Investment Securities

3 Months Ended

Mar. 31, 2020

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 other assets on the Company’s balance sheet.