		—
		—		—
Other Loans:		—		—
Commercial		3		2,544
Home equity and improvement		1		61
Consumer finance		—		—
Total		5	$	2,681

Schedule of risk category of loans by class of loans

As of March 31, 2020, 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
Real Estate:
Residential		1,046,718		390		3,685		—		198,426		1,249,219
Commercial		2,108,684		28,045		27,272		—		1,275		2,165,276
Construction		290,253		—		—		—		20,538		310,791
Other Loans:
Commercial		839,917		20,477		11,574		—		—		871,968
Home equity and improvement		194,262		—		322		—		100,566		295,150
Consumer finance		100,059		—		31		13		32,213		132,316
PCD		27,851		21,151		40,195		—		—		89,197
Total Loans	$	4,607,744	$	70,063	$	83,079	$	13	$	353,018	$	5,113,917

As of December 31, 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
Real Estate:
Residential		159,539		415		3,479		—		162,711		326,144
Commercial		1,460,989		27,197		23,097		—		1,076		1,512,359
Construction		182,858		1,645		—		—		22,218		206,721
Other Loans:
Commercial		548,012		24,162		7,737		—		—		579,911
Home equity and improvement		—		—		315		—		123,407		123,722
Consumer finance		—		—		20		—		37,816		37,836
Total Loans	$	2,351,398	$	53,419	$	34,648	$	—	$	347,228	$	2,786,693

Summary of Amortized Cost Basis of Loans by Credit Quality Indicator and Class of Loans

The table below presents the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed ($ in thousands):

	Term of loans by origination
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of March 31, 2020
Real Estate
Residential:
Risk Rating
Pass	$	58,175	$	162,634	$	206,799	$	190,256	$	186,702	$	437,887	$	2,691	$	1,245,144
Special Mention		—		97		58		—		123		98		14		390
Substandard		—		—		236		63		219		3,167		—		3,685
Doubtful		—		—		—		—		—		—		—		—
Total	$	58,175	$	162,731	$	207,093	$	190,319	$	187,044	$	441,152	$	2,705	$	1,249,219
Commercial:
Risk Rating
Pass	$	105,546	$	450,533	$	370,078	$	391,162	$	243,768	$	530,218	$	18,654	$	2,109,959
Special Mention		—		1,664		999		3,096		2,628		18,935		723		28,045
Substandard		—		291		1,607		2,497		1,340		18,839		2,698		27,272
Doubtful		—		—		—		—		—		—		—		—
Total	$	105,546	$	452,488	$	372,684	$	396,755	$	247,736	$	567,992	$	22,075	$	2,165,276
Construction:
Risk Rating
Pass	$	4,502	$	148,694	$	94,356	$	49,665	$	13,137	$	437	$	-	$	310,791
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	4,502	$	148,694	$	94,356	$	49,665	$	13,137	$	437	$	-	$	310,791
Other Loans
Commercial:
Risk Rating
Pass	$	55,857	$	191,337	$	108,146	$	61,628	$	34,192	$	43,359	$	345,398	$	839,917
Special Mention		25		881		129		2,970		60		592		15,820		20,477
Substandard		22		136		228		231		340		273		10,344		11,574
Doubtful		—		—		—		—		—		—		—		—
Total	$	55,904	$	192,354	$	108,503	$	64,829	$	34,592	$	44,224	$	371,562	$	871,968
Home equity and Improvement:
Risk Rating
Pass	$	2,741	$	10,976	$	5,857	$	9,960	$	9,489	$	36,520	$	219,285	$	294,828
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		80		242		322
Doubtful		—		—		—		—		—		—		—		—
Total	$	2,741	$	10,976	$	5,857	$	9,960	$	9,489	$	36,600	$	219,527	$	295,150
Consumer Finance:
Risk Rating
Pass	$	11,543	$	52,569	$	30,898	$	17,149	$	8,692	$	4,922	$	6,499	$	132,272
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		31		—		—		—		31
Doubtful		—		—		6		—		7		—		—		13
Total	$	11,543	$	52,569	$	30,904	$	17,180	$	8,699	$	4,922	$	6,499	$	132,316
PCD:
Risk Rating
Pass	$	-	$	292	$	546	$	1,015	$	783	$	16,847	$	8,368	$	27,851
Special Mention		—		24		2,783		9,697		1,496		4,441		2,710		21,151
Substandard		—		102		110		17,378		1,776		11,970		8,859		40,195
Doubtful		—		—		—		—		—		—		—		—
Total	$	-	$	418	$	3,439	$	28,090	$	4,055	$	33,258	$	19,937	$	89,197

Summary of Credit Loss Estimation

Portfolio Segments	Loan Pool	Methodology	Loss Drivers
Residential real estate	1-4 Family nonowner occupied	DCF	National unemployment
	1-4 Family owner occupied	DCF	National unemployment
Commercial real estate	Commercial real estate nonowner occupied	DCF	National unemployment
	Commercial real estate owner occupied	DCF	National unemployment
	Multi Family	DCF	National unemployment
	Agriculture Land	DCF	National unemployment
	Other commercial real estate	DCF	National unemployment
Construction secured by real estate	Construction	PD/LGD	Call report loss history
Commercial	Commercial working capital	PD/LGD	Call report loss history
	Agriculture production	PD/LGD	Call report loss history
	Other commercial	PD/LGD	Call report loss history
Home equity and improvement	Home equity and improvement	PD/LGD	Call report loss history
Consumer finance	Consumer finance	Remaining life	Call report loss history

Schedule of Par Value of Purchased Loans

Par value of purchased loans follows (in thousands):

	2020
Par value of acquired loans at acquisition	$	2,314,588
Credit discount		34,610
Non-credit discount/(premium) at acquisition		(8,497	)
Purchase price of loans at acquisition	$	2,340,701

Schedule of Outstanding Balance and Related Allowance on Loans

The outstanding balance at March 31, 2020 and related allowance on these loans is as follows (in thousands):

	Loan Balance		ACL Balance
	(In Thousands)
Real Estate:
Residential	$	17,651	$	1,345
Commercial		37,070		3,935
Construction		1,034		52
		55,755		5,332
Other Loans:
Commercial		25,921		2,255
Home equity and improvement		6,268		258
Consumer finance		1,253		64
		33,442		2,577
Total	$	89,197	$	7,909

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Borrowings (Tables)

3 Months Ended

Mar. 31, 2020

Subordinated Borrowings [Abstract]

Schedule of Federal Home Loan Bank Advances and Junior Subordinated Debentures

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

	March 31, 2020		December 31, 2019
	(In Thousands)
FHLB Advances:
Single maturity fixed rate advances	$	486,000	$	83,999
Amortizable mortgage advances		—		1,085
Overnight advances		—		—
Fair value adjustment on acquired balances		—		(21	)
Total	$	486,000	$	85,063
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

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Investment Securities

3 Months Ended

Mar. 31, 2020

Marketable Securities [Abstract]

Investment Securities

7. Investment Securities

The following is a summary of available-for-sale securities:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At March 31, 2020
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	28,871	$	1,411	$	—		$	30,282
Mortgage-backed securities		193,575		7,455		(4	)		201,026
Collateralized mortgage obligations		134,144		3,476		(12	)		137,608
Corporate bonds		22,381		74		(388	)		22,067
Obligations of state and political subdivisions		139,652		4,252		(681	)		143,223
Total Available-for-Sale	$	518,623	$	16,668	$	(1,085	)	$	534,206

As a result of the merger, securities with a fair value of $262.8 million were acquired on January 31, 2020.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At December 31, 2019
Available-for-sale
Obligations of U.S. government corporations and agencies	$	2,518	$	6	$	—		$	2,524
Mortgage-backed securities		88,380		1,380		(113	)		89,647
Collateralized mortgage obligations		83,008		814		(85	)		83,737
Corporate bonds		12,011		90		—			12,101
Obligations of state and political subdivisions		91,406		4,042		(9	)		95,439
Total Available-for-Sale	$	277,323	$	6,332	$	(207	)	$	283,448

The amortized cost and fair value of the investment securities portfolio at March 31, 2020, 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”) and collateralized mortgage obligations (“CMO”) 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
	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	4,393	$	4,391
Due after one year through five years		20,876		20,747
Due after five years through ten years		65,575		67,675
Due after ten years		100,060		102,759
MBS/CMO		327,719		338,634
	$	518,623	$	534,206

Investment securities with a carrying amount of $321.3 million at March 31, 2020, were pledged as collateral on public deposits, securities sold under repurchase agreements and the Federal Reserve discount window.

The following tables summarize First Defiance’s securities that were in an unrealized loss position at March 31, 2020, and December 31, 2019:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	(In Thousands)
At March 31, 2020
Available-for-sale securities:
Mortgage-backed securities		—		—		199		(4	)		199		(4	)
Collateralized mortgage obligations						8,793		(12	)		8,793		(12	)
Corporate bonds						16,933		(388	)		16,933		(388	)
Obligations of state and political subdivisions						38,674		(681	)		38,674		(681	)
Total temporarily impaired securities	$	—	$	—	$	64,599	$	(1,085	)	$	64,599	$	(1,085	)

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	(In Thousands)
At December 31, 2019
Available-for-sale securities:
Mortgage-backed securities-residential	$	13,830	$	(42	)	$	9,721	$	(71	)	$	23,551	$	(113	)
Collateralized mortgage obligations		7,448		(29	)		5,549		(56	)		12,997		(85	)
Obligations of state and political subdivisions		1,413		(9	)		-		-			1,413		(9	)
Total temporarily impaired securities	$	22,691	$	(80	)	$	15,270	$	(127	)	$	37,961	$	(207	)

There were no sales of securities during the three months ended March 31, 2020 or 2019.   

ASU 2016-13 makes targeted improvements to the accounting for credit losses on securities available for sale. The concept of other than-temporarily impaired has been replaced with the allowance for credit losses. Unlike securities held to maturity, securities available for sale are evaluated on an individual level and pooling of securities is not allowed.

Quarterly, the Company evaluates if any security has a fair value less than its amortized cost. Once these securities are identified, in order to determine whether a decline in fair value resulted from a credit loss or other factors, the Company performs further analysis as outlined below:

• Review the extent to which the fair value is less than the amortized cost and observe the security’s lowest credit rating as reported by third-party credit ratings companies.

• Any securities that are downgraded by a third party ratings company above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

• If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a discounted cash flow (DCF) analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value.  As of March 31, 2020, management had determined that no credit loss exists.  Accrued interest on AFS debt securities totaled $2.8 million at March 31, 2020 and is excluded from the ACLS.  Accrued interest on AFS debt securities is presented as a component of otherassets on the Company’s balance sheet.

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Fair Value

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

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.

Loans held for sale, carried at fair value – The Company elected the fair value option for all conventional residential one-to four-family loans held for sale and all permanent construction loans held for sale that were acquired from UCFC in the merger.  In addition, the Company has elected the fair value option for all loans held for sale originated after January 31, 2020.

The fair value of conventional loans held for sale is determined using the current 15 day forward contract price for either 15 or year conventional mortgages and the 60 day forward contract price for either 15 or 30 year Federal Housing Authority mortgages (Level 2).  The fair value of permanent construction loans held for sale is determined using the current 60 day forward contract price for 15 or 30 years conventional mortgages which is then adjusted for unobservable market data such as estimated fall out rates and estimated time from origination to completion of construction (Level 3).

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).    

Purchased and written certificate of deposit option – The Company acquired purchased and written certificate of deposit options in its merger with UCFC.  These written and purchased options are mirror derivative instruments which are carried at fair value on the statement of financial condition.  The Company uses an independent third party that performs a market valuation analysis for purchased and written certificate of deposit options.  (Level 2)

Interest rate swaps – The Company periodically enters into interest rate swap agreements with its commercial customers who desire a fixed rate loan term that is longer than the Company is willing to extend.  The Company then enters into a reciprocal swap agreement with a third party that offsets the interest rate risk from the interest rate swap extended to the customer.  The interest rate swaps are derivative instruments which are carried at fair value on the statement of financial condition.  The Company uses an independent third party that performs a market valuation analysis for both swap positions. (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

March 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total FairValue
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and         agencies	$	—	$	30,282	$	—	$	30,282
Mortgage-backed securities		—		201,026		—		201,026
Collateralized mortgage obligations		—		137,608		—		137,608
Corporate bonds		—		22,067		—		22,067
Obligations of state and political subdivisions		—		137,393		5,830		143,223
Loans held for sale, at fair value		—		13,802		44,420		58,222
Purchased certificate of deposit option		—		86		—		86
Interest rate swaps		—		1,868		—		1,868
Mortgage banking derivative		—		4,073		—		4,073
Liabilities:		—						—
Written certificate of deposit option		—		86		—		86
Interest rate swaps		—		2,119		—		2,119
Mortgage banking derivative		—		586		—		586

December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total FairValue
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and   agencies	$	—	$	2,524	$	—	$	2,524
Mortgage-backed securities		—		89,647		—		89,647
REMICs		—		1,636		—		1,636
Collateralized mortgage obligations		—		82,101		—		82,101
Corporate bonds		—		12,101		—		12,101
Obligations of state and political subdivisions		—		92,028		3,411		95,439
Mortgage banking derivative - asset		—		892		—		892

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

March 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate		—		—		206		206
Commercial		—		—		228		228
Total impaired loans		—		—		434		434
Mortgage servicing rights		—		12,781		—		12,781

December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate	$	—	$	—	$	68	$	68
Commercial		—		—		38		38
Total impaired loans		—		—		106		106
Mortgage servicing rights		—		273		—		273

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2020, 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	$	434	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-20%		10.86	%

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 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	$	80	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-13%		10.86	%

The Company has elected the fair value option for new applications taken post January 31, 2020, and subsequently originated for residential mortgage and permanent construction loans held for sale.  These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans.  Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policies.  None of these loans are 90 or more days past due nor on nonaccrual status as of March 31, 2020.  There were no loans at December 31, 2019, where the fair value option had been elected.  

The aggregate fair value of these loans at March 31, 2020 was $58.2 million and they had a contractual balance of $52.6 million for this same period.  The $5.6 million difference between these two figures was recorded in gains and losses on the sale of loans held for sale during the quarter ended March 31, 2020.

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 March 31, 2020, and December 31, 2019. 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’s 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 1 classification. The carrying value of subordinated debentures was considered to be the carrying value as the debt is floating rate and can be prepaid at any time without penalty.  

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 March 31, 2020.

			Fair Value Measurements at March 31, 2020
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	145,217	$	145,217	$	145,217	$	—	$	—
Investment securities		534,206		534,206		—		528,376		5,830
Federal Home Loan Bank Stock		89,252	N/A		N/A		N/A		N/A
Loans receivable, net		5,028,058		5,141,454		—		—		5,141,454
Loans held for sale, carried at fair value		58,222		58,222		—		13,802		44,420
Loans held for sale, carried at lower of cost or market		27,372		28,383		—		28,383		—
Financial Liabilities:
Deposits	$	4,994,148	$	5,003,154	$	3,717,546	$	1,285,608	$	—
Advances from Federal Home Loan Bank		486,000		487,027		—		487,027		—
Securities sold under repurchase agreements		1,961		1,961		—		1,961		—
Subordinated debentures		36,083		36,083		—		36,083		—

			Fair Value Measurements at December 31, 2019
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	131,254	$	131,254	$	131,254	$	—	$	—
Investment securities		283,448		283,448		—		280,037		3,411
FHLB Stock		11,915	N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		2,764,329		2,756,092		—		18,456		2,737,636
Financial Liabilities:
Deposits	$	2,870,325	$	2,871,166	$	2,131,537	$	739,629	$	—
Advances from FHLB		85,063		85,003		—		85,003		—
Securities sold under repurchase agreements		2,999		2,999		2,999		—		—
Subordinated debentures		36,083		36,083		—		36,083		—

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Deposits

3 Months Ended

Mar. 31, 2020

Deposits [Abstract]

Deposits

11. Deposits

A summary of deposit balances is as follows:

	March 31, 2020		December 31, 2019
	(In Thousands)
Non-interest-bearing checking accounts	$	1,041,315	$	630,359
Interest-bearing checking and money market accounts		2,052,935		1,198,012
Savings deposits		623,331		303,166
Retail certificates of deposit less than $250,000		1,091,003		631,253
Retail certificates of deposit greater than $250,000		185,564		107,535
	$	4,994,148	$	2,870,325

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Loans - Financing Receivable Credit Quality Indicators (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 5,113,917	$ 2,786,693
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,249,219	326,144
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,165,276	1,512,359
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	4,607,744	2,351,398
Pass [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,046,718	159,539
Pass [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	2,108,684	1,460,989
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	70,063	53,419
Special Mention [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	390	415
Special Mention [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	28,045	27,197
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	83,079	34,648
Substandard [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	3,685	3,479
Substandard [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	27,272	23,097
Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	13
Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	353,018	347,228
Not Graded [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	198,426	162,711
Not Graded [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	1,275	1,076
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	310,791	206,721
Construction Loans [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	290,253	182,858
Construction Loans [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net		1,645
Construction Loans [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	20,538	22,218
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	871,968	579,911
Commercial [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	839,917	548,012
Commercial [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	20,477	24,162
Commercial [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	11,574	7,737
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	295,150	123,722
Home Equity and Improvement [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	194,262
Home Equity and Improvement [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	322	315
Home Equity and Improvement [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	100,566	123,407
PCD [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	89,197
PCD [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	27,851
PCD [Member] | Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	21,151
PCD [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	40,195
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	132,316	37,836
Consumer Finance [Member] | Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	100,059
Consumer Finance [Member] | Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	31	20
Consumer Finance [Member] | Doubtful [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	13
Consumer Finance [Member] | Not Graded [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Net	$ 32,213	$ 37,816

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Deposits - Summary of Deposit Balances (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Deposits [Abstract]
Non-interest-bearing checking accounts	$ 1,041,315	$ 630,359
Interest-bearing checking and money market accounts	2,052,935	1,198,012
Savings deposits	623,331	303,166
Retail certificates of deposit less than $250,000	1,091,003	631,253
Retail certificates of deposit greater than $250,000	185,564	107,535
Total	$ 4,994,148	$ 2,870,325

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Commitments, Guarantees and Contingent Liabilities - Additional Information (Details)	3 Months Ended
	Mar. 31, 2020
Commitments And Contingencies Disclosure [Abstract]
Loan Commitments Maturities Range Description	60 days or less

XML

Loans - Schedule of Outstanding Balance and Related Allowance on Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loan Balance	$ 5,028,058	$ 2,715,078
ACL Balance		$ 31,243
Loan Purchase [Member]
Loan Balance	89,197
ACL Balance	7,909
Loan Purchase [Member] | Real Estate [Member]
Loan Balance	55,755
ACL Balance	5,332
Loan Purchase [Member] | Real Estate [Member] | Residential [Member]
Loan Balance	17,651
ACL Balance	1,345
Loan Purchase [Member] | Real Estate [Member] | Commercial Portfolio Segment [Member]
Loan Balance	37,070
ACL Balance	3,935
Loan Purchase [Member] | Real Estate [Member] | Construction [Member]
Loan Balance	1,034
ACL Balance	52
Loan Purchase [Member] | Other Loans [Member]
Loan Balance	33,442
ACL Balance	2,577
Loan Purchase [Member] | Other Loans [Member] | Commercial [Member]
Loan Balance	25,921
ACL Balance	2,255
Loan Purchase [Member] | Other Loans [Member] | Home Equity and Improvement [Member]
Loan Balance	6,268
ACL Balance	258
Loan Purchase [Member] | Other Loans [Member] | Consumer Portfolio Segment [Member]
Loan Balance	1,253
ACL Balance	$ 64

XML

Leases - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Jan. 31, 2020	Dec. 31, 2019
Lessee Lease Description [Line Items]
Operating Lease, Right-of-Use Asset	$ 17,700,000			$ 8,900,000
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	us-gaap:OtherAssetsMember			us-gaap:OtherAssetsMember
Operating Lease, Liability	$ 18,226,000			$ 9,500,000
Operating Lease, Liability, Statement of Financial Position [Extensible List]	us-gaap:OtherLiabilitiesMember			us-gaap:OtherLiabilitiesMember
Option extensions	true
Operating lease, option to extend	five and ten year
Operating lease, weighted average remaining lease term	17 years 6 months 29 days			17 years 25 days
Operating lease, weighted average discount rate	2.55%			3.17%
Operating Lease, Cost	$ 517,000	$ 243,000
Minimum [Member]
Lessee Lease Description [Line Items]
Lessee, Operating Lease, Renewal Term	5 years
Maximum [Member]
Lessee Lease Description [Line Items]
Lessee, Operating Lease, Renewal Term	10 years
United Community Financial Corp [Member]
Lessee Lease Description [Line Items]
Operating Lease, Right-of-Use Asset			$ 5,000,000
Operating Lease, Liability			$ 5,100,000

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Other Comprehensive Income - Activity in AOCI, net of tax (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Other Comprehensive Income Loss Net Of Tax Period Increase Decrease [Abstract]
Securities Available For Sale, Beginning balance	$ 4,839	$ (2,057)
Securities Available For Sale, Other comprehensive income before reclassifications	7,473	3,635
Securities Available For Sale, Net other comprehensive income during period	7,473	3,635
Securities Available For Sale, Ending balance	12,312	1,578
Post-retirement Benefit, Beginning balance	(244)	(91)
Post-retirement Benefit, Amounts reclassified from accumulated other comprehensive income		82
Post-retirement Benefit, Net other comprehensive income during period		82
Post-retirement Benefit, Ending balance	(244)	(9)
Accumulated Other Comprehensive Income (Loss), Beginning balance	4,595	(2,148)
Accumulated Other Comprehensive Income (Loss), Other comprehensive income before reclassifications	7,473	3,635
Accumulated Other Comprehensive Income (Loss), Amounts reclassified from accumulated other comprehensive income		82
Accumulated Other Comprehensive Income (Loss), Net other comprehensive income during period	7,473	3,717
Accumulated Other Comprehensive Income (Loss), Ending balance	$ 12,068	$ 1,569

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Investment Securities - Additional Information (Details) - USD ($) $ in Millions	Mar. 31, 2020	Jan. 31, 2020
Marketable Securities [Line Items]
Securities acquired in merger, fair value		$ 262.8
Security Owned And Pledged As Collateral Carrying Value	$ 321.3
AFS Debt Securities [Member]
Marketable Securities [Line Items]
Accrued interest	$ 2.8

XML

Consolidated Statement of Changes in Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income [Member]	Retained Earnings [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2018	$ 399,589	$ 127	$ 161,593	$ (2,148)	$ 295,588	$ (55,571)
Balance (in shares) at Dec. 31, 2018		20,171,392
Net (loss) income	11,482				11,482
Other comprehensive income	3,717			3,717
Deferred compensation plan	20		(22)			42
Stock based compensation expenses	11		11
Shares issued under stock option plan	185		(22)		(5)	212
Shares issued under stock option plan (in shares)		17,822
Restricted share issuance/ Restricted share activity under stock incentive plans	(311)		(751)			440
Restricted share issuance/Restricted share activity under stock incentive plan (in shares)		38,890
Shares issued from direct stock sales	31		19			12
Shares issued from direct stock sales (in shares)		1,065
Shares repurchased	(15,147)					(15,147)
Shares repurchased (In Shares)		(515,977)
Common stock dividends declared	(3,788)				(3,788)
Balance at Mar. 31, 2019	395,789	$ 127	160,828	1,569	303,277	(70,012)
Balance (in shares) at Mar. 31, 2019		19,713,192
Balance at Dec. 31, 2019	426,167	$ 127	161,955	4,595	329,175	(69,685)
Balance (in shares) at Dec. 31, 2019		19,729,886
Net (loss) income	(22,482)				(22,482)
Other comprehensive income	7,473			7,473
Adoption of ASC 326 | ASC 326 [Member]	(2,566)				(2,566)
Deferred compensation plan			(94)			94
Deferred compensation plan (in shares)		7,524
Stock based compensation expenses	1,236		1,230			6
Capital stock issuance	526,875	$ 179	526,696
Capital stock issuance (in shares)		17,927,017
Vesting of incentive plans	(1,496)		(1,989)			493
Vesting of incentive plans (in shares)		39,548
Restricted share issuance/ Restricted share activity under stock incentive plans			198		(374)	176
Restricted share issuance/Restricted share activity under stock incentive plan (in shares)		13,349
Restricted share forfeitures (in shares)		(750)
Shares repurchased	(10,078)					(10,078)
Shares repurchased (In Shares)		(430,000)
Common stock dividends declared	(8,286)				(8,286)
Balance at Mar. 31, 2020	$ 916,843	$ 306	$ 687,996	$ 12,068	$ 295,467	$ (78,994)
Balance (in shares) at Mar. 31, 2020		37,286,574

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Dividends on Common Stock (Details) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Dividends Common Stock [Abstract]
Common Stock, Dividends, Per Share, Cash Paid	$ 0.22	$ 0.19
Common Stock, Dividends, Per Share, Declared	$ 0.22	$ 0.19

XML

Consolidated Condensed Statements of Financial Condition - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Cash and cash equivalents:
Cash and amounts due from depository institutions	$ 79,000	$ 46,254
Interest-bearing deposits	66,217	85,000
Cash and cash equivalents, federal funds sold	145,217	131,254
Securities available-for-sale, carried at fair value	534,206	283,448
Loans held for sale, carried at fair value	58,222
Loans held for sale, at lower of cost or market	27,372	18,008
Loans receivable, net of allowance for credit losses of $85,859 at March 31, 2020 and $31,243 at December 31, 2019, respectively	5,028,058	2,746,321
Mortgage servicing rights	15,742	10,267
Accrued interest receivable	19,048	10,244
Federal Home Loan Bank stock	89,252	11,915
Bank owned life insurance	142,259	75,544
Premises and equipment	59,870	39,563
Real estate and other assets held for sale	548	100
Goodwill	317,520	100,069
Core deposit and other intangibles	35,540	3,772
Other assets	66,088	38,487
Total assets	6,538,942	3,468,992
Liabilities:
Deposits	4,994,148	2,870,325
Advances from the Federal Home Loan Bank	486,000	85,063
Subordinated debentures	36,083	36,083
Securities sold under repurchase agreements	1,961	2,999
Advance payments by borrowers	23,962	5,491
Deferred taxes	3,642	905
Other liabilities	76,303	41,959
Total liabilities	5,622,099	3,042,825
Stockholders’ equity:
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; 43,297,259 and 25,371,086 shares issued and 37,286,574 and 19,729,886 shares outstanding at March 31, 2020 and December 31, 2019, respectively	306	127
Additional paid-in capital	687,996	161,955
Accumulated other comprehensive income (loss), net of tax of $3,208 and $1,221, respectively	12,068	4,595
Retained earnings	295,467	329,175
Treasury stock, at cost, 6,011,529 shares at March 31, 2020 and 5,641,200 shares at December 31, 2019	(78,994)	(69,685)
Total stockholders’ equity	916,843	426,167
Total liabilities and stockholders’ equity	$ 6,538,942	$ 3,468,992

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Mortgage Banking (Tables)

3 Months Ended

Mar. 31, 2020

Mortgage Banking [Abstract]

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 March 31,
	2020			2019
	(In Thousands)
Gain from sale of mortgage loans	$	4,902		$	1,301
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		1,594			939
Amortization of mortgage servicing rights		(1,163	)		(286	)
Mortgage servicing rights valuation adjustments		(4,485	)		(113	)
		(4,054	)		540
Net revenue from sale and servicing of mortgage loans	$	848		$	1,841

Schedule of capitalized mortgage and valuation allowance

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020			2019
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,801		$	10,419
Loans sold, servicing retained		1,376			278
Mortgage servicing rights acquired		9,747			—
Amortization		(1,163	)		(286	)
Carrying value before valuation allowance at end of period		20,761			10,411
Valuation allowance:
Balance at beginning of period		(534	)		(300	)
Impairment recovery (charges)		(4,485	)		(113	)
Balance at end of period		(5,019	)		(413	)
Net carrying value of MSRs at end of period	$	15,742		$	9,998
Fair value of MSRs at end of period	$	16,105		$	10,264

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Commitments, Guarantees and Contingent Liabilities (Tables)

3 Months Ended

Mar. 31, 2020

Commitments And Contingencies Disclosure [Abstract]

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):

	March 31, 2020		December 31, 2019
Commitments to make loans	$	361,397	$	178,811
Unused lines of credit		895,487		433,109
Standby letters of credit		12,745		14,215
Total	$	1,269,629	$	626,135

XML

Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

10. Leases

Due to the merger with UCFC, on January 31, 2020, the Company performed a valuation on UCFC’s leases to determine an initial right of use asset (ROU asset) and lease liability.  The Company recorded an initial ROU asset of $5.0 million and a lease liability of $5.1 million for these leases.  

The Company’s lease agreements have maturity dates ranging from December 2020 to September 2044, 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 17.58 years as of March 31, 2020 and 17.07 years as of December 31, 2019.  The weighted average discount rate for leases was 2.55% as of March 3, 2020 and 3.17% as of December 31, 2019.

The total operating lease costs were $517,000 for the three months ended March 31, 2020, and $243,000 for the three months ended March 31, 2019, respectively. The right-of-use asset, included in other assets, was $17.7 million and $8.9 million at March 31, 2020 and December 31, 2019, respectively.  The lease liabilities, included in other liabilities, were $18.2 million and $9.5 million as of March 31, 2020 and December 31, 2019, respectively.

Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

(in thousands)	March 31, 2020
2020	$	1,913
2021		2,295
2022		1,944
2023		1,539
2024		1,311
Thereafter		14,911
Total undiscounted minimum lease payments	$	23,913
Present value adjustment		(5,687	)
Total lease liabilities	$	18,226

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(Loss) Earnings Per Common Share

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

(Loss) Earnings Per Common Share

6. (Loss) Earnings Per Common Share

Basic (loss) earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which (loss) 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 (losses) 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 (loss) earnings per common share:

	Three Months Ended March 31,
	2020			2019
	(In Thousands, except per share data)
Basic (Loss) Earnings Per Share:
Net (loss) income available to common shareholders	$	(22,482	)	$	11,482
Less: (loss) income allocated to participating securities		(39	)		9
Net (loss) income allocated to common shareholders		(22,443	)		11,473
Weighted average common shares outstanding including    participating securities		31,721			20,030
Less: Participating securities		55			16
Average common shares		31,666			20,014
Basic (loss) earnings per common share	$	(0.71	)	$	0.57
Diluted (Loss) Earnings Per Share:
Net (loss) income allocated to common shareholders	$	(22,443	)	$	11,473
Weighted average common shares outstanding for basic (loss) earnings    per common share		31,666			20,014
Add: Dilutive effects of stock options		—			81
Average shares and dilutive potential common shares		31,666			20,095
Diluted (loss) earnings per common share	$	(0.71	)	$	0.57

Since net income allocated to common shareholders was negative for the quarter ended March 31, 2020, there is no dilutive effect of stock options included in the diluted (loss) earnings per common share calculation.  3,376 shares subject to issue upon exercise of options of in 2019 were excluded from the diluted earnings per common share calculation as they were anti-dilutive.  

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Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Significant Accounting Policies

2. Significant Accounting Policies

Accounting Standards Adopted in 2020

ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement by removing, modifying and adding certain requirements. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt and remove or modify disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment:  Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU 2017-04 became effective for the Company on January 1, 2020, and the amendments of this ASU will be applicable to the goodwill impairment testing for 2020.

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments:Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. The amendments of ASU 2016-13, and all subsequent ASUs issued by FASB to provide additional guidance and clarification related to this Topic, became effective for the Company on January 1, 2020.

As a result of adopting the amendments of ASU 2016-13, the Company recorded an increase to its allowance for credit losses of $2.4 million and an increase to its allowance for credit losses on off-balance sheet credit exposures of $0.9 million resulting in a one-time cumulative effect adjustment through retained earnings of $2.6 million net of $.7 million tax at the date of adoption. Future changes in the allowance for credit losses on off-balance sheet credit exposures will be recorded in other liabilities.  This adjustment included a qualitative adjustment to the allowance for credit losses related to loans and an allowance on off-balance sheet credit exposures. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

Accounting Standards not yet adopted:

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848): This guidance provides temporary options to ease the potential burden in accounting for reference rate reform. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company anticipates being fully prepared to implement a replacement for the reference rate and has determined that any change will not have a material impact to the consolidated financial statements.

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Business Combinations

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Business Combinations

18. Business Combinations

Effective January 31, 2020, the Company merged with UCFC and its subsidiaries, pursuant to the Merger Agreement.   Pursuant to the Merger Agreement, UCFC was merged with and into First Defiance.  Immediately following the Merger, Home Savings was merged with and into First Federal Bank of the Midwest, with First Federal surviving the Merger.  In addition, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged with the Company’s wholly-owned insurance subsidiary, First Insurance Group of the Midwest, Inc., with First Insurance Group of the Midwest, Inc. surviving the Merger.  UCFC’s consolidated assets and equity (unaudited) as of January 31, 2020 totaled $2.8 billion and $324.5 million, respectively.  The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.  The fair value estimates included in these financial statements are based on preliminary valuations.  

In accordance with ASC 805, the Company expensed approximately $11.5 million of direct acquisition costs during the three months ended March 31, 2020, of which $4.7 million was to settle employment and benefit agreements and for personnel expenses related to operating the new UCFC locations.  The Company recorded $217.5 million of goodwill and $33.0 million of intangible assets in the first quarter of 2020. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.  The Merger was consistent with the Company’s strategy to enhance and expand its presence in northern Ohio.  The Merger offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded market area. The intangible assets are related to core deposits, which are being amortized over 10 years on an accelerated basis, and customer relationships, which are being amortized over 10 years on a straight-line basis.  For tax purposes, goodwill is non-deductible but will be evaluated annually for impairment.  The following table summarizes the fair value of the total consideration transferred as part of the Merger as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction.

	January 31, 2020
	(In Thousands)
Cash Consideration	$	132
Equity - Dollar Value of Issued Shares		526,875
Fair Value of Total Consideration Transferred		527,007
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents		52,580
Securities available for sale		262,753
Net loans, including loans held for sale and allowance		2,340,701
FHLB Stock		12,753
Office Properties and Equipment		21,216
Intangible Assets		33,014
Bank Owned Life Insurance		65,934
Mortgage Servicing Rights		9,747
Accrued Interest Receivable and Other Assets		34,452
Deposits - Non-Interest Bearing		(430,921	)
Deposits - Interest Bearing		(1,651,669	)
Advances from FHLB		(381,000	)
Deferred tax liability		(2,262	)
Accrued Interest Payable and Other Liabilities		(57,742	)
Total Identifiable Net Assets		309,556
Goodwill	$	217,451

As a result of the Merger and in accordance with the Merger Agreement, each share of UCFC common stock issued and outstanding immediately prior to the effective time was converted into 0.3715 share of First Defiance common stock.  No fractional shares of First Defiance common stock were issued in the Merger, and UCFC’s shareholders became entitled to receive cash in lieu of fractional shares. The Company issued 17,927,017 First Defiance common shares and paid approximately $0.1 million to UCFC shareholders as a result of the Merger.  The fair value of First Defiance common shares issued as part of the consideration paid for the UCFC common shares was determined based on the closing price of the Company’s common shares on the effective date of the Merger.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2019, after giving effect to certain adjustments.  The unaudited pro forma information for the three months ended March 31, 2020 and March 31, 2019 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.  The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

	Pro Forma Three Months Ended       March 31,
	2020			2019
	(In Thousands)
Net interest income	$	53,380		$	52,460
Provision for credit losses		(17,831	)		(273	)
Non-interest income		17,281			16,796
Non-interest expense		(41,141	)		(43,946	)
Income (loss) before income taxes		11,689			25,037
Income tax benefit (expense)		(2,734	)		(4,498	)
Net income (loss)	$	8,955		$	20,539
Diluted earnings per share	$	0.24		$	0.54

The above pro forma financial information related to 2020 excludes non-recurring merger costs that totaled $11.5 million on a pre-tax basis. The above pro forma financial information excludes the $25.9 million pre-tax provision expense recognized for the three months ended March 31, 2020 under CECL for acquired non-PCD loans as CECL was not effective as of the assumed transaction date of January 1, 2019.

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Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

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 2015. The Company currently operates primarily in the states of Ohio, Michigan, Pennsylvania and West Virginia which tax financial institutions based on their equity rather than their income.

For further information on taxes refer to the discussion on CECL in Note 8. Loans and the Merger information in Note 18. Business Combinations.  

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Loans - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Jan. 31, 2020	Dec. 31, 2019
Anticipated credit losses	$ 43,786,000	$ 212,000
Total loans	5,028,058,000			$ 2,715,078,000
Loans and Leases Receivable, Loans in Process	206,236,000			126,108,000
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Loans in Process	6,300,000			981,000
Purchase Credit Impaired [Member]
Total loans	2,000,000
Loan Purchase [Member]
Purchase price of loans at acquisition	2,340,701,000
Fair value of purchase price of loans at acquisition	2,314,588,000		$ 79,100,000
Financing receivable credit discount			7,700,000
Financing receivable non credit discount			$ 4,100,000
Total loans	89,197,000
Scenario Plan [Member]
Anticipated credit losses	5,700,000
Unfunded Loan Commitments [Member]
Unfunded loan commitments	1,300,000,000
Subsequently Defaulted [Member]
Financing Receivable, Allowance for Credit Losses, Period Increase (decrease)	15,000
TDRs [Member]
Financing Receivable, Modifications, Recorded Investment	13,800,000			15,100,000
Specified Reserves, Provision for Troubled Debt Restructurings	301,000			388,000
Loans and Leases Receivable, Impaired, Commitment to Lend	250,000			$ 226,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down	6,300,000
Financing Receivable, Allowance for Credit Losses, Period Increase (decrease)	$ 29,000	(6,000)
TDRs [Member] | Subsequently Defaulted [Member]
Financing Receivable, Allowance for Credit Losses, Period Increase (decrease)		$ (1,000)

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Loans - Summary of Amortized Cost Basis of Collateral-dependent Loans by Class of Loans and Collateral Type (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	$ 5,028,058	$ 2,746,321
Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	20,634
Equipment and Machinery [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	4,010
Inventory and Receivables [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	1,285
Vehicles [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	404
Collateral Pledged [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	26,333
Real Estate Loans [Member] | Real Estate [Member] | Residential [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	1,505
Real Estate Loans [Member] | Real Estate [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	18,688
Real Estate Loans [Member] | Collateral Pledged [Member] | Residential [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	1,505
Real Estate Loans [Member] | Collateral Pledged [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	18,688
Other Loans [Member] | Real Estate [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	440
Other Loans [Member] | Real Estate [Member] | Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	1
Other Loans [Member] | Equipment and Machinery [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	4,010
Other Loans [Member] | Inventory and Receivables [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	1,285
Other Loans [Member] | Vehicles [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	332
Other Loans [Member] | Vehicles [Member] | Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	72
Other Loans [Member] | Collateral Pledged [Member] | Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	6,067
Other Loans [Member] | Collateral Pledged [Member] | Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	1
Other Loans [Member] | Collateral Pledged [Member] | Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and leases receivable, net amount	$ 72

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Subsequent Event - Additional Information (Details) $ in Millions	3 Months Ended
	Mar. 31, 2020 USD ($)	Jun. 09, 2020 USD ($) LoanDeferral
Subsequent Event [Line Items]
Cash paid for paycheck protection program	$ 450.0
Subsequent Event [Member]
Subsequent Event [Line Items]
Number of loan deferrals | LoanDeferral		600
Loans receivable deferred		$ 611.3

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Loans - Allowance for credit loss activity (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020		Mar. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	$ 31,243		$ 28,331
Impact of ASC 326 Adoption	2,354
Acquisition related allowance for credit loss (PCD)	7,698
Charge-Offs	(434)		(534)
Recoveries	1,212		155
Provisions	43,786	[1],[2]	212
Ending Allowance	85,859		28,164
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	2,867		2,881
Impact of ASC 326 Adoption	1,765
Acquisition related allowance for credit loss (PCD)	1,077
Charge-Offs	(184)		(172)
Recoveries	101		13
Provisions	17,698	[1],[2]	89
Ending Allowance	23,324		2,811
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	16,302		15,142
Impact of ASC 326 Adoption	3,682
Acquisition related allowance for credit loss (PCD)	4,053
Charge-Offs	(16)
Recoveries	340		96
Provisions	18,154	[1],[2]	(169)
Ending Allowance	42,515		15,069
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	996		682
Impact of ASC 326 Adoption	(223)
Provisions	111	[1],[2]	49
Ending Allowance	884		731
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	1,700		2,026
Impact of ASC 326 Adoption	(521)
Acquisition related allowance for credit loss (PCD)	248
Charge-Offs	(30)		(33)
Recoveries	42		24
Provisions	2,515	[1],[2]	(89)
Ending Allowance	3,954		1,928
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	9,003		7,281
Impact of ASC 326 Adoption	(2,263)
Acquisition related allowance for credit loss (PCD)	2,272
Charge-Offs	(96)		(187)
Recoveries	669		12
Provisions	2,316	[1],[2]	170
Ending Allowance	11,901		7,276
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Allowance	375		319
Impact of ASC 326 Adoption	(86)
Acquisition related allowance for credit loss (PCD)	48
Charge-Offs	(108)		(142)
Recoveries	60		10
Provisions	2,992	[1],[2]	162
Ending Allowance	$ 3,281		$ 349

[1] Allowance/provision are not comparable to prior periods due to the adoption of CECL.

[2] Provision for the quarter ended March, 31, 2020 includes $25.9 million as a result of the Merger with UCFC in the first quarter

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Fair Value - Additional information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Fair Value Option Quantitative Disclosures [Line Items]
Fair value determination of loans held for sale description	The fair value of conventional loans held for sale is determined using the current 15 day forward contract price for either 15 or year conventional mortgages and the 60 day forward contract price for either 15 or 30 year Federal Housing Authority mortgages (Level 2). The fair value of permanent construction loans held for sale is determined using the current 60 day forward contract price for 15 or 30 years conventional mortgages which is then adjusted for unobservable market data such as estimated fall out rates and estimated time from origination to completion of construction (Level 3).
Loans held for sale, fair value disclosure	$ 58,222,000
Residential Mortgage and Permanent Construction Loans [Member]
Fair Value Option Quantitative Disclosures [Line Items]
Loans held for sale, 90 or more days past due	0
Loans held for sale, nonaccrual status	0
Loans held for sale, fair value disclosure	58,200,000	$ 0
Loans held for sale, contractual balance	52,600,000
Difference between fair value and contractual balance of loans held for sale	$ 5,600,000
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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Fair Value - Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Financial Assets, Carrying Value:
Cash and cash equivalents, Carrying Value	$ 145,217	$ 131,254	$ 112,517	$ 98,962
Investment securities, Carrying Value	534,206	283,448
Federal Home Loan Bank Stock, Carrying Value	89,252	11,915
Loans receivable, net, Carrying Value	5,028,058
Loans held for sale, Carrying Value	58,222
Loans, net, including loans held for sale, Carrying Value		2,764,329
Loans held for sale, carried at lower of cost or market, Carrying Value	27,372
Financial Liabilities, Carrying Value:
Deposits, Carrying Value	4,994,148	2,870,325
Advances from Federal Home Loan Bank, Carrying Value	486,000	85,063
Securities sold under repurchase agreements, Carrying Value	1,961	2,999
Subordinated debentures, Carrying Value	36,083	36,083
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	145,217	131,254
Investment securities, Fair Value	534,206	283,448
Loans receivable, net, Fair Value	5,141,454	2,756,092
Loans held for sale, carried at fair value	58,222
Loans held for sale, carried at lower of cost or market, Fair Value	28,383
Financial Liabilities, Fair Value:
Deposits, Fair Value	5,003,154	2,871,166
Advances from Federal Home Loan Bank, Fair Value	487,027	85,003
Securities sold under repurchase agreements, Fair Value	1,961	2,999
Subordinated debentures, Fair Value	36,083	36,083
Fair Value, Inputs, Level 1 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	145,217	131,254
Financial Liabilities, Fair Value:
Deposits, Fair Value	3,717,546	2,131,537
Securities sold under repurchase agreements, Fair Value		2,999
Fair Value, Inputs, Level 2 [Member]
Financial Assets, Fair Value:
Investment securities, Fair Value	528,376	280,037
Loans receivable, net, Fair Value		18,456
Loans held for sale, carried at fair value	13,802
Loans held for sale, carried at lower of cost or market, Fair Value	28,383
Financial Liabilities, Fair Value:
Deposits, Fair Value	1,285,608	739,629
Advances from Federal Home Loan Bank, Fair Value	487,027	85,003
Securities sold under repurchase agreements, Fair Value	1,961
Subordinated debentures, Fair Value	36,083	36,083
Fair Value, Inputs, Level 3 [Member]
Financial Assets, Fair Value:
Investment securities, Fair Value	5,830	3,411
Loans receivable, net, Fair Value	5,141,454	$ 2,737,636
Loans held for sale, carried at fair value	$ 44,420

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Consolidated Condensed Statements of (Loss) Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Interest Income
Loans	$ 51,460	$ 31,214
Investment securities:
Taxable	1,834	1,365
Non-taxable	883	840
Interest-bearing deposits	230	285
FHLB stock dividends	115	215
Total interest income	54,522	33,919
Interest Expense
Deposits	7,771	5,005
FHLB advances and other	1,006	276
Subordinated debentures	273	364
Notes payable	9	4
Total interest expense	9,059	5,649
Net interest income	45,463	28,270
Credit loss expense	43,786	212
Net interest income after credit loss expense	1,677	28,058
Non-interest Income
Service fees and other charges	5,183	3,007
Insurance commissions	5,155	4,115
Mortgage banking income	848	1,841
Gain on sale of non-mortgage loans	234	89
Trust income	838	523
Income from Bank Owned Life Insurance	781	392
Other non-interest income	960	846
Total non-interest income	13,999	10,813
Non-interest Expense
Compensation and benefits	17,585	14,085
Occupancy	3,731	2,241
FDIC insurance premium	492	273
Financial institutions tax	834	556
Data processing	3,040	2,297
Acquisition related charges	11,486
Amortization of intangibles	1,245	299
Other non-interest expense	5,355	5,115
Total non-interest expense	43,768	24,866
Income before income taxes	(28,092)	14,005
Federal income taxes	(5,610)	2,523
Net (loss) income	$ (22,482)	$ 11,482
(Loss) earnings per common share
Basic	$ (0.71)	$ 0.57
Diluted	$ (0.71)	$ 0.57

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(Loss) Earnings Per Common Share - Additional Information (Details) - shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share Basic [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	3,376

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Stock Compensation Plans - Tax benefits realized (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Proceeds of options exercised	$ 185
Related tax benefit recognized	4
Intrinsic value of options exercised	$ 360

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Investment Securities - Unrealized Gain (Loss) on Investments (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Total temporarily impaired securities, Duration Unrealized Loss Position, Less Than Twelve Months, Fair Value		$ 22,691
Total temporarily impaired securities, Duration of Unrealized Loss Position, Less Than 12 Months, Gross Unrealized Loss		(80)
Total temporarily impaired securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Fair Value	$ 64,599	15,270
Total temporarily impaired securities, Duration of Unrealized Loss Position, Twelve Months or Longer, Gross Unrealized Loss	(1,085)	(127)
Total temporarily impaired securities, Duration of Unrealized Loss Position, Fair Value	64,599	37,961
Total temporarily impaired securities, Duration of Unrealized Loss Position, Unrealized Loss	(1,085)	(207)
Mortgage-Backed Securities [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	199
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(4)
Available-for-sale securities, Total, Fair Value	199
Available-for-sale securities, Total, Unrealized Loss	(4)
Collateralized mortgage obligations [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value		7,448
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss		(29)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	8,793	5,549
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(12)	(56)
Available-for-sale securities, Total, Fair Value	8,793	12,997
Available-for-sale securities, Total, Unrealized Loss	(12)	(85)
Corporate bonds [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	16,933
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(388)
Available-for-sale securities, Total, Fair Value	16,933
Available-for-sale securities, Total, Unrealized Loss	(388)
Obligations of state and political subdivisions [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value		1,413
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss		(9)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	38,674
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(681)
Available-for-sale securities, Total, Fair Value	38,674	1,413
Available-for-sale securities, Total, Unrealized Loss	$ (681)	(9)
Mortgage-backed - residential [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value		13,830
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss		(42)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value		9,721
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss		(71)
Available-for-sale securities, Total, Fair Value		23,551
Available-for-sale securities, Total, Unrealized Loss		$ (113)

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Consolidated Condensed Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Operating Activities
Net (loss) income	$ (22,482)	$ 11,482
Items not requiring (providing) cash:
Provision for credit losses	43,786	212
Depreciation	1,631	1,031
Amortization of mortgage servicing rights, net of impairment charges/recoveries	5,648	399
Amortization of core deposit and other intangible assets	1,245	299
Net accretion of premiums and discounts on loans and deposits	(1,745)	(155)
Amortization of premiums and discounts on securities	633	285
Change in deferred taxes	77	155
Proceeds from the sale of loans held for sale	101,090	38,910
Originations of loans held for sale	(110,026)	(37,513)
Gain from sale of loans	(5,136)	(1,390)
Loss on sale or write down of property plant and equipment	0	10
Gain/loss on sale / write-down of real estate and other assets held for sale	10	249
Stock option expense	1,236	11
Restricted stock vesting	(1,496)	(311)
Income from bank owned life insurance	(781)	(392)
Excess tax benefit on stock compensation plans		(105)
Changes in:
Accrued interest receivable	(438)	(1,539)
Other assets	(2,416)	(3,609)
Other liabilities	2,525	1,662
Net cash provided by operating activities	13,361	9,691
Investing Activities
Proceeds from maturities, calls and pay-downs of available-for-sale securities	19,389	6,673
Proceeds from sale of premises and equipment, real estate and other assets held for sale	481	161
Proceeds from sale of non-mortgage loans	3,241	1,749
Purchases of available-for-sale securities		(8,172)
Purchases of Federal Home Loan stock	(64,584)
Proceeds from Federal Home Loan stock redemption		1,982
Net cash from acquisition	52,448
Purchases of premises and equipment, net	(722)	(793)
Net increase in loans receivable	(44,623)	(10,959)
Net cash used by investing activities	(34,370)	(9,359)
Financing Activities
Net increase in deposits and advance payments by borrowers	34,437	64,201
Net Proceeds from (repayment of) Federal Home Loan Bank advances	19,937	(30,031)
Decrease in securities sold under repurchase agreements	(1,038)	(2,228)
Net cash paid for repurchase of common stock	(10,078)	(15,147)
Proceeds from exercise of stock options		185
Proceeds from direct stock sales		31
Cash dividends paid on common stock	(8,286)	(3,788)
Net cash provided by financing activities	34,972	13,223
Increase in cash and cash equivalents	13,963	13,555
Cash and cash equivalents at beginning of period	131,254	98,962
Cash and cash equivalents at end of period	145,217	112,517
Supplemental cash flow information:
Interest paid	9,028	5,593
Initial recognition of right-of-use asset	8,994	8,808
Initial recognition of lease liability	9,143	9,339
Initial recognition of ASC 326	2,566
Transfers from loans to real estate and other assets held for sale	$ 37	$ 146

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Loans - Summary of Credit Loss Estimation (Details)	3 Months Ended
	Mar. 31, 2020
Residential Portfolio Segment [Member] | Real Estate [Member] | 1-4 Family Nonowner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Residential real estate
Loan Pool	1-4 Family nonowner occupied
Methodology	DCF
Loss Drivers	National unemployment
Residential Portfolio Segment [Member] | Real Estate [Member] | 1-4 Family Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Residential real estate
Loan Pool	1-4 Family owner occupied
Methodology	DCF
Loss Drivers	National unemployment
Commercial Portfolio Segment [Member] | Real Estate [Member] | Commercial Real Estate Nonowner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial real estate
Loan Pool	Commercial real estate nonowner occupied
Methodology	DCF
Loss Drivers	National unemployment
Commercial Portfolio Segment [Member] | Real Estate [Member] | Commercial Real Estate Owner Occupied [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial real estate
Loan Pool	Commercial real estate owner occupied
Methodology	DCF
Loss Drivers	National unemployment
Commercial Portfolio Segment [Member] | Real Estate [Member] | Multi Family [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial real estate
Loan Pool	Multi Family
Methodology	DCF
Loss Drivers	National unemployment
Commercial Portfolio Segment [Member] | Real Estate [Member] | Agriculture Land [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial real estate
Loan Pool	Agriculture Land
Methodology	DCF
Loss Drivers	National unemployment
Commercial Portfolio Segment [Member] | Real Estate [Member] | Commercial Loans Other [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial real estate
Loan Pool	Other commercial real estate
Methodology	DCF
Loss Drivers	National unemployment
Construction Portfolio Segment [Member] | Real Estate [Member] | Construction Loans [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Construction secured by real estate
Loan Pool	Construction
Methodology	PD/LGD
Loss Drivers	Call report loss history
Commercial Loan Portfolio Segment [Member] | Other Loans [Member] | Commercial Loans Other [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial
Loan Pool	Other commercial
Methodology	PD/LGD
Loss Drivers	Call report loss history
Commercial Loan Portfolio Segment [Member] | Other Loans [Member] | Commercial Working Capital [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial
Loan Pool	Commercial working capital
Methodology	PD/LGD
Loss Drivers	Call report loss history
Commercial Loan Portfolio Segment [Member] | Other Loans [Member] | Agriculture Production [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Commercial
Loan Pool	Agriculture production
Methodology	PD/LGD
Loss Drivers	Call report loss history
Home Equity and Improvement Portfolio Segment [Member] | Other Loans [Member] | Home Equity and Improvement [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Home equity and improvement
Loan Pool	Home equity and improvement
Methodology	PD/LGD
Loss Drivers	Call report loss history
Consumer Portfolio Segment [Member] | Other Loans [Member] | Consumer Finance [Member]
Financing Receivable Recorded Investment [Line Items]
Portfolio Segments	Consumer finance
Loan Pool	Consumer finance
Methodology	Remaining life
Loss Drivers	Call report loss history

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Borrowings - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
FHLB advances, maturity due 2020	$ 451,000
FHLB advances, maturity due 2021	5,000
FHLB advances, maturity due 2022	10,000
FHLB advances, maturity due 2023	10,000
FHLB advances, maturity due 2024	$ 10,000
Period for Interest Deferral on Trust Preferred Securities	5 years
Securities sold under repurchase agreements	$ 1,961	$ 2,999
Maturity Overnight [Member]
Debt Instrument [Line Items]
Securities sold under repurchase agreements	2,000	3,000
Maturity Overnight [Member] | Collateralized mortgage obligations [Member]
Debt Instrument [Line Items]
Investment securities under repurchase agreement, market value	5,600	$ 5,800
First Defiance Statutory Trusts II [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Trust Preferred Securities	15,000
Proceeds from Issuance of Subordinated Long-term Debt	$ 15,500
Coupon Rate on Preferred Securities, Period End	2.24%	4.29%
Preferred Securities Variable Interest Rate	LIBOR rate plus 1.5%
Financial Instruments Subject to Mandatory Redemption, Settlement Terms, Description	The Trust Preferred Securities and Subordinated Debentures mature on June 15, 2037, but can be redeemed at the Company’s option at any time now.
First Defiance Statutory Trusts I [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Trust Preferred Securities	$ 20,000
Proceeds from Issuance of Subordinated Long-term Debt	$ 20,600
Coupon Rate on Preferred Securities, Period End	2.12%	4.17%
Preferred Securities Variable Interest Rate	LIBOR rate plus 1.38%
Financial Instruments Subject to Mandatory Redemption, Settlement Terms, Description	The Trust Preferred Securities and Subordinated Debentures mature on December 15, 2035, but can be redeemed at the Company’s option at any time now.

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Derivative Financial Instruments - Carrying values (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives Assets, Carrying Value	$ 4,073	$ 883
Mortgage Banking Derivatives (Liabilities), Carrying Value	586	(9)
Mortgage Banking Derivatives, Derivatives Net Carrying Value	$ 3,487	$ 892

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Mortgage Banking - Additional information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Mortgage Banking [Abstract]
Residential Mortgage Loans, Unpaid Balance	$ 3,000,000,000		$ 1,460,000,000
Accrued Liabilities and Other Liabilities	43,000		$ 43,000
Expenses (credit) relating to secondary market buy-back activity	$ 0	$ 0

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Loans

3 Months Ended

Mar. 31, 2020

Loans And Leases Receivable Net Reported Amount [Abstract]

Loans

8. Loans

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.  Loans receivable consist of the following:

	March 31, 2020			December 31, 2019
	(In Thousands)
Real Estate:
Residential	$	1,265,901		$	324,773
Commercial		2,200,266			1,506,026
Construction		521,442			305,305
		3,987,609			2,136,104
Other Loans:
Commercial		897,865			578,071
Home equity and improvement		301,146			122,864
Consumer finance		137,679			37,649
		1,336,690			738,584
Loans before deferred loan origination fees and costs		5,324,299			2,874,688
Deduct:
Undisbursed construction loan funds		(206,236	)		(126,108	)
Net deferred loan origination fees and costs		(4,146	)		(2,259	)
Allowance for credit losses		(85,859	)		(31,243	)
Total loans	$	5,028,058		$	2,715,078

The following table discloses allowance for credit loss activity for the quarters ended March 31, 2020 and 2019 by portfolio segment (In Thousands):  

Quarter Ended March 31, 2020	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,867		$	16,302		$	996		$	9,003		$	1,700		$	375		$	31,243
Impact of ASC 326 Adoption		1,765			3,682			(223	)		(2,263	)		(521	)		(86	)		2,354
Acquisition related allowance for credit loss (PCD)		1,077			4,053			—			2,272			248			48			7,698
Charge-Offs		(184	)		(16	)		—			(96	)		(30	)		(108	)		(434	)
Recoveries		101			340			—			669			42			60			1,212
Provisions(1)(2)		17,698			18,154			111			2,316			2,515			2,992			43,786
Ending Allowance	$	23,324		$	42,515		$	884		$	11,901		$	3,954		$	3,281		$	85,859

(1) Allowance/provision are not comparable to prior periods due to the adoption of CECL.

(2) Provision for the quarter ended March, 31, 2020 includes $25.9 million as a result of the Merger with UCFC in the first quarter

Quarter Ended March 31, 2019	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,881		$	15,142		$	682	$	7,281		$	2,026		$	319		$	28,331
Charge-Offs		(172	)		—			—		(187	)		(33	)		(142	)		(534	)
Recoveries		13			96			—		12			24			10			155
Provisions		89			(169	)		49		170			(89	)		162			212
Ending Allowance	$	2,811		$	15,069		$	731	$	7,276		$	1,928		$	349		$	28,164

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, 2019 (in thousands):

As of December 31, 2019	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Home Equity and Improvement		Consumer Finance		Total
Allowance for credit loss attributable to:
Individually evaluated for impairment	$	115	$	85	$	—	$	174	$	48	$	—	$	422
Collectively evaluated for impairment		2,752		16,217		996		8,829		1,652		375		30,821
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total Allowance	$	2,867	$	16,302	$	996	$	9,003	$	1,700	$	375	$	31,243
Loans:
Individually evaluated for impairment	$	7,049	$	21,132	$	—	$	6,655	$	759	$	28	$	35,623
Collectively evaluated for impairment		318,106		1,490,306		206,721		573,244		122,963		37,808		2,749,148
Acquired with deteriorated credit quality		989		921		—		12		—		—		1,922
Total loans	$	326,144	$	1,512,359	$	206,721	$	579,911	$	123,722	$	37,836	$	2,786,693

The following table presents the average balance, interest income recognized and cash basis income recognized on impaired loans by class of loans for the three months ended March 31, 2019 (in thousands):

	Three Months Ended March 31, 2019
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	4,552	$	64	$	60
Residential Non Owner Occupied		2,080		30		32
Total Residential Real Estate		6,632		94		92
CRE Owner Occupied		7,365		166		132
CRE Non Owner Occupied		1,989		33		26
Multi-Family Real Estate		1,332		20		20
Agriculture Land		12,903		206		197
Other CRE		1,154		34		33
Total Commercial Real Estate		24,743		459		408
Construction		—		—		—
Commercial Working Capital		8,089		143		91
Agriculture Production		—		—		—
Commercial Other		1,870		27		24
Total Commercial		9,959		170		115
Home Equity and Improvement		921		14		13
Consumer Finance		36		1		1
Total Impaired Loans	$	42,291	$	738	$	629

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of March 31, 2020 (in thousands):

	March 31, 2020
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	1,505	$	—	$	—	$	—	$	1,505
Commercial		18,688		—		—		—		18,688
Construction		—		—		—		—		—
Other Loans:
Commercial		440		4,010		1,285		332		6,067
Home equity and improvement		1		—		—		—		1
Consumer finance		—		—		—		72		72
Total	$	20,634	$	4,010	$	1,285	$	404	$	26,333

The following table presents loans individually evaluated for impairment by class of loans (in thousands):

	December 31, 2019
	Unpaid Principal Balance*		Recorded Investment		Allowance for Credit Loss Allocated
With no allowance recorded:
Residential Owner Occupied	$	86	$	86	$	—
Residential Non Owner Occupied		962		967		—
Total Residential Real Estate		1,048		1,053		—
CRE Owner Occupied		5,098		4,814		—
CRE Non Owner Occupied		1,815		1,006		—
Multi-Family Real Estate		128		130		—
Agriculture Land		12,734		12,792		—
Other CRE		—		—		—
Total Commercial Real Estate		19,775		18,742		—
Construction		—		—		—
Commercial Working Capital		5,417		5,435		—
Agriculture Production		—		—		—
Commercial Other		469		471		—
Total Commercial		5,886		5,906		—
Home Equity and Improvement		151		151		—
Consumer Finance		—		—		—
Total loans with no allowance recorded	$	26,860	$	25,852	$	—
With an allowance recorded:
Residential Owner Occupied	$	5,137	$	4,977	$	104
Residential Non Owner Occupied		1,014		1,019		11
Total Residential Real Estate		6,151		5,996		115
CRE Owner Occupied		2,085		1,623		60
CRE Non Owner Occupied		317		319		13
Multi-Family Real Estate		—		—		—
Agriculture Land		262		268		3
Other CRE		401		180		9
Total Commercial Real Estate		3,065		2,390		85
Construction		—		—		—
Commercial Working Capital		682		450		150
Agriculture Production		—		—		—
Commercial Other		318		299		24
Total Commercial		1,000		749		174
Home Equity and Improvement		654		608		48
Consumer Finance		28		28		—
Total loans with an allowance recorded	$	10,898	$	9,771	$	422

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  All loans greater than 90 days past due are placed on non-accrual status.  Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual purchase credit deteriorated (PCD) loans in its non-performing loans.  As such, the non-performing loans as of March 31, 2020 include PCD loans accounted for pursuant to ASC Topic 326 as these loans are individually evaluated.  The non-performing loans do not include PCD (formerly purchase credit impaired (PCI)) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool basis.  The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned as of the dates indicated:

	March 31, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans	$	32,593	$	13,437
Loans over 90 days past due and still accruing		99		—
Total non-performing loans		32,692		13,437
Real estate and other assets held for sale		548		100
Total non-performing assets	$	33,240	$	13,537
Troubled debt restructuring, still accruing	$	7,473	$	8,486

The following table presents the aging of the amortized cost in past due and non- accrual loans as of March 31, 2020, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential		1,242,282		2,649		1,303		—		3,952		2,985
Commercial		2,160,018		57		5		—		62		5,196
Construction		310,783		8		—		—		8		—
Other Loans:
Commercial		867,758		124		125		—		249		3,961
Home equity and improvement		292,442		2,490		218		—		2,708		—
Consumer finance		131,117		343		29		99		471		728
PCD		66,286		2,393		795		—		3,188		19,723
Total Loans	$	5,070,686	$	8,064	$	2,475	$	99	$	10,638	$	32,593

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2019, by class of loans (In Thousands):

	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non Accrual
Real Estate:
Residential		323,600		1,328		570		646		2,544		2,411
Commercial		1,509,132		339		172		2,716		3,227		7,609
Construction		206,721		—		—		—		—		—
Other Loans:
Commercial		576,988		273		206		2,444		2,923		2,961
Home equity and improvement		122,487		956		240		39		1,235		449
Consumer finance		37,622		143		64		7		214		7
Total Loans	$	2,776,550	$	3,039	$	1,252	$	5,852	$	10,143	$	13,437

Troubled Debt Restructurings

As of March 31, 2020, and December 31, 2019, the Company had a recorded investment in troubled debt restructurings (“TDRs”) of $13.8 million and $15.1 million, respectively.  The Company allocated $301,000 and $388,000 of specific reserves to those loans at March 31, 2020, and December 31, 2019, respectively, and had committed to lend additional amounts totaling up to $250,000 and $226,000 at March 31, 2020, and December 31, 2019, 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 March 31, 2020, $6.3 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 month periods ending March 31, 2020, and March 31, 2019:

	Loans Modified as a TDR for the Three Months Ended March 31, 2020 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		2	$	378
Commercial		1		93
Construction		—		—
Other Loans:
Commercial		5		156
Home equity and improvement		1		26
Consumer finance		—		—
Total		9	$	653

The loans described above increased the allowance for credit losses (“ACL”) by $29,000 in the three month period ending March 31, 2020.     

	Loans Modified as a TDR for the Three Months Ended March 31, 2019 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	473
Commercial		—		—
Construction		—		—
Other Loans:
Commercial		1		14
Home equity and improvement		1		20
Consumer finance		1		7
Total		6	$	514

The loans described above decreased the ALLL by $6,000 in the three month period ending March 31, 2019.     

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 month periods ended March 31, 2020, and March 31, 2019:

	Three Months Ended March 31, 2020
	($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	268
Commercial		1		172
Construction		—		—
Other Loans:
Commercial		1		132
Home equity and improvement		1		146
Consumer finance		—		—
Total		6	$	718

The TDRs that subsequently defaulted described above had no effect on the ACL for the three month period ended March 31, 2020 and increased the ACL by $15,000 for the three month period ended March 31, 2020.

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.

	Three Months Ended March 31, 2019
	($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	76
Commercial		—		—
Construction		—		—
		—		—
Other Loans:		—		—
Commercial		3		2,544
Home equity and improvement		1		61
Consumer finance		—		—
Total		5	$	2,681

The TDRs that subsequently defaulted described above decreased the ALLL by $1,000 for the three month period ended March 31, 2019.

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 March 31, 2020, 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
Real Estate:
Residential		1,046,718		390		3,685		—		198,426		1,249,219
Commercial		2,108,684		28,045		27,272		—		1,275		2,165,276
Construction		290,253		—		—		—		20,538		310,791
Other Loans:
Commercial		839,917		20,477		11,574		—		—		871,968
Home equity and improvement		194,262		—		322		—		100,566		295,150
Consumer finance		100,059		—		31		13		32,213		132,316
PCD		27,851		21,151		40,195		—		—		89,197
Total Loans	$	4,607,744	$	70,063	$	83,079	$	13	$	353,018	$	5,113,917

As of December 31, 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
Real Estate:
Residential		159,539		415		3,479		—		162,711		326,144
Commercial		1,460,989		27,197		23,097		—		1,076		1,512,359
Construction		182,858		1,645		—		—		22,218		206,721
Other Loans:
Commercial		548,012		24,162		7,737		—		—		579,911
Home equity and improvement		—		—		315		—		123,407		123,722
Consumer finance		—		—		20		—		37,816		37,836
Total Loans	$	2,351,398	$	53,419	$	34,648	$	—	$	347,228	$	2,786,693

The table below presents the amortized cost basis of loans by credit quality indicator and class of loans based on the most recent analysis performed ($ in thousands):

	Term of loans by origination
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
As of March 31, 2020
Real Estate
Residential:
Risk Rating
Pass	$	58,175	$	162,634	$	206,799	$	190,256	$	186,702	$	437,887	$	2,691	$	1,245,144
Special Mention		—		97		58		—		123		98		14		390
Substandard		—		—		236		63		219		3,167		—		3,685
Doubtful		—		—		—		—		—		—		—		—
Total	$	58,175	$	162,731	$	207,093	$	190,319	$	187,044	$	441,152	$	2,705	$	1,249,219
Commercial:
Risk Rating
Pass	$	105,546	$	450,533	$	370,078	$	391,162	$	243,768	$	530,218	$	18,654	$	2,109,959
Special Mention		—		1,664		999		3,096		2,628		18,935		723		28,045
Substandard		—		291		1,607		2,497		1,340		18,839		2,698		27,272
Doubtful		—		—		—		—		—		—		—		—
Total	$	105,546	$	452,488	$	372,684	$	396,755	$	247,736	$	567,992	$	22,075	$	2,165,276
Construction:
Risk Rating
Pass	$	4,502	$	148,694	$	94,356	$	49,665	$	13,137	$	437	$	-	$	310,791
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	4,502	$	148,694	$	94,356	$	49,665	$	13,137	$	437	$	-	$	310,791
Other Loans
Commercial:
Risk Rating
Pass	$	55,857	$	191,337	$	108,146	$	61,628	$	34,192	$	43,359	$	345,398	$	839,917
Special Mention		25		881		129		2,970		60		592		15,820		20,477
Substandard		22		136		228		231		340		273		10,344		11,574
Doubtful		—		—		—		—		—		—		—		—
Total	$	55,904	$	192,354	$	108,503	$	64,829	$	34,592	$	44,224	$	371,562	$	871,968
Home equity and Improvement:
Risk Rating
Pass	$	2,741	$	10,976	$	5,857	$	9,960	$	9,489	$	36,520	$	219,285	$	294,828
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		80		242		322
Doubtful		—		—		—		—		—		—		—		—
Total	$	2,741	$	10,976	$	5,857	$	9,960	$	9,489	$	36,600	$	219,527	$	295,150
Consumer Finance:
Risk Rating
Pass	$	11,543	$	52,569	$	30,898	$	17,149	$	8,692	$	4,922	$	6,499	$	132,272
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		31		—		—		—		31
Doubtful		—		—		6		—		7		—		—		13
Total	$	11,543	$	52,569	$	30,904	$	17,180	$	8,699	$	4,922	$	6,499	$	132,316
PCD:
Risk Rating
Pass	$	-	$	292	$	546	$	1,015	$	783	$	16,847	$	8,368	$	27,851
Special Mention		—		24		2,783		9,697		1,496		4,441		2,710		21,151
Substandard		—		102		110		17,378		1,776		11,970		8,859		40,195
Doubtful		—		—		—		—		—		—		—		—
Total	$	-	$	418	$	3,439	$	28,090	$	4,055	$	33,258	$	19,937	$	89,197

Allowance for Credit Losses (ACL)

The Company has adopted ASU 2016-13 (Topic 326 – Credit Losses) to calculate the ACL which requires a projection of credit loss over the contract lifetime of the credit adjusted for prepayment tendencies. This valuation account is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loan.  The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans.  

The credit loss estimation process involves procedures that consider the unique characteristics of the Company’s portfolio segments.  These segments are further disaggregated into the loan pools for monitoring.  When computing allowance levels, a model of risk characteristics, such as loss history and delinquency status, along with current conditions and a supportable forecast is used to determine credit loss assumptions.  

The Company is generally utilizing two methodologies to analyze loan pools, discounted cash flows (“DCF”) and probability of default/loss given default (“PD/LGD”).  

A default can be trigger by one of several different asset quality factors including past due status, non-accrual status or if the loan has had a charge-off.  The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate.  The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.  This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.  

The DCF methodology was selected as the most appropriate for loan segments with longer average lives and regular payment structures.  The DCF model has two key components, the loss driver analysis combined with a cash flow analysis.  The contractual cash flow is adjusted for PD/LGD and prepayment speed to establish a reserve level.  The prepayment studies are updated quarterly by a third-party for each applicable pool.  

The remaining life method was selected for the consumer loan segment since the pool contains loans with many different structures and payment streams and collateral.  The weighted average remaining life uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.  

Portfolio Segments	Loan Pool	Methodology	Loss Drivers
Residential real estate	1-4 Family nonowner occupied	DCF	National unemployment
	1-4 Family owner occupied	DCF	National unemployment
Commercial real estate	Commercial real estate nonowner occupied	DCF	National unemployment
	Commercial real estate owner occupied	DCF	National unemployment
	Multi Family	DCF	National unemployment
	Agriculture Land	DCF	National unemployment
	Other commercial real estate	DCF	National unemployment
Construction secured by real estate	Construction	PD/LGD	Call report loss history
Commercial	Commercial working capital	PD/LGD	Call report loss history
	Agriculture production	PD/LGD	Call report loss history
	Other commercial	PD/LGD	Call report loss history
Home equity and improvement	Home equity and improvement	PD/LGD	Call report loss history
Consumer finance	Consumer finance	Remaining life	Call report loss history

According to the accounting standard an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner.   The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables for all loan segments.   Current policy dictates that a loan will be placed on nonaccrual status, with the current accrued interest receivable balance being written off, upon the loan being 90 days delinquent or when the loan is deemed to be collateral dependent and the collateral analysis shows less than 1.2 times discounted collateral coverage based on a current assessment of the value of the collateral.

In addition to the ASC Topic 326 requires the Company to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the company must first establishes a loss expectation for extended (funded) commitments.  This loss expectation, expressed as a ratio to the amortized cost basis, is then applied to the portion of unfunded commitments not considered unilaterally cancelable, and considered by the company’s management as likely to fund over the life of the instrument.  At March 31, 2020, the Company had $1.3 billion in unfunded commitments and set aside $5.7 million in anticipated credit losses.  This reserve is recorded in other liabilities as opposed to the ACL.  

The determination of ACL is complex and the Company makes decisions on the effects of matters that are inherently uncertain.  Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgements as to the facts and circumstances related to particular situations or credits.  There may be significant changes in the ACL in future periods determined by prevailing factors at that point in time along with future forecasts.  

Purchased Loans

As a result of the Merger, the Company acquired $2.3 billion in loans.  Par value of purchased loans follows (in thousands):

	2020
Par value of acquired loans at acquisition	$	2,314,588
Credit discount		34,610
Non-credit discount/(premium) at acquisition		(8,497	)
Purchase price of loans at acquisition	$	2,340,701

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit they are accounted for as purchase credit deteriorated (“PCD”). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, credit discount $7.7 million and a noncredit discount of $4.1 million. The outstanding balance at March 31, 2020 and related allowance on these loans is as follows (in thousands):

	Loan Balance		ACL Balance
	(In Thousands)
Real Estate:
Residential	$	17,651	$	1,345
Commercial		37,070		3,935
Construction		1,034		52
		55,755		5,332
Other Loans:
Commercial		25,921		2,255
Home equity and improvement		6,268		258
Consumer finance		1,253		64
		33,442		2,577
Total	$	89,197	$	7,909

At March 30, 2020 the Company had $2.0 million in loans that had previously been accounted for as purchase credit impaired.    

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $6.3 million as of March 31, 2020, and $981,000 as of December 31, 2019. The increase is a result of the merger with UCFC.  

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Stock Compensation Plans

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

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. In addition, as a result of the Merger, First Defiance assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan and UCFC’s 2015 Long Term Incentive Plan (the “UCFC 2015 Plan”).  First Defiance also assumed the UCFC 2015 Plan with respect to the available shares under the UCFC 2015 Plan as of the effective date of the Merger, with appropriate adjustments to the number of shares available to reflect the Merger. The stock options assumed from UCFC in the Merger will become exercisable solely to purchase shares of First Defiance, with appropriate adjustments to the number of shares subject to the assumed stock options and the exercise price of such stock options. 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 March 31, 2020, 57,683 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. Of this figure, 39,983 are associated with the conversion of all of the outstanding stock options on the books of UCFC into stock options of First Defiance at the same conversion price and ratio applied to UCFC common shares at January 31, 2020. Options granted in prior years 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 2019 and 2020 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 plans to grant these RSU’s to participants in the second quarter of 2020. 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.  

In the three months ended March 31, 2020, the Company also granted 13,349 shares of restricted stock to directors.  These shares have a one-year vesting period.

Following is stock option activity under the plans during the three months ended March 31, 2020:

	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2020		17,700	$	17.60
Forfeited or cancelled		—		—
Exercised		—		—
Exchanged		39,983		16.00
Granted		—		—
Options outstanding, March 31, 2020		57,683	$	16.49		5.06	$	152
Vested or expected to vest at March 31, 2020		57,683	$	16.49		5.06	$	152
Exercisable at March 31, 2020		55,783	$	16.41		5.04	$	152

All of the 39,983 options exchanged are associated with the conversion of all of the outstanding stock options on the books of UCFC into stock options of First Defiance.

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

	Three Months Ended March 31,
	2020		2019
Proceeds of options exercised	$	—	$	185
Related tax benefit recognized		—		4
Intrinsic value of options exercised		—		360

As of March 31, 2020, there was $10,000 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 0.76 years.

At March 31, 2020, 46,129 RSUs and 60,650 restricted stock grants were unvested. Compensation expense related to RSUs and STIP is recognized over the performance period based on the achievements of targets as established under the plan documents. Total expense of $1.0 million was recorded during the three months ended March 31, 2020, compared to expense of $523,000 for the three months ended March 31, 2019.  There was approximately $858,000 and $1.2 million included within other liabilities at March 31, 2020 and December 31, 2019, respectively, related to the STIP.

	Restricted Stock Units					Stock Grants
Unvested Shares	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1, 2020		158,470		$	25.72		48,545		$	27.49
Granted		—			—		13,349			25.75
Vested		(86,050	)		25.48		(1,244	)		28.60
Forfeited		(26,291	)		25.58		—			—
Unvested at March 31, 2020		46,129		$	26.24		60,650		$	27.09

The maximum amount of compensation expense that may be recorded for the active LTIPs at March 31, 2020, is approximately $2.7 million.  However, the estimated expense expected to be recorded as of March 31, 2020, based on the performance measures in the plans, is $2.7 million, of which $2.5 million is unrecognized at March 31, 2020, and will be recognized over the remaining performance periods.

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Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2020

Other Comprehensive Income Loss Net Of Tax Period Increase Decrease [Abstract]

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 Amount		Tax (Expense) Benefit			Net of Tax Amount
	(In Thousands)
Three months ended March 31, 2020:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	9,458	$	(1,985	)	$	7,473
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	$	9,458	$	(1,985	)	$	7,473

	Before Tax Amount		Tax Expense (Benefit)			Net of Tax Amount
	(In Thousands)
Three months ended March 31, 2019:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	4,603	$	(968	)	$	3,635
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	$	4,603	$	(886	)	$	3,717

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

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

	Securities Available For Sale			Post- retirement Benefit			Accumulated Other Comprehensive Income (Loss)
	(In Thousands)
Balance January 1, 2020	$	4,839		$	(244	)	$	4,595
Other comprehensive income  before reclassifications		7,473			—			7,473
Amounts reclassified from accumulated other comprehensive income		—			—			—
Net other comprehensive income during period		7,473			—			7,473
Balance March 31, 2020	$	12,312		$	(244	)	$	12,068
Balance January 1, 2019	$	(2,057	)	$	(91	)	$	(2,148	)
Other comprehensive income (loss) before reclassifications		3,635			—			3,635
Amounts reclassified from accumulated other comprehensive income		—			82			82
Net other comprehensive income during period		3,635			82			3,717
Balance March 31, 2019	$	1,578		$	(9	)	$	1,569

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2020

Marketable Securities [Abstract]

Summary of available-for-sale securities

The following is a summary of available-for-sale securities:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At March 31, 2020
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	28,871	$	1,411	$	—		$	30,282
Mortgage-backed securities		193,575		7,455		(4	)		201,026
Collateralized mortgage obligations		134,144		3,476		(12	)		137,608
Corporate bonds		22,381		74		(388	)		22,067
Obligations of state and political subdivisions		139,652		4,252		(681	)		143,223
Total Available-for-Sale	$	518,623	$	16,668	$	(1,085	)	$	534,206

As a result of the merger, securities with a fair value of $262.8 million were acquired on January 31, 2020.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At December 31, 2019
Available-for-sale
Obligations of U.S. government corporations and agencies	$	2,518	$	6	$	—		$	2,524
Mortgage-backed securities		88,380		1,380		(113	)		89,647
Collateralized mortgage obligations		83,008		814		(85	)		83,737
Corporate bonds		12,011		90		—			12,101
Obligations of state and political subdivisions		91,406		4,042		(9	)		95,439
Total Available-for-Sale	$	277,323	$	6,332	$	(207	)	$	283,448

Schedule of investments classified by contractual maturity date

The amortized cost and fair value of the investment securities portfolio at March 31, 2020, 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”) and collateralized mortgage obligations (“CMO”) 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
	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	4,393	$	4,391
Due after one year through five years		20,876		20,747
Due after five years through ten years		65,575		67,675
Due after ten years		100,060		102,759
MBS/CMO		327,719		338,634
	$	518,623	$	534,206

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 March 31, 2020, and December 31, 2019:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	(In Thousands)
At March 31, 2020
Available-for-sale securities:
Mortgage-backed securities		—		—		199		(4	)		199		(4	)
Collateralized mortgage obligations						8,793		(12	)		8,793		(12	)
Corporate bonds						16,933		(388	)		16,933		(388	)
Obligations of state and political subdivisions						38,674		(681	)		38,674		(681	)
Total temporarily impaired securities	$	—	$	—	$	64,599	$	(1,085	)	$	64,599	$	(1,085	)

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	(In Thousands)
At December 31, 2019
Available-for-sale securities:
Mortgage-backed securities-residential	$	13,830	$	(42	)	$	9,721	$	(71	)	$	23,551	$	(113	)
Collateralized mortgage obligations		7,448		(29	)		5,549		(56	)		12,997		(85	)
Obligations of state and political subdivisions		1,413		(9	)		-		-			1,413		(9	)
Total temporarily impaired securities	$	22,691	$	(80	)	$	15,270	$	(127	)	$	37,961	$	(207	)

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Deposits (Tables)

3 Months Ended

Mar. 31, 2020

Deposits [Abstract]

Summary of deposit balances

A summary of deposit balances is as follows:

	March 31, 2020		December 31, 2019
	(In Thousands)
Non-interest-bearing checking accounts	$	1,041,315	$	630,359
Interest-bearing checking and money market accounts		2,052,935		1,198,012
Savings deposits		623,331		303,166
Retail certificates of deposit less than $250,000		1,091,003		631,253
Retail certificates of deposit greater than $250,000		185,564		107,535
	$	4,994,148	$	2,870,325

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Other Comprehensive Income

3 Months Ended

Mar. 31, 2020

Other Comprehensive Income Loss Net Of Tax Period Increase Decrease [Abstract]

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 Amount		Tax (Expense) Benefit			Net of Tax Amount
	(In Thousands)
Three months ended March 31, 2020:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	9,458	$	(1,985	)	$	7,473
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	$	9,458	$	(1,985	)	$	7,473

	Before Tax Amount		Tax Expense (Benefit)			Net of Tax Amount
	(In Thousands)
Three months ended March 31, 2019:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	4,603	$	(968	)	$	3,635
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	$	4,603	$	(886	)	$	3,717

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

	Securities Available For Sale			Post- retirement Benefit			Accumulated Other Comprehensive Income (Loss)
	(In Thousands)
Balance January 1, 2020	$	4,839		$	(244	)	$	4,595
Other comprehensive income  before reclassifications		7,473			—			7,473
Amounts reclassified from accumulated other comprehensive income		—			—			—
Net other comprehensive income during period		7,473			—			7,473
Balance March 31, 2020	$	12,312		$	(244	)	$	12,068
Balance January 1, 2019	$	(2,057	)	$	(91	)	$	(2,148	)
Other comprehensive income (loss) before reclassifications		3,635			—			3,635
Amounts reclassified from accumulated other comprehensive income		—			82			82
Net other comprehensive income during period		3,635			82			3,717
Balance March 31, 2019	$	1,578		$	(9	)	$	1,569

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Borrowings

3 Months Ended

Mar. 31, 2020

Subordinated Borrowings [Abstract]

Borrowings

12. Borrowings

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

	March 31, 2020		December 31, 2019
	(In Thousands)
FHLB Advances:
Single maturity fixed rate advances	$	486,000	$	83,999
Amortizable mortgage advances		—		1,085
Overnight advances		—		—
Fair value adjustment on acquired balances		—		(21	)
Total	$	486,000	$	85,063
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

The FHLB advances outstanding at March 31, 2020, have maturities of $451.0 million in 2020, $5.0 million in 2021 and $10.0 maturing in each of 2022, 2023 and 2024.

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 2.24% as of March 31, 2020, and 4.29% as of December 31, 2019.

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 2.12% and 4.17% on March 31, 2020 and December 31, 2019, 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 balance of repurchase agreements was $2.0 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively.  All of the repurchase agreements were overnight and continuous as of March 31, 2020 and December 31, 2019.  The repurchase agreements were collateralized by investment securities having a market value of $5.6 million and $5.8 at March 31, 2020 and December 31, 2019, respectively.

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Fair Value (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

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

March 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total FairValue
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and         agencies	$	—	$	30,282	$	—	$	30,282
Mortgage-backed securities		—		201,026		—		201,026
Collateralized mortgage obligations		—		137,608		—		137,608
Corporate bonds		—		22,067		—		22,067
Obligations of state and political subdivisions		—		137,393		5,830		143,223
Loans held for sale, at fair value		—		13,802		44,420		58,222
Purchased certificate of deposit option		—		86		—		86
Interest rate swaps		—		1,868		—		1,868
Mortgage banking derivative		—		4,073		—		4,073
Liabilities:		—						—
Written certificate of deposit option		—		86		—		86
Interest rate swaps		—		2,119		—		2,119
Mortgage banking derivative		—		586		—		586

December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total FairValue
	(In Thousands)
Available for sale securities:
Obligations of U.S. federal government corporations and   agencies	$	—	$	2,524	$	—	$	2,524
Mortgage-backed securities		—		89,647		—		89,647
REMICs		—		1,636		—		1,636
Collateralized mortgage obligations		—		82,101		—		82,101
Corporate bonds		—		12,101		—		12,101
Obligations of state and political subdivisions		—		92,028		3,411		95,439
Mortgage banking derivative - asset		—		892		—		892

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

March 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate		—		—		206		206
Commercial		—		—		228		228
Total impaired loans		—		—		434		434
Mortgage servicing rights		—		12,781		—		12,781

December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial real estate	$	—	$	—	$	68	$	68
Commercial		—		—		38		38
Total impaired loans		—		—		106		106
Mortgage servicing rights		—		273		—		273

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 March 31, 2020, 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	$	434	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-20%		10.86	%

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 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	$	80	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-13%		10.86	%

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 March 31, 2020.

			Fair Value Measurements at March 31, 2020
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	145,217	$	145,217	$	145,217	$	—	$	—
Investment securities		534,206		534,206		—		528,376		5,830
Federal Home Loan Bank Stock		89,252	N/A		N/A		N/A		N/A
Loans receivable, net		5,028,058		5,141,454		—		—		5,141,454
Loans held for sale, carried at fair value		58,222		58,222		—		13,802		44,420
Loans held for sale, carried at lower of cost or market		27,372		28,383		—		28,383		—
Financial Liabilities:
Deposits	$	4,994,148	$	5,003,154	$	3,717,546	$	1,285,608	$	—
Advances from Federal Home Loan Bank		486,000		487,027		—		487,027		—
Securities sold under repurchase agreements		1,961		1,961		—		1,961		—
Subordinated debentures		36,083		36,083		—		36,083		—

			Fair Value Measurements at December 31, 2019
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	131,254	$	131,254	$	131,254	$	—	$	—
Investment securities		283,448		283,448		—		280,037		3,411
FHLB Stock		11,915	N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		2,764,329		2,756,092		—		18,456		2,737,636
Financial Liabilities:
Deposits	$	2,870,325	$	2,871,166	$	2,131,537	$	739,629	$	—
Advances from FHLB		85,063		85,003		—		85,003		—
Securities sold under repurchase agreements		2,999		2,999		2,999		—		—
Subordinated debentures		36,083		36,083		—		36,083		—

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Stock Compensation Plans - Stock option activity (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options outstanding, January 1, 2020 | shares	17,700
Option Outstanding, Exchanged | shares	39,983
Options outstanding, March 31, 2020 | shares	57,683
Vested or expected to vest at March 31, 2020 | shares	57,683
Exercisable at March 31, 2020 | shares	55,783
Weighted Average Exercise Price, Options outstanding, January 1, 2020 | $ / shares	$ 17.60
Weighted Average Exercise Price, Exchanged | $ / shares	16.00
Weighted Average Exercise Price, Options outstanding, March 31, 2020 | $ / shares	16.49
Weighted Average Exercise Price, Vested or expected to vest at March 31, 2020 | $ / shares	16.49
Weighted Average Exercise Price, Exercisable at March 31, 2020 | $ / shares	$ 16.41
Weighted Average Remaining Contractual Term (In years), outstanding, March 31, 2020	5 years 21 days
Weighted Average Remaining Contractual Terms (In years), Vested or expected to vest at March 31, 2020	5 years 21 days
Weighted Average Remaining Contractual Terms (In years), Exercisable at March 31, 2020	5 years 14 days
Aggregate Intrinsic Value, outstanding, March 31, 2020 | $	$ 152
Aggregate Intrinsic Value, Vested or expected to vest at March 31, 2020 | $	152
Aggregate Intrinsic Value, Exercisable at March 31, 2020 | $	$ 152

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Basis of Presentation - Additional Information (Details)	3 Months Ended
	Mar. 31, 2020 Subsidiary
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Number of additional subsidiaries acquired	2

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Fair Value - Assets and Liabilities Measured on a Non-Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Impaired loans
Total impaired loans	$ 434	$ 106
Mortgage servicing rights	12,781	273
Commercial Real Estate [Member]
Impaired loans
Total impaired loans	206	68
Commercial [Member]
Impaired loans
Total impaired loans	228	38
Fair Value, Inputs, Level 2 [Member]
Impaired loans
Mortgage servicing rights	12,781	273
Fair Value, Inputs, Level 3 [Member]
Impaired loans
Total impaired loans	434	106
Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	206	68
Fair Value, Inputs, Level 3 [Member] | Commercial [Member]
Impaired loans
Total impaired loans	$ 228	$ 38

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Loans - Schedule of Non-Performing Loans and Real Estate Owned (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans And Leases Receivable Net Reported Amount [Abstract]
Non-accrual loans	$ 32,593	$ 13,437
Loans over 90 days past due and still accruing	99
Total non-performing loans	32,692	13,437
Real estate and other assets held for sale	548	100
Total non-performing assets	33,240	13,537
Troubled debt restructuring, still accruing	$ 7,473	$ 8,486

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Business Combinations - Schedule of Business Acquisitions, by Acquisition (Details) - USD ($) $ in Thousands	1 Months Ended
	Jan. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Goodwill		$ 317,520	$ 100,069
UCFC [Member]
Cash Consideration	$ 132
Equity - Dollar Value of Issued Shares	526,875
Fair Value of Total Consideration Transferred	527,007
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents	52,580
Securities available for sale	262,753
Net loans, including loans held for sale and allowance	2,340,701
FHLB Stock	12,753
Office Properties and Equipment	21,216
Intangible Assets	33,014	33,000
Bank Owned Life Insurance	65,934
Mortgage Servicing Rights	9,747
Accrued Interest Receivable and Other Assets	34,452
Deposits - Non-Interest Bearing	(430,921)
Deposits - Interest Bearing	(1,651,669)
Advances from FHLB	(381,000)
Deferred tax liability	(2,262)
Accrued Interest Payable and Other Liabilities	(57,742)
Total Identifiable Net Assets	309,556
Goodwill	$ 217,451	$ 217,500

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Loans - Allowance for loan losses and the recorded investment (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Allowance for credit loss attributable to:
Individually evaluated for impairment		$ 422
Collectively evaluated for impairment		30,821
Total Allowance		31,243
Loans:
Individually evaluated for impairment		35,623
Collectively evaluated for impairment		2,749,148
Acquired with deteriorated credit quality		1,922
Total loans	$ 5,113,917	2,786,693
Residential Real Estate [Member]
Allowance for credit loss attributable to:
Individually evaluated for impairment		115
Collectively evaluated for impairment		2,752
Total Allowance		2,867
Loans:
Individually evaluated for impairment		7,049
Collectively evaluated for impairment		318,106
Acquired with deteriorated credit quality		989
Total loans		326,144
Commercial Real Estate [Member]
Allowance for credit loss attributable to:
Individually evaluated for impairment		85
Collectively evaluated for impairment		16,217
Total Allowance		16,302
Loans:
Individually evaluated for impairment		21,132
Collectively evaluated for impairment		1,490,306
Acquired with deteriorated credit quality		921
Total loans		1,512,359
Construction Loans [Member]
Allowance for credit loss attributable to:
Collectively evaluated for impairment		996
Total Allowance		996
Loans:
Collectively evaluated for impairment		206,721
Total loans	310,791	206,721
Home Equity and Improvement [Member]
Allowance for credit loss attributable to:
Individually evaluated for impairment		48
Collectively evaluated for impairment		1,652
Total Allowance		1,700
Loans:
Individually evaluated for impairment		759
Collectively evaluated for impairment		122,963
Total loans		123,722
Commercial [Member]
Allowance for credit loss attributable to:
Individually evaluated for impairment		174
Collectively evaluated for impairment		8,829
Total Allowance		9,003
Loans:
Individually evaluated for impairment		6,655
Collectively evaluated for impairment		573,244
Acquired with deteriorated credit quality		12
Total loans	871,968	579,911
Consumer Finance [Member]
Allowance for credit loss attributable to:
Collectively evaluated for impairment		375
Total Allowance		375
Loans:
Individually evaluated for impairment		28
Collectively evaluated for impairment		37,808
Total loans	$ 132,316	$ 37,836

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Stock Compensation Plans (Tables)

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of stock option activity under the plans

Following is stock option activity under the plans during the three months ended March 31, 2020:

	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2020		17,700	$	17.60
Forfeited or cancelled		—		—
Exercised		—		—
Exchanged		39,983		16.00
Granted		—		—
Options outstanding, March 31, 2020		57,683	$	16.49		5.06	$	152
Vested or expected to vest at March 31, 2020		57,683	$	16.49		5.06	$	152
Exercisable at March 31, 2020		55,783	$	16.41		5.04	$	152

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

All of the 39,983 options exchanged are associated with the conversion of all of the outstanding stock options on the books of UCFC into stock options of First Defiance.

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

	Three Months Ended March 31,
	2020		2019
Proceeds of options exercised	$	—	$	185
Related tax benefit recognized		—		4
Intrinsic value of options exercised		—		360

Schedule of restricted stock units and stock grants

Total expense of $1.0 million was recorded during the three months ended March 31, 2020, compared to expense of $523,000 for the three months ended March 31, 2019.  There was approximately $858,000 and $1.2 million included within other liabilities at March 31, 2020 and December 31, 2019, respectively, related to the STIP.

	Restricted Stock Units					Stock Grants
Unvested Shares	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1, 2020		158,470		$	25.72		48,545		$	27.49
Granted		—			—		13,349			25.75
Vested		(86,050	)		25.48		(1,244	)		28.60
Forfeited		(26,291	)		25.58		—			—
Unvested at March 31, 2020		46,129		$	26.24		60,650		$	27.09

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Subsequent Event

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

Subsequent Event

17. Subsequent Event

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world.  Business and consumer customers of the Bank are experiencing varying degrees of financial distress, which is expected to increase over the coming months and will likely adversely affect their ability to pay interest and principal on their loans and the value of the collateral securing their obligations may decline.  These uncertainties may negatively impact the Statement of Financial Condition, the Statement of Income and the Statement of Cash Flows of the Company.

The Company responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing nearly $450 million to small businesses in our markets.  In addition, the Company continues to receive requests for payment deferrals on loans.  Through May, the Company approved approximately 600 deferrals totaling $611.3 million in net balances.  Almost half of the deferrals were for the full six month period with the next largest category being a three month deferral.  These actions may impact the Company’s performance during the remainder of 2020 although the specific details cannot be determined at this time.

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Commitments, Guarantees and Contingent Liabilities

3 Months Ended

Mar. 31, 2020

Commitments And Contingencies Disclosure [Abstract]

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 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):

	March 31, 2020		December 31, 2019
Commitments to make loans	$	361,397	$	178,811
Unused lines of credit		895,487		433,109
Standby letters of credit		12,745		14,215
Total	$	1,269,629	$	626,135

Commitments to make loans are generally made for periods of 60 days or less.            

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Business Combinations (Tables)

3 Months Ended

Mar. 31, 2020

Business Combinations [Abstract]

Summary of Fair Value of Consideration Transferred and Fair Value of Identifiable Assets and Liabilities Assumed

The following table summarizes the fair value of the total consideration transferred as part of the Merger as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction.

	January 31, 2020
	(In Thousands)
Cash Consideration	$	132
Equity - Dollar Value of Issued Shares		526,875
Fair Value of Total Consideration Transferred		527,007
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents		52,580
Securities available for sale		262,753
Net loans, including loans held for sale and allowance		2,340,701
FHLB Stock		12,753
Office Properties and Equipment		21,216
Intangible Assets		33,014
Bank Owned Life Insurance		65,934
Mortgage Servicing Rights		9,747
Accrued Interest Receivable and Other Assets		34,452
Deposits - Non-Interest Bearing		(430,921	)
Deposits - Interest Bearing		(1,651,669	)
Advances from FHLB		(381,000	)
Deferred tax liability		(2,262	)
Accrued Interest Payable and Other Liabilities		(57,742	)
Total Identifiable Net Assets		309,556
Goodwill	$	217,451

Business acquisition, pro forma information

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2019, after giving effect to certain adjustments.  The unaudited pro forma information for the three months ended March 31, 2020 and March 31, 2019 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.  The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

	Pro Forma Three Months Ended       March 31,
	2020			2019
	(In Thousands)
Net interest income	$	53,380		$	52,460
Provision for credit losses		(17,831	)		(273	)
Non-interest income		17,281			16,796
Non-interest expense		(41,141	)		(43,946	)
Income (loss) before income taxes		11,689			25,037
Income tax benefit (expense)		(2,734	)		(4,498	)
Net income (loss)	$	8,955		$	20,539
Diluted earnings per share	$	0.24		$	0.54

XML

Fair Value - Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Available for sale securities:
Securities available-for-sale, carried at fair value	$ 534,206	$ 283,448
Collateralized mortgage obligations [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	137,608	82,101
Fair Value, Inputs, Level 2 [Member] | Collateralized mortgage obligations [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	137,608	82,101
Obligations of U.S. government corporations and agencies [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	30,282	2,524
Obligations of U.S. government corporations and agencies [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	30,282	2,524
Mortgage-Backed Securities [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	201,026	89,647
Mortgage-Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	201,026	89,647
Corporate bonds [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	22,067	12,101
Corporate bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	22,067	12,101
Obligations of state and political subdivisions [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	143,223	95,439
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	137,393	92,028
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	5,830	3,411
Loans Held for Sale, at Fair Value [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	58,222
Loans Held for Sale, at Fair Value [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	13,802
Loans Held for Sale, at Fair Value [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	44,420
Purchased Certificate of Deposit Option [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	86
Purchased Certificate of Deposit Option [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	86
Interest Rate Swap Assets [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	1,868
Interest Rate Swap Assets [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	1,868
Mortgage banking derivative - asset [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	4,073	892
Mortgage banking derivative - asset [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	4,073	892
Written Certificate of Deposit Option [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	86
Written Certificate of Deposit Option [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	86
Interest Rate Swap Liability [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	2,119
Interest Rate Swap Liability [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	2,119
Mortgage banking derivative - liability [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	586
Mortgage banking derivative - liability [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value	$ 586
REMICs [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value		1,636
REMICs [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Securities available-for-sale, carried at fair value		$ 1,636

XML

Stock Compensation Plans - Additional information (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	57,683		17,700
Conversion of outstanding stock options	39,983
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Vested Percentage, Year	20.00%
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	$ 10,000
Employee Service Share Based Compensation Nonvested Awards, Total Compensation Cost Not Yet Recognized, Period For Recognition (in years)	9 months 3 days
Allocated Share-based Compensation Expense	$ 1,000,000	$ 523,000
Compensation Expense, Maximum	2,700,000
Estimated Compensation Expense, Excepted	2,700,000
Unrecognized Compensation Expense	$ 2,500,000
Equity Plan 2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	900,000
Short Term Equity Incentive Plan 2015 [Member]
Stock Option Period, 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] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate	10.00%
Short Term Equity Incentive Plan 2015 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate	45.00%
Long Term Equity Incentive Plan 2015 [Member]
Stock Option Period, 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.
Share-based Compensation, Performance Period	3 years
Long Term Equity Incentive Plan 2015 [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate	20.00%
Long Term Equity Incentive Plan 2015 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate	45.00%
Restricted Stock Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	13,349
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	60,650
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	46,129		158,470
Short Term Equity Incentive Plan 2011 [Member]
Allocated Share-based Compensation Expense	$ 858,000,000		$ 1,200,000

XML

Loans - Schedule of Financing Receivables, Non Accrual Status (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	$ 5,070,686	$ 2,776,550
Total Past Due	10,638	10,143
Total Non-Accrual	32,593	13,437
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	1,242,282	323,600
Total Past Due	3,952	2,544
Total Non-Accrual	2,985	2,411
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	2,160,018	1,509,132
Total Past Due	62	3,227
Total Non-Accrual	5,196	7,609
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	310,783	206,721
Total Past Due	8
Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	8,064	3,039
Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,649	1,328
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	57	339
Financing Receivables, 30 to 59 Days Past Due [Member] | Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	8
Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,475	1,252
Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,303	570
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	5	172
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	99	5,852
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due		646
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due		2,716
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	292,442	122,487
Total Past Due	2,708	1,235
Total Non-Accrual		449
Home Equity and Improvement [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,490	956
Home Equity and Improvement [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	218	240
Home Equity and Improvement [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due		39
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	867,758	576,988
Total Past Due	249	2,923
Total Non-Accrual	3,961	2,961
Commercial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	124	273
Commercial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	125	206
Commercial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due		2,444
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	131,117	37,622
Total Past Due	471	214
Total Non-Accrual	728	7
Consumer Finance [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	343	143
Consumer Finance [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	29	64
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	99	$ 7
PCD [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	66,286
Total Past Due	3,188
Total Non-Accrual	19,723
PCD [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,393
PCD [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	$ 795

XML

Business Combinations - Business Acquisition, Pro Forma Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net interest income	$ 54,522	$ 33,919
Provision for credit losses	(43,786)	(212)
Non-interest income	1,677	28,058
Non-interest expense	(43,768)	(24,866)
Income before income taxes	(28,092)	14,005
Income tax benefit (expense)	5,610	(2,523)
Pro Forma [Member]
Net interest income	53,380	52,460
Provision for credit losses	(17,831)	(273)
Non-interest income	17,281	16,796
Non-interest expense	(41,141)	(43,946)
Income before income taxes	11,689	25,037
Income tax benefit (expense)	(2,734)	(4,498)
Net income (loss)	$ 8,955	$ 20,539
Diluted earnings per share	$ 0.24	$ 0.54

XML

Loans - Loans Receivable, Impaired, Interest Income, Cash Basis Method (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	$ 42,291
Interest Income Recognized	738
Cash Basis Income Recognized	629
Residential Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	4,552
Interest Income Recognized	64
Cash Basis Income Recognized	60
Residential Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	2,080
Interest Income Recognized	30
Cash Basis Income Recognized	32
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	6,632
Interest Income Recognized	94
Cash Basis Income Recognized	92
Commercial Real Estate Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	7,365
Interest Income Recognized	166
Cash Basis Income Recognized	132
Commercial Real Estate Non Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,989
Interest Income Recognized	33
Cash Basis Income Recognized	26
Multi-Family Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,332
Interest Income Recognized	20
Cash Basis Income Recognized	20
Agriculture Land [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	12,903
Interest Income Recognized	206
Cash Basis Income Recognized	197
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	24,743
Interest Income Recognized	459
Cash Basis Income Recognized	408
Commercial Working Capital [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	8,089
Interest Income Recognized	143
Cash Basis Income Recognized	91
Commercial Loans Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,870
Interest Income Recognized	27
Cash Basis Income Recognized	24
Home Equity and Improvement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	921
Interest Income Recognized	14
Cash Basis Income Recognized	13
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	9,959
Interest Income Recognized	170
Cash Basis Income Recognized	115
Consumer Finance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	36
Interest Income Recognized	1
Cash Basis Income Recognized	1
Commercial Real Estate Other Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Average Balance	1,154
Interest Income Recognized	34
Cash Basis Income Recognized	$ 33

XML

Loans - Loans receivable (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Real Estate:
Real Estate	$ 3,987,609	$ 2,136,104
Other Loans:
Total loans	5,028,058	2,715,078
Loans before deferred loan origination fees and costs	5,324,299	2,874,688
Deduct:
Undisbursed construction loan funds	(206,236)	(126,108)
Net deferred loan origination fees and costs	(4,146)	(2,259)
Allowance for credit losses	(85,859)	(31,243)	$ (28,164)	$ (28,331)
Other Loan [Member]
Other Loans:
Total loans	1,336,690	738,584
Residential Real Estate [Member]
Real Estate:
Real Estate	1,265,901	324,773
Commercial Real Estate [Member]
Real Estate:
Real Estate	2,200,266	1,506,026
Construction Loans [Member]
Real Estate:
Real Estate	521,442	305,305
Commercial [Member]
Other Loans:
Total loans	897,865	578,071
Deduct:
Allowance for credit losses	(11,901)	(9,003)	(7,276)	(7,281)
Home Equity and Improvement [Member]
Other Loans:
Total loans	301,146	122,864
Consumer Finance [Member]
Other Loans:
Total loans	137,679	37,649
Deduct:
Allowance for credit losses	$ (3,281)	$ (375)	$ (349)	$ (319)

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

1. Basis of Presentation

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

On January 31, 2020, First Defiance completed its previously announced acquisition of United Community Financial Corp., an Ohio corporation (“UCFC”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 9, 2019, by and between First Defiance and UCFC. At the effective time of the merger (the “Merger”), UCFC merged with and into First Defiance, with First Defiance surviving the Merger.  Simultaneously with the completion of the Merger, First Defiance converted from a unitary thrift holding company to a bank holding company, making an election to be a financial holding company.

Immediately following the Merger, First Federal, acquired UCFC’s wholly owned bank subsidiary, Home Savings Bank (“Home Savings”).  Immediately prior to the merger of the banks, First Federal converted from a federal thrift into an Ohio state-chartered bank. In addition, immediately following the merger of the banks, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged into First Insurance, with First Insurance surviving the mergers. First Defiance acquired two additional subsidiaries in the Merger, HSB Capital, LLC and HSB Insurance, Inc.

The Bank 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, the Bank invests in U.S. Treasury and federal government agency obligations, obligations of states and political subdivisions, mortgage-backed securities that are issued by federal agencies, collateralized mortgage obligations (“CMOs”), and corporate bonds. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) System.

HSB Capital was formed as an Ohio limited liability company by UCFC during 2016 for the purpose of providing mezzanine funding for customers of Home Savings. Mezzanine loans are offered by HSB Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.  

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.

HSB Insurance, Inc. was formed on June 1, 2017 as a Delaware-based captive insurance company that insures against certain risks that are unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible; by pooling resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.  HSB Insurance, Inc. is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.

The consolidated condensed statement of financial condition at December 31, 2019, 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, 2019 (the “2019 Form 10-K”).

The accompanying consolidated condensed financial statements as of March 31, 2020, and for the three month periods ended March 31, 2020 and 2019 have been prepared by the Company 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 2019 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 month period ended March 31, 2020, are not necessarily indicative of the results that may be expected for the entire year.

XML

Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement Of Income And Comprehensive Income [Abstract]
Net (loss) income	$ (22,482)	$ 11,482
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale	9,458	4,603
Income tax expense (benefit)	(1,985)	(968)
Net of tax amount	7,473	3,635
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)	7,473	3,717
Comprehensive (loss) income	$ (15,009)	$ 15,199

XML

Investment Securities - Summary of available-for-sale securities - (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Available-for-Sale Securities, Amortized Cost	$ 518,623	$ 277,323
Available-for-Sale Securities, Gross Unrealized Gains	16,668	6,332
Available-for-Sale Securities, Gross Unrealized Losses	(1,085)	(207)
Available-for-Sale Securities, Fair Value	534,206	283,448
Obligations of U.S. government corporations and agencies [Member]
Marketable Securities [Line Items]
Available-for-Sale Securities, Amortized Cost	28,871	2,518
Available-for-Sale Securities, Gross Unrealized Gains	1,411	6
Available-for-Sale Securities, Fair Value	30,282	2,524
Mortgage-Backed Securities [Member]
Marketable Securities [Line Items]
Available-for-Sale Securities, Amortized Cost	193,575	88,380
Available-for-Sale Securities, Gross Unrealized Gains	7,455	1,380
Available-for-Sale Securities, Gross Unrealized Losses	(4)	(113)
Available-for-Sale Securities, Fair Value	201,026	89,647
Collateralized mortgage obligations [Member]
Marketable Securities [Line Items]
Available-for-Sale Securities, Amortized Cost	134,144	83,008
Available-for-Sale Securities, Gross Unrealized Gains	3,476	814
Available-for-Sale Securities, Gross Unrealized Losses	(12)	(85)
Available-for-Sale Securities, Fair Value	137,608	83,737
Corporate bonds [Member]
Marketable Securities [Line Items]
Available-for-Sale Securities, Amortized Cost	22,381	12,011
Available-for-Sale Securities, Gross Unrealized Gains	74	90
Available-for-Sale Securities, Gross Unrealized Losses	(388)
Available-for-Sale Securities, Fair Value	22,067	12,101
Obligations of state and political subdivisions [Member]
Marketable Securities [Line Items]
Available-for-Sale Securities, Amortized Cost	139,652	91,406
Available-for-Sale Securities, Gross Unrealized Gains	4,252	4,042
Available-for-Sale Securities, Gross Unrealized Losses	(681)	(9)
Available-for-Sale Securities, Fair Value	$ 143,223	$ 95,439

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Jun. 05, 2020
Cover [Abstract]
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Entity Registrant Name	FIRST DEFIANCE FINANCIAL CORP.
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		37,285,731
Entity Central Index Key	0000946647
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Trading Symbol	FDEF
City Area Code	419
Title of 12(b) Security	Common Stock, Par Value $0.01 Per Share
Security Exchange Name	NASDAQ
Document Quarterly Report	true
Document Transition Report	false
Entity Address, Address Line One	601 Clinton Street
Entity Address, City or Town	Defiance
Entity Address, State or Province	OH
Entity Address, Postal Zip Code	43512
Entity File Number	0-26850
Entity Incorporation, State or Country Code	OH
Entity Tax Identification Number	34-1803915
Local Phone Number	782-5015

XML

Stock Compensation Plans - Restricted stock grants (Details)	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Restricted Stock Units (RSUs) [Member]
Shares, Unvested at January 1, 2020 | shares	158,470
Shares, Vested | shares	(86,050)
Shares, Forfeited | shares	(26,291)
Shares, Unvested at March 31, 2020 | shares	46,129
Weighted -Average Grant Date Fair Value, Unvested at January 1, 2020 | $ / shares	$ 25.72
Weighted-Average Grant Date Fair Value, Vested | $ / shares	25.48
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares	25.58
Weighted-Average Grant Date Fair Value, Unvested at March 31, 2020 | $ / shares	$ 26.24
Stock Grants [Member]
Shares, Unvested at January 1, 2020 | shares	48,545
Shares, Granted | shares	13,349
Shares, Vested | shares	(1,244)
Shares, Unvested at March 31, 2020 | shares	60,650
Weighted -Average Grant Date Fair Value, Unvested at January 1, 2020 | $ / shares	$ 27.49
Weighted-Average Grant Date Fair Value, Granted | $ / shares	25.75
Weighted-Average Grant Date Fair Value, Vested | $ / shares	28.60
Weighted-Average Grant Date Fair Value, Unvested at March 31, 2020 | $ / shares	$ 27.09

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Loans - Schedule of Amortized Cost Basis of Loans by Credit Quality Indicator and Class of Loans Based on Recent Analysis Performed (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Financing Receivable Recorded Investment [Line Items]
Total	$ 5,113,917	$ 2,786,693
Residential [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2020	58,175
2019	162,731
2018	207,093
2017	190,319
2016	187,044
Prior	441,152
Revolving Loans	2,705
Total	1,249,219
Commercial [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2020	105,546
2019	452,488
2018	372,684
2017	396,755
2016	247,736
Prior	567,992
Revolving Loans	22,075
Total	2,165,276
Construction [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2020	4,502
2019	148,694
2018	94,356
2017	49,665
2016	13,137
Prior	437
Total	310,791
Commercial [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	55,904
2019	192,354
2018	108,503
2017	64,829
2016	34,592
Prior	44,224
Revolving Loans	371,562
Total	871,968
Home Equity and Improvement [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	2,741
2019	10,976
2018	5,857
2017	9,960
2016	9,489
Prior	36,600
Revolving Loans	219,527
Total	295,150
Consumer Finance [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	11,543
2019	52,569
2018	30,904
2017	17,180
2016	8,699
Prior	4,922
Revolving Loans	6,499
Total	132,316
PCD [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2019	418
2018	3,439
2017	28,090
2016	4,055
Prior	33,258
Revolving Loans	19,937
Total	89,197
Pass [Member]
Financing Receivable Recorded Investment [Line Items]
Total	4,607,744	2,351,398
Pass [Member] | Residential [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2020	58,175
2019	162,634
2018	206,799
2017	190,256
2016	186,702
Prior	437,887
Revolving Loans	2,691
Total	1,245,144
Pass [Member] | Commercial [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2020	105,546
2019	450,533
2018	370,078
2017	391,162
2016	243,768
Prior	530,218
Revolving Loans	18,654
Total	2,109,959
Pass [Member] | Construction [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2020	4,502
2019	148,694
2018	94,356
2017	49,665
2016	13,137
Prior	437
Total	310,791
Pass [Member] | Commercial [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	55,857
2019	191,337
2018	108,146
2017	61,628
2016	34,192
Prior	43,359
Revolving Loans	345,398
Total	839,917
Pass [Member] | Home Equity and Improvement [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	2,741
2019	10,976
2018	5,857
2017	9,960
2016	9,489
Prior	36,520
Revolving Loans	219,285
Total	294,828
Pass [Member] | Consumer Finance [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	11,543
2019	52,569
2018	30,898
2017	17,149
2016	8,692
Prior	4,922
Revolving Loans	6,499
Total	132,272
Pass [Member] | PCD [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2019	292
2018	546
2017	1,015
2016	783
Prior	16,847
Revolving Loans	8,368
Total	27,851
Special Mention [Member]
Financing Receivable Recorded Investment [Line Items]
Total	70,063	53,419
Special Mention [Member] | Residential [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2019	97
2018	58
2016	123
Prior	98
Revolving Loans	14
Total	390
Special Mention [Member] | Commercial [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2019	1,664
2018	999
2017	3,096
2016	2,628
Prior	18,935
Revolving Loans	723
Total	28,045
Special Mention [Member] | Commercial [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	25
2019	881
2018	129
2017	2,970
2016	60
Prior	592
Revolving Loans	15,820
Total	20,477
Special Mention [Member] | PCD [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2019	24
2018	2,783
2017	9,697
2016	1,496
Prior	4,441
Revolving Loans	2,710
Total	21,151
Substandard [Member]
Financing Receivable Recorded Investment [Line Items]
Total	83,079	$ 34,648
Substandard [Member] | Residential [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2018	236
2017	63
2016	219
Prior	3,167
Total	3,685
Substandard [Member] | Commercial [Member] | Real Estate [Member]
Financing Receivable Recorded Investment [Line Items]
2019	291
2018	1,607
2017	2,497
2016	1,340
Prior	18,839
Revolving Loans	2,698
Total	27,272
Substandard [Member] | Commercial [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2020	22
2019	136
2018	228
2017	231
2016	340
Prior	273
Revolving Loans	10,344
Total	11,574
Substandard [Member] | Home Equity and Improvement [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
Prior	80
Revolving Loans	242
Total	322
Substandard [Member] | Consumer Finance [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2017	31
Total	31
Substandard [Member] | PCD [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2019	102
2018	110
2017	17,378
2016	1,776
Prior	11,970
Revolving Loans	8,859
Total	40,195
Doubtful [Member]
Financing Receivable Recorded Investment [Line Items]
Total	13
Doubtful [Member] | Consumer Finance [Member] | Other Loans [Member]
Financing Receivable Recorded Investment [Line Items]
2018	6
2016	7
Total	$ 13

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Borrowings - Schedule of Federal Home Loan Bank Advances and Junior Subordinated Debentures (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Advances From Federal Home Loan Banks [Abstract]
Single maturity fixed rate advances	$ 486,000	$ 83,999
Amortizable mortgage advances		1,085
Fair value adjustment on acquired balances		(21)
Total	486,000	85,063
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$ 36,083	$ 36,083

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Derivative Financial Instruments - Additional Information (Details) - USD ($)	2 Months Ended	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Derivatives Fair Value [Line Items]
Interest Rate Derivative Instruments Not Designated as Hedging Instruments at Fair Value, Net	$ 262,900,000	$ 262,900,000		$ 17,000,000
Notional Amount of Interest Rate Derivative Instruments Not Designated as Hedging Instruments	318,100,000	318,100,000		34,400,000
Noninterest Income		13,999,000	$ 10,813,000
Interest Rate Swaps [Member]
Derivatives Fair Value [Line Items]
Notional Amount of Interest Rate Derivative Instruments Not Designated as Hedging Instruments	50,100,000	50,100,000
Difference in fair value of asset and liability	194,000	194,000
Noninterest Income	108,000
Equity Linked Time Deposit [Member]
Derivatives Fair Value [Line Items]
Time deposits	9,600,000	9,600,000
Written option at fair value	86,000	86,000
Purchased option at fair value	86,000	86,000
Other Assets [Member] | Interest Rate Swaps [Member]
Derivatives Fair Value [Line Items]
Fair value of derivative assets	1,900,000	1,900,000		0
Other Liabilities [Member] | Interest Rate Swaps [Member]
Derivatives Fair Value [Line Items]
Fair value of derivative liabilities	$ 2,100,000	2,100,000		$ 0
Non-interest Income [Member] | Interest Rate Swaps [Member]
Derivatives Fair Value [Line Items]
Change in fair value of asset and liability		$ 194,000

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Mortgage Banking - Net revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Mortgage Banking [Abstract]
Gain from sale of mortgage loans	$ 4,902	$ 1,301
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue	1,594	939
Amortization of mortgage servicing rights	(1,163)	(286)
Mortgage servicing rights valuation adjustments	(4,485)	(113)
Mortgage loans servicing revenue (expense), Total	(4,054)	540
Net revenue from sale and servicing of mortgage loans	$ 848	$ 1,841

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Mortgage Banking

3 Months Ended

Mar. 31, 2020

Mortgage Banking [Abstract]

Mortgage Banking

9. Mortgage Banking

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

	Three Months Ended March 31,
	2020			2019
	(In Thousands)
Gain from sale of mortgage loans	$	4,902		$	1,301
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		1,594			939
Amortization of mortgage servicing rights		(1,163	)		(286	)
Mortgage servicing rights valuation adjustments		(4,485	)		(113	)
		(4,054	)		540
Net revenue from sale and servicing of mortgage loans	$	848		$	1,841

The unpaid principal balance of residential mortgage loans serviced for third parties was $3.0 billion at March 31, 2020, and $1.46 billion at December 31, 2019.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020			2019
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,801		$	10,419
Loans sold, servicing retained		1,376			278
Mortgage servicing rights acquired		9,747			—
Amortization		(1,163	)		(286	)
Carrying value before valuation allowance at end of period		20,761			10,411
Valuation allowance:
Balance at beginning of period		(534	)		(300	)
Impairment recovery (charges)		(4,485	)		(113	)
Balance at end of period		(5,019	)		(413	)
Net carrying value of MSRs at end of period	$	15,742		$	9,998
Fair value of MSRs at end of period	$	16,105		$	10,264

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 March 31, 2020, and December 31, 2019, respectively.  There was no expense or credit recognized related to the accrual in the three months ended March 31, 2020 or 2019.  

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Dividends on Common Stock

3 Months Ended

Mar. 31, 2020

Dividends Common Stock [Abstract]

Dividends on Common Stock

5. Dividends on Common Stock

First Defiance declared and paid a $0.22 per common stock dividend in the first quarter of 2020 and declared and paid a $0.19 per common stock dividend in the first quarter of 2019.  

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(Loss) Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Schedule of computation of basic and diluted (loss) earnings per common share

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

	Three Months Ended March 31,
	2020			2019
	(In Thousands, except per share data)
Basic (Loss) Earnings Per Share:
Net (loss) income available to common shareholders	$	(22,482	)	$	11,482
Less: (loss) income allocated to participating securities		(39	)		9
Net (loss) income allocated to common shareholders		(22,443	)		11,473
Weighted average common shares outstanding including    participating securities		31,721			20,030
Less: Participating securities		55			16
Average common shares		31,666			20,014
Basic (loss) earnings per common share	$	(0.71	)	$	0.57
Diluted (Loss) Earnings Per Share:
Net (loss) income allocated to common shareholders	$	(22,443	)	$	11,473
Weighted average common shares outstanding for basic (loss) earnings    per common share		31,666			20,014
Add: Dilutive effects of stock options		—			81
Average shares and dilutive potential common shares		31,666			20,095
Diluted (loss) earnings per common share	$	(0.71	)	$	0.57

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Leases (Tables)

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Schedule of Undiscounted Cash Flows Included in Lease Liabilities

Undiscounted cash flows included in lease liabilities have expected contractual payments as follows:

(in thousands)	March 31, 2020
2020	$	1,913
2021		2,295
2022		1,944
2023		1,539
2024		1,311
Thereafter		14,911
Total undiscounted minimum lease payments	$	23,913
Present value adjustment		(5,687	)
Total lease liabilities	$	18,226

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Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Schedule of carrying values of the derivative instruments

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

March 31, 2020

December 31, 2019

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

$

4,073

$

586

$

3,487

$

883

$

(9

)

$

892