For the ~~Quarterly Period Ended~~quarterly period ended September 30, ~~2017~~2022

For the ~~Transition Period~~transition period from ~~___________to__________~~_____________ to _______________

(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

~~Registrant's~~Registrant’s telephone number, including area code:~~(419) 782-5015~~(419) 785-8700

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. Yesx ☒ No¨ ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yesx ☒ No¨ ☐

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

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¨☐ Nox ☒

~~Indicate~~As of November 1, 2022, the ~~number of~~registrant had 35,566,382 shares ~~outstanding of each of the issuer's classes~~ of common stock, as$.01 par value per share, outstanding.


	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, 2021	$	—		37,291,480		$	306	$	689,390		$	15,004		$	356,414		$	(78,838	)	$	982,276
Net income (loss)															40,996						40,996
Other comprehensive income (loss)												(15,506	)								(15,506	)
Deferred compensation plan				7,911					51									(51	)		—
Stock based compensation expenses									551												551
Vesting of incentive plans				6,124					(82	)								82			—
Shares issued under stock option plan				600														8			8
Restricted share issuance				13,708					(183	)								183			—
Restricted share forfeitures				(5,779	)				20									(138	)		(118	)
Shares repurchased				(39,200	)													(1,078	)		(1,078	)
Common stock dividend payment ($0.24 per share)															(8,943	)					(8,943	)
Balance at March 31, 2021	$	—		37,274,844		$	306	$	689,747		$	(502	)	$	388,467		$	(79,832	)	$	998,186
Net income															31,385						31,385
Other comprehensive income (loss)												11,455									11,455
Deferred compensation plan									(26	)								26			—
Stock based compensation expenses									656												656
Vesting of incentive plans				21,834					(291	)								291			—
Shares issued under stock option plan																					—
Restricted share issuance				22,550					(301	)								301			—
Restricted share forfeitures				(15,257	)													(507	)		(507	)
Shares repurchased				(126,366	)													(3,773	)		(3,773	)
Common stock dividend payment ($0.26 per share)															(9,699	)					(9,699	)
Balance at June 30, 2021	$	—		37,177,605		$	306	$	689,785		$	10,953		$	410,153		$	(83,494	)	$	1,027,703
Net income															28,360						28,360
Other comprehensive income (loss)												(9,344	)								(9,344	)
Deferred compensation plan									(10	)								10			—
Stock based compensation expenses									1,176												1,176
Vesting of incentive plans				2,002					(84	)								84			—
Restricted share issuance				6,116					(84	)								84			—
Restricted share forfeitures				(1,287	)													(61	)		(61	)
Shares repurchased				(206,285	)													(5,970	)		(5,970	)
Common stock dividend payment ($0.27 per share)															(9,995	)					(9,995	)
Balance at September 30, 2021	$	—		36,978,151		$	306	$	690,783		$	1,609		$	428,518		$	(89,347	)	$	1,031,869

(1) Amounts are included in gains on sale or call of securities on the consolidated condensed statements of income. Income tax expense associated with the reclassification adjustments, included in federal income taxes, for the three months ended September 30, 2017 and 2016 was $55 and $53, respectively. Income tax expense associated with the reclassification adjustments, included in federal income taxes, for the nine months ended September 30, 2017 and 2016 was $148 and $178, respectively.

~~First Defiance~~Premier Financial Corp. (“~~First Defiance”~~Premier” or the “Company”) is a ~~unitary thrift~~bank holding company that conducts business through its ~~three wholly owned~~wholly-owned subsidiaries, ~~First Federal~~Premier Bank ~~of the Midwest (“First Federal”~~(the "Bank"), First Insurance Group of the Midwest, Inc. (“First Insurance”), ~~and First Defiance~~PFC Risk Management Inc. (“~~First Defiance~~PFC Risk Management”) and PFC Capital, LLC (“PFC Capital”). All significant intercompany transactions and balances are eliminated in consolidation. Premier’s stock is traded on the NASDAQ Global Select Market under the ticker PFC.

~~First Federal~~The Bank is primarily engaged in ~~attracting~~community banking. It attracts deposits from the general public through its offices and ~~using~~website, and uses those and other available sources of funds to originate ~~loans primarily in the counties in which its offices are located. First Federal’s traditional banking activities include originating and servicing~~ residential ~~non-residential~~ real estate loans, commercial real estate loans, commercial loans, home improvement and home equity loans and consumer ~~loans and providing a broad range of depository, trust and wealth management services.~~loans. In addition, ~~First Federal~~the Bank invests in U.S. Treasury and federal government agency obligations, obligations of ~~the State of Ohio~~states and ~~its~~ political subdivisions, mortgage-backed securities ("MBS") that are issued by federal agencies, ~~including real estate mortgage investment conduits (“REMICs”) and~~ 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.

First Insurance is an insurance agency that conducts business ~~through offices located in the Defiance, Maumee, Oregon, Bryan, Lima, Archbold, Fostoria, Tiffin, Findlay and Bowling Green, Ohio areas.~~throughout Premier’s markets. First Insurance offers property and casualty insurance, life insurance and group health insurance. ~~First Defiance~~

PFC 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~~PFC Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to ~~spread a~~help minimize the risk allocable to each participating insurer.

PFC Capital was formed as an Ohio limited ~~amount~~liability company in 2016 for the purpose of ~~risk among themselves.~~providing mezzanine funding for customers. Mezzanine loans are offered by PFC Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the business.

The consolidated condensed statement of financial condition at December 31, ~~2016 has been~~2021, was derived from the audited financial statements at that date, which were included in ~~First Defiance’s~~Premier’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021 ("2021 Form 10-K").

The accompanying consolidated condensed financial statements as of September 30, ~~2017~~2022, and for the three and nine ~~month periods~~months ended September 30, ~~2017~~2022 and ~~2016~~2021 have been prepared by ~~First Defiance~~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.~~States (“GAAP”). These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in ~~First Defiance's 2016 Annual Report on~~the 2021 Form ~~10-K for the year ended December 31, 2016.~~10-K. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair ~~statement~~presentation of ~~results in~~ the financial statements have been made. The results for the three and nine ~~month periods~~months ended September 30, ~~2017~~2022, are not necessarily indicative of the results that may be expected for the entire year.

2.Significant Accounting Policies

Accounting Standards Update

~~Use of Estimates~~

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

~~Earnings Per Common Share~~

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

~~Goodwill and Other Intangibles~~

~~Goodwill resulting from business combinations prior to January 1, 2009 represents the excess~~ASU No. 2020-04: Reference Rate Reform – Facilitation of the ~~purchase price over~~Effects of Reference Rate Reform on Financial Reporting (Topic 848): On March 12, 2020, the ~~fair value~~FASB issued Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (“ASC 848”): Facilitation of the ~~net assets~~Effects of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquiredReference Rate Reform on Financial Reporting." ASC 848 contains optional expedients and ~~liabilities assumed as of the acquisition date. Goodwill~~exceptions for applying GAAP to contract modifications and ~~intangible assets acquired in a purchase business combination and determined~~hedging relationships, subject to ~~have an indefinite useful life are not amortized, but tested for impairment at least annually.~~meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued. The Company has ~~selected November 30 as~~formed a cross-functional project team to lead the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on First Defiance’s balance sheet.

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

~~Newly Issued Accounting Standards~~

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2017-08, “Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for the premium on certain purchased callable debt securitiesLIBOR to the ~~earliest call date. Today, entities generally amortize~~adoption of alternative reference rates which include Secured Overnight Financing Rate. The Company identified loans that renewed prior to 2021 and began incorporating LIBOR fallback language into existing LIBOR loans. Additionally, management is utilizing the ~~premium over~~timeline guidance published by the ~~contractual life~~Alternative Reference Rates Committee to develop and achieve internal milestones during this transitional period. The Company has also adhered to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020, and has discontinued the issuance of ~~the security. The~~ new ~~guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues~~LIBOR-based loans since December 31, 2021, according to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustmentregulatory guidelines. Legacy LIBOR-based loans will be ~~made~~transitioned to ~~retained earnings as of the beginning of the first reporting period in which the guidance is adopted.~~an alternative reference rate on or before June 30, 2023. The ~~Company plans to adopt the provisions of ASU No. 2017-08 on January 1, 2018~~updates are elective, are only available from March 12, 2020 until December 31, 2022, and ~~does~~their application did not ~~expect the adoption to~~ have a material ~~impact~~effect on the ~~Company’s consolidated financial statements.~~

Company.

~~In January 2017,~~Accounting Standards Not Yet Adopted

ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures: On March 30, 2022, the FASB issued ASU ~~No. 2017-04,~~~~“Simplifying the Test~~2022-02, "Troubled Debt Restructurings and Vintage Disclosures" which will eliminate troubled debt restructuring ("TDR") accounting for ~~Goodwill Impairment.”~~ The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged.entities that have adopted ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company expects to early adopt upon the next goodwill impairment test in 2017. ASU No. 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

~~In June 2016, the FASB issued ASU No.~~ 2016-13,~~“Measurement of Credit Losses on Financial Instruments.”~~ This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss ~~(“CECL”~~("CECL") model and will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities,add new vintage disclosures for gross write-offs. The elimination of TDR accounting can be adopted either prospectively for loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit lossesmodifications after adoption or on a modified retrospective basis that would result in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effectcumulative effect adjustment to retained earnings asin the period of ~~the beginning of the first reporting period in which the guidance~~adoption. ASU 2022-02 is effective ~~(i.e., modified retrospective approach). The Company has begun its implementation efforts by establishing a Company-wide implementation committee. The committee’s initial review indicates~~for the Company has maintained sufficient historical loan data to support the requirement of this pronouncement and is currently evaluating the various loss methodologies to determine their correlations to the Company’s loan segments historical performance. Early adoption is permitted, however, the Company does not currently plan to early adopt this ASU.

In February 2016, the FASB issued ASU No. 2016-02 — Leases (Topic 842). The objective of the update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, ~~2018, including interim periods within those fiscal years. Early adoption is permitted.~~2022. The Company ~~has not yet selected~~can elect to early adopt a ~~transition method as it is in the process~~part or all of ~~determining the effect of the ASU on its consolidated financial statements and disclosures. The Company has several lease agreements,~~ such as branch locations, which are currently considered operating leases, and therefore, not recognized on the Company’s consolidated condensed statements of financial condition. The Company expects the new guidance will require these lease agreements to now be recognized on the consolidated condensed statements of financial condition as a right-of-use asset and a corresponding lease liability. Therefore, the Company’s preliminary evaluation indicates the provisions of ASU No. 2016-02 are expected to impact the Company’s consolidated condensed statements of financial condition, along with our regulatory capital ratios. However, the Company continues to evaluate the extent of potential impact the new guidance will have on the Company’s consolidated financial statements. At September 30, 2017, the Company had contractual operating lease commitments of approximately $4.5 million, before considering renewal options that are generally present.

In January 2016, the FASB issued ASU No. 2016-01 — Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and requires a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Early adoption is not permitted.update. The Company is currently ~~evaluating~~assessing the ~~impact~~impacts of adopting the new guidance on the consolidated financial statements. Management’s preliminary finding is that the new pronouncement will not have a significant impact on its results of operations. The pronouncement will require some revision to the Company’s disclosures within the consolidated financial statements and is currently evaluating the impact.guidance.

In May 2014, the FASB and the International Accounting Standards Board (the “IASB”) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP and International Financial Reporting Standards (“IFRS”). Previous revenue recognition guidance in GAAP consisted of broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosure requirements; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09,~~“Revenue from Contracts with Customers.”~~ The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard was initially effective for public entities for interim and annual reporting periods beginning after December 15, 2016; early adoption was not permitted. However, in August 2015, the FASB issued ASU No. 2015-14,~~“Revenue from Contracts with Customers - Deferral of the Effective Date”~~ which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. In addition, the FASB has begun to issue targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08,~~“Principal versus Agent Considerations (Reporting Revenue Gross versus Net),”~~ ~~ASU No. 2016-10,~~~~“Identifying Performance Obligations and Licensing,”~~ ~~ASU No. 2016-12,~~~~“Narrow-Scope Improvements and Practical Expedients,”~~ ~~and ASU No. 2016-20~~~~“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”~~ Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the Company does not expect the new guidance to have a material impact on revenue most closely associated with financial instruments, including interest income. The Company is substantially complete with its overall assessment of revenue streams and reviewing of related contracts potentially affected by the ASU, including trust and asset management fees, deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. The Company’s assessment suggests that adoption of this ASU should not materially change the method in which we currently recognize revenue for these revenue streams. In addition, the Company is evaluating the ASU’s expanded disclosure requirements. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be material.

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.

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

•

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

•

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

•

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

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

Equity securities – These securities are reported at fair value utilizing Level 1 inputs where the Company obtains fair value measurements from a broker.

~~Impaired~~Loans held for sale, carried at fair value – 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 30 year conventional 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).

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Collateral dependent loans -Fair values for ~~impaired~~individually analyzed collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure. Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value on the cost to replace the current property. Value of market comparison approach evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and an ~~investors~~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~~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 individually analyzed collateral-dependent ~~impaired~~ loans and other real estate owned ("OREO") 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%0% to ~~30%~~30% to account for other factors that may impact the value of collateral. In determining the value of ~~impaired~~individually analyzed collateral dependent loans and ~~other real estate owned,~~OREO, significant unobservable inputs may be used, which ~~include:~~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).

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 to perform a market valuation analysis for both swap positions (Level 2).

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The Company also enters into cash flow hedge derivative instruments to hedge the risk of variability in cash flows (future interest payments) attributable to changes in the contractually specified LIBOR benchmark interest rate on the Company’s floating rate loan pool. The Company uses an independent third party to perform a market valuation analysis for these derivatives (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

September 30, 2017 Level 1
Inputs Level 2
Inputs Level 3
Inputs Total Fair
Value
(In Thousands)
Available for sale securities:

Obligations of U.S. government corporations and agencies $ - $ 1,987 $ - $ 1,987
Mortgage-backed - residential - 74,470 - 74,470
REMICs - 1,130 - 1,130
Collateralized mortgage obligations- residential - 72,975 - 72,975
Preferred stock 1 - - 1
Corporate bonds - 13,100 - 13,100
Obligations of state and political subdivisions - 96,371 - 96,371
Mortgage banking derivative - asset - 821 - 821

December 31, 2016 Level 1
Inputs Level 2
Inputs Level 3
Inputs Total Fair
Value
(In Thousands)
Available for sale securities:
Obligations of U.S. Government corporations and agencies $ - $ 3,915 $ - $ 3,915
Mortgage-backed - residential - 81,707 - 81,707
REMICs - 1,307 - 1,307
Collateralized mortgage obligations-residential - 63,005 - 63,005
Preferred stock 2 - - 2
Corporate bonds - 13,013 - 13,013
Obligations of state and political subdivisions - 88,043 88,043
Mortgage banking derivative - asset - 491 - 491


September 30, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	47,908	$	96,117	$	—	$	144,025
Mortgage-backed securities		—		169,108		—		169,108
Collateralized mortgage obligations		—		257,055		—		257,055
Asset-backed securities		—		198,548		—		198,548
Corporate bonds		—		67,422		—		67,422
Obligations of state and political subdivisions		—		227,555		—		227,555
Equity securities		15,336		—		—		15,336
Loans held for sale, at fair value		—		23,689		105,453		129,142
Interest rate swaps		—		4,739		—		4,739
Mortgage banking derivatives		—		15,237		—		15,237
Liabilities:
Interest rate swaps		—		4,739		—		4,739
Cash flow hedge derivative		—		41,458		—		41,458


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	—	$	174,710	$	—	$	174,710
Mortgage-backed securities		—		206,751		—		206,751
Collateralized mortgage obligations		—		260,168		—		260,168
Asset-backed securities		—		220,536		—		220,536
Corporate bonds		—		70,893		—		70,893
Obligations of state and political subdivisions		—		273,202		—		273,202
Equity securities		14,097		—		—		14,097
Loans held for sale, at fair value		—		28,780		134,167		162,947
Interest rate swaps		—		1,287		—		1,287
Cash flow hedge derivative		—		854		—		854
Mortgage banking derivatives		—		2,336		—		2,336
Liabilities:
Interest rate swaps		—		1,292		—		1,292

The table below presents a reconciliation of assets that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and

Table of Contents

2021. There were no securities that were measured at Level 3 for the three and nine months ended September 30, 2022 and 2021.


	Construction loans held for sale
	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Balance of recurring Level 3 assets at beginning of period	$	117,015		$	148,659		$	134,167		$	123,029
Total gains (losses) for the period
Included in change in fair value of loans held for sale		(7,627	)		(3	)		(27,417	)		(3,757	)
Originations		31,245			32,055			95,311			96,983
Sales		(35,180	)		(41,141	)		(96,608	)		(76,685	)
Balance of recurring Level 3 assets at end of period	$	105,453		$	139,570		$	105,453		$	139,570

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


September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs
			(Dollars in Thousands)
Construction loans held for sale	$	105,453	Quoted market price	Time discount using the 60 day forward contract	0.00% - 0.30%


December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs
			(Dollars in Thousands)
Construction loans held for sale	$	134,167	Quoted market price	Time discount using the 60 day forward contract	0.00% - 1.86%

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

September 30, 2017 Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair
Value
(In Thousands)
Impaired loans
Commercial Real Estate $ - $ - $ 1,829 $ 1,829
Commercial - - 2,830 2,830
Total Impaired loans - - 4,659 4,659
Mortgage servicing rights - 6,944 - 6,944
Real estate held for sale
Commercial Real Estate - - 227 227
Total Real Estate held for sale - - 227 227

December 31, 2016 Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair
Value
(In Thousands)
Impaired loans
1-4 Family Residential Real Estate $ - $ - $ 316 $ 316
Commercial Real Estate - - 848 848
Commercial 332 332
Total impaired loans - - 1,496 1,496
Mortgage servicing rights - 657 - 657
Commercial Real Estate - - 377 377
Total Real Estate held for sale - - 377 377


September 30, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Individually analyzed loans
Commercial real estate	$	—	$	—	$	6,213	$	6,213
Commercial		—		—		5,031		5,031
Total individually analyzed loans	$	—	$	—	$	11,244	$	11,244
Mortgage servicing rights	$	—	$	20,832	$	—	$	20,832


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Individually analyzed loans
Commercial real estate	$	—	$	—	$	2,749	$	2,749
Commercial		—		—		8,564		8,564
Total individually analyzed loans	$	—	$	—	$	11,313	$	11,313
Mortgage servicing rights	$	—	$	19,538	$	—	$	19,538

Table of Contents

For Level 3 assets and liabilities measured at fair value on a ~~recurring or nonrecurring~~non-recurring basis as of September 30, ~~2017,~~2022, the significant unobservable inputs used in the fair value measurements were as follows:

Fair
Value Valuation Technique Unobservable Inputs Range of
Inputs Weighted
Average
(Dollars in Thousands)

Impaired Loans- Applies to all loan classes $ 4,659 Appraisals which utilize sales comparison, net income and cost approach Discounts for collection issues and changes in market conditions 10 % 10 %
Real estate held for sale – Applies to all classes $ 227 Appraisals which utilize sales comparison, net income and cost approach Discounts for changes in market conditions 3 % 3 %


	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs			Weighted Average
			(Dollars in Thousands)
Individually analyzed Loans- Applies to loan classes with an appraisal valuation	$	7,386	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-70%				22.03	%
Individually analyzed Loans- Applies to loan classes without an appraisal valuation	$	3,858	Equitable Recoupment claim estimate	Discounts for collection issues		0	%		0	%

For Level 3 assets and liabilities measured at fair value on a ~~recurring or nonrecurring~~non-recurring basis as of December 31, ~~2016,~~2021, the significant unobservable inputs used in the fair value measurements were as follows:

Fair
Value Valuation Technique Unobservable Inputs Range of
Inputs Weighted
Average
(Dollars in Thousands)

Impaired Loans- Applies to all loan classes $ 1,496 Appraisals which utilize sales comparison, net income and cost approach Discounts for collection issues and changes in market conditions 10-30% 11 %

Real estate held for sale – Applies to all classes $ 377 Appraisals which utilize sales comparison, net income and cost approach Discounts for changes in market conditions 0-20% 7 %


	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs			Weighted Average
			(Dollars in Thousands)
Individually analyzed Loans- Applies to loan classes with an appraisal valuation	$	5,821	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	20-50%				35.18	%
Individually analyzed Loans- Applies to loan classes without an appraisal valuation	$	5,492	Equitable Recoupment claim estimate	Discounts for collection issues		25	%		25.00	%

The Company has elected the fair value option for new applications accepted after January 31, 2020, and subsequently originated for residential mortgage and permanent construction loans ~~which~~held for sale. These loans are ~~measured~~intended for ~~impairment using~~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.

The aggregate fair value of the ~~collateral~~residential mortgage loans held for ~~collateral dependent loans, had a fair value of $4.7 million, with no valuation allowance and a fair value of $1.5 million, with a $1,000 valuation allowance~~sale at September 30, ~~2017~~2022 and December 31, ~~2016, respectively.A provision expense~~2021 was $23.7 million and $28.8 million, respectively, and they had a contractual balance of ~~$8,000~~$22.7 million and ~~$821,000~~$27.7 million, respectively, for these same periods. The difference between the ~~three months and nine months ended September 30, 2017 and a provision recovery of $6,000 and $204,000 for the three months and nine months ended September 30, 2016, were included in earnings.~~

~~Mortgage servicing rights which are carried at the lower of cost or~~ fair value ~~had a fair value~~and the contractual balance is recorded in gains and losses on the sale of ~~$6,944,000 with a valuation allowance of $501,000 and a fair value of $657,000 with a valuation allowance of $522,000 at September 30, 2017 and December 31, 2016, respectively.A charge of $27,000 and a recovery of $21,000~~loans held for sale. For the three and nine months ended September 30, ~~2017~~2022, $1.7 million and ~~a recovery~~$3.0 million, respectively, were recorded in losses on the sale of ~~$7,000 and a charge $118,000~~loans held for sale for the change in fair value. For the three and nine months ended September 30, ~~2016,~~2021, $1.2 million and $4.4 million, respectively, were ~~included~~recorded in ~~earnings.~~

~~Real estate~~losses on the sale of loans held for sale ~~is determined using Level 3 inputs which include appraisals and are adjusted~~ for ~~estimated costs to sell. The~~the change in fair value.

The aggregate fair value of ~~real estate~~the permanent construction loans held for sale at September 30, 2022 and December 31, 2021, was ~~$20,000~~$105.5 million and $134.2 million, respectively, and they had a contractual balance of $123.7 million and $125.0 million, respectively, for these same periods. The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale. For the three and nine months ended September 30, ~~2017, which was~~2022, $7.6 million and $27.4 million, respectively, were recorded ~~directly as an adjustment to current earnings through non-interest expense.The~~in losses on the sale of loans held for sale for the change in fair ~~value of real estate held for sale was $22,000 and $74,000 for~~value. For the three and nine months ended September 30, ~~2016.~~

2021, $3,000 and $3.9 million, respectively, were recorded in losses on the sale of loans held for sale for the change in fair value.

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 September 30, ~~2017~~2022, and December 31, ~~2016.~~2021. Accordingly, the aggregate fair value amounts presented do not represent the underlying value ~~of First Defiance.~~to Premier.

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 ~~Federal Home Loan Bank (“FHLB”)~~FHLB stock due to restrictions placed on its transferability.

The ~~fair value~~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 ~~loans that reprice within 90 days is equal to their carrying amount. For other loans, the estimated fair value is calculated based on~~principal and interest payments, current market rates, loss exposures, and remaining balances. The model utilizes a discounted cash flow analysis, using interest rates currently being offered for loans with similar terms, resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as previously described. The allowance for loan losses is considered to be a reasonable adjustment for credit risk. The methods utilized(“DCF”) approach to estimate the fair value of the loans ~~do not necessarily represent an exit price.~~using assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, losses given defaults, and estimates of prevailing discount rates. The DCF 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 individually analyzed loans ~~held for sale~~ is ~~estimated~~ based on ~~binding contracts and quotes from third party investors resulting in a Level 2 classification.~~

~~The~~the fair value of ~~accrued~~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 ~~receivable is equal to the carrying amounts resulting in a Level 2 or~~rate). All individually analyzed loans are classified as Level 3 ~~classification which is consistent with its underlying value.~~within the valuation hierarchy.

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, ~~NOW~~checking and certain money market accounts are equal to their carrying amounts and are a Level 21 classification. Fair values of fixed rate certificates of deposit are estimated using a ~~discounted cash flow~~DCF 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 carrying value of notes payable, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

The fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 21 classification. The carrying value of floating rate subordinated debentures was considered to be the carrying value as the debt is floating rate and ~~deposits with~~can be prepaid at any time without penalty. The carrying value of fixed ~~maturities~~rate subordinated debt is estimated ~~based discounted cash flow analyses based on~~using a DCF calculation that applies interest rates currently being offered ~~on instruments with similar characteristics and maturities~~in the market to the expected maturity of the debt resulting in a Level 32 classification.

FHLB advances with maturities greater than 90 days are valued based on ~~discounted cash flow~~a DCF 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 September 30, ~~2017.~~2022.

The carrying value and estimated fair values of financial instruments at September 30, 2022 and December 31, 2021, were as follows:


			Fair Value Measurements at September 30, 2022
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	104,992	$	104,992	$	104,992	$	—	$	—
Securities available for sale		1,063,713		1,063,713		47,908		1,015,805		—
Equity securities		15,336		15,336		15,336		—		—
Federal Home Loan Bank Stock		28,262	N/A		N/A		N/A		N/A
Loans receivable, net		6,137,082		5,940,156		—		—		5,940,156
Loans held for sale, carried at fair value		129,142		129,142		—		23,689		105,453

Financial Liabilities:
Deposits	$	6,732,505	$	6,706,619	$	5,844,616	$	862,003	$	—
Advances from Federal Home Loan Bank		411,000		410,998		—		410,998		—
Subordinated debentures		85,071		77,175		—		77,175		—


			Fair Value Measurements at December 31, 2021
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	161,566	$	161,566	$	161,566	$	—	$	—
Securities available for sale		1,206,260		1,206,260		—		1,206,260		—
Equity securities		14,097		14,097		14,097		—		—
Federal Home Loan Bank Stock		11,585	N/A		N/A		N/A		N/A
Loans receivable, net		5,229,700		5,265,689		—		—		5,265,689
Loans held for sale, carried at fair value		162,947		162,947		—		28,780		134,167

Financial Liabilities:
Deposits	$	6,282,051	$	6,280,336	$	5,481,928	$	798,408	$	—
Subordinated debentures		84,976		85,417		—		85,417		—

~~First Defiance~~Premier has established equity based compensation plans for its directors and employees. On ~~March 15, 2010,~~February 27, 2018, the Board adopted, and the shareholders approved at the ~~2010~~2018 Annual Shareholders Meeting, the ~~First Defiance~~Premier Financial Corp. ~~2010~~2018 Equity Incentive Plan (the ~~“2010~~“2018 Equity Plan”). The ~~2010~~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 ~~2010~~2018 Equity Plan was approved. ~~All~~In addition, as a result of the Company's merger (the "Merger") with United Community Federal Corp. ("UCFC"), Premier assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan (the “UCFC 2007 Plan”) and UCFC’s 2015 Long Term Incentive Plan, which has since been renamed as the “Premier Financial Corp. 2015 Long Term Incentive Plan” (the “2015 Plan”). Premier also assumed the shares available for future issuance under the 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 remain subject to the terms of the 2015 Plan, but became exercisable solely to purchase shares of Premier, with appropriate adjustments to the number of shares subject to the assumed stock options and the exercise price of such stock options. Besides certain options issued under the First Defiance Financial Corp. 2010 Equity Incentive Plan, all awards currently outstanding are issued under ~~prior~~the 2018 Equity Plan or the 2015 Plan. The 2018 Equity Plan and the 2015 Plan were each amended and restated in February 2022 to align certain administrative components of the plans ~~will remain~~ in ~~effect in accordance with their respective terms. Any new~~addition to enhancing certain governance components. New awards will be made under either the ~~2010~~2018 Equity ~~Plan.~~Plan or the 2015 Plan as the Company determines. The ~~2010~~2018 Equity Plan allows for issuance of up to ~~350,000~~900,000 common shares through the award of options, ~~stock grants,~~ restricted stock, ~~units (“RSU”),~~stock, stock appreciation rights, or other stock-based awards. The 2015 Plan allows for the issuance of up to 1.2 million common shares, as adjusted for the Merger, through the award of options, stock, restyricted stock, stock units, stock appreciation rights, or performance stock awards.

The Company maintains Long-Term Equity Incentive Plans (each, an "LTIP") for select members of management (the "Executive LTIP") and a Key Employee and Commercial Lender Plan (the "Key Plan"). Under the Executive LTIP, participants may earn between 20% to 50% of their salary for potential payout in the form of equity awards based on the achievement of certain corporate performance targets over a three-year period. The Company granted 86,190 performance stock units ("PSUs") to the participants under the 2021 Executive LTIP during the first half of 2022, which represents the maximum target award. The value of awards issued in 2021 and 2022 under the Executive LTIP will be determined individually at the end of each respective 36 month performance period ending December 31. The benefits earned under these LTIPs will be paid out in equity in the first quarter following the end of the performance period. The participants will receive all or a portion of the award if their employment is terminated by the Company without cause, by the participant in certain situations, or by death, disability or retirement of the participant.

The maximum amount of compensation expense that may be earned for the PSUs at September 30, 2022, is approximately $6.8 million in the aggregate. However, the estimated expense that is expected to be earned as of September 30, 2022, is $4.5 million of which $1.3 million was unrecognized at September 30, 2022, and will be recognized over the remaining performance periods. Total expense of $432,000 and $842,000 was recorded during each of the three and nine months ended September 30, 2022, respectively, compared to expense of $825,000 and $1.5 million for the three and nine months ended September 30, 2021, respectively.

Beginning in 2022, under the Key Plan, the participants are granted restricted stock awards ("RSAs") based upon the achievement of certain targets in the prior year. Prior to 2022, restricted stock units ("RSUs") were issued to participants under the same plan. The participants can earn from 5% to 10% of their salary in RSAs or RSUs, that vest three years from the date of grant. The Company granted 19,612 in RSAs and 17,542 RSUs in the first quarter of2022 and 2021, respectively, as a payout under the Key Plan.

In the nine months ended September 30, 2022, the Company also granted 33,101 discretionary RSAs that vest over a period of time ranging from one to three years. Of these grants, 14,712 were issued to directors and have a one year vesting period. The fair value of all granted restricted shares was determined by the stock price at the date of the grant.

At September 30, 2022, a total of 347,343 RSAs were outstanding. Compensation expense is recognized over the performance or vesting period. Total expense of $280,000 and $786,000 was recorded during each of the three and nine months ended September 30, 2022, respectively, compared to expense of $351,000 and $908,000 for the three and nine months ended September 30, 2021, respectively. Approximately $2.3 million and $2.7 million is included within other liabilities at September 30, 2022 and December 31, 2021, respectively, related to the cash portion of the Company's Short-Term Incentive Plans.

The following table sets forth Premier's performance and restricted stock activity during the nine months ended September 30, 2022:

As of September 30, ~~2017, 43,200~~2022, 29,661 options ~~had been granted and remain~~to acquire Premier shares were outstanding at option prices based on the market value of the underlying shares on the date the options were granted. ~~Options granted vest 20% per year.~~ All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or ~~three months~~one year after the retirement date.

~~Beginning in 2014, the Company annually has approved a Short-Term (“STIP”) Equity Incentive Plan and a Long-Term (“LTIP”) Equity Incentive Plan for selected members of management.~~

Under the 2016 and 2017 STIPs, the participants could earn up to 10% to 45% of their salary for potential payout based on the achievement of certain corporate performance targets during the calendar year. The final amount of benefits under the STIPs is determined as of December 31 of the same year and paid out in cash in the first quarter of the following year. The participants are required to be employed on the day of payout in order to receive such payment.

Under each LTIP, the participants may earn up to 20% to 45% of their salary for potential payout in the form of equity awards based on the achievement of certain corporate performance targets over a three-year period. The Company granted 24,526 and 20,657 RSU’s to the participants in the 2016 and 2017 LTIPs, respectively, effective January 1 in the year the award was made, which represents the maximum target award. The amount of benefit under each LTIP will be determined individually at the end of the 36 month performance period ending December 31. The benefits earned under each LTIP will be paid out in equity in the first quarter following the end of the performance period. The participants are required to be employed on the day of payout in order to receive such payment.

~~A total of 19,219 RSU’s were issued to the participants of the 2014 LTIP in the first quarter of 2017 for the three year performance period ended December 31, 2016.~~

In the nine months ended September 30, 2017, the Company also granted to employees 4,763 restricted shares, of which 2,727 were restricted stock units and 2,036 were restricted stock grants. Of the 4,763 restricted shares granted, 1,839 were issued to directors and have a one-year vesting period. The remaining 2,924 were issued to employees and have a three year vesting period. The fair value of all granted restricted shares was determined by the stock price at the date of the grant.

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

~~The fair value of stock~~There were no options granted during the nine months ended September 30, ~~2016 was determined at the date~~2022 and 2021.

~~The weighted-average fair value of options granted was $13.95 for the nine months ended September 30, 2016. No options have been issued in 2017.~~

Following is stock option activity under the plans during the nine months ended September 30, ~~2017:~~2022:

Options
Outstanding Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual
Term (in years) Aggregate
Intrinsic
Value
(in 000’s)
Options outstanding, January 1, 2017 54,750 $ 22.21
Forfeited or cancelled - -
Exercised (11,550 ) 24.41
Granted - -
Options outstanding, September 30, 2017 43,200 $ 21.62 3.40 $ 1,334
Vested or expected to vest at September 30, 2017 43,200 $ 21.62 3.40 $ 1,334
Exercisable at September 30, 2017 31,100 $ 17.31 1.87 $ 1,094


	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2022		35,661		$	21.72
Forfeited or cancelled		(3,000	)		17.68
Exercised		(3,000	)		17.68
Granted		—			—
Options outstanding, September 30, 2022		29,661		$	22.54
Exercisable at September 30, 2022		29,661		$	22.54		4.34	$	100

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

As of September 30, ~~2017,~~2022, there was ~~$116,000~~a de minimus amount of total unrecognized compensation ~~cost~~costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of ~~2.5 years~~one month.

At September 30, 2017, 72,660 RSU’s and 4,536 restricted stock grants were outstanding. Compensation expense is recognized over the performance period based on the achievements of targets as established under the plan documents. A total expense of $373,000 and $1.5 million was recorded during the three and nine months ended September 30, 2017 compared to an expense of $263,000 and $970,000 for the three and nine months ended September 30, 2016. The increase in expense year-to-date is attributable to the Company’s better performance in comparison to its targets. There was approximately $550,000 and $773,000 included within other liabilities at September 30, 2017 and December 31 2016, respectively, related to the STIP.

The maximum amount of compensation expense that may be recorded for the 2017 STIP and the 2015, 2016 and 2017 LTIPs at September 30, 2017 is approximately $3.9 million. However, the estimated expense expected to be recorded as of September 30, 2017 based on the performance measures in the plans, is $3.0 million of which $1.1 million is unrecognized at September 30, 2017 and will be recognized over the remaining performance periods.

~~First Defiance~~Premier declared and paid ~~a $0.25~~$0.90 per common stock dividend in the first ~~second~~nine months of 2022 and ~~third quarters of 2017 and declared and paid a $0.22~~$0.77 per common stock dividend in the first ~~second~~nine months of 2021. Premier declared and paid a $0.30 per common stock dividend in the third ~~quarters~~quarter of ~~2016.~~2022 and declared and paid a $0.27 per common stock dividend in the third quarter of 2021.

6. Earnings Per Common Share

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

Table of Contents

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2022		2021		2022		2021
	(In Thousands, except per share data)								(In Thousands, except per share data)
Basic Earnings Per Share:
Net income available to common shareholders	$	9,381	$	7,045	$	22,869	$	21,478	$	28,195	$	28,360	$	76,912	$	100,741
Less: Income allocated to participating securities		1		3		3		9
Less: income allocated to participating securities										22		27		80		98
Net income allocated to common shareholders		9,380		7,042		22,866		21,469		28,173		28,333		76,832		100,643

Weighted average common shares outstanding Including participating securities		10,154		8,987		9,918		8,991
Weighted average common shares outstanding including participating securities										35,610		37,135		35,746		37,262
Less: Participating securities		5		11		5		11		28		35		37		36
Average common shares		10,149		8,976		9,913		8,980		35,582		37,100		35,709		37,226

Basic earnings per common share	$	0.92	$	0.78		2.31		2.39	$	0.79	$	0.76	$	2.15	$	2.70

Diluted Earnings Per Share:
Net income allocated to common shareholders	$	9,380	$	7,042	$	22,866		21,469	$	28,173	$	28,333	$	76,832	$	100,643
Weighted average common shares outstanding for basic earnings per common share		10,149		8,976		9,913		8,980		35,582		37,100		35,709		37,226
Add: Dilutive effects of stock options		60		74		57		70
Add: Dilutive effects of stock options and restricted stock units										122		85		109		85
Average shares and dilutive potential common shares		10,209		9,050		9,970		9,050		35,704		37,185		35,818		37,311

Diluted earnings per common share	$	0.92	$	0.78		2.29		2.37	$	0.79	$	0.76	$	2.15	$	2.70

There were no17,644 and 18,437 shares ~~excluded from the diluted earnings per share calculation~~ for the three and nine months ended September 30, ~~2017, as no shares were anti-dilutive during this time period. Shares subject to issue upon exercise of options of 7,300 and 12,550 for the three and nine month periods in 2016~~2022, respectively, that were excluded from the diluted earnings per common share calculation. There were no shares for the three and nine months ended September 30, 2021 that were excluded from the dilutive earnings per common share calculation as ~~they~~no shares were anti-dilutive.

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

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
(In Thousands)
At September 30, 2017
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies $ 2,000 $ - $ (13 ) $ 1,987
Mortgage-backed securities – residential 74,344 565 (439 ) 74,470
REMICs 1,124 �� 6 - 1,130
Collateralized mortgage obligations 72,758 550 (333 ) 72,975
Preferred stock - 1 - 1
Corporate bonds 12,915 185 - 13,100
Obligations of state and political subdivisions 93,160 3,302 (91 ) 96,371
Total Available-for-Sale $ 256,301 $ 4,609 $ (876 ) $ 260,034

Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair Value
(In Thousands)
Held-to-Maturity Securities*:
FHLMC certificates $ 10 $ - $ - $ 10
FNMA certificates 46 - - 46
GNMA certificates 18 - - 18
Obligations of state and political subdivisions 654 - - 654
Total Held-to Maturity $ 728 $ - $ - $ 728

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
At December 31, 2016
Available-for-sale
Obligations of U.S. government corporations and agencies $ 4,000 $ - $ (85 ) $ 3,915
Mortgage-backed securities - residential 82,619 390 (1,302 ) 81,707
REMICs 1,309 - (2 ) 1,307
Collateralized mortgage obligations 63,204 422 (621 ) 63,005
Preferred stock - 2 - 2
Corporate bonds 12,919 97 (3 ) 13,013
Obligations of state and political subdivisions 86,165 2,491 (613 ) 88,043
Total Available-for-Sale $ 250,216 $ 3,402 $ (2,626 ) $ 250,992


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
	(In Thousands)
At September 30, 2022
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	173,907	$	—	$	(29,882	)	$	144,025
Mortgage-backed securities		204,655				(35,547	)		169,108
Collateralized mortgage obligations		306,623		—		(49,568	)		257,055
Asset-backed securities		206,505		557		(8,514	)		198,548
Corporate bonds		73,659				(6,237	)		67,422
Obligations of state and political subdivisions		286,213		32		(58,690	)		227,555
Total Available-for-Sale	$	1,251,562	$	589	$	(188,438	)	$	1,063,713

Table of Contents


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
	(In Thousands)
At December 31, 2021
Available-for-sale
Obligations of U.S. government corporations and agencies	$	174,644	$	984	$	(918	)	$	174,710
Mortgage-backed securities		208,281		851		(2,381	)		206,751
Collateralized mortgage obligations		264,541		363		(4,736	)		260,168
Asset-backed securities		221,545		610		(1,619	)		220,536
Corporate bonds		70,008		1,160		(275	)		70,893
Obligations of state and political subdivisions		272,334		5,898		(5,030	)		273,202
Total Available-for-Sale	$	1,211,353	$	9,866	$	(14,959	)	$	1,206,260

Gross Gross
Amortized Unrecognized Unrecognized Fair
Cost Gains Losses Value
(In Thousands)
Held-to-Maturity*
FHLMC certificates $ 12 $ - $ - $ 12
FNMA certificates 56 2 - 58
GNMA certificates 23 1 - 24
Obligations of states and political subdivisions 93 - - 93
Total Held-to-Maturity $ 184 $ 3 $ - $ 187

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

The amortized cost and fair value of the investment securities portfolio at September 30, ~~2017~~2022, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, ~~mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMO”)~~MBS, CMOs and ~~REMICs,~~ABS, 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	$	3,238	$	3,239
Due after one year through five years		49,077		45,193
Due after five years through ten years		233,374		202,166
Due after ten years		248,090		188,403
MBS/CMO/ABS		717,783		624,712
	$	1,251,562	$	1,063,713

Available-for-Sale Held-to-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(In Thousands)
Due in one year or less $ 1,210 $ 1,212 $ - $ -
Due after one year through five years 21,301 21,800 62 62
Due after five years through ten years 43,275 44,919 592 592
Due after ten years 42,289 43,528 - -
MBS/CMO/REMIC 148,226 148,575 74 74
$ 256,301 $ 260,034 $ 728 $ 728

Investment securities with a carrying amount of ~~$152.9~~$736.1 million and $564.4 million at September 30, ~~2017~~2022 and December 31, 2021, respectively, were pledged as ~~collateral on public deposits, securities sold under repurchase agreements and the Federal Reserve discount window.~~collateral.

Table of Contents

~~As of September 30, 2017, the Company’s investment portfolio consisted of 430 securities, 63 of which were in an unrealized loss position.~~

The following tables summarize ~~First Defiance’s~~Premier’s securities that were in an unrealized loss position at September 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total					Duration of Unrealized Loss Position
			Gross					Gross								Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Loss
	Value		Loss			Value		Loss			Value		Loses			(In Thousands)
	(In Thousands)
At September 30, 2017
At September 30, 2022
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	1,987	$	(13	)	$	-	$	-		$	1,987	$	(13	)	$	99,589	$	(19,180	)	$	44,436	$	(10,702	)	$	144,025	$	(29,882	)
Mortgage-backed securities-residential		16,350		(114	)		13,018		(325	)		29,368		(439	)
Mortgage-backed securities																	48,282		(5,761	)		120,826		(29,786	)		169,108		(35,547	)
Collateralized mortgage obligations		18,164		(136	)		9,195		(197	)		27,359		(333	)		111,746		(14,355	)		145,309		(35,213	)		257,055		(49,568	)
Obligations of state and political subdivisions		3,498		(26	)		2,462		(65	)		5,960		(91	)
Total temporarily impaired securities	$	39,999	$	(289	)	$	24,675	$	(587	)	$	64,674	$	(876	)

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
			Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loses
	(In Thousands)
At December 31, 2016
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	3,915	$	(85	)	$	-	$	-		$	3,915	$	(85	)
Mortgage-backed securities-residential		63,736		(1,302	)		-		-			63,736		(1,302	)
REMICs		1,308		(2	)		-		-			1,308		(2	)
Collateralized mortgage obligations		28,882		(566	)		1,227		(55	)		30,110		(621	)
Asset-backed securities																	82,184		(1,816	)		81,491		(6,698	)		163,675		(8,514	)
Corporate bonds		-		-			997		(3	)		997		(3	)		57,170		(4,946	)		10,252		(1,291	)		67,422		(6,237	)
Obligations of state and political subdivisions		19,172		(613	)		-		-			19,172		(613	)		128,802		(19,309	)		89,875		(39,381	)		218,677		(58,690	)
Total temporarily impaired securities	$	117,013	$	(2,568	)	$	2,224	$	(58	)	$	119,238	$	(2,626	)
Total available-for-sale																$	527,773	$	(65,367	)	$	492,189	$	(123,071	)	$	1,019,962	$	(188,438	)

~~There were~~


	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 Loss
	(In Thousands)
At December 31, 2021
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	73,810	$	(918	)	$	—	$	—		$	73,810	$	(918	)
Mortgage-backed securities-residential		167,379		(2,048	)		13,689		(333	)		181,068		(2,381	)
Collateralized mortgage obligations		222,134		(4,736	)		—		—			222,134		(4,736	)
Asset-backed securities		140,226		(1,589	)		2,705		(30	)		142,931		(1,619	)
Corporate bonds		24,173		(270	)		504		(5	)		24,677		(275	)
Obligations of state and political subdivisions		99,199		(3,355	)		34,548		(1,675	)		133,747		(5,030	)
Total available-for-sale	$	726,921	$	(12,916	)	$	51,446	$	(2,043	)	$	778,367	$	(14,959	)

The Company realized nogains ~~of $158,000 ($103,000 after tax)~~ from the ~~sales and calls~~sale of ~~investment~~available-for-sale securities in the ~~third quarter of 2017~~three and ~~$425,000 ($276,000 after tax) for the~~ nine months ended September 30, ~~2017, while there were realized gains of $151,000 ($98,000 after tax) in~~2022. For the ~~third quarter of 2016~~three and ~~$509,000 ($331,000 after tax) for the~~ nine months ended September 30, ~~2016.~~2021, the Company had $233,000 and $2.2 million in realized gains from the sale of investment securities.

~~Management~~Quarterly, the Company evaluates if any security has a fair value less than its amortized cost. Once these securities ~~for other-than-temporary impairment (“OTTI”) at least quarterly,~~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:

At September 30, 2022, and December 31, 2021, the Company held preferred and common stock of various bank holding companies totaling $15.3 million ~~net~~and $14.1 million, respectively. During the three and nine months ended September 30, 2022, an unrealized gain of $43,000 and a $1.8 million unrealized loss were recorded within gain (loss) on equity securities on the ~~purchase discount~~Consolidated Condensed Statements of ~~$4.2 million.~~Income. During the three and nine months ended September 30, 2021, $20,000 and $822,000 of unrealized gains were recorded within gain (loss) on equity securities on the Consolidated Condensed Statements of Income.

8. Loans

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


	September 30, 2022			December 31, 2021
	(In Thousands)
Real Estate:
Residential	$	1,478,360		$	1,167,466
Commercial		2,674,078			2,450,349
Construction		1,242,045			862,815
		5,394,483			4,480,630
Other Loans:
Commercial		1,042,604			895,638
Home equity and improvement		272,367			264,354
Consumer finance		212,790			126,417
		1,527,761			1,286,409
Loans before deferred loan origination fees and costs		6,922,244			5,767,039
Deduct:
Undisbursed construction loan funds		(724,797	)		(477,890	)
Net deferred loan origination fees and costs		10,261			7,019
Allowance for credit losses		(70,626	)		(66,468	)
Total loans	$	6,137,082		$	5,229,700

The ~~following table discloses allowance for loan loss activity for~~Company has responded to the ~~quarters ended~~pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing $636.9 million to small businesses in our markets. As of September 30, ~~2017~~2022, the Company had $1.2 million in PPP loans, that remained unpaid and ~~2016 by portfolio segment (In Thousands):~~were included in commercial loans in the above loan table. As of December 31, 2021, the Company had $58.9 million in PPP loans.

Quarter Ended September 30,
2017 1-4 Family
Residential
Real Estate Multi-
Family
Residential
Real Estate Commercial
Real Estate Construction Commercial Home Equity
and
Improvement Consumer
Finance Total
Beginning Allowance $ 2,641 $ 2,193 $ 10,136 $ 540 $ 7,973 $ 2,199 $ 233 $ 25,915

Charge-Offs (60 ) 0 0 0 (64 ) (92 ) (20 ) (236 )

Recoveries 11 0 103 0 18 59 9 200

Provisions (54 ) 110 232 38 98 19 19 462
Ending Allowance $ 2,538 $ 2,303 $ 10,471 $ 578 $ 8,025 $ 2,185 $ 241 $ 26,341

Quarter Ended September 30,
2016 1-4 Family
Residential
Real Estate Multi-
Family
Residential
Real Estate Commercial
Real Estate Construction Commercial Home Equity
and
Improvement Consumer
Finance Total
Beginning Allowance $ 2,839 $ 2,365 $ 10,904 $ 633 $ 6,740 $ 2,278 $ 189 $ 25,948

Charge-Offs (111 ) 0 (79 ) 0 (26 ) (74 ) (24 ) (314 )

Recoveries 3 0 62 0 159 40 10 274

Provisions (299 ) (185 ) (280 ) (221 ) 1,006 (47 ) 41 15
Ending Allowance $ 2,432 $ 2,180 $ 10,607 $ 412 $ 7,879 $ 2,197 $ 216 $ 25,923

~~The following table discloses allowance for loan loss activity for the year-to-date periods ended September 30, 2017 and 2016 by portfolio segment and impairment method (In Thousands):~~

Year-to-date Period Ended
September 30, 2017 1-4 Family
Residential
Real Estate Multi- Family
Residential
Real Estate Commercial
Real Estate Construction Commercial Home Equity
and
Improvement Consumer
Finance Total
Beginning Allowance $ 2,627 $ 2,228 $ 10,625 $ 450 $ 7,361 $ 2,386 $ 207 $ 25,884

Charge-Offs (109 ) 0 (400 ) 0 (2,091 ) (246 ) (112 ) (2,958 )

Recoveries 100 32 220 0 227 118 83 780

Provisions (80 ) 43 26 128 2,528 (73 ) 63 2,635
Ending Allowance $ 2,538 $ 2,303 $ 10,471 $ 578 $ 8,025 $ 2,185 $ 241 $ 26,341

Year-to-date Period Ended
September 30, 2016 1-4 Family
Residential
Real Estate Multi- Family
Residential
Real Estate Commercial
Real Estate Construction Commercial Home Equity
and
Improvement Consumer
Finance Total
Beginning Allowance $ 3,212 $ 2,151 $ 11,772 $ 517 $ 5,255 $ 2,304 $ 171 $ 25,382

Charge-Offs (203 ) 0 (92 ) 0 (381 ) (170 ) (41 ) (887 )

Recoveries 123 0 468 0 234 113 58 996

Provisions (700 ) 29 (1,541 ) (105 ) 2,771 (50 ) 28 432
Ending Allowance $ 2,432 $ 2,180 $ 10,607 $ 412 $ 7,879 $ 2,197 $ 216 $ 25,923

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~~amortized cost basis of ~~September 30, 2017 (In Thousands):~~

1-4 Family Multi Family
Residential Residential Commercial Home Equity Consumer
Real Estate Real Estate Real Estate Construction Commercial & Improvement Finance Total
Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 165 $ 3 $ 109 $ - $ 56 $ 281 $ $ 614

Collectively evaluated for impairment 2,373 2,300 10,362 578 7,969 1,904 241 25,727

Acquired with deteriorated credit quality - - - - - - - -

Total ending allowance balance $ 2,538 $ 2,303 $ 10,471 $ 578 $ 8,025 $ 2,185 $ 241 $ 26,341

Loans:

Loans individually evaluated for impairment $ 6,975 $ 2,069 $ 30,387 $ - $ 14,019 $ 1,199 $ 51 $ 54,700

Loans collectively evaluated for impairment 263,456 210,030 964,767 129,333 497,712 131,562 28,967 2,225,827

Loans acquired with deteriorated credit quality 1,092 303 2,137 - 333 - - 3,865

Total ending loans balance $ 271,523 $ 212,402 $ 997,291 $ 129,333 $ 512,064 $ 132,761 $ 29,018 $ 2,284,392

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, 2016 (In Thousands):

1-4 Family Multi Family
Residential Residential Commercial Home Equity Consumer
Real Estate Real Estate Real Estate Construction Commercial & Improvement Finance Total
Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 202 $ 4 $ 255 $ - $ 35 $ 313 $ - $ 809

Collectively evaluated for impairment 2,425 2,224 10,370 450 7,326 2,073 207 25,075

Acquired with deteriorated credit quality - - - - - - - -

Total ending allowance balance $ 2,627 $ 2,228 $ 10,625 $ 450 $ 7,361 $ 2,386 $ 207 $ 25,884

Loans:

Loans individually evaluated for impairment $ 6,898 $ 3,483 $ 13,570 $ - $ 2,154 $ 1,269 $ 59 $ 27,433

Loans collectively evaluated for impairment 200,907 193,714 832,446 89,244 468,246 117,744 16,625 1,918,926

Loans acquired with deteriorated credit quality - - - - 11 - - 11

Total ending loans balance $ 207,805 $ 197,197 $ 846,016 $ 89,244 $ 470,411 $ 119,013 $ 16,684 $ 1,946,370

~~The following table presents the average balance, interest income recognized and cash basis income recognized on impaired~~collateral-dependent loans by class of loans ~~(In Thousands)~~and collateral type as of September 30, 2022 and December 31, 2021 (in thousands):

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Average
Balance Interest
Income
Recognized Cash Basis
Income
Recognized Average
Balance Interest
Income
Recognized Cash Basis
Income
Recognized
Residential Owner Occupied $ 4,188 $ 37 $ 37 $ 3,699 $ 99 $ 99
Residential Non Owner Occupied 2,706 33 33 3,136 104 104
Total Residential Real Estate 6,894 70 70 6,835 203 203
Construction - - - - - -
Multi-Family 2,084 9 9 2,534 28 28
CRE Owner Occupied 12,127 24 22 9,613 70 70
CRE Non Owner Occupied 3,484 32 31 3,845 105 98
Agriculture Land 13,547 148 44 8,719 335 126
Other CRE 1,590 27 22 1,637 50 42
Total Commercial Real Estate 30,748 231 119 23,814 560 �� 336
Commercial Working Capital 7,033 38 38 5,115 86 90
Commercial Other 5,926 31 27 5,126 82 60
Total Commercial 12,959 69 65 10,241 168 150
Home Equity and Improvement 1,206 11 10 1,228 32 31
Consumer Finance 54 1 1 62 3 4
Total Impaired Loans $ 53,945 $ 391 $ 274 $ 44,714 $ 994 $ 752

Table of Contents


	September 30, 2022
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	54	$	—	$	—	$	—	$	54
Commercial		12,394		—		2,716		—		15,110
Construction		—		—		—		—		—

Other Loans:
Commercial		2,607		561		3,858		—		7,026
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—

Total	$	15,055	$	561	$	6,574	$	—	$	22,190


	December 31, 2021
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	226	$	—	$	—	$	—	$	226
Commercial		18,399		—		—		—		18,399
Construction		—		—		—		—		—

Other Loans:
Commercial		1,574		160		14,023		25		15,782
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—

Total	$	20,199	$	160	$	14,023	$	25	$	34,407

~~The following table presents the average~~Non-performing loans include both smaller balance ~~interest income recognized and cash basis income recognized on impaired~~homogeneous loans ~~by class of loans (In Thousands):~~

Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
Average
Balance Interest
Income
Recognized Cash Basis
Income
Recognized Average
Balance Interest
Income
Recognized Cash Basis
Income
Recognized
Residential Owner Occupied $ 3,876 $ 34 $ 33 $ 3,892 $ 109 $ 106
Residential Non Owner Occupied 2,935 29 29 3,234 95 94
Total Residential Real Estate 6,811 63 62 7,126 204 200
Construction - - - - - -
Multi-Family 3,607 14 14 4,087 68 68
CRE Owner Occupied 7,171 30 30 7,810 134 115
CRE Non Owner Occupied 6,341 73 73 5,220 178 175
Agriculture Land 1,851 16 2 2,427 66 16
Other CRE 1,570 13 13 1,556 31 31
Total Commercial Real Estate 16,933 132 118 17,013 409 337
Commercial Working Capital 2,259 26 11 1,769 56 33
Commercial Other 2,198 8 7 2,742 36 34
Total Commercial 4,457 34 18 4,511 92 67
Home Equity and Improvement 1,446 12 12 1,631 40 40
Consumer Finance 65 1 1 69 3 3
Total Impaired Loans $ 33,319 $ 256 $ 225 $ 34,437 $ 816 $ 715

~~The following table presents loans individually~~that are collectively evaluated for impairment ~~by class of~~and individually analyzed loans. All loans ~~(In Thousands):~~

September 30, 2017 December 31, 2016
Unpaid
Principal
Balance* Recorded
Investment Allowance
for Loan
Losses
Allocated Unpaid
Principal
Balance* Recorded
Investment Allowance
for Loan
Losses
Allocated
With no allowance recorded:
Residential Owner Occupied $ 2,400 $ 2,416 $ - $ 1,912 $ 1,765 $ -
Residential Non Owner Occupied 1,755 1,748 - 1,691 1,683 -
Total 1-4 Family Residential Real Estate 4,155 4,164 - 3,603 3,448 -
Multi-Family Residential Real Estate 2,012 2,020 - 3,578 3,430 -
CRE Owner Occupied 10,461 9,993 - 2,652 2,353 -
CRE Non Owner Occupied 3,397 3,171 - 4,372 4,240 -
Agriculture Land 13,068 13,315 - 1,695 1,722 -
Other CRE 1,011 804 - 1,225 1,115 -
Total Commercial Real Estate 27,937 27,283 - 9,944 9,430 -
Construction - - - - - -
Commercial Working Capital 8,066 7,998 - 838 786 -
Commercial Other 7,594 5,522 - 1,179 967 -
Total Commercial 15,660 13,520 - 2,017 1,753 -
Home Equity and Home Improvement 332 609 - 631 585 -
Consumer Finance 43 43 - 55 55 $ -
Total loans with no allowance recorded $ 50,139 $ 47,639 $ - $ 19,828 $ 8,701

With an allowance recorded:
Residential Owner Occupied $ 1,887 $ 1,866 $ 140 $ 2,348 $ 2,319 $ 157
Residential Non Owner Occupied 955 945 25 1,137 1,131 45
Total 1-4 Family Residential Real Estate 2,842 2,811 165 3,485 3,450 202
Multi-Family Residential Real Estate 49 49 3 53 53 4
CRE Owner Occupied 2,432 1,973 51 2,362 1,894 102
CRE Non Owner Occupied 292 294 15 1,618 1,479 108
Agriculture Land 108 110 2 45 45 3
Other CRE 927 727 41 1,144 722 42
Total Commercial Real Estate 3,759 3,104 109 5,169 4,140 255
Construction - - - - - -
Commercial Working Capital 163 163 21 230 231 24
Commercial Other 333 336 35 167 170 11
Total Commercial 496 499 56 397 401 35
Home Equity and Home Improvement 593 590 281 688 684 313
Consumer Finance 8 8 - 4 4 -
Total loans with an allowance recorded $ 7,747 $ 7,061 $ 614 $ 9,796 $ 8,732 $ 809

* Presented gross of charge offs

greater than 90 days past due are placed on non-accrual status. The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned onas of the dates indicated:


	September 30, 2022		December 31, 2021
	(In Thousands)
Non-accrual loans with reserve	$	19,308	$	35,480
Non-accrual loans without reserve		13,829		12,534
Loans 90 days plus past due and still accruing		—		—
Total non-performing loans		33,137		48,014
Real estate and other assets held for sale		416		171
Total non-performing assets	$	33,553	$	48,185
Troubled debt restructuring, still accruing	$	6,909	$	7,768

September 30,
2017 December 31,
2016
(In Thousands)
Non-accrual loans $ 29,152 $ 14,348
Loans over 90 days past due and still accruing - -
Total non-performing loans 29,152 14,348
Real estate and other assets held for sale 532 455
Total non-performing assets $ 29,684 $ 14,803
Troubled debt restructuring, still accruing $ 13,044 $ 10,544

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The following table presents the aging of the ~~recorded investment~~amortized cost in past due and ~~non- accrual~~non-accrual loans as of September 30, ~~2017~~2022, by class of loans ~~(In Thousands)~~(in thousands):


	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential	$	1,460,105	$	547	$	5,816	$	4,954	$	11,317	$	6,458
Commercial		2,663,003		809		177		11,570		12,556		13,709
Construction		517,248		—		—		—		—		—

Other Loans:
Commercial		1,031,322		333		50		4,685		5,068		4,895
Home equity and improvement		266,002		2,586		207		992		3,785		1,423
Consumer finance		209,642		2,540		803		1,759		5,102		1,881
PCD		18,332		358		220		3,648		4,226		4,771

Total Loans	$	6,165,654	$	7,173	$	7,273	$	27,608	$	42,054	$	33,137

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

Residential Owner Occupied $ 171,835 $ 1,105 $ 21 $ 1,281 $ 2,407 $ 2,797
Residential Non Owner Occupied 96,055 638 93 495 1,226 572

Total 1-4 Family Residential Real Estate 267,890 1,743 114 1,776 3,633 3,369

Multi-Family Residential Real Estate 212,402 - - - - -

CRE Owner Occupied 395,228 62 143 1,107 1,312 10,745
CRE Non Owner Occupied 402,153 350 - 544 894 2,516
Agriculture Land 135,673 103 - 294 397 3,288
Other Commercial Real Estate 61,427 207 - - 207 545

Total Commercial Real Estate 994,481 722 143 1,945 2,810 17,094

Construction 129,333 - - - - -

Commercial Working Capital 227,422 1,522 539 75 2,136 4,067
Commercial Other 281,773 - 379 354 733 4,004

Total Commercial 509,195 1,522 918 429 2,869 8,071

Home Equity/Home Improvement 131,141 1,347 158 115 1,620 546
Consumer Finance 28,762 164 52 40 256 58

Total Loans $ 2,273,204 $ 5,498 $ 1,385 $ 4,305 $ 11,188 $ 29,138
Loans acquired with deteriorated credit quality (included in the totals above) $ 3,698 $ 33 $ - $ 134 $ 167 $ 1,925

Loans acquired in current year (included in totals above) $ 228,225 $ 2,911 $ 625 $ 701 $ 4,237 $ 4,855

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, ~~2016~~2021, by class of loans ~~(In Thousands)~~(in thousands):


	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential	$	1,144,533	$	234	$	5,340	$	7,487	$	13,061	$	9,034
Commercial		2,439,552		96		847		7,168		8,111		14,621
Construction		383,136		43		1,746		—		1,789		—

Other Loans:
Commercial		884,025		42		35		867		944		11,531
Home equity and improvement		257,055		1,851		408		1,634		3,893		2,051
Consumer finance		124,073		1,112		819		1,728		3,659		1,873
PCD		25,111		225		1,005		5,996		7,226		8,904

Total Loans	$	5,257,485	$	3,603	$	10,200	$	24,880	$	38,683	$	48,014

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

Residential Owner Occupied $ 139,015 $ 56 $ 842 $ 544 $ 1,442 $ 1,931
Residential Non Owner Occupied 66,811 166 308 63 537 992

Total 1-4 Family Residential Real Estate 205,826 222 1,150 607 1,979 2,923

Multi-Family Residential Real Estate 197,197 - - - - 2,637

CRE Owner Occupied 340,233 79 - 1,396 1,475 3,098
CRE Non Owner Occupied 338,724 81 16 426 523 1,808
Agriculture Land 102,397 - - - - 755
Other Commercial Real Estate 62,415 - - 249 249 1,292

Total Commercial Real Estate 843,769 160 16 2,071 2,247 6,953

Construction 89,244 - - - - -

Commercial Working Capital 202,786 - 10 38 48 435
Commercial Other 267,189 23 - 365 388 577

Total Commercial 469,975 23 10 403 436 1,012

Home Equity and Home Improvement 117,458 1,125 176 254 1,555 730
Consumer Finance 16,452 85 69 78 232 91

Total Loans $ 1,939,921 $ 1,615 $ 1,421 $ 3,413 $ 6,449 $ 14,346

Troubled Debt Restructurings

As of September 30, ~~2017~~2022, and December 31, ~~2016,~~2021, the Company had a recorded investment in ~~troubled debt restructurings (“TDRs”)~~TDRs of ~~$22.6~~$19.8 million and ~~$16.8~~$11.9 million, respectively. The Company allocated ~~$602,000~~$353,000 and ~~$809,000~~$378,000 of ~~specific~~ reserves to those loans at September 30, ~~2017~~2022, and December 31, ~~2016,~~2021, respectively, and had committed to lend additional amounts totaling up to ~~$55,000~~$319,000 and ~~$20,000~~$348,000 at September 30, ~~2017~~2022, and December 31, ~~2016,~~2021, 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

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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 September 30, ~~2017 $9.6~~2022, $12.9 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following tables present loans by class modified as TDRs that occurred during the three ~~month periods~~ and nine ~~month periods ending~~months ended September 30, ~~2017 and September 30, 2016:~~2022:


	Loans Modified as a TDR for the Three Months Ended September 30, 2022 (Dollars in Thousands)				Loans Modified as a TDR for the Nine Months Ended September 30, 2022 (Dollars in Thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	1,084		11	$	2,097
Commercial		1		115		4		5,094
Construction		—		—		—		—

Other Loans:
Commercial		1		17		3		4,281
Home equity and improvement		3		198		6		277
Consumer finance		3		43		8		87

Total		11	$	1,457		32	$	11,836

Loans Modified as a TDR for the Three
Months Ended September 30, 2017
($ in thousands) Loans Modified as a TDR for the Nine
Months Ended September 30, 2017
($ in thousands)
Troubled Debt Restructurings Number of
Loans Recorded Investment
(as of period end) Number of
Loans Recorded Investment
(as of period end)

1-4 Family Owner Occupied 10 $ 420 18 $ 923
1-4 Family Non Owner Occupied 0 - 3 104
Multi Family 0 - 0 -
CRE Owner Occupied 0 - 1 116
CRE Non Owner Occupied 0 - 0 -
Agriculture Land 3 280 5 1,731
Other CRE 0 - 2 165
Commercial Working Capital 2 345 7 2,396
Commercial Other 1 47 5 3,511
Home Equity and Improvement 2 72 4 150
Consumer Finance 1 7 3 10
Total 19 $ 1,171 48 $ 9,106

~~The loans described above decreased the ALLL by $5,000 in the three month period ending September 30, 2017 and decreased the ALLL by $29,000 in the nine month period ending September 30, 2017.~~

Loans Modified as a TDR for the Three
Months Ended September 30, 2016
($ in thousands) Loans Modified as a TDR for the Nine
Months Ended September 30, 2016
($ in thousands)
Troubled Debt Restructurings Number of
Loans Recorded Investment
(as of period end) Number of
Loans Recorded Investment
(as of period end)

1-4 Family Owner Occupied 5 $ 86 10 $ 208
1-4 Family Non Owner Occupied 1 8 3 128
Multi Family 0 - 1 54
CRE Owner Occupied 0 - 0 -
CRE Non Owner Occupied 2 215 4 870
Agriculture Land 1 46 1 46
Other CRE 0 - 0 -
Commercial Working Capital 0 - 1 226
Commercial Other 0 - 1 590
Home Equity and Improvement 4 52 8 340
Consumer Finance 1 13 2 16
Total 14 $ 420 31 $ 2,478

The loans described above increased the ~~ALLL~~ACL by ~~$31,000~~$28,000 and $428,000 in ~~the three month period ending September 30, 2016 and decreased the ALLL by $9,000 in the nine month period ending September 30, 2016.~~

Of the 2017 modifications, 12 were made TDRs due to the fact that the borrower is in bankruptcy, 5 were made TDR due to terming out lines of credit, 11 were made TDR due to advancing or renewing money to a watch list credit, 7 loans were placed under a forbearance agreement, and 13 were made a TDR because the current debt was refinanced due to maturity or for payment relief.

~~The following tables present loans by class modified as TDRs for which there was a payment default within twelve months following the modification during~~ the three and nine ~~month periods~~months ended September 30, ~~2017 and September 30, 2016:~~2022, respectively.

Three Months Ended September 30, 2017
($ in thousands) Nine Months Ended September 30, 2017
($ in thousands)
Troubled Debt Restructurings
That Subsequently Defaulted Number of
Loans Recorded Investment
(as of period end) Number of
Loans Recorded Investment
(as of period end)

1-4 Family Owner Occupied 0 $ - 0 $ -
1-4 Family Non Owner Occupied 0 - 0 -
CRE Owner Occupied 0 - 0 -
CRE Non Owner Occupied 0 - 0 -
Agriculture Land 0 - 0 -
Other CRE 0 - 0 -
Commercial Working Capital or Other 0 - 1 225
Commercial Other 0 - 0 -
Home Equity and Improvement 0 - 0 -
Consumer Finance 0 - 0 -
Total 0 $ - 1 $ 225


	Loans Modified as a TDR for the Three Months Ended September 30, 2021 (Dollars in Thousands)				Loans Modified as a TDR for the Nine Months Ended September 30, 2021 (Dollars in Thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	263		4	$	512
Commercial		—		—		—		—
Construction		—		—		—		—

Other Loans:
Commercial		1		275		6		1,853
Home equity and improvement		—		—		—		—
Consumer finance		—		—		—		—

Total		2	$	538		10	$	2,365

The ~~TDRs that subsequently defaulted~~loans described above ~~had no effect on~~increased the ~~allowance for loan losses for~~ACL by $9,000 and $382,000 in the three and nine ~~month periods~~months ended September 30, ~~2017.~~2021, respectively.

~~The TDRs that subsequently defaulted described above had no effect on the allowance for loan losses for the three and nine month periods ended September 30, 2016.~~

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.

There were no TDRs that subsequently defaulted as of September 30, 2021. The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2022:


	Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
	(Dollars in Thousands)				(Dollars in Thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		2	$	219		3	$	282
Commercial		—		—		—		—
Construction		—		—		—		—

Other Loans:
Commercial		—		—		—		—
Home equity and improvement		—		—		—		—
Consumer finance		2		40		2		40

Total		4	$	259		5	$	322

The TDRs that subsequently defaulted described above increased the ACL by $9,000 and $11,000 for each of the three and nine months ended September 30, 2022.

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~~by 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~~Premier uses the following definitions for risk ratings:

Special Mention.Loans classified as special mention have a potential weakness that deserves ~~management's~~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 September 30, ~~2017,~~2022, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows ~~(In Thousands)~~(in thousands):

As of December 31, ~~2016,~~2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows ~~(In Thousands)~~(in thousands):

The tables below present the amortized cost basis of loans by credit quality indicator and class of loans as of September 30, 2022 and December 31, 2021 (in thousands):


	Term of loans by origination
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of September 30, 2022

Real Estate
Residential:
Risk Rating
Pass	$	194,669	$	472,696	$	338,397	$	95,857	$	53,398	$	306,452	$	1,565	$	1,463,034
Special Mention		—		183		182		—		—		144		758		1,267
Substandard		—		1,397		741		856		591		3,536		—		7,121
Doubtful		—		—		—		—		—		—		—		—
Total	$	194,669	$	474,276	$	339,320	$	96,713	$	53,989	$	310,132	$	2,323	$	1,471,422

Commercial:
Risk Rating
Pass	$	468,444	$	504,860	$	521,889	$	321,775	$	198,095	$	560,364	$	12,665	$	2,588,092
Special Mention		2,345		2,284		—		268		25,660		34,210		466		65,233
Substandard		116		2,121		549		4,612		4,490		10,120		226		22,234
Doubtful		—		—		—		—		—		—		—		—
Total	$	470,905	$	509,265	$	522,438	$	326,655	$	228,245	$	604,694	$	13,357	$	2,675,559

Construction:
Risk Rating
Pass	$	213,186	$	220,569	$	52,156	$	30,037	$	-	$	—	$	-	$	515,948
Special Mention		—		1,300		—		—		—		—		—		1,300
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	213,186	$	221,869	$	52,156	$	30,037	$	-	$	—	$	-	$	517,248

Other Loans
Commercial:
Risk Rating
Pass	$	224,003	$	209,901	$	97,286	$	58,663	$	28,214	$	27,355	$	363,911	$	1,009,333
Special Mention		2,527		3,733		2,099		1,694		1,291		5,572		3,190		20,106
Substandard		40		120		3,898		5		190		200		2,498		6,951
Doubtful		—		—		—		—		—		—		—		—
Total	$	226,570	$	213,754	$	103,283	$	60,362	$	29,695	$	33,127	$	369,599	$	1,036,390

Home equity and Improvement:
Risk Rating
Pass	$	21,616	$	21,726	$	5,606	$	3,744	$	1,948	$	31,676	$	182,069	$	268,385
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		14		—		28		32		521		807		1,402
Doubtful		—		—		—		—		—		—		—		—
Total	$	21,616	$	21,740	$	5,606	$	3,772	$	1,980	$	32,197	$	182,876	$	269,787

Consumer Finance:
Risk Rating
Pass	$	123,887	$	36,307	$	19,016	$	15,473	$	5,140	$	3,279	$	9,751	$	212,853
Special Mention		—		—		—		—		—		—		—		—
Substandard		61		554		715		393		97		70		1		1,891
Doubtful		—		—		—		—		—		—		—		—
Total	$	123,948	$	36,861	$	19,731	$	15,866	$	5,237	$	3,349	$	9,752	$	214,744

PCD:
Risk Rating
Pass	$	—	$	—	$	—	$	137	$	376	$	13,343	$	3,188	$	17,044
Special Mention		—		—		—		—		—		93		—		93
Substandard		—		—		—		3		27		4,393		998		5,421
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	140	$	403	$	17,829	$	4,186	$	22,558

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	Term of loans by origination
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of December 31, 2021

Real Estate
Residential:
Risk Rating
Pass	$	219,006	$	373,439	$	112,781	$	65,544	$	71,794	$	301,735	$	1,913	$	1,146,212
Special Mention		—		190		—		—		59		109		958		1,316
Substandard		465		780		1,198		1,006		2,095		4,522		—		10,066
Doubtful		—		—		—		—		—		—		—		—
Total	$	219,471	$	374,409	$	113,979	$	66,550	$	73,948	$	306,366	$	2,871	$	1,157,594

Commercial:
Risk Rating
Pass	$	514,333	$	493,575	$	388,117	$	230,734	$	237,712	$	451,113	$	9,262	$	2,324,846
Special Mention		294		5,349		5,533		11,055		49,993		20,662		790		93,676
Substandard		172		570		4,920		5,525		62		17,665		227		29,141
Doubtful		—		—		—		—		—		—		—		—
Total	$	514,799	$	499,494	$	398,570	$	247,314	$	287,767	$	489,440	$	10,279	$	2,447,663

Construction:
Risk Rating
Pass	$	198,221	$	100,606	$	55,707	$	10,039	$	685	$	145	$	—	$	365,403
Special Mention		—		12,500		—		5,996		1,026		—		—		19,522
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	198,221	$	113,106	$	55,707	$	16,035	$	1,711	$	145	$	—	$	384,925

Other Loans
Commercial:
Risk Rating
Pass	$	293,644	$	132,703	$	84,668	$	47,421	$	24,269	$	17,038	$	256,659	$	856,402
Special Mention		—		2,180		4,094		272		1,264		4,663		2,342		14,815
Substandard		136		11,550		23		288		388		131		1,236		13,752
Doubtful		—		—		—		—		—		—		—		—
Total	$	293,780	$	146,433	$	88,785	$	47,981	$	25,921	$	21,832	$	260,237	$	884,969

Home equity and Improvement:
Risk Rating
Pass	$	24,707	$	6,870	$	4,867	$	2,879	$	5,534	$	31,317	$	182,740	$	258,914
Special Mention		—		—		—		—		—		—		—		—
Substandard		15		—		28		48		27		690		1,226		2,034
Doubtful		—		—		—		—		—		—		—		—
Total	$	24,722	$	6,870	$	4,895	$	2,927	$	5,561	$	32,007	$	183,966	$	260,948

Consumer Finance:
Risk Rating
Pass	$	50,202	$	25,866	$	23,000	$	9,643	$	4,313	$	2,769	$	10,086	$	125,879
Special Mention		—		—		—		—		—		—		—		—
Substandard		196		707		619		129		67		131		4		1,853
Doubtful		—		—		—		—		—		—		—		—
Total	$	50,398	$	26,573	$	23,619	$	9,772	$	4,380	$	2,900	$	10,090	$	127,732

PCD:
Risk Rating
Pass	$	—	$	—	$	170	$	1,753	$	1,860	$	12,496	$	3,268	$	19,547
Special Mention		—		—		—		—		—		101		—		101
Substandard		—		—		67		28		3,242		6,490		2,862		12,689
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	237	$	1,781	$	5,102	$	19,087	$	6,130	$	32,337

The Company has ~~purchased loans, for~~adopted ASU 2016-13 (Topic 326 – Credit Losses) to calculate the ACL, which ~~there was, at acquisition, evidence of deterioration~~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, DCF and probability of default/loss given default (“PD/LGD”).

A default can be triggered by one of several different asset quality factors including past due status, non-accrual status, TDR 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. 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 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 remaining life method was selected for the consumer direct loan segment since ~~origination~~the pool contains loans with many different structures and ~~it was probable, at acquisition, that all contractually required payments would not be collected.~~payment streams and collateral. The ~~outstanding~~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 ~~those loans~~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 Other	PD/LGD	Call report loss history
	Construction Residential	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 direct	Remaining life	Call report loss history
	Consumer indirect	DCF	National unemployment

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According to the accounting standard, an entity may make an accounting policy election not to measure an ACL 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 ACL 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 ~~as follows (In Thousands):~~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.

~~For those purchased loans disclosed above,~~In addition, ASC Topic 326 requires the Company ~~did~~to establish a liability for anticipated credit losses for unfunded commitments. To accomplish this, the company must first establish 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 ~~increase~~considered unilaterally cancelable and is considered by the company’s management as likely to fund over the life of the instrument. At September 30, 2022, the Company had $1.8 billion in unfunded commitments and set aside $7.1 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.

The following table discloses allowance for ~~loan losses during~~credit loss (“ACL”) activity for the three orand nine months ended September 30, ~~2017. No allowances for loan losses were reversed during the same period.~~2022 and 2021 by portfolio segment (in thousands):


Three Months Ended September 30, 2022	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	14,113		$	34,952		$	2,999	$	9,762		$	4,003		$	1,245		$	67,074
Charge-Offs		(15	)		(206	)		—		(29	)		(47	)		(185	)		(482	)
Recoveries		77			48			—		84			95			24			328
Provisions		2,136			(2,082	)		287		2,465			159			741			3,706
Ending Allowance	$	16,311		$	32,712		$	3,286	$	12,282		$	4,210		$	1,825		$	70,626


Nine Months Ended September 30, 2022	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	12,029		$	32,399		$	3,004		$	13,410		$	4,221		$	1,405		$	66,468
Charge-Offs		(1,016	)		(350	)		(16	)		(5,342	)		(324	)		(426	)		(7,474	)
Recoveries		831			562			3			370			208			175			2,149
Provisions		4,467			101			295			3,844			105			671			9,483
Ending Allowance	$	16,311		$	32,712		$	3,286		$	12,282		$	4,210		$	1,825		$	70,626


Three Months Ended September 30, 2021	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	15,268		$	34,461		$	2,739	$	12,211		$	4,988		$	1,700		$	71,367
Charge-Offs		(27	)		(84	)		—		(375	)		(47	)		(85	)		(618	)
Recoveries		75			143			—		576			23			57			874
Provisions		(1,567	)		(428	)		882		3,016			(276	)		(33	)		1,594
Ending Allowance	$	13,749		$	34,092		$	3,621	$	15,428		$	4,688		$	1,639		$	73,217

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~~Contractually required payments receivable of~~


Nine Months Ended September 30, 2021	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	17,534		$	43,417		$	2,741	$	11,665		$	4,739		$	1,983		$	82,079
Charge-Offs		(29	)		(689	)		—		(445	)		(50	)		(227	)		(1,440	)
Recoveries		165			332			12		1,279			217			122			2,127
Provisions		(3,921	)		(8,968	)		868		2,929			(218	)		(239	)		(9,549	)
Ending Allowance	$	13,749		$	34,092		$	3,621	$	15,428		$	4,688		$	1,639		$	73,217

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, ~~deterioration during~~they are accounted for as 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 ~~period ended~~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. The outstanding balance and related allowance on these loans as of September 30, ~~2017 using information as of the date of acquisition are included in the table below. There were no such loans purchased during the year ended~~2022 and December 31, ~~2016. (In Thousands)~~2021 is as follows (in thousands):

1-4 Family Residential Real Estate $ 1,720
Commercial Real Estate 4,724
Commercial 785
Consumer 4
Total $ 7,233


	As of September 30, 2022				As of December 31, 2021
	Loan Balance		ACL Balance		Loan Balance		ACL Balance
	(In Thousands)				(In Thousands)
Real Estate:
Residential	$	11,890	$	151	$	13,396	$	197
Commercial		1,627		27		5,878		151
Construction		—		—		—		—
		13,517		178		19,274		348
Other Loans:
Commercial		6,163		871		9,167		1,531
Home equity and improvement		2,581		104		3,405		154
Consumer finance		297		5		491		7
		9,041		980		13,063		1,692
Total	$	22,558	$	1,158	$	32,337	$	2,040

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled ~~$18,000~~$2.7 million as of September 30, ~~2017.~~

9. Mortgage Banking

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			Three Months Ended September 30,						Nine Months Ended September 30,
	(In Thousands)												2022			2021			2022			2021
Gain from sale of mortgage loans	$	1,200		$	1,683		$	3,577		$	4,103
													(In Thousands)
Mortgage banking gain, net													$	3,363		$	5,353		$	7,072		$	13,663
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		911			885			2,769			2,638			1,861			1,861			5,602			5,666
Amortization of mortgage servicing rights		(386	)		(536	)		(1,101	)		(1,281	)		(1,350	)		(1,822	)		(4,128	)		(6,119	)
Mortgage servicing rights valuation adjustments		(27	)		7			21			(118	)		96			783			1,624			5,655
		498			356			1,689			1,239			607			822			3,098			5,202

Net revenue from sale and servicing of mortgage loans	$	1,698		$	2,039		$	5,266		$	5,342		$	3,970		$	6,175		$	10,170		$	18,865

The unpaid principal balance of residential mortgage loans serviced for third parties was ~~$1.38~~$2.94 billion at both September 30, ~~2017~~2022 and ~~$1.37 billion at~~ December 31, ~~2016.~~2021.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and nine months ended September 30, ~~2017~~2022 and ~~2016:~~2021:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2022			2021			2022			2021
	(In Thousands)												(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,154		$	9,906		$	10,117		$	9,893		$	21,873		$	21,682		$	22,244		$	21,666
Loans sold, servicing retained		426			701			1,178			1,459			1,392			2,103			3,799			6,416
Amortization		(386	)		(536	)		(1,101	)		(1,281	)		(1,350	)		(1,822	)		(4,128	)		(6,119	)
Carrying value before valuation allowance at end of period		10,194			10,071			10,194			10,071			21,915			21,963			21,915			21,963

Valuation allowance:
Balance at beginning of period		(474	)		(770	)		(522	)		(645	)		(1,180	)		(3,641	)		(2,707	)		(8,513	)
Impairment recovery (charges)		(27	)		7			21			(118	)		97			783			1,624			5,655
Balance at end of period		(501	)		(763	)		(501	)		(763	)		(1,083	)		(2,858	)		(1,083	)		(2,858	)
Net carrying value of MSRs at end of period	$	9,693		$	9,308		$	9,693		$	9,308		$	20,832		$	19,105		$	20,832		$	19,105
Fair value of MSRs at end of period	$	9,750		$	9,493		$	9,750		$	9,493		$	27,633		$	20,189		$	27,633		$	20,189

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~~.estimable.

The Company ~~has established an~~had no accrual for secondary market buy-back ~~activity. A liability of $45,000 and $79,000 was accrued~~activity at September 30, ~~2017 and~~2022 or December 31, ~~2016, respectively. Expense (credit)~~2021 based on management’s estimate of potential losses from this activity. There was no expense or credit recognized ~~related to~~in the ~~accrual was ($34,000)~~three and ~~($131,000) in the~~ nine months ended September 30, ~~2017~~2022. The company recognized a credit of $0 and ~~2016,~~$43,000 in the three and nine months ended September 31, 2021.

10. Leases

The Company’s lease agreements have maturity dates ranging from April 2022 to September 2044, some of which include options for multiplefive and ten year extensions. The weighted average remaining life of the lease term for these leases was 13.44 years as of September 30, 2022 and 14.21 years as of December 31, 2021.

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The weighted average discount rate for leases was 2.49% as of September 30, 2022 and 2.57% as of December 31, 2021.

The total operating lease costs were $540,000 and $1.6 million for the three and nine months ended September 30, 2022, respectively, and $560,000 and $1.8 million for the three and nine months ended September 30, 2021, respectively. The ~~reversals are mainly due to no actual losses being recorded~~right-of-use asset, included in ~~the~~other assets, was $15.2 million and $15.4 million at September 30, 2022 and December 31, 2021, respectively. The lease liabilities, included in ~~the first nine months~~other liabilities, were $15.8 million and $16.1 million as of ~~2017~~September 30, 2022 and ~~2016,~~December 31, 2021, respectively.

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


(In Thousands)	September 30, 2022
Remainder of 2022	$	2,523
2023		2,087
2024		1,693
2025		1,470
2026		1,308
Thereafter		11,853
Total undiscounted minimum lease payments		20,934
Present value adjustment		(5,100	)
Total lease liabilities	$	15,834

11. Deposits

~~10.~~

~~Deposits~~

A summary of deposit balances is as follows:


	September 30, 2022		December 31, 2021
	(In Thousands)
Non-interest-bearing checking accounts	$	1,826,511	$	1,724,772
Interest-bearing checking and money market accounts		3,197,455		2,952,705
Savings deposits		820,650		804,451
Retail certificates of deposit less than $250,000		550,275		636,477
Retail certificates of deposit greater than $250,000		267,733		163,646
Brokered deposits		69,881		—
	$	6,732,505	$	6,282,051

14. Income Taxes

~~13.~~

~~Income Taxes~~

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the ~~state~~states of ~~Indiana.~~Indiana and West Virginia. The Company is no longer subject to examination by income taxing authorities for years before ~~2012.~~2018. The Company also currently operates ~~primarily~~ in the states of Ohio, Michigan and ~~Michigan,~~Pennsylvania which tax financial institutions based on their equity rather than their income.

The components of income tax expense (benefit) are as follows:

~~14.~~

~~Derivative Financial Instruments~~


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)						(In Thousands)
Current:
Federal	$	6,716		$	6,600		$	18,581		$	22,199
State and local		162			162			517			490
Deferred		(168	)		(638	)		(774	)		1,708
	$	6,710		$	6,124		$	18,324		$	24,397

~~Commitments~~37

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The effective tax rates differ from federal statutory rate applied to ~~fund certain mortgage loans (interest rate locks)~~income due to ~~be sold into~~ the ~~secondary market and forward commitments for~~following:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)						(In Thousands)
Tax expense (benefit) at statutory rate (21%)	$	7,330		$	7,242		$	20,000		$	26,278
Increases (decreases) in taxes from:
State income tax - net of federal tax benefit		129			128			409			387
Tax exempt interest income, net of TEFRA		(180	)		(213	)		(554	)		(641	)
Bank owned life insurance		(207	)		(199	)		(622	)		(625	)
Captive insurance		(125	)		(90	)		(326	)		(282	)
Other		(237	)		(744	)		(583	)		(720	)
Totals	$	6,710		$	6,124		$	18,324		$	24,397

The Company maintains an interest rate protection program for commercial loan customers. 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 $67.9 million and fair value of $4.7 million in other assets and $4.7 million in other liabilities at September 30, 2022. As of December 31, 2021, the Company had interest rate swaps associated with commercial loans with a notional value

of $69.4 million and fair value of $1.3 million in other assets and $1.3 million in other liabilities. For the three and nine months ended September 30, 2022, ($54,000) and ($53,000) flowed through noninterest income, respectively. For the three and nine months ended September 30, 2021, ($7,000) and $136,000 flowed through noninterest income, respectively.

In May 2021, the Company entered into derivative instruments designated as a cash flow hedge. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

An interest rate swap with ~~gain~~notional amount totaling $250.0 million as of September 30, 2022 was designated as a cash flow hedge to hedge the risk of variability in cash flows (future interest receipts) attributable to changes in the contractually specified LIBOR benchmark interest rate on ~~sale~~the Company’s floating rate loan pool. The gross aggregate fair value of ~~mortgage loans.~~the swap of $41.5 million is recorded in other liabilities in the unaudited Consolidated Balance Sheets at September 30, 2022, with changes in fair value recorded net of tax in other comprehensive income (loss). As of December 31, 2021, the gross aggregate fair value of the swap of $854,000 was recorded in other assets in the Consolidated Balance Sheets. A summary of the interest-rate swap designated as a cash flow hedge is presented below (dollars in thousands):

16. Other Comprehensive (Loss) 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 September 30, 2022
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(55,350	)	$	11,624		$	(43,726	)
Reclassification adjustment for net losses included in net income		—			—			—
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		(13,343	)		2,802			(10,541	)
Reclassification adjustment for net gains included in net income		(266	)		56			(210	)
Total other comprehensive loss	$	(68,959	)	$	14,482		$	(54,477	)

Nine Months Ended September 30, 2022
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(182,755	)	$	38,378		$	(144,377	)
Reclassification adjustment for net gains included in net income		—			—			—
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		(43,294	)		9,092			(34,202	)
Reclassification adjustment for net gains included in net income		982			(206	)		776
Total other comprehensive loss	$	(225,067	)	$	47,264		$	(177,803	)


	Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
	(In Thousands)
Three Months Ended September 30, 2021
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(9,042	)	$	1,898		$	(7,144	)
Reclassification adjustment for net gains included in net income		(233	)		49			(184	)
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		(1,692	)		356			(1,336	)
Reclassification adjustment for net gains included in net income		(860	)		180			(680	)
Total other comprehensive loss	$	(11,827	)	$	2,483		$	(9,344	)

Nine Months Ended September 30, 2021
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(16,169	)	$	3,395		$	(12,774	)
Reclassification adjustment for net gains included in net income		(2,218	)		466			(1,752	)
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		2,742			(576	)		2,166
Reclassification adjustment for net gains included in net income		(1,310	)		275			(1,035	)
Total other comprehensive loss	$	(16,955	)	$	3,560		$	(13,395	)

Before Tax
Amount Tax Expense
(Benefit) Net of Tax
Amount
(In Thousands)
Three months ended September 30, 2017:
Securities available for sale:
Change in net unrealized gain/loss during the period $ (777 ) $ 272 $ (505 )
Reclassification adjustment for net gains included in net income (158 ) 55 (103 )
Total other comprehensive loss $ (935 ) $ 327 $ (608 )

Nine months ended September 30, 2017:
Securities available for sale:
Change in net unrealized gain/loss during the period $ 3,383 $ (1,183 ) $ 2,200
Reclassification adjustment for net gains included in net income (425 ) 148 (277 )
Total other comprehensive income $ 2,958 $ (1,035 ) $ 1,923

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Before Tax
Amount Tax Expense
(Benefit) Net of Tax
Amount
(In Thousands)
Three months ended September 30, 2016:
Securities available for sale and transferred securities:
Change in net unrealized gain (loss) during the period $ 69 $ (24 ) $ 45
Reclassification adjustment for net gains included in net income (151 ) 53 (98 )
Total other comprehensive income (loss) $ (82 ) $ 29 $ (53 )

Nine months ended September 30, 2016:
Securities available for sale and transferred securities:
Change in net unrealized gain (loss) during the period $ 2,579 $ (903 ) $ 1,676
Reclassification adjustment for net gains included in net income (509 ) 178 (331 )
Total other comprehensive income (loss) $ 2,070 $ (725 ) $ 1,345

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

Accumulated
Securities Post- Other
Available retirement Comprehensive
For Sale Benefit Income
(In Thousands)
Balance January 1, 2017 $ 504 $ (289 ) $ 215
Other comprehensive income before reclassifications 2,200 - 2,200
Amounts reclassified from accumulated other comprehensive income (277 ) - (277 )

Net other comprehensive income during period 1,923 - 1,923

Balance September 30, 2017 $ 2,427 $ (289 ) $ 2,138

Balance January 1, 2016 $ 4,042 $ (420 ) $ 3,622
Other comprehensive income (loss) before reclassifications 1,676 - 1,676
Amounts reclassified from accumulated other comprehensive income (331 ) - (331 )

Net other comprehensive income during period 1,345 - 1,345

Balance September 30, 2016 $ 5,387 $ (420 ) $ 4,967


	Securities Available For Sale			Post- retirement Benefit			Cash Flow Hedge Derivatives			Accumulated Other Comprehensive Income (Loss)
	(In Thousands)
Balance January 1, 2022	$	(4,023	)	$	(79	)	$	674		$	(3,428	)
Other comprehensive income/(loss) before reclassifications		(144,377	)		—			(34,202	)		(178,579	)
Amounts reclassified from accumulated other comprehensive income		—			—			776			776

Net other comprehensive income/(loss) during period		(144,377	)		—			(33,426	)		(177,803	)

Balance September 30, 2022	$	(148,400	)	$	(79	)	$	(32,752	)	$	(181,231	)

Balance January 1, 2021	$	15,083		$	(79	)	$	—		$	15,004
Other comprehensive income (loss) before reclassifications		(12,774	)		—			2,166			(10,608	)
Amounts reclassified from accumulated other comprehensive income		(1,752	)		—			(1,035	)		(2,787	)

Net other comprehensive income/(loss) during period		(14,526	)		—			1,131			(13,395	)

Balance September 30, 2021	$	557		$	(79	)	$	1,131		$	1,609

~~The Company makes certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42~~41

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

The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership. In January of 2014, the FASB issued ASU 2014-01~~“Accounting for Investments in Qualified Affordable Housing Projects.”~~ The pronouncement permitted reporting entities to make an accounting policy election to account for these investments using the proportional amortization method if certain conditions exist. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and will recognize the net investment performance in the income statement as a component of income tax expense (benefit). The Company utilized the proportional amortization method for all of its instruments. As of September 30, 2017 and December 31, 2016 the Company had $9.3 million and $6.8 million in qualified investments recorded in other assets and $6.7 million and $4.3 million in unfunded commitments recorded in other liabilities, respectively.

~~As of September 30, 2017, the expected payments for unfunded affordable housing commitments were as follows:~~

~~The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the three and nine months ended September 30, 2017 and 2016.~~

~~There were no impairment losses of LIHTC investments for the three and nine months ended September 30, 2017 and 2016.~~

Effective February 24, 2017, the Company acquired Commercial Bancshares, Inc. (“Commercial Bancshares”) and its subsidiary, The Commercial Savings Bank (“CSB”), pursuant to an Agreement and Plan of Merger (“merger agreement”), dated August 23, 2016. The acquisition was accomplished by the merger of Commercial Bancshares into First Defiance, immediately followed by the merger of CSB into First Defiance’s banking subsidiary, First Federal. CSB operated 7 full-service banking offices in northwest and north central, Ohio and 1 commercial loan production office in central Ohio. Commercial Bancshares’ consolidated assets and equity (unaudited) as of February 24, 2017 totaled $348.4 million and $37.5 million, respectively. The Company accounted for the transaction under the acquisition method of accounting which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition. The fair value estimates included in these financial statements are based on preliminary valuations. The Company does not expect material variances from these estimates and expects that final valuation estimates will be completed during the year ending December 31, 2017.

In accordance with ASC 805, the Company expensed approximately $3.7 million of direct acquisition costs, of which $2.8 million was to settle employment and benefit agreements and for personnel expenses related to operating the new Commercial Bancshares locations. The Company recorded $28.7 million of goodwill and $4.9 million of intangible assets. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. The acquisition was consistent with the Company’s strategy to enhance and expand its presence in northwestern and north central Ohio. The acquisition 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 and are being amortized over 10 years on an accelerated basis. For tax purposes, goodwill totaling $28.7 million 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 Commercial Bancshares acquisition as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction.

Under the terms of the merger agreement, Commercial Bancshares common shareholders had the opportunity to elect to receive 1.1808 shares of common stock of the Company or cash in the amount of $51.00 for each share of Commercial Bancshares common stock, subject to adjustment as provided for in the merger agreement. Total consideration for Commercial Bancshares common shares outstanding was paid 80% in Company stock and 20% in cash. The Company issued 1,139,502 shares of its common stock and paid $12.3 million in cash to the former shareholders of Commercial Bancshares.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2016 after giving effect to certain adjustments. The unaudited pro forma information for the nine months ended September 30, 2017 and September 30, 2016 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

The above pro forma financial information includes approximately $3.1 million of net income related to the operations of Commercial Bancshares during the first nine months of 2017. The above pro forma financial information related to 2017 excludes non-recurring merger costs that totaled $3.7 million on a pre-tax basis.

On April 13, 2017, First Defiance and Corporate One Benefits Agency, Inc. (“Corporate One”) jointly announced the acquisition of Corporate One’s business by First Defiance. The total purchase price paid in cash was made up of the following: $6.5 million was paid at closing, $500,000 is due in July 2018, and $2.3 million at the end of a three-year earn-out based on the compound annual growth rate of net revenue over the performance period of Corporate One, for a total purchase price of $9.3 million. The recorded fair value of the $2.3 million earn-out was $1.8 million at September 30, 2017. As of September 30, 2017, total Company recorded goodwill of $7.9 million and identifiable intangible assets of $756,000 consisting of customer relationship intangible of $564,000 and a non-compete intangible of $192,000. The fair value estimates are preliminary and subject to revision until final values are determined by management, which is expected to occur by December 31, 2017. Corporate One was merged into First Insurance. Corporate One was a full-service employee benefits consulting organization founded in 1996 with offices located in Archbold, Findlay, Fostoria and Tiffin, Ohio. Corporate One consulted employers to better manage their employee benefit programs to effectively lead them into the future. It is anticipated that the transaction will enhance employee benefit offerings and expand First Insurance’s presence into adjacent markets in northwest Ohio.

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

~~Certain statements contained in this~~This quarterly report, ~~are not~~as well as other publicly available documents, including those incorporated herein by reference, may contain certain forward-looking statements of historical facts, including but not limited to statements that can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, or “continue” or the negative thereof or other variations thereon or comparable terminology are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~and~~ Section 21E of the Securities Exchange Act of 1934, as ~~amended. Actual~~amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. These statements may include, but are not limited to, statements regarding projections, forecasts, goals and plans of Premier and its management, future movements of interests, loan or deposit production levels, future credit quality ratios, future strength in the market area, and growth projections. These statements do not describe historical or current facts and may be identified by words such as “intend,” “intent,” “believe,” “expect,” “estimate,” “target,” “plan,” “anticipate,” or similar words or phrases, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,�� “may,” “can,” or similar verbs. 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, the inclusion of such information should not be regarded as a representation by Premier or any other persons, that our objectives and plans will be achieved.

Forward-looking statements involve numerous risks and uncertainties, any one or more of which could affect Premier’s business and financial results in future periods and could cause actual results to differ materially from ~~those indicated~~plans and projections. These risks and uncertainties include, but are not limited to: impacts from the novel coronavirus ("COVID-19") pandemic on the economy, financial markets, our customers, and our business and results of operation; changes in ~~such statements due~~interest rates; disruptions in the mortgage market; risks and uncertainties inherent in general and local banking, insurance and mortgage conditions; political uncertainty; uncertainty in U.S. fiscal or monetary policy; uncertainty concerning or disruptions relating to ~~risks, uncertainties~~tensions surrounding the current socioeconomic landscape; competitive factors specific to markets in which Premier and ~~changes with respect to~~its subsidiaries operate; future interest rate levels; legislative or regulatory rulemaking or actions; capital market conditions; security breaches or unauthorized disclosure of confidential customer or Company information; interruptions in the effective operation of information and transaction processing systems of Premier or Premier’s vendors and service providers; failures or delays in integrating or adopting new technology; the impact of the cessation of LIBOR interest rates and implementation of a ~~variety of market~~replacement rate; and other ~~factors. The Company assumes~~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, 2021, (the “2021 Form 10-K”). Any one or more of these factors have affected or could in the future affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections.

All forward-looking statements made in this quarterly report are based on information presently available to the management of Premier and speak only as of the date on which they are made. We assume no obligation to update any forward-looking ~~statements.~~statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

~~This document contains~~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 ~~certain non-GAAP financial measures which are presented as~~the Company’s management believes they are helpful to investors because they provide an additional tool to use in ~~understanding~~evaluating the Company’s ~~results~~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 that our performance is properly reflected to facilitate consistent period-to-period comparisons. The Company’s method of calculating these non-GAAP measures may differ from methods used by other companies. Although the Company believes the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for those financial measures prepared in accordance with GAAP.

The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the three and nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021.

Reconciliations of Net Interest Income on an FTE basis, Net Interest Margin and Efficiency Ratio

~~First Defiance~~Premier has established various accounting policies ~~which~~that govern the application of ~~accounting principles generally accepted in the United States~~GAAP in the preparation of its consolidated financial statements. The significant accounting policies of ~~First Defiance~~Premier are described in the ~~footnotes~~notes to the consolidated financial ~~statements included in the Company’s Annual Report on Form 10-K.~~statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and ~~liabilities;~~liabilities and management considers such accounting policies to be critical accounting policies. ~~Those policies~~The judgments and assumptions used by management are based on historical experience and other factors, which are ~~identified~~believed to be reasonable under the circumstances. Because of the nature of the judgments and ~~discussed in detail in~~assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the ~~Company’s Annual Report on Form 10-K include the Allowance for Loan Losses, Goodwill,~~carrying value of assets and liabilities and the ~~Valuation~~results of ~~Mortgage Servicing Rights. There have been no material changes in assumptions or judgments relative to those critical policies during the first nine months~~operations of ~~2017.~~Premier.

~~First Defiance~~Premier is a ~~unitary thrift~~financial holding company that conducts business through its ~~wholly owned~~wholly-owned subsidiaries, ~~First Federal,~~the Bank, First Insurance, PFC Risk Management and ~~First Defiance Risk Management.~~PFC Capital.

~~First Federal~~The Bank is ~~a federally chartered stock savings~~an Ohio state-chartered bank ~~that provides financial services to communities based~~headquartered in ~~northwest and central Ohio, northeast Indiana, and southeastern Michigan where it operates 42 full service banking centers. First Federal operates one loan production office in central~~Youngstown, Ohio. ~~On June 30, 2017, First Federal closed its full service~~It conducts operations through 74 banking center offices, 12 loan offices and serves clients through a team of wealth professionals. These operations are located ~~at 1660 Tiffin Avenue~~ in ~~Findlay, Ohio. Management’s decision to consolidate this banking center was based on the close proximity of other Findlay,~~ Ohio, ~~banking centers.~~

~~First Federal~~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.

First Insurance ~~sells~~is a ~~variety~~wholly-owned subsidiary of ~~property and casualty, group health and life and individual health and life insurance products.~~the Company. First Insurance is an insurance agency that ~~does~~conducts business inthroughout the ~~Defiance, Bryan, Bowling Green, Lima, Maumee~~Company’s markets. First Insurance offers property and Oregon, Ohio areas. Effective April 1, 2017, First Defiance acquired the business of Corporate One. Corporate One was merged into First Insurance. Corporate One was a full-service employee benefits consulting organization founded in 1996 with offices located in Archbold, Findlay, Fostoriacasualty insurance, life insurance and Tiffin, Ohio. Corporate One consulted employers to better manage their employee benefit programs to effectively lead them into the future. The transaction is expected to enhance employee benefit offerings and expand First Insurance’s presence into adjacent markets in northwest Ohio.group health insurance.

~~First Defiance~~PFC Risk Management is a ~~wholly owned~~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~~PFC Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to ~~spread a~~help minimize the risk allocable to each participating insurer.

Regulation ~~- First Defiance and First Federal are~~ – The Company is subject to regulation, examination and oversight by the ~~Office of the Comptroller of the Currency (“OCC”) and the~~ Federal Reserve Board (“Federal Reserve”)~~. Because~~ and the ~~FDIC insures First Federal’s deposits, First Federal is also subject to examination and regulation by the FDIC. In addition, First Federal~~SEC. The Bank is subject to regulation, examination and ~~examination~~oversight by the 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”~~(“CFPB”), which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)~~. First Defiance~~ and ~~First Federal~~has broad powers to adopt and enforce consumer protection regulations. The Company and the Bank must file periodic reports with the Federal Reserve, and ~~the OCC and~~ examinations are conducted periodically by the Federal Reserve, ~~OCC~~the FDIC and the ~~FDIC~~ODFI to determine whether ~~First Defiance~~the Company and ~~First Federal~~the Bank are in compliance with various regulatory requirements and are operating in a safe and sound manner. First Federal is subject to various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosure, equal credit opportunity, and, in the case of First Federal, fair credit reporting and community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of First Federal to open a new branch or engage in a merger transaction. Community reinvestment regulations evaluate how well and to what extent First Federal lends and invests in its designated service area, with particular emphasis on low-to-moderate income communities and borrowers in such areas.

~~First Defiance~~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.

~~Regulatory Capital Requirements~~ ~~– The federal banking regulators have adopted risk-based capital guidelines for financial institutions and their holding companies, designed~~At September 30, 2022, the Company's total assets amounted 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 United States 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 include a new capital conservation buffer and deductions from common equity capital that phases in, through January 1, 2019.

The new rules include (a) a new common equity tier 1 (“CET1”) capital ratio of at least 4.5%, (b) a Tier 1 capital ratio of at least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%, and (d) a minimum leverage ratio of 4%.

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

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

The deductions from common equity tier 1 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~~$8.2 billion 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.$7.5 billion at December 31, 2021. The ~~capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.~~

The new 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 common equity tier 1 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 phases in through January 1, 2019. It was 1.25% at January 1, 2017.

~~Deposit Insurance~~ - Substantially all of the deposits of First Federal are insured up to applicable limits by the Deposit Insurance Fund of the FDIC, and First Federal is assessed deposit insurance premiums to maintain the Deposit Insurance Fund. Insurance premiums for each insured institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information deemed by the FDIC to be relevant to the risk posed to the Deposit Insurance Fund by the institution. The assessment rate is then applied to the amount of the institution’s deposits to determine the institution’s insurance premium.

The deposit insurance assessment base is average assets less average tangible equity. The FDIC set a target size for the Deposit Insurance Fund at 2% of insured deposits and a lower assessment rate schedule when the fund reaches 1.15% and, in lieu of dividends, the FDIC rule provides for a lower rate schedule when the reserve ratio reaches 2% and 2.5%. On June 30, 2016, the Deposit Insurance Fund surpassed its target of 1.15%, decreasing the assessment base. The change to the assessment base and assessment rates, as well as the Deposit Insurance Fund restoration time frame, lowered First Defiance’s deposit insurance assessment.

In addition, the FDIC has proposed changing the deposit insurance premium assessment method for banks with less than $10 billion in assets that have been insured by the FDIC for at least five years. The proposed changes would revise the financial ratios method so that it would be based on a statistical model estimating the probability of failure of a bank over three years; update the financial measures used in the financial ratios method consistent with the statistical model; and eliminate risk categories for established small banks and using the financial ratios method to determine assessment rates for all such banks (subject to minimum or maximum initial assessment rates based upon a bank’s composite examination rating).

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 Deposit Insurance Fund. 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. The management of First Federal does not know of any practice, condition or violation that might lead to termination of deposit insurance.

~~Business Strategy~~ - First Defiance’s primary objective is to be a high-performing community banking organization, well regarded in its market areas. First Defiance accomplishes this through emphasis on local decision making and empowering its employees with tools and knowledge to serve its customers’ needs. First Defiance believes in a “Customer First” philosophy that is strengthened by its Trusted Advisor initiative. First Defiance also has a tagline of “Better Together” as an indication of its commitment to local, responsive, personalized service. First Defiance believes this strategy results in greater customer loyalty and profitability through core relationships. First Defiance is focused on diversification of revenue sources and increased market penetration in areas where the growth potential exists for a balance between acquisition and organic growth. The primary elements of First Defiance’s business strategy are commercial banking, consumer banking, including the origination and sale of single-family residential loans, enhancement of fee income, wealth management and insurance sales, each united by a strong customer service culture throughout the organization.

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

~~Consumer Banking -~~First Federal offers customers a full range of deposit and investment products including demand, checking, money market, certificates of deposits, Certificate of Deposit Account Registry Service (“CDARS”) and savings accounts. First Federal offers a full range of investment products through the wealth management department and a wide variety of consumer loan products, including residential mortgage loans, home equity loans, and installment loans. First Federal also offers online banking services, which include mobile banking, people-to-people pay (“P2P”) and online bill pay.

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

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

~~Asset Quality -~~ Maintaining a strong credit culture is of the utmost importance to First Federal. First Federal has maintained a strong credit approval and review process that has allowed the Company to maintain a credit quality standard that balances the return with the risks of industry concentrations and loan types. First Federalincrease is primarily ~~a collateral lender with an emphasis on cash flow performance, while obtaining additional support~~attributable to growth in net loans of $907.4 million from ~~personal guarantees and secondary sources of repayment. First Federal has directed its attention~~$5.2 billion at December 31, 2021 to loan types and markets that it knows well and in which it has historically been successful. First Federal strives to have loan relationships that are well diversified in both size and industry, and monitors the overall trends in the portfolio to maintain its industry and loan type concentration targets. First Federal maintains a problem loan remediation process that focuses on detection and resolution. First Federal maintains a strong process of internal control that subjects the loan portfolio to periodic internal reviews as well as independent third-party loan review.

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

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

Securities are classified as held-to-maturity when First Defiance has the positive intent and ability to hold the security to maturity. Held-to-maturity securities are stated at amortized cost and had a recorded value of $728,000$6.1 billion at September 30, ~~2017. Securities not classified~~2022. The increase was due to increases in all loan categories. Residential loans increased as ~~held-to-maturity are classified as available-for-sale, which are stated~~the Company sold fewer loans due to higher yields on holding loans than selling loans. Loans held for sale decreased from $162.9 million at ~~fair value and had a recorded value of $260.0~~December 31, 2021, to $129.1 million at September 30, ~~2017.~~2022 as a result of lessened sales activity. The available-for-sale portfolio included obligations of U.S. Government corporations and agencies ($2.0 million), certain municipal obligations ($96.4 million), CMOs/REMICs ($74.1 million), corporate bonds ($13.1 million), and mortgage backed securities ($74.5 million).

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

~~Lending~~ ~~- In order to properly assess the collateral dependent~~net 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 handledwas funded by the Credit Department, which selects the appraiser and orders the appraisal. First Defiance’s loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making their determination of value.

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

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

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

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

~~All loans over 90 days past due and/or on non-accrual are classified as non-performing loans. Non-performing status automatically occurs in the month in which the 90 day delinquency occurs.~~

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

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

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

For loans where First Federal determines that an updated appraisal is not necessary, other means are used to verify the value of the real estate, such as recent sales of similar properties on which First Federal had loans as well as calls to appraisers, brokers, realtors and investors. First Federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge offs. Based on these results, changes may occur in the processes used.

Loan modifications constitute a TDR if First Federal for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. For loans that are considered TDRs, First Federal either computes the present value of expected future cash flows discounted at the original loan’s effective interest rate or it may measure impairment based on the fair value of the collateral. For those loans measured for impairment utilizing the present value of future cash flows method, any discount is carried as a reserve in the allowance for loan and lease losses. For those loans measured for impairment utilizing the fair value of the collateral, any shortfall is charged off.

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

At September 30, 2017, First Defiance's total assets, deposits and stockholders' equity amounted to $2.93 billion, $2.36 billion and $367.9 million, respectively, compared to $2.48 billion, $1.98 billion and $293.0 million, respectively, at December 31, 2016. Total assets increased $456.7 million, deposits increased $379.0 million and stockholders’ equity increased $74.9 million primarily due to the acquisition of Commercial Bancshares. See Note 17 – Business Combinations for further details regarding the Commercial Bancshares acquisition and the impact to the individual categories.

Net loans receivable (excluding loans held for sale) increased $335.1 million to $2.25 billion. The variance in loans receivable between September 30, 2017 and December 31, 2016 includes an increase of $165.1 million in commercial real estate loans, $63.5 million increase in residential real estate loans (includes $11.5 million of purchased portfolio mortgage loans), $41.2 million increase in commercials loans, $13.8 million increase in home equity loans, $39.7 million increase in construction loans and $12.3 million increase in consumer loans. The net loan amounts acquired from Commercial Bancshares at the acquisition date of February 24, 2017 resulted in a $159.5 million increase in commercial real estate loans a $58.6 million increase in residential real estate loans, a $35.1 million increase in commercial loans, a $15.7 million increase in home equity loans, a $5.6 million increase in construction loans and a $10.9 million increase in consumer loans.

The investment securities portfolio increased $9.6 million to $260.8 million at September 30, 2017 from $251.2 million at December 31, 2016. There was an unrealized gain in the investment portfolio of $4.6 million at September 30, 2017 compared to an unrealized gain of $3.4 million at December 31, 2016.

Goodwill and core deposit and other intangibles increased $36.6 million and $4.7 million, respectively to $98.4 million and $6.1 million, respectively due to the acquisition of Commercial Bancshares and Corporate One. The acquisition of Commercial Bancshares increased goodwill by $28.7 million and core deposit and other intangibles by $4.9 million. The acquisition of Corporate One increased goodwill by $7.9 million and other intangibles by $756,000.

growth. Deposits increased $450.5 million from ~~$1.98~~$6.3 billion at December 31, ~~2016~~2021, to ~~$2.36~~$6.7 billion as of September 30, ~~2017.~~2022. Non-interest bearing ~~demand~~ deposits ~~increased $32.2~~grew $101.7 million since December 31, 2021 to $1.8 billion during the nine months ended September 30, 2022, while non-brokered interest-bearing deposits grew $278.8 million to ~~$519.9~~$4.8 billion during the same period. Brokered deposits added $69.9 million interest bearing demand and money market deposits increased $172.8 million to $989.5 billion, savings deposits increased $52.9 million to $296.2 million, and retail time deposits increased $121.1 million to $555.1 million. The net deposit amounts acquired from Commercial Bancshares atin the ~~acquisition date~~nine months ended September 30, 2022.

Stockholders’ equity ~~increased~~decreased $158.5 million from ~~$293.0 million~~$1.0 billion at December 31, ~~2016~~2021, to ~~$367.9~~$865.0 million at September 30, ~~2017.~~2022. The ~~increase~~decrease in stockholders’ equity was ~~the result of recording net income of $22.9 million, an increase~~primarily due to a decrease in accumulated other comprehensive income (“AOCI”) and stock buybacks. The decrease in AOCI is primarily related to an after-tax $148.4 million negative valuation adjustment on the available-for-sale securities portfolio. The Company also completed the repurchase of ~~$1.9~~884,036 common shares for $26.9 million and an increase due to the acquisition of Commercial Bancshares of $56.5 million as a result of issuing 1.1 million shares of common stock. These were offset by $7.3 million of common stock dividends being paid induring the first ~~nine~~none months of ~~2017.~~the year. At September 30, 2022, 1,200,130 common shares remained available for repurchase under the Company’s existing repurchase program.

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).

~~On a consolidated basis, First Defiance’s net income for the quarter~~months ended September 30, ~~2017 was $9.4~~2022 and 2021

For the three months ended September 30, 2022, the Company reported net income of $28.2 million compared to net income of ~~$7.0~~$28.4 million for the ~~comparable period in 2016.~~three months ended September 30, 2021. On a per share basis, basic and diluted earnings per common share were $0.79 for the three months ended September 30, ~~2017 were both $0.92, compared to~~2022 and basic and diluted ~~earnings~~income per common share ~~of $0.78 each~~were $0.76 for the ~~quarter~~three months ended September 30, ~~2016.~~2021. The changes from 2021 to 2022 are primarily due to fluctuations in interest on loans and deposits, provision for credit losses, and mortgage banking income, which are described in further detail below.

~~First Defiance’s~~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 ~~$25.0~~$63.3 million for the quarter ended September 30, ~~2017,~~2022, up from ~~$19.8~~$57.0 million for the same period in ~~2016.~~2021. Average earning assets for the quarter ended September 30, 2022 were $7.5 billion compared to $6.8 billion for the quarter ended September 30, 2021. The tax-equivalent net interest margin was ~~3.91%~~3.40% for the quarter ended September 30, ~~2017,~~2022, an increase from ~~3.69%~~3.38% for the same period in ~~2016.~~2021. The slight increase in margin between the ~~2017~~2022 and ~~2016 third~~2021 quarters was primarily due to ~~CSB’s earning asset mix as well an increase in interest rates.~~loan growth and higher loan yields. The yield on interest-earning assets was ~~4.38%~~3.92% for the quarter ended September 30, ~~2017, up 29 basis points from 4.09%~~2022 compared to 3.61% for the same period in ~~2016.~~2021. The cost of interest-bearing liabilities between the two periods increased 942 basis points to ~~0.61%~~0.74% in the third quarter of ~~2017~~2022 from ~~0.52%~~0.32% in the ~~same period in 2016.~~third quarter of 2021.

~~Total interest~~Interest income increased ~~$6.1~~$12.2 million to ~~$28.1~~$73.1 million for the quarter ended September 30, ~~2017~~2022, from ~~$22.0~~$60.9 million for the quarter ended September 30, ~~2016.~~2021. This increase is due to ~~continued loan growth, the CSB acquisition~~an increase in interest on loans and ~~a more profitable earning asset mix.~~securities. Income from loans increased to ~~$26.0~~$65.6 million for the quarter ended September 30, ~~2017~~2022, compared to ~~$20.3~~$55.4 million for the same period in ~~2016~~2021 due to an increase in average loan ~~growth of $371.3 million due primarily from~~balances to $6.1 billion for the ~~CSB acquisition. The increase in the loan portfolio yield to 4.59% at~~three months ended September 30, ~~2017 was due to increasing interest rates and~~2022 from $5.4 billion for the ~~acquisition~~third quarter of ~~CSB as the weighted average yield at the acquisition date was 4.59%. The investment interest~~2021. Interest income from investments increased ~~$190,000~~$1.5 million in the third quarter of ~~2017~~2022 to ~~$1.7 million; however,~~$6.8 million compared to $5.3 million in the same period in 2021 primarily due to an increase in yield ~~dropped 8~~on securities of 47 basis points to ~~3.29% at~~2.22% for the three months ended September 30, ~~2017~~2022, compared to ~~3.37% at September 30, 2016. The decline~~1.75% for the same period in ~~investment yield is primarily attributable to the reinvestment of matured securities at lower yields.~~2021. Income from ~~interest bearing~~interest-earning deposits ~~and FHLB stock~~ increased to ~~$209,000 and $209,000 respectively~~$221,000 in the third quarter of ~~2017~~2022 compared to ~~$104,000 and $137,000~~$33,000 for the same period in ~~2016 due~~2021. Average balances on interest-earning deposits decreased $2.7 million to ~~increased interest rates.~~

~~Interest expense increased by $891,000~~$68.5 million in the third quarter of ~~2017~~2022 from $71.3 million for the same period in 2021. The yield earned on interest-earning deposits increased 110 basis points in the third quarter of 2022 compared to the same period in ~~2016,~~2021.

Interest expense increased $6.0 million to ~~$3.1~~$9.8 million ~~from $2.2 million. The~~in the third quarter of 2022 compared to $3.8 million for the same period in 2021. An increase in the cost of ~~interest bearing~~interest-bearing liabilities ~~increased 9~~of 42 basis points ~~from 0.52% at September 30, 2016 to 0.61% at September 30, 2017.~~is the primary reason for this change. Interest expense related to interest-bearing deposits was ~~$2.4~~$6.9 million in the third quarter of ~~2017~~2022 compared to ~~$1.6~~$3.1 million for the same period in ~~2016.~~2021. Interest expense recognized by the Company related to FHLB advances was ~~$431,000~~$2.1 million in the third quarter of ~~2017~~2022 compared to ~~$322,000~~$11,000 for the same period in ~~2016 due mainly to increased volumes.~~2021. Expenses on subordinated debentures and notes payable ~~were $239,000 and $13,000 respectively~~increased to $868,000 in the third quarter of ~~2017~~2022 compared to ~~$191,000 and $35,000 respectively~~$671,000 for the same period in ~~2016.~~2021 due to increased rates on the variable-rate junior subordinated debentures.

The ~~allowance for loan losses~~ACL represents management’s assessment of the estimated ~~probable incurred~~ credit losses in the ~~loan portfolio at each balance sheet date.~~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 ~~allowance for loan losses~~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 ~~allowance for loan losses~~ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for ~~loan~~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 ~~approximately 55% to 60%~~45-50% of the portfolio reviewed ~~annually. This includes all relationships over $5.0 million with new exposure greater than $2.0 million and~~annually using a sample of other relationships greater than $5.0 million; loan relationships between $1.0 million and $5.0 million with new exposure greater than $750,000 and a sample of other relationships between $1.0 million and $5.0 million; and a sample of relationships less than $1.0 million.risk based approach. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the ~~allowance for loan losses~~ACL associated with these types of loans.

The ~~allowance for loan loss~~ACL is made up of two basic components. The first component of the allowance for ~~loan~~credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual ~~impaired~~analyzed 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~~individually analyzed 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~~individually analyzed and collateral dependent, then any shortfall is ~~usually~~either charged ~~off.~~off or a specific reserve is established. The Company also considers the impacts of any Small Business ~~Association~~Administration or Farm Service Agency guarantees. The specific reserve portion of the ~~allowance for loan losses~~ACL was ~~$614,000 at~~$2.8 million as of September 30, ~~2017~~2022, and ~~$809,000 at~~$7.1 million as of December 31, ~~2016.~~2021.

The second component is a general reserve, which is used to record loan loss reserves for groups of homogenous loans in which the Company estimates the potential losses ~~incurred~~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 ~~portfolio based on quantitative~~long-run historical mean after such time as management can no longer make or obtain a reasonable and ~~qualitative factors.~~supportable forecast. For purposes of the general reserve analysis, the six loan portfolio ~~is stratified~~segments are further segregated into ~~nine~~fifteen different loan pools ~~based on loan type~~ to allocate ~~historic~~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. Commercial credits are comprised of commercial working capital, agriculture production and other commercial credits. Construction is broken out into construction other and residential construction and consumer is broken out into consumer direct, consumer indirect and home equity. The Company utilizes three different methodologies to analyze loan pools.

The DCF methodology 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 cash flow stream that is net of estimated credit losses. This expected cash flow stream net of estimated credit losses is compared to the net present value of expected cash flows to establish a valuation account for these loans.

The PD/LGD 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:

The default rate is measured on the current life of the loan segment using a weighted average of the maximum possible quarters. The PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss ~~experience. The loss experience factor~~rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee's Summary of Economic Projections. 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 consumer direct loans and DCF for consumer indirect. 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 ~~non-impaired~~contractual term adjusted for prepayments. The DCF method was selected for consumer indirect due to the loan ~~portfolio.~~segments' longer average remaining life in addition to regular payment structure.

Additionally, CECL requires a reasonable and supportable forecast when establishing the ACL. The Company utilizes loss migration measurement for each loan portfolio segment with differentiation between loan risk grades in calculating the general reserve component for non-impaired loans. Beginning December 31, 2016 theestimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss calculation was changed from using an average of four (4) four-year loss migration periods to using an average of all four-year loss migration periods to the present beginning with data from the second quarter 2011. Management believes this enhancement is consistent with the rationale of the previous measurement but providesexperience over a more precise calculation of historical losses by incorporating more data points for the average loss ratio and including periods that provide a more complete coverage of the full business cycle. Management believes that capturing the risk grade changes and cumulative losses over the life cycle of a loan more accurately depicts management’s estimate of historical losses as well as being more reflective of the ongoing risks in the loan portfolio. These modifications resulted in a change in the general reserves between the loan portfolio segments but did not have a material impact on the overall allowance for loan losses.three-year period.

The quantitative general allowance ~~decreased $2.1 million~~increased to ~~$6.6~~$23.5 million at September 30, ~~2017~~2022, up from ~~$8.7~~$12.3 million at December 31, ~~2016 primarily due~~2021. As a part of the CECL model in certain calculations, especially discounted cash flows, projected loan losses are correlated to ~~a decrease~~the levels of the unemployment rate over the life of the loans in addition to the fluctuation of loan balances. The increase in the ~~historical loss rates from the migration analysis.~~quantitative general allowance during 2022 is attributed to loan growth.

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on ~~the non-impaired~~ loan ~~portfolio~~portfolios that are not individually analyzed 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.

The qualitative analysis ~~at September 30, 2017~~ indicated a general reserve of ~~$19.2~~$44.3 million at September 30, 2022, compared ~~with $16.4~~to $47.1 million at December 31, ~~2016, an increase of $2.8 million. Management reviewed~~2021. Overall, 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 commercial and commercial loan segments were reduced in all loan segments in the first nine months of 2017 due to stability in the U.S. economy and forecasts for continued strengthening of the labor market.

~~The environmental factors increased~~decreased slightly in the ~~first nine months~~third quarter as a result of ~~2017~~favorable trends in the ~~commercial, commercial real estate~~risk factors listed above and ~~construction loan segments due to~~were partially offset by an increase in ~~credit concentration in both loans to one borrower~~the economic and ~~portfolio concentration limits as well as changes in the lending staff.~~environmental factors.

The risk factors for all loan segments, but particularly the commercial loan segment, were increased in the first nine months of 2017 due to unfavorable trends in the levels of non-performing loans and classified assets. The increase is mainly attributable to two loan relationships that were downgraded and placed on non-accrual in the second quarter.

~~First Defiance’s~~Company’s general reserve percentages for main loan segments, not otherwise classified, ranged from ~~0.46%~~0.64% for construction other loans to ~~1.60%~~1.47% for home ~~equity and~~equity/home improvement loans at September 30, ~~2017.~~2022.

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 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. The outstanding balance and related allowance on these loans as of September 30, 2022, is $22.6 million and $1.2 million, respectively.

As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the change in net charge-offs in the quarter, the Company’s provision for ~~loan~~credit losses for the ~~third quarter~~three and nine months ended September 30, 2022 was an expense of ~~2017 was $462,000~~$3.7 million and $9.5 million, respectively. This is compared to ~~$15,000~~an expense of $1.6 million and a recovery of $9.5 million, respectively, for the ~~same period in 2016.~~three and nine months ended September 30, 2021. The ~~allowance for loan losses~~ACL was ~~$26.3~~$70.6 million at September 30, ~~2017~~2022, and ~~$25.9~~$66.5 million at December 31, ~~2016.~~2021. The ~~allowance for loans losses~~ACL represented ~~1.16%~~1.14% of loans, net of undisbursed loan funds and deferred fees and costs at September 30, ~~2017 and 1.33%~~2022, compared to 1.26% at December 31, ~~2016.~~

The provision of $462,000 was offset by charge offs of $236,000 and with the addition of recoveries of $200,000, resulted in an increase to the overall allowance for loan loss of $426,000 for the third quarter of 2017.2021. In management’s opinion, the overall ~~allowance for loan losses~~ACL of ~~$26.3~~$70.6 million as of September 30, ~~2017~~2022, is ~~adequate. The loans acquired from CSB were recorded at fair value with purchase accounting adjustments discounting the loan balance instead of an allowance for loan~~adequate to cover current estimated credit losses.

Management also assesses the value of ~~real estate owned~~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~~nine months ended September 30, ~~2017, there were no~~2022, total write-downs of real estate held for ~~sale.~~sale were $9,000. Management believes that the values recorded at September 30, ~~2017~~2022 for ~~real estate owned~~OREO and repossessed assets represent the realizable value of such assets.

Total classified loans ~~increased~~decreased to ~~$57.6~~$45.0 million at September 30, ~~2017,~~2022, compared to ~~$27.5~~$69.5 million at December 31, ~~2016, an increase~~2021, a decrease of ~~$30.1~~$24.5 million. There were two loan relationships totaling $13.6 million that were downgraded and resulted in an increase in net charge offs in the second quarter of 2017.In addition, there were $16.4 million of newly classified loans from the CSB acquisition due to new financial information received.

~~First Defiance’s ratio of allowance for loan losses to non-performing loans was 90.4% at September 30, 2017 compared with 180.4% at December 31, 2016.~~ Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for ~~those~~such loans at September 30, ~~2017 are~~2022, were appropriate. Of the ~~$29.2~~$33.1 million in non-accrual loans at September 30, ~~2017, $24.8~~2022, $5.5 million, ~~or 85.2%~~or16.7%, are less than 90 days past due.

~~At September 30, 2017, First Defiance had total non-performing assets of $29.7 million, compared to $14.8 million at December 31, 2016.~~ Non-performing assets include loans that are on non-accrual, ~~real estate owned~~OREO and other assets held for sale. Non-performing assets at September 30, ~~2017~~2022, and December 31, ~~2016~~2021, by category, were as follows:

~~Non-performing~~PCD loans account for 14.4% of non-performing loans. Excluding non-performing PCD loans, non-performing loans in the commercial loan category represented ~~1.58%~~0.47% of the total loans in that category at September 30, ~~2017~~2022, compared to ~~0.21%~~1.29% for the same category at December 31, ~~2016.~~2021. Non-performing loans in the non-residential and multi-family residential real estate loan category were ~~1.42%~~0.51% of the total loans in this category at September 30, ~~2017~~2022, compared to ~~0.92%~~0.60% at December 31, ~~2016. This increase is due to the downgrade of two loan relationships that were placed on nonaccrual during the second quarter.~~2021. Non-performing loans in the residential loan category represented ~~1.24%~~0.43% of the total loans in that category at September 30, ~~2017~~2022, compared to ~~1.41%~~0.77% for the same category at December 31, ~~2016.~~2021.

~~First Federal’s Asset Review~~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 ~~Asset Review~~Special Assets Committee makes recommendations regarding proposed charge-offs which are then approved by the ~~Senior Loan Committee or the Loan Loss Reserve~~ Committee.

The following ~~table details~~tables detail net ~~charge-offs~~charge-offs/recoveries and ~~nonaccrual~~non-accrual loans by loan type.

The following table sets forth information concerning the allocation of ~~First Federal’s allowance for loan losses~~the Company’s ACL by loan categories at the dates indicated.

Total non-interest income increased ~~$1.0~~$1.7 million in the third quarter of ~~2017~~2022 to ~~$9.5~~$16.7 million from ~~$8.5~~$18.4 million for the same period in ~~2016 due largely to the inclusion of operations from the CSB and Corporate One acquisitions.~~2021.

Service Fees.Service fees and other charges increased by ~~$388,000 or 14.0%~~$478,000 from $6.1 million for the three months ended September 30, 2021, to $6.5 million for the same period in 2022. This increase is due primarily to higher ATM and interchange related fees in the third quarter of ~~2017~~2022 compared to the same ~~period~~quarter in ~~2016.~~2021.

Mortgage Banking Activity. Mortgage banking income decreased to $4.0 million in the third quarter of ~~allowance for losses, are reflected as loans on First Defiance’s balance sheet.~~2022 from $6.2 million in the third quarter of 2021. Mortgage banking gains decreased to $3.4 million in the third quarter of 2022 from $5.4 million in the third quarter of 2021. This decrease was primarily due to compressed margins and lower saleable mix. Mortgage loan servicing revenue was $1.9 million in the third quarter of both 2022 and 2021. Amortization of mortgage servicing rights decreased to $1.4 million in the third quarter of 2022 from $1.8 million in the third quarter of 2021. The ~~fees charged for this service are established based both on~~valuation adjustment in mortgage servicing assets was $96,000 in the ~~return~~third quarter of ~~processing costs plus a profit, and on~~2022 compared with an adjustment of $783,000 in the third quarter of 2021. These fluctuations have primarily resulted from changes in the level of ~~fees charged by competitors~~interest rates and prepayment speeds.

Gain on Sale of Available-for-Sale Securities.The Company sold available-for-sale securities during the third quarter of 2021 resulting in a gain of $233,000 compared to no activity for the same period in 2022. The Company sold the securities to exit from fast paying MBS and take advantage of favorable pricing.

Gain (loss) on Equity Securities.The Company recognized an unrealized gains on equity securities of $43,000 and $20,000 for the third quarter of 2022 and 2021, respectively. These amounts are attributable to changes in valuations in the ~~Company’s~~equity securities portfolio as a result of market area for similar services. These fees are considered to be compensation for providing a service to the customer and therefore deemed to be noninterest income rather than interest income. Fee income recorded for the quarters ending September 30, 2017 and 2016 related to the overdraft privilege product, net of adjustments to the allowance for uncollectible overdrafts,conditions.

Insurance Commissions. Insurance commissions were $641,000 and $588,000, respectively. Accounts charged off are included in noninterest expense. The allowance for uncollectible overdrafts was $19,000 at September 30, 2017, $14,000 at December 31, 2016 and $16,000 at September 30, 2016.

~~Mortgage Banking Activity.~~ ~~Total revenue from the sale and servicing of mortgage loans decreased $341,000 to $1.7~~$3.5 million for the third quarter of ~~2017 compared to $2.0~~2021 and 2022.

Wealth Management Income. Income from wealth management was $1.4 million for the ~~same period~~third quarter of ~~2016. Mortgage originations totaled $71.8~~2022 compared to $1.3 million in the third quarter of ~~2017, down~~2021.

Bank-Owned Life Insurance ("BOLI"). Income from ~~$101.7 million in the same quarter in 2016. Gains realized~~BOLI increased slightly from ~~the sale of mortgage loans decreased~~$947,000 in the third quarter of ~~2017~~2021 to ~~$1.2~~$983,000 for the same period in 2022.

Other Non-Interest Income. Other non-interest income increased to $320,000 in the third quarter of 2022 from $146,000 in the same period in 2021.

Non-interest expense increased $2.0 million ~~from $1.7~~to $41.1 million for the third quarter of 2022 compared to $39.1 million for the same period in 2021. The increase is mainly attributable to compensation and benefits.

Compensation and Benefits. Compensation and benefits increased to $24.5 million in the third quarter of ~~2016. The mortgage loan servicing revenue increased $26,000~~2022, compared to ~~$911,000~~$23.4 million in the third quarter of ~~2017 compared~~2021. This is primarily due to ~~$885,000 in the same period in 2016. The Company recorded a negative valuation adjustment of $27,000 on mortgage servicing rights~~higher costs related to higher staffing levels for our growth initiatives.

Occupancy. Occupancy expense decreased to $3.5 million in the third quarter of ~~2017~~2022 compared to ~~a positive valuation adjustment of $7,000~~$3.7 million in the third quarter of ~~2016.~~2021. This decrease was due to the closure of three branches in 2021 and one in 2022.

FDIC Insurance Premium. The premiums on FDIC insurance increased to $976,000 for the three months ended September 30, 2022 compared to $695,000 for the third quarter of 2021 primarily resulting from growth in deposits.

~~Insurance Commission Income.~~ ~~Income from~~Financial Institutions Tax.The Company’s financial institutions tax decreased slightly to $1.1 million in the ~~sale~~third quarter of ~~insurance and investment products was~~2022 compared to $1.2 million in the third quarter of 2021.

Data Processing.Data processing costs declined slightly at $3.1 million in the third quarter of ~~2017, an increase~~2022, a decrease of ~~$609,000~~$266,000 from ~~$2.5~~$3.4 million in the third quarter of ~~2016. The increase is due to added commissions~~2021.

~~Other Non-Interest Income.~~~~Other non-interest income was $415,000~~amortization of intangibles decreased to $1.3 million in the third quarter of ~~2017, an increase of $110,000 compared to the same period~~2022 from $1.5 million in ~~2016 mainly due to gains from the sale of real estate owned and an increase in the value of the assets of the deferred compensation plan.~~

~~Non-interest expense increased $2.1 million to $20.4 million for~~ the third quarter of ~~2017 compared to $18.3 million for the same period in 2016.~~2021. The ~~increase in non-interest expenses was mostly due~~decrease is primarily related to the ~~additional expenses from~~amortization of core deposit intangibles over the ~~operations of CSB and Corporate One acquisitions.~~past year.

~~Compensation and Benefits~~. Compensation and benefits increased to $11.8 million for the quarter ended September 30, 2017 from $10.3 million for the same period in 2016. The increase of $1.5 million is mainly attributable to personnel expenses related to operating the new CSB and Corporate One locations.

~~Data Processing.~~Data processing expense increased $252,000 to $1.9 million for the quarter ended September 30, 2017 compared to $1.6 million for the same period in 2016 again mainly due to the CSB merger as well as increased costs related to other strategic initiatives.

Other Non-Interest Expenses. Other non-interest expenses increased ~~$88,000~~$1.4 million to ~~$3.7~~$6.6 million for the ~~quarter~~three months ended September 30, ~~2017 from $3.6~~2022, compared to $5.2 million for the same ~~period~~quarter in 2016. There were no merger and conversion related cost in the third quarter of 2017 compared to $299,000 in the third quarter of 2016. This decrease was offset by increases in expenses associated with loan origination, auditing and marketing.2021.

~~The efficiency ratio, considering tax equivalent interest income and excluding securities gains and losses, for the third quarter of 2017 was 58.70% compared to 63.87% for the third quarter of 2016.~~

First Defiance computes federal income tax expense in accordance with ASC Topic 740, Subtopic 942, which resulted in an effective tax rate of 31.0% for the quarter ended September 30, 2017 compared to 29.8% for the same period in 2016. The tax rate for the third quarter of 2017 is lower than the statutory 35% tax rate for the Company mainly because of investments in tax-exempt securities. The earnings on tax-exempt securities are not subject to federal income tax.

On a consolidated basis, ~~First Defiance’s~~the Company’s net income for the nine months ended September 30, ~~2017~~2022 was ~~$22.9~~$76.9 million compared to income of ~~$21.5~~$100.7 million for the same period in ~~2016.~~2021. On a per share basis, basic and diluted earnings per common share for the nine months ended September 30, ~~2017~~2022 were ~~$2.31 and $2.29, respectively,~~both $2.15, compared to basic and diluted earnings per common share of ~~$2.39 and $2.37, respectively,~~$2.70 for the same period in ~~2016.~~2021.

The first nine months of 2017 includes the results from the operations of the CSB acquisition completed on February 24, 2017 and Corporate One acquired on April 1, 2017. In addition, the first nine months of 2017 includes merger and conversion expenses related to the acquisitions of $4.0 million, which had an after tax impact of $2.8 million, or $0.28 per diluted share.

Net interest income was ~~$71.3~~$180.3 million for the first nine months of ~~2017~~2022 compared ~~with $58.4~~to $170.2 million in the first nine months of ~~2016.~~2021. Average interest-earning assets increased to ~~$2.51~~$7.1 billion in the first nine months of ~~2017~~2022 compared to ~~$2.15~~$6.7 billion in the first nine months of ~~2016.~~2021. This increase was primarily due to organic loan growth and an increase in average securities.

For the nine ~~month period~~months ended September 30, ~~2017,~~2022, total interest income ~~increased by $15.0 million to $79.6~~was $197.0 million compared to ~~$64.6~~$183.1 million for the same period in ~~2016.~~2021. Interest expense increased by ~~$2.1~~$3.8 million to ~~$8.3~~$16.7 million for the nine months ended September 30, ~~2017~~2022, compared to ~~$6.2~~$12.9 million for the same period in ~~2016.~~2021.

Net interest margin for the first nine months of ~~2017~~2022 was ~~3.88%~~3.40%, up 151 basis ~~points~~point from the ~~3.73%~~3.39% margin reported infor the nine ~~month period~~months ended September 30, ~~2016.~~2021. The increase in net interest margin was primarily due to loan growth.

The provision for ~~loan~~credit losses on loans and unfunded commitments was ~~$2.6~~$11.5 million for the nine months ended September 30, ~~2017,~~2022, compared to ~~$432,000 during~~a recovery of $9.1 million for the nine months ended September 30, ~~2016. Year to date 2017 charge-offs~~2021. Charge-offs for the first nine months of 2022 were ~~$3.0~~$7.5 million and recoveries of previously charged off loans totaled ~~$780,000~~$2.1 million for net ~~charge offs~~charge-offs of ~~$2.2~~$5.3 million. By comparison, ~~$887,000~~$1.4 million of charge-offs were recorded in the same period of ~~2016~~2021 and ~~$996,000~~$2.1 million of recoveries were realized for net recoveries of ~~$109,000.~~$689,000. The current year provision expense is primarily due to loan growth, whereas the prior year recovery was primarily due to the improving economic environment following the COVID-19 pandemic-induced economic recession and reserve increase in 2020.

Total non-interest income ~~increased $4.5~~decreased $13.8 million to ~~$30.2~~$47.9 million for the nine months ended September 30, ~~2017~~2022, from ~~$25.7~~$61.7 million recognized for the same period in ~~2016.~~2021.

Service Fees.Service fees and other charges were ~~$9.1~~$19.2 million for the first nine months of ~~2017, up~~2022, an increase of $1.4 million from ~~$8.2 million for~~ the same period in ~~2016. This is primarily due to the CSB merger.~~2021.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans decreased ~~$76,000~~$8.7 million to ~~$5.27~~$10.2 million for the nine months ended September 30, ~~2017~~2022, down from ~~$5.34~~$18.9 million for the same period in ~~2016. Gains realized from the sale of mortgage loans~~2021, which was primarily attributable to compressed margins and lower saleable mix. Mortgage banking gains decreased ~~$526,000~~$6.7 million to ~~$3.6~~$7.1 million for the first nine months of ~~2017~~2022 from ~~$4.1~~$13.7 million for the same period in ~~2016.~~2021. Mortgage loan servicing revenue ~~increased~~decreased slightly to ~~$2.8~~$5.6 million in the first nine months

of 2022 from ~~$2.6~~$5.7 million for the ~~same period in 2016.~~first nine months of 2021. The amortization of mortgage servicing rights decreased from an expense of $6.1 million for the first nine months of 2021 to an expense of $4.1 million for the first nine months of 2022. The Company recorded a positive valuation adjustment of ~~$21,000~~$1.6 million in the first nine months of ~~2017~~2022 compared to a ~~negative~~positive adjustment of ~~$118,000~~$5.7 million in the first nine months of ~~2016.~~2021.

~~Sale of Non Mortgage Loans~~. Gain on the sale of non-mortgages, which includes SBA and FSA loans, totaled $172,000 in the first nine months of 2017, a $432,000 decrease compared to $604,000 in the first nine months of 2016, due to a decrease in the volume of sellable SBA and FSA loans.

Insurance Commission Income. Income from the sale of insurance and investment products was ~~$9.8~~$12.0 million in the first nine months 2022 compared to $12.4 for the same period in 2021.

Wealth Management Income. Income in this category was $4.2 million in the first nine months of ~~2017, an increase of $1.7 million from $8.1~~2022, compared to $4.6 million in the first nine months of ~~2016. The increase is primarily due to added commissions from the Corporate One merger and a $400,000 increase in contingent commission income recognized in 2017 compared to 2016.~~2021.

~~Bank-Owned Life Insurance~~.Income from ~~bank-owned life insurance~~Bank Owned Life Insurance. Income from BOLI was ~~$2.7~~$3.0 million in the first nine months of ~~2017, an increase~~each of 2022 and 2021. In 2021, the Company received $334,000 in claim gains in the first nine months of 2021. No claim gains have been received in 2022.

Other Non-Interest Income. Other non-interest income for the first nine months of 2022 was $1.1 million compared to $2.0 million ~~from $686,000~~ in the ~~same period~~first nine months of ~~2016. In February 2017,~~2021. This change is primarily attributable to a $1.3 million non-recurring settlement payment in the ~~Company surrendered an underperforming BOLI policy and recorded a tax penalty~~second quarter of ~~$1.7 million (recorded in income tax expense) and purchased a new BOLI policy receiving a $1.5 million enhancement value gain.~~2021.

Non-interest expense was ~~$64.2~~$121.5 million for the first nine months of ~~2017,~~2022, up from ~~$52.9~~$115.8 million for the same period in ~~2016.~~2021.

Compensation and Benefits. Compensation and benefits increased to ~~$37.6~~$72.4 million for the nine months ended September 30, ~~2017~~2022, compared to ~~$30.3~~$66.4 million for the same period in ~~2016. The increase is mainly~~2021 primarily due to costs related to ~~merit increases, staff additions~~higher staffing levels to ~~support~~meet the Company's growth ~~strategies~~initiatives.

Occupancy. Occupancy expense decreased by $985,000 to $10.7 million for the nine months ended September 30, 2022, compared to the same period in 2021. This can be primarily attributed to the closure of three branches in 2021 and ~~increased personnel expenses related to operating the new CSB and Corporate One locations.~~one branch in 2022.

Data Processing. Data processing ~~expense increased $1.1~~costs were $9.9 million in the first nine months of 2022, a decline of $204,000 from $10.1 million in same period for 2021.

Amortization of Intangibles. Intangible amortization decreased by $569,000 to ~~$5.8~~$4.2 million ~~year to date 2017~~in the nine months ended September 30, 2022, compared to $4.7 million for the same period in ~~2016 due to the CSB acquisition and other strategic spending initiatives.~~2021.

Other Non-Interest Expenses. Other non-interest expenses increased ~~$2.0~~$1.4 million to ~~$11.7~~$18.7 million for the first nine months of ~~2017~~2022 from ~~$9.7~~$17.3 million for the same period in 2016. The increase in other non-interest expense is primarily due to CSB and Corporate One merger and conversion related costs of $1.1 million as well as increased expenses associated with loan origination, legal fees and general operating expenses which as a result of an expanded customer base.2021.

~~The efficiency ratio for the first nine months of 2017 was 62.66% compared to 62.24% for the same period in 2016.~~

As a regulated financial institution, ~~First Federal~~the Company is required to maintain appropriate levels of ~~"liquid"~~“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.

~~First Defiance had $22.0 million~~The principal source of ~~cash~~funds for the Company are deposits, loan repayments, maturities of securities, borrowings from financial institutions and other funds provided by ~~operating activities during~~operations. The Bank also has the ~~first nine months of 2017. The Company's cash provided by operating activities resulted~~ability to borrow from the ~~origination of loans held for sale~~FHLB. While scheduled loan repayments and ~~net income mostly offset~~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 ~~proceeds~~Company and the Bank are based upon management’s assessment of (i) the need for funds, (ii) expected deposit flows, (iii) yields available on short-term liquid assets, and (iv) objectives of the ~~sale~~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 September 30, ~~2017, First Federal~~2022, the Bank had ~~$226.8 million in outstanding loan commitments~~$1.5 billion of on-hand liquidity, defined as cash and ~~loans in process to be funded generally within the next six months~~cash equivalents, unencumbered securities and an additional $429.2 million committed under existing consumer and commercial lines of credit and standby letters of credit. Also at that date, First Federal had commitments to sell $21.7 million of loans held-for-sale. First Defiance believes that it has adequate resources to fund commitments as they arise and that it can adjust the rate on savings certificates to retain deposits in changing interest rate environments. If First Defiance requires funds beyond its internal funding capabilities, advances from the FHLB ~~of Cincinnati and other financial institutions are available.~~borrowing capacity.

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

Capital is managed at ~~First Federal~~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 ~~our~~the business, as well as flexibility needed for future growth and new business opportunities.

In July 2013, the ~~federal banking agencies~~Federal Reserve and FDIC approved the final rules implementing the Basel Committee on Banking ~~Supervision’s~~Supervision's capital guidelines for U.S. banks (commonly known as Basel III). ~~Under~~The Company is in compliance with the final rules, which began for the Company and the Bank on January 1, 2016 and are 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 common equity Tier 1 capital to risk-weighted assets ratio (“CET1”) of 4.5% and a capital conservation buffer of 0.625% of risk-weighted assets during 2016 and 1.25% during the year 2017, 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.guidelines.

The Company met each of the ~~well capitalized~~well-capitalized ratio guidelines at September 30, ~~2017.~~2022. The following table indicates the capital ratios for ~~First Defiance~~the Company (consolidated) and ~~First Federal~~the Bank at September 30, ~~2017~~2022, and December 31, ~~2016. (In Thousands)~~2021 (in thousands):

(1)

Excludes capital conservation buffer of 2.50%

December 31, 2016
Actual Minimum Required for
Adequately Capitalized Minimum Required for Well
Capitalized
Amount Ratio Amount Ratio(1) Amount Ratio

CET1 Capital (to Risk-Weighted Assets) (2)
Consolidated $ 234,809 10.45 % $ 101,108 4.5 % N/A N/A
First Federal $ 242,928 10.81 % $ 101,116 4.5 % $ 146,057 6.5 %

Tier 1 Capital (1)
Consolidated $ 269,809 11.24 % $ 95,975 4.0 % N/A N/A
First Federal $ 242,928 10.14 % $ 95,791 4.0 % $ 119,739 5.0 %

Tier 1 Capital (to Risk Weighted Assets) (1)
Consolidated $ 269,809 12.01 % $ 134,811 6.0 % N/A N/A
First Federal $ 242,928 10.81 % $ 134,822 6.0 % $ 179,763 8.0 %

Total Capital (to Risk Weighted Assets) (1)
Consolidated $ 295,693 13.16 % $ 179,748 8.0 % N/A N/A
First Federal $ 268,812 11.96 % $ 179,763 8.0 % $ 224,703 10.0 %

~~(1)~~

~~Excludes capital conservation buffer of 0.625% as of December 31, 2016~~

~~(2)~~

Core capital is computed as a percentage of adjusted total assets of $2.40 billion for consolidated and $2.39 billion for the Bank. Risk-based capital is computed as a percentage of total risk-weighted assets of $2.25 billion for consolidated and the Bank.

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December 31, 2021

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)

Consolidated

$
689,930

10.92
%

$
284,394

4.5
%

N/A

N/A

Premier Bank

$
725,600

11.53
%

$
283,265

4.5
%

$
409,160

6.5
%

Tier 1 Capital

Consolidated

$
724,930

10.10
%

$
287,138

4.0
%

N/A

N/A

Premier Bank

$
725,600

10.16
%

$
285,664

4.0
%

$
357,080

5.0
%

Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$
724,930

11.47
%

$
379,192

6.0
%

N/A

N/A

Premier Bank

$
725,600

11.53
%

$
377,686

6.0
%

$
503,582

8.0
%

Total Capital (to Risk Weighted Assets)

Consolidated

$
844,389

13.36
%

$
505,589

8.0
%

N/A

N/A

Premier Bank

$
795,059

12.63
%

$
503,582

8.0
%

$
629,477

10.0
%
(1)
Excludes capital conservation buffer of 2.50%.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in detail in the ~~Annual Report on~~Company’s 2021 Form 10-K, ~~for~~ the ~~year ended December 31, 2016, First Defiance’s~~Company'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~~the Company 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~~The Company monitors its exposure to interest rate risk on a ~~monthly~~quarterly 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 September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, an estimate of the change in net interest income that would result from ~~a gradual (ramp) and~~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 September 30, ~~2017,~~2022, net interest income sensitivity to changes in interest rates for the twelve months subsequent to September 30, ~~2017 was slightly more liability sensitive~~2022, decreased in the rising rate environment and in the falling rate environment for the ~~ramp and~~ shock compared to the sensitivity profile for the twelve months subsequent to December 31, ~~2016.~~2021.

Net Interest Income Sensitivity Profile
Impact on Future Annual Net Interest Income
(dollars in thousands) September 30, 2017 December 31, 2016
Gradual Change in Interest Rates
+200 $ 917 0.93 % $ 1,970 2.32 %
+100 472 0.48 % 972 1.14 %
-100 (3,023 ) -3.07 % (2,201 ) -2.59 %

Immediate Change in Interest Rates
+200 $ 2,179 2.15 % $ 4,236 4.99 %
+100 1,132 1.12 % 2,131 2.51 %
-100 (6,125 ) -6.04 % (4,132 ) -4.87 %

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	Impact on Future Annual Net Interest Income
	September 30, 2022		December 31, 2021
Immediate Change in Interest Rates
+ 400		7.45%	19.16%
+ 300		5.62%	14.52%
+ 200		3.89%	9.66%
+ 100		1.97%	4.82%
- 100		(0.45)%	(3.21)%
- 200		(2.85)%	—
- 300		(6.42)%	—

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~~increase from the base case scenario should the yield curve flatten, become inverted or ~~become inverted. Conversely, if the yield curve should steepen, net interest income may increase.~~steepen.

The results of all the simulation scenarios are within the board mandated guidelines as of September 30, 2017 except for the down 100 basis points over the first twelve months in a static and dynamic-shock balance sheet as well as in the down 100 basis points for a cumulative twenty-four months in a static and dynamic ramp balance sheet. Management is reviewing the board policy limits in all scenarios to determine if they are adequate and if so, any measures to be taken to bring the current results back into alignment with board guidelines.

In addition to the simulation analysis, ~~First Defiance~~Premier 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~~Premier’s assets and liabilities in rate shock environments that range from ~~-400~~-300 basis points to +400 basis points. However, the likelihood of a decrease in rates beyond 100 basis points as of September 30, 2017 was considered to be unlikely given the current interest rate environment and, therefore, was not included in this analysis. The results of this analysis are reflected in the following tables for the ~~nine months~~quarter ended September 30, ~~2017~~2022, and the ~~year-ended~~year ended December 31, ~~2016.~~2021.


	September 30, 2022	December 31, 2021
Change in Rates	Economic Value of Equity % Change	Economic Value of Equity % Change

+400 bp	0.31%	7.01%
+ 300 bp	0.43%	6.61%
+ 200 bp	0.77%	5.39%
+ 100 bp	0.44%	3.10%
0 bp	—		—
- 100 bp	(1.15)%	(6.83)%
- 200 bp	(3.51)%	—
- 300 bp	(1.39)%	—

September 30, 2017
Economic Value of Equity
Change in Rates $ Amount $ Change % Change
(Dollars in Thousands)
+400 bp 670,902 98,100 17.13 %
+ 300 bp 652,116 79,314 13.85 %
+ 200 bp 630,161 57,360 10.01 %
+ 100 bp 603,939 31,137 5.44 %
0 bp 572,801 - -
- 100 bp 531,789 (41,013 ) (7.16 )%

December 31, 2016
Economic Value of Equity
Change in Rates $ Amount $ Change % Change
(Dollars in Thousands)
+400 bp 569,397 85,791 17.74 %
+ 300 bp 553,285 69,679 14.41 %
+ 200 bp 534,478 50,873 10.52 %
+ 100 bp 512,132 28,526 5.90 %
0 bp 483,606 - -
- 100 bp 429,266 (34,339 ) (7.10 )%

Item 4. Controls and Procedures

~~Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in~~An evaluation of 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 (the “SEC”), 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~~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)~~Act) as of September 30, ~~2017.~~2022. 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 September 30, ~~2017~~2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~FIRST DEFIANCE~~ ~~FINANCIAL CORP.~~

PART II-OTHER INFORMATION

Item 1.Legal Proceedings

~~Neither First Defiance nor any~~Premier and its subsidiaries are involved in various legal proceedings that arise in the ordinary course of its ~~subsidiaries is engaged in~~business. While the ultimate liability with respect to litigation matters and claims cannot be determined at this

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time, management believes any ~~legal proceedings~~resulting liability and other amounts relating to pending matters are not likely to be material to the Company’s consolidated financial position or results of ~~a material nature.~~operations.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item ~~1A.~~1A, “Risk Factors” in the ~~Company’s Annual Report on~~2021 Form ~~10-K for the year ended December 31, 2016.~~10-K.

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

~~The Company had no unregistered sales of equity securities during the quarter ended September 30, 2017.~~

The following table provides information regarding ~~First Defiance’s~~Premier’s purchases of its common stock during the three-month period ended September 30, ~~2017:~~2022:

~~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, June 30, 2017~~

~~377,500~~

~~July 1 – July 31, 2017~~

~~377,500~~

~~August 1 – August 31, 2017~~

~~377,500~~

~~September 1 – September 30, 2017~~

~~377,500~~

~~Total~~

~~377,500~~


Period	Total Number of Shares Purchased(2)		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, June 30, 2022								1,200,130
July 1 - July 31, 2022		333	$	26.79		—		1,200,130
August 1 - August 31, 2022		3,816		28.89		—		1,200,130
September 1 - September 30, 2022		166		26.62		—		1,200,130
Total		4,315	$	28.64		—		1,200,130

(1)

On January 26, 2021, the Company announced that its Board of Directors authorized a program for the repurchase of up to 2,000,000 shares of outstanding common stock. On January 25, 2022, the Company announced that its Board of Directors approved an increase in the Company’s repurchasing authorization to up to 2,000,000 shares of outstanding common stock. There is no expiration date for the repurchase program.

(2)

Of this amount, no shares were obtained in fulfillment of tax obligations from vesting of restricted stock compensation and 4,315 shares were obtained as a result of the forfeiture of stock compensation and were not part of the publicly announced repurchase program.

Premier discovered that it issued approximately 77,847 more shares of the Company’s common stock in connection with its employee share purchase plan (“ESPP”) than were registered on July 2, 2014 on the previously filed Registration Statement on Form S-8 (File No. 333-197203), as amended on July 17, 2018, relating to the ESPP. Because the Company sponsors the ESPP, it is required to register shares issued through the ESPP even though all ESPP shares are purchased by Broadridge Corporate Issuer Solutions, Inc., the plan administrator, in the open market. The Company expects to file a new registration statement on Form S-8 to register future shares issued through the ESPP on or about November 7, 2022.

The Company has always treated the shares issued through the ESPP as outstanding for financial reporting purposes. The Company believes that it has always provided the employee-participants in the ESPP with the same information they would have received had the additional shares been registered. Original purchasers of the unregistered ESPP shares may have rescission rights with respect to such shares under applicable federal securities laws for up to one year following the date of acquisition of the shares. These rescission rights represent a potential liability to the Company. In addition, the Company may be subject to civil and other penalties by regulatory authorities as a result of the failure to register these transactions.

Table of Contents

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

~~(1)~~

On January 29, 2016, the Company announced that its Board of Directors authorized another program for the repurchase of up to 5% of the outstanding common shares or 450,000 shares. There is no expiration date for the repurchase program.

~~Item 3.~~~~Defaults upon Senior Securities~~

~~Not applicable.~~

~~Item 4.~~~~Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5.~~~~Other Information~~

~~Not applicable.~~

~~Item 6.~~~~Exhibits~~

~~Exhibit 2.1~~		~~Agreement and Plan of Merger, dated August 23, 2016, by and between First Defiance and Commercial Bancshares, Inc. (1)~~
~~Exhibit 2.2~~		~~Amendment to Agreement and Plan of Merger, dated October 31, 2016, by and between First Defiance and Commercial Bancshares, Inc. (2)~~
Exhibit 3.1		Second Amended and Restated Articles of Incorporation of ~~First Defiance, as amended (3)~~Premier Financial Corp. (incorporated herein by reference to Exhibit 3.2 in Registrant’s Form 8-K filed June 22, 2020 (File No. 000-26850))
Exhibit 3.2		Second Amended and Restated Code of Regulations of ~~First Defiance (3)~~Premier Financial Corp. (reflecting all amendments) (incorporated herein by reference to Exhibit 3.3 in Registrant’s Form 8-K filed June 22, 2020 (File No. 000-26850))
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 September 30, ~~2017~~2022 is formatted in ~~eXtensible Business Reporting Language (“XBRL”):~~Inline XBRL: (i) Unaudited Consolidated Condensed Statements of Financial Condition at September 30, ~~2017~~2022 and December 31, ~~2016,~~2021; (ii) Unaudited Consolidated Condensed Statements of Income for the ~~Three~~three and ~~Nine Months~~nine months ended September 30, ~~2017~~2022 and ~~2016~~2021; (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the ~~Three~~three and ~~Nine Months~~nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021; (iv) Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the ~~Nine Months~~three and nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021; (v) Unaudited Consolidated Condensed Statements of Cash Flows for the ~~Nine Months~~nine months ended September 30, ~~2017~~2022 and ~~2016~~2021; and (vi) Notes to Unaudited Consolidated Condensed Financial Statements.

Exhibit 104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~(1)~~

~~Incorporated herein by reference to the like numbered exhibit in Form 8-K filed August 24, 2016 (Film No. 161848221).~~

~~(2)~~

~~Incorporated herein by reference to the like numbered exhibit in Form 10-K for the year ended December 31, 2016 (Film No. 17645447).~~

~~(3)~~

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

~~FIRST DEFIANCE FINANCIAL CORP.~~

Table of Contents

~~SIGNATURES~~

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~~
	Premier Financial Corp.
	(Registrant)


Date: November 7, 2022		By:	/s/ Gary M. Small
~~Date:~~ ~~November 8, 2017~~	~~By:~~	~~/s/ Donald P. Hileman~~	Gary M. Small
		~~Donald P. Hileman~~
		President and
		Chief Executive Officer (Principal Executive Officer)


Date: November ~~8, 2017~~7, 2022	~~By:~~	By:	/s/ ~~Kevin T. Thompson~~Paul D. Nungester, Jr.
		~~Kevin T. Thompson~~	Paul D. Nungester, Jr.
			Executive Vice President and
			Chief Financial Officer (Principal Financial and Accounting Officer)

~~Ohio~~		~~34-1803915~~
Ohio	34-1803915
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification ~~Number)~~No.)

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

	September 30, 2017		December 31, 2016
					September 30, 2022			December 31, 2021
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	55,731	$	53,003	$	67,124		$	54,858
Federal funds sold		69,000		46,000
Interest-bearing deposits						37,868			106,708
		124,731		99,003		104,992			161,566
Securities:
Available-for-sale, carried at fair value		260,034		250,992
Held-to-maturity, carried at amortized cost (fair value $728 and $187 at September 30, 2017 and December 31, 2016, respectively)		728		184
		260,762		251,176
Loans held for sale		12,200		9,607
Loans receivable, net of allowance of $26,341 at September 30, 2017 and $25,884 at December 31, 2016, respectively		2,249,701		1,914,603
Securities available-for-sale, carried at fair value						1,063,713			1,206,260
Equity securities, carried at fair value						15,336			14,097
Loans held for sale, carried at fair value						129,142			162,947
Loans receivable, net of allowance for credit losses of $70,626 at September 30, 2022 and $66,468 at December 31, 2021, respectively						6,137,082			5,229,700
Mortgage servicing rights		9,693		9,595		20,832			19,538
Accrued interest receivable		9,864		6,760		26,021			20,767
Federal Home Loan Bank stock		15,992		13,798		28,262			11,585
Bank owned life insurance		65,811		52,817		169,728			166,767
Premises and equipment		41,536		36,958		53,747			55,602
Real estate and other assets held for sale		532		455		416			171
Goodwill		98,370		61,798		317,948			317,948
Core deposit and other intangibles		6,061		1,336		19,972			24,129
Deferred taxes		1,042		2,212
Other assets		38,735		17,479		148,949			90,325
Total assets	$	2,935,030	$	2,477,597	$	8,236,140		$	7,481,402
Liabilities and stockholders’ equity
Liabilities:
Deposits					$	6,732,505		$	6,282,051
Advances from the Federal Home Loan Bank						411,000			—
Subordinated debentures						85,071			84,976
Advance payments by borrowers						33,511			24,716
Reserve for credit losses - unfunded commitments						7,061			5,031
Other liabilities						102,032			61,132
Total liabilities						7,371,180			6,457,906
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; 43,297,260 and 43,297,260 shares issued and 35,562,684 and 36,383,613 shares outstanding at September 30, 2022 and December 31, 2021, respectively						306			306
Additional paid-in capital						691,578			691,132
Accumulated other comprehensive income, net of tax of $(48,175) and $(912), respectively						(181,231	)		(3,428	)
Retained earnings						488,305			443,517
Treasury stock, at cost, 7,734,576 shares at September 30, 2022 and 6,913,647 shares at December 31, 2021						(133,998	)		(108,031	)
Total stockholders’ equity						864,960			1,023,496
Total liabilities and stockholders’ equity					$	8,236,140		$	7,481,402


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022			2021
Interest Income
Loans	$	65,559	$	55,443	$	177,366		$	168,781
Investment securities:
Taxable		5,965		4,334		15,901			11,054
Non-taxable		849		991		2,588			2,945
Interest-bearing deposits		221		33		387			142
FHLB stock dividends		510		60		743			175
Total interest income		73,104		60,861		196,985			183,097
Interest Expense
Deposits		6,855		3,144		11,749			10,867
FHLB advances and other		2,069		11		2,609			23
Subordinated debentures		868		671		2,326			2,040
Notes payable		—		—		1			—
Total interest expense		9,792		3,826		16,685			12,930
Net interest income		63,312		57,035		180,300			170,167
Credit loss expense (benefit) - loans and leases		3,706		1,594		9,483			(9,549	)
Credit loss expense - unfunded commitments		306		226		2,030			488
Net interest income after credit (benefit) loss expense		59,300		55,215		168,787			179,228
Non-interest Income
Service fees and other charges		6,545		6,067		19,221			17,817
Insurance commissions		3,488		3,461		12,043			12,401
Mortgage banking income		3,970		6,175		10,170			18,865
Gain on sale of securities available for sale		—		233		—			2,218
Gain (loss) on equity securities		43		20		(1,760	)		822
Wealth management income		1,355		1,321		4,246			4,644
Income from Bank Owned Life Insurance		983		947		2,961			2,975
Other non-interest income		320		146		1,051			2,005
Total non-interest income		16,704		18,370		47,932			61,747
Non-interest Expense
Compensation and benefits		24,522		23,355		72,397			66,399
Occupancy		3,463		3,693		10,657			11,642
FDIC insurance premium		976		695		2,370			2,115
Financial institutions tax		1,050		1,187		3,315			3,553
Data processing		3,121		3,387		9,899			10,103
Amortization of intangibles		1,338		1,528		4,156			4,725
Other non-interest expense		6,629		5,256		18,689			17,300
Total non-interest expense		41,099		39,101		121,483			115,837
Income before income taxes		34,905		34,484		95,236			125,138
Income tax expense		6,710		6,124		18,324			24,397
Net income	$	28,195	$	28,360	$	76,912		$	100,741
Earnings per common share
Basic	$	0.79	$	0.76	$	2.15		$	2.70
Diluted	$	0.79	$	0.76	$	2.15		$	2.70

	September 30, 2017			December 31, 2016

Liabilities and stockholders’ equity
Liabilities:
Deposits	$	2,360,675		$	1,981,628
Advances from the Federal Home Loan Bank		104,555			103,943
Subordinated debentures		36,083			36,083
Securities sold under repurchase agreements		22,939			31,816
Notes Payable		6,500			-
Advance payments by borrowers		2,265			2,650
Other liabilities		34,089			28,459
Total liabilities		2,567,106			2,184,579

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:
25,000,000 shares authorized; 12,712,840 and 12,720,347 shares issued and 10,149,184 and 8,983,206 shares outstanding, respectively		127			127
Additional paid-in capital		160,653			126,390
Accumulated other comprehensive income, net of tax of $1,151 and $117, respectively		2,138			215
Retained earnings		256,041			240,592
Treasury stock, at cost, 2,563,656 and 3,737,141 shares respectively		(51,035	)		(74,306	)
Total stockholders’ equity		367,924			293,018

Total liabilities and stockholders’ equity	$	2,935,030		$	2,477,597

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Interest Income
Loans	$	25,975	$	20,264	$	73,263	$	59,242
Investment securities:
Taxable		896		767		2,817		2,391
Non-taxable		792		731		2,378		2,280
Interest-bearing deposits		209		104		555		287
FHLB stock dividends		209		137		562		413
Total interest income		28,081		22,003		79,575		64,613
Interest Expense
Deposits		2,391		1,635		6,357		4,613
FHLB advances and other		431		322		1,211		940
Subordinated debentures		239		191		682		548
Notes payable		13		35		41		108
Total interest expense		3,074		2,183		8,291		6,209
Net interest income		25,007		19,820		71,284		58,404
Provision for loan losses		462		15		2,635		432
Net interest income after provision for loan losses		24,545		19,805		68,649		57,972
Non-interest Income
Service fees and other charges		3,153		2,765		9,073		8,208
Insurance commissions		3,082		2,473		9,834		8,113
Mortgage banking income		1,698		2,039		5,266		5,342
Gain on sale of non-mortgage loans		82		148		172		604
Gain on sale or call of securities		158		151		425		509
Trust income		486		420		1,400		1,256
Income from Bank Owned Life Insurance		421		225		2,666		686
Other non-interest income		415		305		1,348		1,019
Total non-interest income		9,495		8,526		30,184		25,737
Non-interest Expense
Compensation and benefits		11,780		10,295		37,588		30,250
Occupancy		1,960		1,822		5,751		5,435
FDIC insurance premium		330		352		973		1,008
Financial institutions tax		404		446		1,418		1,339
Data processing		1,874		1,622		5,832		4,723
Amortization of intangibles		364		115		931		419
Other non-interest expense		3,728		3,640		11,718		9,739
Total non-interest expense		20,440		18,292		64,211		52,913
Income before income taxes		13,600		10,039		34,622		30,796
Federal income taxes		4,219		2,994		11,753		9,318
Net Income	$	9,381	$	7,045	$	22,869	$	21,478

Earnings per common share (Note 6)
Basic	$	0.92	$	0.78	$	2.31	$	2.39
Diluted	$	0.92	$	0.78	$	2.29	$	2.37
Dividends declared per share (Note 5)	$	0.25	$	0.22	$	0.75	$	0.66
Average common shares outstanding (Note 6)
Basic		10,149		8,976		9,913		8,980
Diluted		10,209		9,050		9,970		9,050

	x
☒	~~Quarterly Report Pursuant to Section~~ QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of 1934.~~OF THE SECURITIES EXCHANGE ACT OF 1934

	¨
☐	~~Transition Report Pursuant to Section~~ TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of 1934.~~OF THE SECURITIES EXCHANGE ACT OF 1934

		~~Page Number~~
~~PART I.-FINANCIAL INFORMATION~~			Page Number

PART I - FINANCIAL INFORMATION

Item 1.		Consolidated Condensed Financial Statements (Unaudited):	2

		Consolidated Condensed Statements of Financial Condition – September 30, ~~2017~~2022 and December 31, ~~2016~~2021	2

		Consolidated Condensed Statements of Income ~~- Three~~– three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021	4 3

		Consolidated Condensed Statements of Comprehensive Income (Loss) – ~~Three~~three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021	5 4

		Consolidated Condensed Statements of Changes in Stockholders’ Equity – ~~Nine~~three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021	6 5

		Consolidated Condensed Statements of Cash Flows ~~- Nine~~– nine months ended September 30, ~~2017~~2022 and ~~2016~~2021	7

		Notes to Consolidated Condensed Financial Statements	8

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	57 42

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	80 57

Item 4.		Controls and Procedures	82 58

PART ~~II-OTHER~~II - OTHER INFORMATION:

Item 1.		Legal Proceedings	83 58

Item 1A.		Risk Factors	83 59

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	83 59

Item 3.		Defaults upon Senior Securities	83 60

Item 4.		Mine Safety Disclosures	83 60

Item 5.		Other Information	84 60

Item 6.	~~Exhibits~~	84Exhibits	60

~~Signatures~~		85Signatures	61

											Accumulated
			Common					Additional			Other								Total
	Preferred		Stock			Common		Paid-In			Comprehensive		Retained			Treasury			Stockholders’
	Stock		Shares			Stock		Capital			Income		Earnings			Stock			Equity

Balance at January 1, 2017	$	-		8,983,206		$	127	$	126,390		$	215	$	240,592		$	(74,306	)	$	293,018
Net income														22,869						22,869
Other comprehensive income												1,923								1,923
Stock based compensation expenses									133											133
Shares issued under stock option plan, net of 7,507 repurchased and retired				4,043					51					(83	)		230			198
Capital stock issuance				1,139,502					33,792								22,740			56,532
Restricted share activity under stock incentive plans				21,377					254					(17	)		280			517
Shares issued from direct stock sales				1,056					33								21			54
Common stock dividends declared														(7,320	)					(7,320	)
Balance at September 30, 2017	$	-		10,149,184		$	127	$	160,653		$	2,138	$	256,041		$	(51,035	)	$	367,924

Balance at January 1, 2016	$	-		9,102,831		$	127	$	125,734		$	3,622	$	219,737		$	(69,023	)	$	280,197
Net income														21,478						21,478
Other comprehensive income												1,345								1,345
Stock based compensation expenses									226											226
Shares issued under stock option plan, net of 1,612 repurchased and retired				33,808					(18	)				(26	)		711			667
Restricted share activity under stock incentive plans				10,405					236					(72	)		225			389
Shares issued from direct stock sales				1,068					22								21			43
Shares repurchased				(167,746	)												(6,293	)		(6,293	)
Common stock dividends declared														(5,914	)					(5,914	)
Balance at September 30, 2016	$	-		8,980,366		$	127	$	126,200		$	4,967	$	235,203		$	(74,359	)	$	292,138

September 30, 2017	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Available for sale securities:

Obligations of U.S. government corporations and agencies	$	-	$	1,987	$	-	$	1,987
Mortgage-backed - residential		-		74,470		-		74,470
REMICs		-		1,130		-		1,130
Collateralized mortgage obligations- residential		-		72,975		-		72,975
Preferred stock		1		-		-		1
Corporate bonds		-		13,100		-		13,100
Obligations of state and political subdivisions		-		96,371		-		96,371
Mortgage banking derivative - asset		-		821		-		821

December 31, 2016	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Available for sale securities:
Obligations of U.S. Government corporations and agencies	$	-	$	3,915	$	-	$	3,915
Mortgage-backed - residential		-		81,707		-		81,707
REMICs		-		1,307		-		1,307
Collateralized mortgage obligations-residential		-		63,005		-		63,005
Preferred stock		2		-		-		2
Corporate bonds		-		13,013		-		13,013
Obligations of state and political subdivisions		-		88,043				88,043
Mortgage banking derivative - asset		-		491		-		491

September 30, 2017	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Commercial Real Estate	$	-	$	-	$	1,829	$	1,829
Commercial		-		-		2,830		2,830
Total Impaired loans		-		-		4,659		4,659
Mortgage servicing rights		-		6,944		-		6,944
Real estate held for sale
Commercial Real Estate		-		-		227		227
Total Real Estate held for sale		-		-		227		227

December 31, 2016	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
1-4 Family Residential Real Estate	$	-	$	-	$	316	$	316
Commercial Real Estate		-		-		848		848
Commercial						332		332
Total impaired loans		-		-		1,496		1,496
Mortgage servicing rights		-		657		-		657
Commercial Real Estate		-		-		377		377
Total Real Estate held for sale		-		-		377		377


	Performance Stock Units					Restricted Stock Units					Restricted Stock Awards
Unvested Shares	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1, 2022		161,674		$	28.36		51,773		$	28.44		58,260		$	29.71
Granted		86,190			30.67		—			—		52,713			29.24
Vested		—			—		(13,637	)		29.00		(35,159	)		27.97
Forfeited		(3,030	)		31.12		(6,340	)		27.25		(5,101	)		30.50
Unvested at September 30, 2022		244,834		$	29.14		31,796		$	28.44		70,713		$	30.17

	~~Nine Months ended~~
	~~September 30, 2017~~		~~September 30,2016~~
~~Expected average risk-free rate~~		-		~~2.24~~	%
~~Expected average life~~		-		~~10.00 years~~
~~Expected volatility~~		-		~~41.00~~	%
~~Expected dividend yield~~		-		~~2.33~~	%

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2017		54,750		$	22.21
Forfeited or cancelled		-			-
Exercised		(11,550	)		24.41
Granted		-			-
Options outstanding, September 30, 2017		43,200		$	21.62		3.40	$	1,334
Vested or expected to vest at September 30, 2017		43,200		$	21.62		3.40	$	1,334
Exercisable at September 30, 2017		31,100		$	17.31		1.87	$	1,094

	Restricted Stock Units					Stock Grants
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
Unvested Shares	Shares			Fair Value		Shares			Fair Value

Unvested at January 1, 2017		75,468		$	32.31		11,161		$	32.30
Granted		23,384			50.56		21,377			28.39
Vested		(19,341	)		25.77		(26,980	)		26.70
Forfeited		(6,973	)		25.77		(1,022	)		37.02
Unvested at September 30, 2017		72,660		$	40.54		4,536		$	46.09

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
At September 30, 2017
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	2,000		$	-	$	(13	)	$	1,987
Mortgage-backed securities – residential		74,344			565		(439	)		74,470
REMICs		1,124	��		6		-			1,130
Collateralized mortgage obligations		72,758			550		(333	)		72,975
Preferred stock		-			1		-			1
Corporate bonds		12,915			185		-			13,100
Obligations of state and political subdivisions		93,160			3,302		(91	)		96,371
Total Available-for-Sale	$	256,301		$	4,609	$	(876	)	$	260,034

	Amortized Cost			Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	(In Thousands)
Held-to-Maturity Securities*:
FHLMC certificates	$	10		$	-	$	-		$	10
FNMA certificates		46			-		-			46
GNMA certificates		18			-		-			18
Obligations of state and political subdivisions		654			-		-			654
Total Held-to Maturity	$	728		$	-	$	-		$	728

				Gross		Gross
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
	(In Thousands)
At December 31, 2016
Available-for-sale
Obligations of U.S. government corporations and agencies	$	4,000		$	-	$	(85	)	$	3,915
Mortgage-backed securities - residential		82,619			390		(1,302	)		81,707
REMICs		1,309			-		(2	)		1,307
Collateralized mortgage obligations		63,204			422		(621	)		63,005
Preferred stock		-			2		-			2
Corporate bonds		12,919			97		(3	)		13,013
Obligations of state and political subdivisions		86,165			2,491		(613	)		88,043
Total Available-for-Sale	$	250,216		$	3,402	$	(2,626	)	$	250,992

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	1,210	$	1,212	$	-	$	-
Due after one year through five years		21,301		21,800		62		62
Due after five years through ten years		43,275		44,919		592		592
Due after ten years		42,289		43,528		-		-
MBS/CMO/REMIC		148,226		148,575		74		74
	$	256,301	$	260,034	$	728	$	728

Quarter Ended September 30, 2017	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,641		$	2,193		$	10,136		$	540		$	7,973		$	2,199		$	233		$	25,915

Charge-Offs		(60	)		0			0			0			(64	)		(92	)		(20	)		(236	)

Recoveries		11			0			103			0			18			59			9			200

Provisions		(54	)		110			232			38			98			19			19			462
Ending Allowance	$	2,538		$	2,303		$	10,471		$	578		$	8,025		$	2,185		$	241		$	26,341

Quarter Ended September 30, 2016	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,839		$	2,365		$	10,904		$	633		$	6,740		$	2,278		$	189		$	25,948

Charge-Offs		(111	)		0			(79	)		0			(26	)		(74	)		(24	)		(314	)

Recoveries		3			0			62			0			159			40			10			274

Provisions		(299	)		(185	)		(280	)		(221	)		1,006			(47	)		41			15
Ending Allowance	$	2,432		$	2,180		$	10,607		$	412		$	7,879		$	2,197		$	216		$	25,923

Year-to-date Period Ended September 30, 2017	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate		Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	2,627		$	2,228	$	10,625		$	450		$	7,361		$	2,386		$	207		$	25,884

Charge-Offs		(109	)		0		(400	)		0			(2,091	)		(246	)		(112	)		(2,958	)

Recoveries		100			32		220			0			227			118			83			780

Provisions		(80	)		43		26			128			2,528			(73	)		63			2,635
Ending Allowance	$	2,538		$	2,303	$	10,471		$	578		$	8,025		$	2,185		$	241		$	26,341

Year-to-date Period Ended September 30, 2016	1-4 Family Residential Real Estate			Multi- Family Residential Real Estate		Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	3,212		$	2,151	$	11,772		$	517		$	5,255		$	2,304		$	171		$	25,382

Charge-Offs		(203	)		0		(92	)		0			(381	)		(170	)		(41	)		(887	)

Recoveries		123			0		468			0			234			113			58			996

Provisions		(700	)		29		(1,541	)		(105	)		2,771			(50	)		28			432
Ending Allowance	$	2,432		$	2,180	$	10,607		$	412		$	7,879		$	2,197		$	216		$	25,923

	1-4 Family		Multi Family
	Residential		Residential		Commercial						Home Equity		Consumer
	Real Estate		Real Estate		Real Estate		Construction		Commercial		& Improvement		Finance		Total
Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment	$	165	$	3	$	109	$	-	$	56	$	281	$		$	614

Collectively evaluated for impairment		2,373		2,300		10,362		578		7,969		1,904		241		25,727

Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-

Total ending allowance balance	$	2,538	$	2,303	$	10,471	$	578	$	8,025	$	2,185	$	241	$	26,341

Loans:

Loans individually evaluated for impairment	$	6,975	$	2,069	$	30,387	$	-	$	14,019	$	1,199	$	51	$	54,700

Loans collectively evaluated for impairment		263,456		210,030		964,767		129,333		497,712		131,562		28,967		2,225,827

Loans acquired with deteriorated credit quality		1,092		303		2,137		-		333		-		-		3,865

Total ending loans balance	$	271,523	$	212,402	$	997,291	$	129,333	$	512,064	$	132,761	$	29,018	$	2,284,392

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized			Cash Basis Income Recognized
Residential Owner Occupied	$	4,188	$	37	$	37	$	3,699	$	99		$	99
Residential Non Owner Occupied		2,706		33		33		3,136		104			104
Total Residential Real Estate		6,894		70		70		6,835		203			203
Construction		-		-		-		-		-			-
Multi-Family		2,084		9		9		2,534		28			28
CRE Owner Occupied		12,127		24		22		9,613		70			70
CRE Non Owner Occupied		3,484		32		31		3,845		105			98
Agriculture Land		13,547		148		44		8,719		335			126
Other CRE		1,590		27		22		1,637		50			42
Total Commercial Real Estate		30,748		231		119		23,814		560	��		336
Commercial Working Capital		7,033		38		38		5,115		86			90
Commercial Other		5,926		31		27		5,126		82			60
Total Commercial		12,959		69		65		10,241		168			150
Home Equity and Improvement		1,206		11		10		1,228		32			31
Consumer Finance		54		1		1		62		3			4
Total Impaired Loans	$	53,945	$	391	$	274	$	44,714	$	994		$	752

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,876	$	34	$	33	$	3,892	$	109	$	106
Residential Non Owner Occupied		2,935		29		29		3,234		95		94
Total Residential Real Estate		6,811		63		62		7,126		204		200
Construction		-		-		-		-		-		-
Multi-Family		3,607		14		14		4,087		68		68
CRE Owner Occupied		7,171		30		30		7,810		134		115
CRE Non Owner Occupied		6,341		73		73		5,220		178		175
Agriculture Land		1,851		16		2		2,427		66		16
Other CRE		1,570		13		13		1,556		31		31
Total Commercial Real Estate		16,933		132		118		17,013		409		337
Commercial Working Capital		2,259		26		11		1,769		56		33
Commercial Other		2,198		8		7		2,742		36		34
Total Commercial		4,457		34		18		4,511		92		67
Home Equity and Improvement		1,446		12		12		1,631		40		40
Consumer Finance		65		1		1		69		3		3
Total Impaired Loans	$	33,319	$	256	$	225	$	34,437	$	816	$	715

	September 30, 2017						December 31, 2016
	Unpaid Principal Balance*		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance*		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	2,400	$	2,416	$	-	$	1,912	$	1,765	$	-
Residential Non Owner Occupied		1,755		1,748		-		1,691		1,683		-
Total 1-4 Family Residential Real Estate		4,155		4,164		-		3,603		3,448		-
Multi-Family Residential Real Estate		2,012		2,020		-		3,578		3,430		-
CRE Owner Occupied		10,461		9,993		-		2,652		2,353		-
CRE Non Owner Occupied		3,397		3,171		-		4,372		4,240		-
Agriculture Land		13,068		13,315		-		1,695		1,722		-
Other CRE		1,011		804		-		1,225		1,115		-
Total Commercial Real Estate		27,937		27,283		-		9,944		9,430		-
Construction		-		-		-		-		-		-
Commercial Working Capital		8,066		7,998		-		838		786		-
Commercial Other		7,594		5,522		-		1,179		967		-
Total Commercial		15,660		13,520		-		2,017		1,753		-
Home Equity and Home Improvement		332		609		-		631		585		-
Consumer Finance		43		43		-		55		55	$	-
Total loans with no allowance recorded	$	50,139	$	47,639	$	-	$	19,828	$	8,701

With an allowance recorded:
Residential Owner Occupied	$	1,887	$	1,866	$	140	$	2,348	$	2,319	$	157
Residential Non Owner Occupied		955		945		25		1,137		1,131		45
Total 1-4 Family Residential Real Estate		2,842		2,811		165		3,485		3,450		202
Multi-Family Residential Real Estate		49		49		3		53		53		4
CRE Owner Occupied		2,432		1,973		51		2,362		1,894		102
CRE Non Owner Occupied		292		294		15		1,618		1,479		108
Agriculture Land		108		110		2		45		45		3
Other CRE		927		727		41		1,144		722		42
Total Commercial Real Estate		3,759		3,104		109		5,169		4,140		255
Construction		-		-		-		-		-		-
Commercial Working Capital		163		163		21		230		231		24
Commercial Other		333		336		35		167		170		11
Total Commercial		496		499		56		397		401		35
Home Equity and Home Improvement		593		590		281		688		684		313
Consumer Finance		8		8		-		4		4		-
Total loans with an allowance recorded	$	7,747	$	7,061	$	614	$	9,796	$	8,732	$	809

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

Residential Owner Occupied	$	171,835	$	1,105	$	21	$	1,281	$	2,407	$	2,797
Residential Non Owner Occupied		96,055		638		93		495		1,226		572

Total 1-4 Family Residential Real Estate		267,890		1,743		114		1,776		3,633		3,369

Multi-Family Residential Real Estate		212,402		-		-		-		-		-

CRE Owner Occupied		395,228		62		143		1,107		1,312		10,745
CRE Non Owner Occupied		402,153		350		-		544		894		2,516
Agriculture Land		135,673		103		-		294		397		3,288
Other Commercial Real Estate		61,427		207		-		-		207		545

Total Commercial Real Estate		994,481		722		143		1,945		2,810		17,094

Construction		129,333		-		-		-		-		-

Commercial Working Capital		227,422		1,522		539		75		2,136		4,067
Commercial Other		281,773		-		379		354		733		4,004

Total Commercial		509,195		1,522		918		429		2,869		8,071

Home Equity/Home Improvement		131,141		1,347		158		115		1,620		546
Consumer Finance		28,762		164		52		40		256		58

Total Loans	$	2,273,204	$	5,498	$	1,385	$	4,305	$	11,188	$	29,138
Loans acquired with deteriorated credit quality (included in the totals above)	$	3,698	$	33	$	-	$	134	$	167	$	1,925

Loans acquired in current year (included in totals above)	$	228,225	$	2,911	$	625	$	701	$	4,237	$	4,855

	Three Months Ended September 30, 2017 ($ in thousands)				Nine Months Ended September 30, 2017 ($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)

1-4 Family Owner Occupied		0	$	-		0	$	-
1-4 Family Non Owner Occupied		0		-		0		-
CRE Owner Occupied		0		-		0		-
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial Working Capital or Other		0		-		1		225
Commercial Other		0		-		0		-
Home Equity and Improvement		0		-		0		-
Consumer Finance		0		-		0		-
Total		0	$	-		1	$	225

	Three Months Ended September 30, 2016 ($ in thousands)				Nine Months Ended September 30, 2016 ($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)

1-4 Family Owner Occupied		1	$	190		1	$	190
1-4 Family Non Owner Occupied		0		-		0		-
CRE Owner Occupied		0		-		0		-
CRE Non Owner Occupied		0		-		1		11
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial Working Capital or Other		0		-		0		-
Commercial Other		0		-		0		-
Home Equity and Improvement		0		-		0		-
Consumer Finance		0		-		0		-
Total		1	$	190		2	$	201


Class	Unclassified		Special Mention		Substandard		Doubtful		Total classified		Total
Real Estate:
Residential	$	1,463,034	$	1,267	$	7,121	$	—	$	7,121	$	1,471,422
Commercial		2,588,092		65,233		22,234		—		22,234		2,675,559
Construction		515,948		1,300		—		—		—		517,248

Other Loans:
Commercial		1,009,333		20,106		6,951		—		6,951		1,036,390
Home equity and improvement		268,385		—		1,402		—		1,402		269,787
Consumer finance		212,853		—		1,891		—		1,891		214,744
PCD		17,044		93		5,421		—		5,421		22,558

Total Loans	$	6,074,689	$	87,999	$	45,020	$	—	$	45,020	$	6,207,708

1-4 Family Residential Real Estate	$	1,720
Commercial Real Estate		4,724
Commercial		785
Consumer		4
Total	$	7,233

	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total
			(In Thousands)
At September 30, 2017
Repurchase agreements:
Mortgage-backed securities – residential	$	6,115	$	-	$	-	$	-	$	6,115
Collateralized mortgage obligations		16,824		-		-		-		16,824
Total borrowings	$	22,939	$	-	$	-	$	-	$	22,939
Gross amount of recognized liabilities for repurchase agreements									$	22,939



	September 30, 2022		December 31, 2021
Commitments to make loans	$	1,175,293	$	1,175,916
Unused lines of credit		1,012,298		626,348
Standby letters of credit		16,114		10,851
Total	$	2,203,705	$	1,813,115

	September 30, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	51,442	$	175,344	$	34,432	$	106,356
Unused lines of credit		8,956		413,370		14,384		400,542
Standby letters of credit		-		6,910		-		9,668
Total	$	60,398	$	595,624	$	48,816	$	516,566


	September 30, 2022			December 31, 2021

Notional amount	$	250,000		$	250,000
Weighted average fixed receive rates		1.437	%		1.437	%
Weighted average variable 1-month LIBOR pay rates		3.143	%		0.089	%
Weighted average remaining maturity (in years)		8.4			9.3
Fair value	$	(41,458	)	$	854

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
	(In Thousands)
Three months ended September 30, 2017:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(777	)	$	272		$	(505	)
Reclassification adjustment for net gains included in net income		(158	)		55			(103	)
Total other comprehensive loss	$	(935	)	$	327		$	(608	)

Nine months ended September 30, 2017:
Securities available for sale:
Change in net unrealized gain/loss during the period	$	3,383		$	(1,183	)	$	2,200
Reclassification adjustment for net gains included in net income		(425	)		148			(277	)
Total other comprehensive income	$	2,958		$	(1,035	)	$	1,923

							Accumulated
	Securities			Post-			Other
	Available			retirement			Comprehensive
	For Sale			Benefit			Income
	(In Thousands)
Balance January 1, 2017	$	504		$	(289	)	$	215
Other comprehensive income before reclassifications		2,200			-			2,200
Amounts reclassified from accumulated other comprehensive income		(277	)		-			(277	)

Net other comprehensive income during period		1,923			-			1,923

Balance September 30, 2017	$	2,427		$	(289	)	$	2,138

Balance January 1, 2016	$	4,042		$	(420	)	$	3,622
Other comprehensive income (loss) before reclassifications		1,676			-			1,676
Amounts reclassified from accumulated other comprehensive income		(331	)		-			(331	)

Net other comprehensive income during period		1,345			-			1,345

Balance September 30, 2016	$	5,387		$	(420	)	$	4,967

Large accelerated filer

Accelerated filerx

Non-accelerated filer

Smaller reporting company¨

Emerging growth company