10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly Period Ended June 30, 2013

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ___________to__________

Commission file number 0-26850

First Defiance Financial Corp.

(Exact name of registrant as specified in its charter)

Ohio	34-1803915
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No¨

Indicate by check mark whether the registrant submitted electronically 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). Yes x  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. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer x
Non-accelerated filer	¨	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value – 9,776,957 shares outstanding at July 29, 2013.

FIRST DEFIANCE FINANCIAL CORP.

INDEX

		Page Number
PART I.-FINANCIAL INFORMATION
Item 1.	Consolidated Condensed Financial Statements (Unaudited): Consolidated Condensed Statements of Financial Condition – June 30, 2013 and December 31, 2012	2
	Consolidated Condensed Statements of Income - Three and six months ended June 30, 2013 and 2012	4
	Consolidated Condensed Statements of Comprehensive Income – Three and six months ended June 30, 2013 and 2012	5
	Consolidated Condensed Statements of Changes in Stockholders’ Equity – Six months ended June 30, 2013 and 2012 6	6
	Consolidated Condensed Statements of Cash Flows - Six months ended June 30, 2013 and 2012	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	71
Item 4.	Controls and Procedures	72
PART II-OTHER INFORMATION:
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	73
	Signatures	74

1

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

(Amounts in Thousands, except per share data)

	June 30,  2013		December 31, 2012
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	39,743	$	45,832
Federal funds sold		88,000		91,000
		127,743		136,832
Securities:
Available-for-sale, carried at fair value		188,079		194,101
Held-to-maturity, carried at amortized cost (fair value $451 and $516 at June 30, 2013 and December 31, 2012, respectively)		445		508
		188,524		194,609
Loans held for sale		14,808		22,064
Loans receivable, net of allowance of $26,270 at June 30, 2013 and $26,711 at December 31, 2012, respectively		1,536,396		1,498,546
Accrued interest receivable		5,891		5,594
Federal Home Loan Bank stock		19,353		20,655
Bank owned life insurance		42,292		41,832
Premises and equipment		38,866		39,663
Real estate and other assets held for sale		6,546		3,805
Goodwill		61,525		61,525
Core deposit and other intangibles		4,090		4,738
Mortgage servicing rights		8,731		7,833
Deferred taxes		2,291		78
Other assets		9,160		9,174
Total assets	$	2,066,216	$	2,046,948

(continued)

2

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

(Amounts in Thousands, except per share data)

	June 30,  2013			December 31, 2012
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	1,635,708		$	1,667,472
Advances from the Federal Home Loan Bank		62,773			12,796
Subordinated debentures		36,083			36,083
Securities sold under repurchase agreements		47,560			51,702
Advance payments by borrowers		1,844			1,473
Other liabilities		17,751			19,294
Total liabilities		1,801,719			1,788,820
Stockholders’ equity:
Preferred stock, $.01 par value per share: 5,000,000 shares authorized; no shares issued		–			–
Common stock, $.01 par value per share: 25,000,000 shares authorized; 12,735,313 and 12,739,496  shares issued and 9,776,057 and 9,729,466 shares outstanding, respectively		127			127
Common stock warrant		878			878
Additional paid-in capital		136,111			136,046
Accumulated other comprehensive income, net of tax of $111 and $2,301, respectively		204			4,274
Retained earnings		173,679			164,103
Treasury stock, at cost, 2,959,256 and 3,010,030 shares respectively		(46,502	)		(47,300	)
Total stockholders’ equity		264,497			258,128
Total liabilities and stockholders’ equity	$	2,066,216		$	2,046,948

See accompanying notes

3

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Income

(UNAUDITED)

(Amounts in Thousands, except per share data)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013		2012			2013		2012
Interest Income
Loans	$	17,047	$	18,197		$	33,843	$	36,847
Investment securities:
Taxable		674		1,268			1,352		2,380
Non-taxable		732		726			1,457		1,397
Interest-bearing deposits		72		114			130		206
FHLB stock dividends		207		214			426		443
Total interest income		18,732		20,519			37,208		41,273
Interest Expense
Deposits		1,511		2,116			3,158		4,485
FHLB advances and other		92		750			182		1,501
Subordinated debentures		150		310			302		641
Notes payable		61		97			121		201
Total interest expense		1,814		3,273			3,763		6,828
Net interest income		16,918		17,246			33,445		34,445
Provision for loan losses		448		4,097			873		7,600
Net interest income after provision for loan losses		16,470		13,149			32,572		26,845
Non-interest Income
Service fees and other charges		2,549		2,687			4,934		5,358
Insurance and investment commission income		2,277		2,192			5,313		4,727
Mortgage banking income		2,443		2,258			5,273		4,704
Gain on sale of non-mortgage loans		2		33			17		42
Gain on sale or call of securities		44		382			97		425
Trust income		186		169			349		323
Income from Bank Owned Life Insurance		231		219			460		439
Other non-interest income		116		54			367		396
Total non-interest income		7,848		7,994			16,810		16,414
Non-interest Expense
Compensation and benefits		8,475		8,049			17,273		16,514
Occupancy		1,694		1,760			3,348		3,548
FDIC insurance premium		275		672			931		1,341
State franchise tax		627		512			1,256		1,026
Data processing		1,313		1,169			2,494		2,337
Amortization of intangibles		312		349			648		724
Other non-interest expense		2,978		3,021			6,923		6,302
Total non-interest expense		15,674		15,532			32,873		31,792
Income before income taxes		8,644		5,611			16,509		11,467
Federal income taxes		2,535		1,690			4,841		3,393
Net Income	$	6,109	$	3,921		$	11,668	$	8,074
Dividends accrued on preferred shares	$	-	$	(435	)	$	-	$	(897	)
Accretion on preferred shares	$	-	$	(305	)	$	-	$	(351	)
Redemption of preferred shares	$	-	$	642		$	-	$	642
Net income applicable to common shares	$	6,109	$	3,823		$	11,668	$	7,468
Earnings per common share (Note 6)
Basic	$	0.63	$	0.39		$	1.20	$	0.77
Diluted	$	0.60	$	0.38		$	1.15	$	0.75
Dividends declared per share (Note 5)	$	0.10	$	0.05		$	0.20	$	0.10
Average common shares outstanding (Note 6)
Basic		9,774		9,729			9,755		9,728
Diluted		10,156		9,985			10,130		9,980

See accompanying notes

4

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income

(UNAUDITED)

(Amounts in Thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net Income	$	6,109		$	3,921		$	11,668		$	8,074
Other comprehensive income:
Unrealized losses on securities available for sale		(5,500	)		1,493			(6,164	)		1,444
Reclassification adjustment for security gains (losses)
included in net income(1)		(44	)		(382	)		(97	)		(425	)
Income tax		1,940			(388	)		2,191			(356	)
Other comprehensive income (loss)		(3,604	)		723			(4,070	)		663
Comprehensive income	$	2,505		$	4,644		$	7,598		$	8,737

(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 June 30, 2013 and 2012 was $13 and $115, respectively. Income tax expense associated with the reclassification adjustments, included in federal income taxes, for the six months ended June 30, 2013 and 2012 was $29 and $128, respectively. 

5

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Changes in Stockholders’ Equity

(UNAUDITED)

(Amounts in Thousands)

										Accumulated
						Common		Additional		Other									Total
	Preferred			Common		Stock		Paid-In		Comprehensive			Retained			Treasury			Stockholders’
	Stock			Stock		Warrant		Capital		Income (Loss)			Earnings			Stock			Equity
Balance at January 1, 2013	$	-		$	127	$	878	$	136,046	$	4,274		$	164,103		$	(47,300	)	$	258,128
Net income		-			-		-		-		-			11,668			-			11,668
Other comprehensive loss		-			-		-		-		(4,070	)		-			-			(4,070	)
Stock option expense		-			-		-		28		-			-			-			28
12,027 shares issued under stock option plan with no income tax benefit, net of repurchases		-			-		-		1		-			(97	)		254			158
Restricted share activity under Stock Incentive Plans including 31,796 shares issued		-			-		-		16		-			(45	)		500			471
2,768 shares issued direct purchases		-			-		-		20		-			-			44			64
Common stock dividends declared		-			-		-		-		-			(1,950	)		-			(1,950	)
Balance at June 30, 2013	$	-		$	127	$	878	$	136,111	$	204		$	173,679		$	(46,502	)	$	264,497
Balance at January 1, 2012	$	36,641		$	127	$	878	$	135,825	$	3,997		$	148,010		$	(47,351	)	$	278,127
Net income		-			-		-		-		-			8,074			-			8,074
Other comprehensive income		-			-		-		-		663			-			-			663
Stock option expense		-			-		-		59		-			-			-			59
200 shares issued under stock option plan, with no income tax benefit		-			-		-		-		-			(1	)		3			2
Restricted share activity under Stock Incentive Plans		-			-		-		141		-			-			29			170
419 shares issued direct purchases		-			-		-		-		-			-			7			7
Preferred Stock Dividends accrued		-			-		-		-		-			(897	)		-			(897	)
Accretion on preferred shares		351			-		-		-		-			(351	)		-			-
16,560 shares purchased in U.S. Treasury auction		(16,560	)		-		-		-		-			618			-			(15,942	)
19,440 shares purchased in open market		(19,440	)		-		-		-		-			24			-			(19,416	)
Common stock dividends declared		-			-		-		-		-			(977	)		-			(977	)
Balance at June 30, 2012	$	992		$	127	$	878	$	136,025	$	4,660		$	154,500		$	(47,312	)	$	249,870

6

FIRST DEFIANCE FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)

	Six Months Ended
	June 30,
	2013			2012
Operating Activities
Net income	$	11,668		$	8,074
Items not requiring (providing) cash
Provision for loan losses		873			7,600
Depreciation		1,592			1,689
Amortization of mortgage servicing rights, net of impairment recoveries		538			1,973
Amortization of core deposit and other intangible assets		648			724
Net amortization of premiums and discounts on loans and deposits		389			301
Amortization of premiums and discounts on securities		283			381
Loss on sale or disposals of property, plant and equipment		1			19
Change in deferred taxes		(23	)		1,649
Proceeds from the sale of loans held for sale		211,479			230,291
Originations of loans held for sale		(201,592	)		(226,130	)
Gain from sale of loans		(4,083	)		(5,044	)
Gain from sale or call of securities		(97	)		(425	)
Loss on sale or write-down of real estate and other assets held for sale		221			295
Stock option expense		28			59
Restricted stock expense		471			170
Income from bank owned life insurance		(460	)		(439	)
Changes in:
Accrued interest receivable		(297	)		79
Other assets		14			(1,020	)
Other liabilities		(1,544	)		2,536
Net cash provided by (used in) operating activities		20,109			22,782
Investing Activities
Proceeds from maturities of held-to-maturity securities		63			61
Proceeds from maturities, calls and pay-downs of available-for-sale securities		24,110			31,789
Proceeds from sale of real estate and other assets held for sale		1,613			1,766
Proceeds from the sale of available-for-sale securities		4,027			6,416
Proceeds from sale of non-mortgage loans		4,893			363
Purchases of available-for-sale securities		(28,561	)		(83,056	)
Proceeds from Federal Home Loan Bank stock redemption		1,302			-
Purchase of bank-owned life insurance		-			(5,000	)
Purchases of portfolio mortgage loans		(4,545	)		-
Purchases of premises and equipment, net		(796	)		(2,488	)
Net decrease in loans receivable		(44,020	)		(30,607	)
Net cash provided (used in) by investing activities		(41,914	)		(80,756	)
Financing Activities
Net increase (decrease) in deposits and advance payments by borrowers		(31,391	)		16,965
Repayment of Federal Home Loan Bank advances		(23	)		(22	)
Increase in Federal Home Loan Bank short-term advances		50,000			-
Decrease in securities sold under repurchase agreements		(4,142	)		(9,859	)
Cash paid for redemption of preferred stock		-			(18,539	)
Proceeds from exercise of stock options		158			2
Proceeds from treasury stock purchases		64			7
Cash dividends paid on common stock		(1,950	)		(977	)
Cash dividends paid on preferred stock		-			(1,017	)
Net cash provided by (used in) financing activities		12,716			(13,440	)
Increase (decrease) in cash and cash equivalents		(9,089	)		(71,414	)
Cash and cash equivalents at beginning of period		136,832			174,931
Cash and cash equivalents at end of period	$	127,743		$	103,517
Supplemental cash flow information:
Interest paid	$	3,757		$	6,884
Income taxes paid	$	5,700		$	-
Transfers from loans to real estate and other assets held for sale	$	4,575		$	1,971
Redemption of preferred shares not yet settled	$	-		$	16,929

See accompanying notes.

7

FIRST DEFIANCE FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements

(Unaudited at June 30, 2013 and 2012)

1. Basis of Presentation

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

First Federal is primarily engaged in community banking, attracting deposits from the general public and using 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, commercial and consumer loans and providing a broad range of depository, trust and wealth management services. First Insurance is an insurance agency that does business in the Defiance, Archbold, Bryan, Bowling Green, Maumee and Oregon, Ohio areas, offering property and casualty, and group health and life insurance products.First Defiance Risk Management was incorporated on December 20, 2012, as a wholly-owned insurance company subsidiary of the Company to insure the Company and the 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.

The consolidated condensed statement of financial condition at December 31, 2012 has been derived from the audited financial statements at that date, which were included in First Defiance’s Annual Report on Form 10-K.

The accompanying consolidated condensed financial statements as of June 30, 2013 and for the three and six month periods ended June 30, 2013 and 2012 have been prepared by First Defiance without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States. These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in First Defiance's 2012 Annual Report on Form 10-K for the year ended December 31, 2012. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

8

2. Significant Accounting Policies

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. Actual results could differ from those estimates. Significant areas where First Defiance uses estimates are the valuation of certain investment securities, the determination of the allowance for loan losses, the valuation of mortgage servicing rights and goodwill, the determination of unrecognized income tax benefits, and the determination of post-retirement benefits.

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income applicable to common shares (net income less dividend requirements for preferred stock and accretion of preferred stock discount) 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, warrants, restricted stock awards or units and stock grants.

Accounting Standards Updates

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The standard requires that companies present in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new requirements are effective for public companies in the fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this standard on January 1, 2013. The effect of adopting this standard increased the Company’s disclosure surrounding reclassification items out of accumulated other comprehensive income.

9

3. Fair Value

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

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

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

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

10

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 agencies, mortgage-backed securities, corporate bonds and municipal securities. The Company classifies its pooled trust preferred collateralized debt obligations as Level 3. The portfolio consists of collateralized debt obligations backed by pools of trust preferred securities issued by financial institutions and insurance companies. Based on the lack of observable market data, the Company estimated fair values based on the observable data available and reasonable unobservable market data. The Company estimated fair value based on a discounted cash flow model which used appropriately adjusted discount rates reflecting credit and liquidity risks. The Company used an independent third party which is described further in Note 7.

Impaired loans - Fair values for impaired collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value in 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 required return.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell.  Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted between a range of 0% to 20% to account for other factors that may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include:  physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

11

Mortgage servicing rights – On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level based on a model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and are validated against available market data (Level 2).

Mortgage banking derivative - The fair value of mortgage banking derivatives are evaluated monthly based on derivative valuation models using quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation date (Level 2).

The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Recurring Basis

June 30, 2013	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	$	-	$	4,919	$	-	$	4,919
Mortgage-backed - residential		-		39,004		-		39,004
Collateralized mortgage obligations		-		54,903		-		54,903
Trust preferred stock		-		-		1,736		1,736
Preferred stock		428		-		-		428
Corporate bonds		-		8,953		-		8,953
Obligations of state and political subdivisions		-		78,136		-		78,136
Mortgage banking derivative - asset		-		616		-		616

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December 31, 2012	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	$	-	$	11,069		$	-	$	11,069
U.S. treasury bonds		-		1,002			-		1,002
Mortgage-backed - residential		-		31,461			-		31,461
Collateralized mortgage obligations		-		57,466			-		57,466
Trust preferred stock		-		-			1,474		1,474
Preferred stock		134		-			-		134
Corporate bonds		-		8,884			-		8,884
Obligations of state and political subdivisions		-		82,611			-		82,611
Mortgage banking derivative - asset		-		950			-		950
Mortgage banking derivative - liability		-		(94	)		-		(94	)

There were no transfers between Level 1 and Level 2 as of June 30, 2013 or December 31, 2012.

The table below presents a reconciliation and income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2013 and 2012:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2013	$	1,474
Total gains or losses (realized/unrealized)
Included in earnings (realized)		-
Included in other comprehensive income (presented gross of taxes)		262
Amortization		-
Sales		-
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2013	$	1,736

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, April 1, 2013	$	1,651
Total gains or losses (realized/unrealized)
Included in earnings (realized)		-
Included in other comprehensive income (presented gross of taxes)		85
Amortization		-
Sales		-
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2013	$	1,736

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Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2012	$	1,342
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		80
Included in other comprehensive income (presented gross of taxes)		70
Amortization		-
Redemption		(265	)
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2012	$	1,227

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, April 1, 2012	$	1,377
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		80
Included in other comprehensive income (presented gross of taxes)		35
Amortization		-
Redemption		(265	)
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2012	$	1,227

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

June 30, 2013	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Residential Loans	$	-	$	-	$	366	$	366
Commercial Loans		-		-		181		181
Multi Family Loans		-		-		373		373
Home Equity Loans		-		-		159		159
CRE loans		-		-		9,055		9,055
Total impaired loans		-		-		10,134		10,134
Mortgage servicing rights		-		3,457		-		3,457
Real estate held for sale
Residential Loans		-		-		65		65
CRE loans		-		-		167		167
Total Real Estate held for sale		-		-		232		232

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December 31, 2012	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Residential Loans	$	-	$	-	$	599	$	599
Commercial Loans		-		-		771		771
Home Equity Loans		-		-		168		168
Multi Family Loans		-		-		407		407
CRE loans		-		-		12,126		12,126
Total Impaired loans		-		-		14,071		14,071
Mortgage servicing rights		-		7,833		-		7,833
Real estate held for sale
Residential Loans		-		-		61		61
CRE loans		-		-		385		385
Total Real Estate held for sale		-		-		446		446

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2013, 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)
Trust preferred stock	$	1,736	Discounted cash flow	Constant prepayment rate		2-40%		40	%
				Expected asset default		0-30%		15	%
				Expected recoveries		10-15%		10	%
Impaired Loans- Applies to all loan classes	$	10,134	Appraisals	Discounts for collection issues and changes in market conditions		0-10%		10	%
Real estate held for sale – Applies to all classes	$	232	Appraisals	Discounts for changes in market conditions		0-20%		20	%

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2012, 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)
Trust preferred stock	$	1,474	Discounted cash flow	Constant prepayment rate		2-40%		40	%
				Expected asset default		0-30%		15	%
				Expected recoveries		10-15%		10	%
Impaired Loans- Applies to all loan classes	$	14,071	Appraisals	Discounts for collection issues and changes in market conditions		0-10%		10	%
Real estate held for sale – Applies to all classes	$	446	Appraisals	Discounts for changes in market conditions		0-20%		20	%

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Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $10.1 million, with no valuation allowance at June 30, 2013. A provision expense of $551,000 for the three months ended June 30, 2013 was included in earnings. Provision expense of $1.2 million for the six months ended June 30, 2013 was included in earnings.

Mortgage servicing rights which are carried at the lower of cost or fair value had a fair value of $3.5 million at June 30, 2013 with a valuation allowance of $1.5 million. A recovery of $312,000 for the three months and $785,000 for the six months ended June 30, 2013 was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair value of real estate held for sale was $215,000 for the three and six months ended June 30, 2013 which was recorded directly as an adjustment to current earnings through non-interest expense.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $14.1 million with a valuation allowance of $0 at December 31, 2012. A recovery of provision expense of $576,000 for the three months ended June 30, 2012 was included in earnings. Provision expense of $4,187,000 for the six months ended June 30, 2012 was included in earnings.

Mortgage servicing rights which are carried at the lower of cost or fair value had a fair value of $7.8 million at December 31, 2012 resulting in a valuation allowance of $2.3 million. A charge of $177,000 for the three months and $256,000 for the six months ended June 30, 2012 was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair value of real estate held for sale was $126,000 for the three months and $263,000 for the six months ended June 30, 2012 which was recorded directly as an adjustment to current earnings through non-interest expense.

In accordance with FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of June 30, 2013 and December 31, 2012. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of First Defiance.

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

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The carrying amount of cash and cash equivalents, term notes payable and advance payments by borrowers for taxes and insurance, 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”) stock due to restrictions placed on its transferability.

The fair value of loans which reprice within 90 days is equal to their carrying amount. For other loans, the estimated fair value is calculated based on 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 to estimate the fair value of loans do not necessarily represent an exit price. The fair value of loans held for sale is estimated based on binding contracts and quotes from third party investors resulting in a Level 2 classification.

The fair value of accrued interest receivable is equal to the carrying amounts resulting in a Level 2 or Level 3 classification which is consistent with its underlying value.

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

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

FHLB advances with maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at June 30, 2013.

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			Fair Value Measurements at June 30, 2013 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	127,743	$	127,743	$	127,743	$	-	$	-
Investment securities		188,524		188,530		428		186,366		1,736
Federal Home Loan Bank Stock		19,353		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,551,204		1,547,918		-		14,742		1,533,176
Accrued interest receivable		5,891		5,891		-		697		5,194
Financial Liabilities:
Deposits	$	1,635,708	$	1,638,358	$	291,765	$	1,346,593	$	-
Advances from Federal Home Loan Bank		62,773		63,171		-		63,171		-
Securities sold under repurchase agreements		47,560		47,560		-		47,560		-
Subordinated debentures		36,083		35,334		-		-		35,334

			Fair Value Measurements at December 31, 2012 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	136,832	$	136,832	$	136,832	$	-	$	-
Investment securities		194,609		194,617		134		193,009		1,474
Federal Home Loan Bank Stock		20,655		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,520,610		1,543,438		-		22,577		1,520,861
Accrued interest receivable		5,594		5,594		-		757		4,837
Financial Liabilities:
Deposits	$	1,667,472	$	1,671,713	$	315,132	$	1,356,581	$	-
Advances from Federal Home Loan Bank		12,796		13,466		-		13,466		-
Securities sold under repurchase agreements		51,702		51,702		-		51,702		-
Subordinated debentures		36,083		35,766		-		-		35,766

4. Stock Compensation Plans

First Defiance has established equity based compensation plans for its directors and employees. On March 15, 2010, the Board adopted, and the shareholders approved at the 2010 Annual Shareholders Meeting, the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “2010 Equity Plan”). The 2010 Equity Plan replaces all existing plans. All awards currently outstanding under prior plans will remain in effect in accordance with their respective terms. Any new awards will be made under the 2010 Equity Plan. The 2010 Equity Plan allows for issuance of up to 350,000 common shares through the award of options, stock grants, restricted stock units (“RSU”), stock appreciation rights or other stock-based awards.

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As of June 30, 2013, 275,600 options had been granted and remain outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted under all plans vest 20% per year except for the 2009 grant to the Company’s executive officers, which vested 40% in 2011 and then 20% annually. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

In August 2011, the Company approved a 2011 Short-Term (“STIP”) and a 2011 Long-Term (“LTIP”) Equity Incentive Plan for selected members of management. The Plans became effective January 1, 2011 and provide for cash and/or equity benefits if certain performance targets are achieved. Awards issued under these Plans will reduce the amount of awards available to be issued under the 2010 Equity Plan.

In March 2012, the Company approved a 2012 STIP and a 2012 LTIP for selected members of management. The Plans are effective January 1, 2012 and provide for cash and/or equity benefits if certain performance targets are achieved. Awards issued under these Plans reduce the amount of awards available to be issued under the 2010 Equity Plan.

Cash and/or equity benefits under the 2011 STIP and LTIP and 2012 STIP were paid out to the selected members of management in the first quarter of 2013 based on the achievement of certain performance targets. One member of management was not paid until April 2013.

In March 2013, the Company approved a 2013 STIP and a 2013 LTIP for selected members of management.

Under the 2013 STIP the participants may earn up to 25% 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 awards earned under the 2013 STIP will be determined as of December 31, 2013 and will be paid out in cash in the first quarter of 2014. The participants are required to be employed on the day of payout in order to receive such payment.

Under the 2013 LTIP the participants may earn up to 25% to 45% of their salary, depending upon their position, 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 86,065 RSU’s to the participants in this Plan effective January 1, 2013, which represents the maximum target award. The amount of benefit under the 2013 LTIP will be determined individually at the 12 month period ending December 31, 2013, the 24 month period ending December 31, 2014 and the 36 month period ending December 31, 2015. The awards’ vesting will be as follows: 16.7% of the target award after the end of the performance period ending December 31, 2013, 27.8% of the target award at the end of the performance period ending December 31, 2014 and 55.5% of the target award at the end of the performance period ending December 31, 2015. The RSUs shall vest between 0% and 100% of the applicable portion of the target award based on the portion of the performance targets that are achieved. RSUs settle in common shares in the first quarter following the close of the applicable performance period. The participants are required to be employed on the day of payout in order to receive the payment.

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The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no options granted during the six months ended June 30, 2013 or 2012.

Following is activity under the plans during the six months ended June 30, 2013:

Stock options	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2013		312,350	$	20.33
Forfeited or cancelled		11,850		19.93
Exercised		24,900		18.42
Granted		-		-
Options outstanding, June 30, 2013		275,600	$	20.52		3.82	$	1,154
Vested or expected to vest at June 30, 2013		275,600	$	20.52		3.82	$	1,154
Exercisable at June 30, 2013		257,030	$	21.21		3.67	$	941

As of June 30, 2013, there was $26,000 of total unrecognized compensation costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 1.2 years.

At June 30, 2013, 106,061 RSU’s were outstanding. Compensation expense is recognized over the performance period based on the achievements of targets as established under the plan documents. Total accrued expense of $570,000 was recorded during the six months ended June 30, 2013 and approximately $372,000 is included within other liabilities at June 30, 2013 related to the STIPs and LTIPs.

	Restricted Stock Units					Stock Grants
				Weighted-Average					Weighted-Average
				Grant Date					Grant Date
Unvested Shares	Shares			Fair Value		Shares			Fair Value
Unvested at January 1, 2013		38,871		$	14.74		11,260		$	13.28
Granted		91,187			19.42		20,639			15.77
Vested		(20,639	)		15.77		(31,899	)		14.89
Forfeited		(3,358	)		11.97		-			-
Unvested at June 30, 2013		106,061		$	18.66		-		$	-

The maximum amount of compensation expense that may be recorded for the 2013 STIP and the 2012 and 2013 LTIPs at June 30, 2013 is approximately $2.5 million. However, the estimated expense expected to be recorded as of June 30, 2013 based on the performance measures in the plans, is $2.0 million of which $1.4 million is unrecognized at June 30, 2013 and will be recognized over the remaining performance periods.

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5. Dividends on Common Stock

First Defiance declared and paid a $0.10 per share common stock dividend in the first and second quarter of 2013 and declared and paid a $0.05 per share common stock dividend in the first and second quarter of 2012.

6. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (in thousands except per share data):

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Numerator for basic and diluted earnings per common share – Net income applicable to common shares	$	6,109	$	3,823	$	11,668	$	7,468
Denominator:
Denominator for basic earnings per common share – weighted average common shares, including participating securities		9,774		9,729		9,755		9,728
Effect of warrants		306		211		301		210
Effect of restricted stock units		27		24		23		21
Effect of employee stock options		49		21		51		21
Denominator for diluted earnings per common share share		10,156		9,985		10,130		9,980
Basic earnings per common share	$	0.63	$	0.39	$	1.20	$	0.77
Diluted earnings per common share	$	0.60	$	0.38	$	1.15	$	0.75

There were 143,350 shares under option granted to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for the three and six months ended June 30, 2013. There were 256,643 shares under option granted to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for the three and six months ended June 30, 2012.

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7. Investment Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At June 30, 2013
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	5,000	$	-	$	(81	)	$	4,919
Mortgage-backed securities – residential		39,003		803		(802	)		39,004
Collateralized mortgage obligations		54,403		902		(402	)		54,903
Trust preferred securities and preferred stock		3,600		394		(1,830	)		2,164
Corporate bonds		8,824		146		(17	)		8,953
Obligations of state and political subdivisions		76,047		3,005		(916	)		78,136
Totals	$	186,877	$	5,250	$	(4,048	)	$	188,079
Held-to-Maturity Securities*:
FHLMC certificates	$	62	$	-	$	(1	)	$	61
FNMA certificates		142		4		-			146
GNMA certificates		55		3		-			58
Obligations of state and political subdivisions		186		-		-			186
Totals	$	445	$	7	$	(1	)	$	451
At December 31, 2012
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	11,000	$	69	$	-		$	11,069
U.S. treasury bonds		1,000		2		-			1,002
Mortgage-backed securities – residential		30,020		1,441		-			31,461
Collateralized mortgage obligations		55,962		1,504		-			57,466
Trust preferred securities and preferred stock		3,600		99		(2,091	)		1,608
Corporate bonds		8,717		167		-			8,884
Obligations of state and political subdivisions		76,339		6,277		(5	)		82,611
Totals	$	186,638	$	9,559	$	(2,096	)	$	194,101
Held-to-Maturity Securities*:
FHLMC certificates	$	69	$	-	$	(1	)	$	68
FNMA certificates		162		6		-			168
GNMA certificates		60		3		-			63
Obligations of state and political subdivisions		217		-		-			217
Totals	$	508	$	9	$	(1	)	$	516

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

The amortized cost and fair value of the investment securities portfolio at June 30, 2013 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”), which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

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	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	2,255	$	2,268	$	-	$	-
Due after one year through five years		6,107		6,301		186		186
Due after five years through ten years		36,502		37,728		-		-
Due after ten years		48,607		47,875		-		-
MBS/CMO		93,406		93,907		259		265
	$	186,877	$	188,079	$	445	$	451

Investment securities with a carrying amount of $124.4 million at June 30, 2013 were pledged as collateral on public deposits, securities sold under repurchase agreements, Federal Reserve discount window and FHLB advances.

As of June 30, 2013, the Company’s investment portfolio consisted of 336 securities, 79 of which were in an unrealized loss position.

The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2013 and December 31, 2012:

	Duration of Unrealized Loss Position
	Less than 12 Months					12 Month or Longer					Total
			Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Losses
	(In Thousands)
At June 30, 2013
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	4,919	$	(81	)	$	-	$	-		$	4,919	$	(81	)
Mortgage-backed - residential		19,936		(802	)		-		-			19,936		(802	)
Collateralized mortgage obligations		19,027		(402	)		-		-			19,027		(402	)
Trust preferred stock and preferred stock		-		-			1,736		(1,830	)		1,736		(1,830	)
Corporate bonds		2,983		(17	)		-		-			2,983		(17	)
Obligations of state and political subdivisions		18,068		(916	)		-		-			18,068		(916	)
Held to maturity securities:
Mortgage-backed securities		-		-			32		(1	)		32		(1	)
Total temporarily impaired securities	$	64,933	$	(2,218	)	$	1,768	$	(1,831	)	$	66,701	$	(4,049	)

23

	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, 2012
Available-for-sale securities:
Mortgage-backed securities - residential	$	1	$	-		$	-	$	-		$	1	$	-
Obligations of state and political subdivisions		949		(5	)		-		-			949		(5	)
Trust preferred stock and preferred stock		-		-			1,474		(2,091	)		1,474		(2,091	)
Total temporarily impaired securities	$	950	$	(5	)	$	1,474	$	(2,091	)	$	2,424	$	(2,096	)

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

Realized gains from the sales of investment securities totaled $44,000 ($29,000 after tax) in the second quarter of 2013 while there were realized gains of $382,000 ($248,000 after tax) in the second quarter of 2012. Realized gains from the sales of investment securities totaled $97,000 ($63,000 after tax) for the first six months of 2013 compared to realized gains of $425,000 ($276,000 after tax) for the first six months of 2012.

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

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

24

For the first six months of 2013 and 2012, management determined there was no OTTI.

The Company held eight CDOs at June 30, 2013. Four of those CDOs were written down in full prior to January 1, 2010. The remaining four CDOs have a total amortized cost of $3.6 million at June 30, 2013. Of these, two, with a total amortized cost of $1.6 million, were identified as OTTI in prior periods. The final two CDOs, with a total amortized cost of $2.0 million, continue to pay principal and interest payments in accordance with the contractual terms of the securities and no credit loss impairment has been identified in management’s analysis. Therefore, these two CDO investments have not been deemed by management to be OTTI.

Given the conditions in the debt markets today and the absence of observable transactions in the secondary and new issue markets, the Company’s CDOs will be classified within Level 3 of the fair value hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

As required under FASB ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses.

The Company’s CDO valuations were supported by analysis prepared by an independent third party. Their approach to determining fair value involved several steps: 1) detailed credit and structural evaluation of each piece of collateral in the CDO; 2) collateral performance projections for each piece of collateral in the CDO (default, recovery and prepayment/amortization probabilities) and 3) discounted cash flow modeling.

Trust Preferred CDOs Discount Rate Methodology

First Defiance uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific CDO instruments. The primary focus is on the returns a fixed income investor would require in order to allocate capital on a risk adjusted basis. There is currently no active market for trust preferred CDOs, however, First Defiance looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market. The next step is to make a series of adjustments to reflect the differences that nevertheless exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific CDOs. Importantly, as part of the analysis described above, First Defiance considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and make adjustments as necessary to reflect this additional risk.

Fundamental to this evaluation is an assessment of the likelihood of CDO coverage test failures that would have the effect of diverting cash flow away from the relevant CDO bond for some period of time. Generally speaking, the Company adjusts indicative credit spreads upwards in the case of CDOs that have relatively weaker collateral and/or less cushion with respect to overcollateralization and interest coverage test ratios and downwards if the reverse is true. This aspect of the Company’s discount rate methodology is important because there is frequently a great difference in the risks present in CDO instruments that are otherwise very similar (i.e. CDOs with the same basic type of collateral, the same manager, the same vintage, etc., may exhibit vastly different performance characteristics). With respect to this last point, First Defiance notes that given today’s credit environment, characterized by high default and deferral rates, it is typically the case that deal-specific credit performance (determined on the basis of the credit characteristics of remaining collateral) is the best indicator of what a willing market participant would pay for an instrument.

25

The Company uses the same methodology for all of its CDOs and believes its valuation methodology is appropriate for all of its CDOs in accordance with FASB ASC Topic 320 as well as other related guidance. Beginning with the first quarter of 2013, the Company made the decision to only obtain the third party analysis twice a year, June and December, as a result of the stabilization in its current CDO portfolio. Management still obtains the fair value and cash flow value on a quarterly basis and prepares its internal other-than-temporary impairment analysis.

The default and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review of historical industry default data and current/near-term operating conditions. For collateral that has already deferred, the Company assumed a recovery of 10% of par for banks, thrifts or other depository institutions and 15% for insurance companies. Although there is a possibility that the deferring collateral will become current at some point in the future, First Defiance has conservatively assumed that it will continue to defer and gradually will default.

The following table details the six securities with other-than-temporary impairment, their lowest credit rating at June 30, 2013 and the related credit losses recognized in earnings for the three month period ending March 31, 2013 and June 30, 2013 (In Thousands):

	TPREF  Funding II		Alesco		Preferred  Term Security		Trapeza  CDO I		Alesco  Preferred Funding		Alesco  Preferred Funding
	Rated Caa3		VIII Rated Ca		XXVII Rated C		Rated Ca		VIII Not Rated		IX Not Rated		Total
Cumulative OTTI related to credit loss at January 1, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176
Addition – Qtr 1		-		-		-		-		-		-		-
Cumulative OTTI related to credit loss at March 31, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176
Addition – Qtr 2		-		-		-		-		-		-		-
Cumulative OTTI related to credit loss at June 30, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176

26

The amount of OTTI recognized in accumulated other comprehensive income (“AOCI”) was $696,000 for the above securities at June 30, 2013. There was $749,000 recognized in AOCI at December 31, 2012.

The following table provides additional information related to the four CDO investments for which a balance remains as of June 30, 2013 (dollars in thousands):

CDO	Class	Amortized Cost		Fair Value		Unrealized Loss			OTTI Losses 2013		Lowest Rating	Current Number of Banks and Insurance Companies		Actual Deferrals and Defaults as  a % of Current Collateral			Expected Deferrals and Defaults as a  % of Remaining Performing Collateral			Excess Sub- ordination as a % of Current Performing Collateral
TPREF Funding II	B		673		242		(431	)		-	Caa3		15		43.47	%		15.90	%		-	%
I-Preferred Term Sec I	B-1		1,000		656		(344	)		-	CCC-		14		17.24	%		12.04	%		23.78	%
Dekania II CDO	C-1		990		576		(414	)		-	CCC		31		-%			13.29	%		26.51	%
Preferred Term Sec XXVII	C-1		903		262		(641	)		-	C		32		26.15	%		18.83	%		5.99	%
Total		$	3,566	$	1,736	$	(1,830	)	$	-

The Company’s assumed average lifetime default rate was 26.7% at the end of the second quarter 2013, flat with the first quarter 2013.

There were no changes in the accumulated credit losses recognized in earnings for debt securities during the periods ended June 30, 2013 and 2012.

The proceeds from the sales and calls of securities and the associated gains are listed below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)				(In thousands)
Proceeds	$	3,008	$	6,198	$	4,027	$	6,416
Gross realized gains		44		382		97		425
Gross realized losses		-		-		-		-

27

8. Loans

Loans receivable consist of the following (in thousands):

	June 30, 2013			December 31, 2012
Real Estate:
Secured by 1-4 family residential	$	196,802		$	200,826
Secured by multi-family residential		136,274			122,275
Secured by commercial real estate		684,138			675,110
Construction		41,519			37,788
		1,058,733			1,035,999
Other Loans:
Commercial		396,158			383,817
Home equity and improvement		106,570			108,718
Consumer Finance		16,817			15,936
		519,545			508,471
Total loans		1,578,278			1,544,470
Deduct:
Undisbursed loan funds		(14,876	)		(18,478	)
Net deferred loan origination fees and costs		(736	)		(735	)
Allowance for loan loss		(26,270	)		(26,711	)
Totals	$	1,536,396		$	1,498,546

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

The following table discloses allowance for loan loss activity for the quarter ended

June 30, 2013 and June 30, 2012 by portfolio segment and impairment method ($ in thousands):

Quarter Ended June 30, 2013	1-4 Family Residential Real Estate			Construction		Multi- Family Residential Real Estate			Commercial Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Beginning Allowance	$	3,433		$	67	$	2,410		$	13,367		$	5,304		$	1,723		$	155		$	26,459
Charge-Offs		(184	)		0		(6	)		(277	)		(316	)		(170	)		(8	)		(961	)
Recoveries		33			0		0			167			57			38			29			324
Provisions		(85	)		16		21			(117	)		429			195			(11	)		448
Ending Allowance	$	3,197		$	83	$	2,425		$	13,140		$	5,474		$	1,786		$	165		$	26,270

Quarter Ended June 30, 2012	1-4 Family Residential Real Estate			Construction			Multi-Family Residential Real Estate			Commercial  Real  Estate			Commercial			Home Equity and Improvement			Consumer			Total
Beginning Specific Allocations	$	3,373		$	73		$	2,831		$	16,200		$	4,693		$	1,485		$	178		$	28,833
Charge-Offs		(584	)		-			(317	)		(5,132	)		(486	)		(254	)		(13	)		(6,786	)
Recoveries		69			-			-			36			125			18			17			265
Provisions		246			(27	)		96			2,810			824			186			(38	)		4,097
Ending Allowance	$	3,104		$	46		$	2,610		$	13,914		$	5,156		$	1,435		$	144		$	26,409

28

The following table discloses allowance for loan loss activity for the year-to-date ended June 30, 2013 and June 30, 2012 by portfolio segment and impairment method ($ in thousands):

Year-to-date Ended June 30, 2013	1-4 Family Residential Real  Estate			Construction		Multi- Family Residential  Real Estate			Commercial  Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Beginning Allowance	$	3,506		$	75	$	2,197		$	12,702		$	6,325		$	1,759		$	147		$	26,711
Charge-Offs		(390	)		0		(6	)		(543	)		(521	)		(442	)		(54	)		(1,956	)
Recoveries		132			0		0			268			133			61			48			642
Provisions		(51	)		8		234			713			(463	)		408			24			873
Ending Allowance	$	3,197		$	83	$	2,425		$	13,140		$	5,474		$	1,786		$	165		$	26,270

Year-to-date Ended June 30, 2012	1-4 Family Residential Real Estate			Construction			Multi- Family Residential  Real Estate			Commercial Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Beginning Specific Allocations	$	4,095		$	63		$	2,850		$	17,640		$	6,576		$	1,856		$	174		$	33,254
Charge-Offs		(1,322	)		-			(555	)		(9,390	)		(3,152	)		(465	)		(54	)		(14,938	)
Recoveries		124			-			-			144			155			39			31			493
Provisions		207			(17	)		315			5,520			1,577			5			(7	)		7,600
Ending Allowance	$	3,104		$	46		$	2,610		$	13,914		$	5,156		$	1,435		$	144		$	26,409

29

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2013:

(In Thousands)

	1-4 Family				Multi- Family
	Residential				Residential		Commercial				Home Equity
	Real Estate		Construction		Real Estate		Real Estate		Commercial		& Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	241	$	-	$	-	$	1,505	$	55	$	44	$	1	$	1,846
Collectively evaluated for impairment		2,956		83		2,425		11,635		5,419		1,742		164		24,424
Acquired with deteriorated credit quality		-				-				-				-
Total ending allowance balance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270
Loans:
Loans individually evaluated for impairment	$	10,970	$	263	$	1,292	$	43,259	$	7,223	$	2,715	$	81	$	65,803
Loans collectively evaluated for impairment		186,284		26,364		135,118		642,532		390,187		104,341		16,730		1,501,556
Loans acquired with deteriorated credit quality		32		-		-		428		30		-		-		490
Total ending loans balance	$	197,286	$	26,627	$	136,410	$	686,219	$	397,440	$	107,056	$	16,811	$	1,567,849

30

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, 2012:

(In Thousands)

	1-4 Family				Multi- Family
	Residential				Residential		Commercial				Home Equity
	Real Estate		Construction		Real Estate		Real Estate		Commercial		& Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	281	$	-	$	-	$	1,070	$	138	$	2	$	-	$	1,491
Collectively evaluated for impairment		3,225		75		2,197		11,632		6,187		1,757		147		25,220
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	3,506	$	75	$	2,197	$	12,702	$	6,325	$	1,759	$	147	$	26,711
Loans:
Loans individually evaluated for impairment	$	11,930	$	45	$	1,626	$	46,053	$	8,830	$	2,678	$	124	$	71,286
Loans collectively evaluated for impairment		189,348		19,251		120,829		630,534		376,007		106,516		15,815		1,458,300
Loans acquired with deteriorated credit quality		36		-		-		436		32		-		-		504
Total ending loans balance	$	201,314	$	19,296	$	122,455	$	677,023	$	384,869	$	109,194	$	15,939	$	1,530,090

31

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

	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	6,693	$	92	$	92	$	6,811	$	180	$	178
Residential Non Owner Occupied		4,443		43		44		4,583		79		79
Total Residential Real Estate		11,136		135		136		11,394		259		257
Construction		131		3		2		102		3		2
Multi-Family		1,277		5		6		1,393		11		13
CRE Owner Occupied		14,452		120		118		14,536		183		176
CRE Non Owner Occupied		23,692		236		230		24,080		439		423
Agriculture Land		889		8		3		886		17		10
Other CRE		4,526		12		8		4,783		14		9
Total Commercial Real Estate		43,559		376		359		44,285		653		618
Commercial Working Capital		1,346		17		17		1,593		20		22
Commercial Other		6,669		28		23		6,759		51		45
Total Commercial		8,015		45		40		8,352		71		67
Consumer		82		1		1		96		3		3
Home Equity and Home Improvement		2,789		33		31		2,749		67		63
Total Impaired Loans	$	66,989	$	598	$	575	$	68,371	$	1,067	$	1,023

32

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

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	1,933	$	17	$	16	$	1,956	$	30	$	28
Residential Non Owner Occupied		5,395		33		32		4,888		71		71
Total Residential Real Estate		7,328		50		48		6,844		101		99
Construction		-		-		-		-		-		-
Multi-Family		598		-		-		443		1		1
CRE Owner Occupied		11,473		26		32		10,376		39		44
CRE Non Owner Occupied		14,574		89		56		15,158		180		126
Agriculture Land		1,049		-		-		1,157		14		14
Other CRE		6,879		1		2		7,568		3		3
Total Commercial Real Estate		33,975		116		90		34,259		236		187
Commercial Working Capital		2,485		2		2		2,240		4		4
Commercial Other		4,132		10		10		4,529		16		16
Total Commercial		6,617		12		12		6,769		20		20
Consumer		-		-		-		-		-		-
Home Equity and Home Improvement		37		1		1		38		2		2
Total Impaired Loans	$	48,555	$	179	$	151	$	48,353	$	360	$	309

33

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2013: (In Thousands)

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	5,041	$	5,002	$	-
Residential Non Owner Occupied		3,921		3,187		-
Total Residential Real Estate		8,962		8,189		-
Construction		300		263		-
Multi-Family Residential Real Estate		1,442		1,292		-
CRE Owner Occupied		11,119		8,707		-
CRE Non Owner Occupied		7,882		6,341		-
Agriculture Land		1,097		917		-
Other CRE		6,160		3,840		-
Total Commercial Real Estate		26,258		19,805		-
Commercial Working Capital		1,267		1,271		-
Commercial Other		4,222		4,210		-
Total Commercial		5,489		5,481		-
Consumer		67		67		-
Home Equity and Home Improvement		2,405		2,272		-
Total loans with no allowance recorded	$	44,923	$	37,369	$	-
With an allowance recorded:
Residential Owner Occupied	$	1,545	$	1,552	$	22
Residential Non Owner Occupied		1,227		1,229		219
Total Residential Real Estate		2,772		2,781		241
Construction		-		-		-
Multi-Family Residential Real Estate		-		-		-
CRE Owner Occupied		8,013		6,869		294
CRE Non Owner Occupied		16,336		16,412		1,206
Agriculture Land		111		116		3
Other CRE		85		57		2
Total Commercial Real Estate		24,545		23,454		1,505
Commercial Working Capital		-		-		-
Commercial Other		1,732		1,742		55
Total Commercial		1,732		1,742		55
Consumer		14		14		1
Home Equity and Home Improvement		443		443		44
Total loans with an allowance recorded	$	29,506	$	28,434	$	1,846

*Unpaid principal balance includes partial charge-offs.

Impaired loans have been recognized in conformity with FASB ASC Topic 310.

34

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012: (In Thousands)

	Unpaid Principal Balance		Recorded Investment		Allowance  for Loan  Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	5,427	$	5,357	$	-
Residential Non Owner Occupied		4,211		3,420		-
Total Residential Real Estate		9,638		8,777		-
Construction		300		45		-
Multi-Family Residential Real Estate		1,775		1,626		-
CRE Owner Occupied		12,314		9,782		-
CRE Non Owner Occupied		11,054		9,105		-
Agriculture Land		1,176		993		-
Other CRE		8,741		5,527		-
Total Commercial Real Estate		33,285		25,407		-
Commercial Working Capital		1,565		1,565		-
Commercial Other		6,367		5,338		-
Total Commercial		7,932		6,903		-
Consumer		125		124		-
Home Equity and Home Improvement		2,777		2,642		-
Total loans with no allowance recorded	$	55,832	$	45,524	$	-
With an allowance recorded:
Residential Owner Occupied	$	1,697	$	1,701	$	257
Residential Non Owner Occupied		1,449		1,452		24
Total Residential Real Estate		3,146		3,153		281
Construction		-		-		-
Multi-Family Residential Real Estate		-		-		-
CRE Owner Occupied		5,735		5,118		245
CRE Non Owner Occupied		15,301		15,357		820
Agriculture Land		111		112		3
Other CRE		88		59		2
Total Commercial Real Estate		21,235		20,646		1,070
Commercial Working Capital		300		301		10
Commercial Other		1,623		1,626		128
Total Commercial		1,923		1,927		138
Consumer		-		-		-
Home Equity and Home Improvement		36		36		2
Total loans with an allowance recorded	$	26,340	$	25,762	$	1,491

*Unpaid principal balance includes partial charge-offs.

35

The following table presents the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned on the dates indicated:

	June 30, 2013		December 31, 2012
	(in thousands)
Non-accrual loans	$	28,650	$	32,570
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		28,650		32,570
Real estate and other assets held for sale		6,546		3,805
Total non-performing assets	$	35,196	$	36,375

The following table presents the aging of the recorded investment in past due and non accrual loans as of June 30, 2013 by class of loans: (In Thousands)

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	124,065	$	1,042	$	499	$	775	$	2,316	$	943
Residential Non Owner Occupied		69,645		365		152		743		1,260		2,117
Total residential real estate		193,710		1,407		651		1,518		3,576		3,060
Construction		26,627		-		-		-		-		-
Multi-Family		136,410		-		-		-		-		1,100
CRE Owner Occupied		323,579		828		1,183		2,953		4,964		8,696
CRE Non Owner Occupied		232,156		-		-		1,922		1,922		6,421
Agriculture Land		76,539		103		260		-		363		699
Other Commercial Real Estate		44,368		837		-		1,491		2,328		3,067
Total Commercial Real Estate		676,642		1,768		1,443		6,366		9,577		18,883
Commercial Working Capital		164,972		-		-		445		445		593
Commercial Other		228,913		174		180		2,756		3,110		4,800
Total Commercial		393,885		174		180		3,201		3,555		5,393
Consumer		16,620		191		-		-		191		-
Home Equity / Home Improvement		105,639		1,030		186		201		1,417		201
Total Loans	$	1,549,533	$	4,570	$	2,460	$	11,286	$	18,316	$	28,637

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The following table presents the aging of the recorded investment in past due and non accrual loans as of December 31, 2012 by class of loans: (In Thousands)

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	125,362	$	1,238	$	604	$	945	$	2,787	$	1,125
Residential Non Owner Occupied		71,777		413		126		849		1,388		2,473
Total residential real estate		197,139		1,651		730		1,794		4,175		3,598
Construction		19,296		-		-		-		-		-
Multi-Family		122,455		-		-		-		-		1,178
CRE Owner Occupied		321,071		1,248		382		1,622		3,252		9,652
CRE Non Owner Occupied		235,592		134		1,321		2,480		3,935		6,674
Agriculture Land		72,092		84		31		-		115		813
Other Commercial Real Estate		36,510		21		875		3,560		4,456		4,761
Total Commercial Real Estate		665,265		1,487		2,609		7,662		11,758		21,900
Commercial Working Capital		161,110		-		155		1,204		1,359		1,528
Commercial Other		218,477		584		1,201		2,138		3,923		4,136
Total Commercial		379,587		584		1,356		3,342		5,282		5,664
Consumer		15,702		229		8		-		237		-
Home Equity / Home Improvement		106,458		2,294		225		217		2,736		217
Total Loans	$	1,505,902	$	6,245	$	4,928	$	13,015	$	24,188	$	32,557

Troubled Debt Restructurings

As of June 30, 2013 and December 31, 2012, the Company has a recorded investment in troubled debt restructurings (“TDRs”) of $35.0 million and $35.5 million, respectively. The Company has allocated $1.4 million of specific reserves to those loans as of June 30, 2013 and $1.1 million as of December 31, 2012, and has committed to lend additional amounts totaling up to $7,000 and $41,000 at June 30, 2013 and December 31, 2012, respectively.

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

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Of the loans modified in a TDR, $6.3 million are 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 effective interest rate.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six month period ending June 30, 2013 and June 30, 2012:

	Loans Modified as a TDR for the Three Months Ended June 30, 2013 ($ in thousands)						Loans Modified as a TDR for the Six  Months Ended June 30, 2013 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of  period end)
Residential Owner Occupied		3	$	316		8	$	752
Residential Non Owner Occupied		0		-		1		194
CRE Owner Occupied		3		758		4		782
CRE Non Owner Occupied		1		1,374		1		1,374
Agriculture Land		0		-		1		217
Other CRE		1		32		1		32
Commercial / Industrial		1		47		1		47
Home Equity / Improvement		4		119		12		609
Consumer		1		11		3		14
Total		14	$	2,657		32	$	4,021

The loans described above increased the ALLL by $327,000 in the three month period ending June 30, 2013 and $355,000 in the six month period ending June 30, 2013.

	Loans Modified as a TDR for the Three Months Ended June 30, 2012 ($ in thousands)						Loans Modified as a TDR for the Six Months Ended June 30, 2012 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Residential Owner Occupied		3	$	412		5	$	559
Residential Non Owner Occupied		0		-		1		82
CRE Owner Occupied		0		-		2		922
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		1		320
Other CRE		1		62		1		62
Commercial / Industrial		0		-		0		-
Home Equity / Improvement		0		-		0		-
Consumer		0		-		0		-
Total		4	$	474		10	$	1,945

The loans described above increased the ALLL by $32,000 in the three month period ending June 30, 2012 and decreased the ALLL by $29,000 in the six month period ending June 30, 2012.

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 period ending June 30, 2013 and June 30, 2012:

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	Three Months Ended June 30, 2013 ($ in thousands)				Six Months Ended June 30, 2013 ($ 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)
Residential Owner Occupied		4	$	303		4	$	303
Residential Non Owner Occupied		1		77		1		77
CRE Owner Occupied		1		169		2		837
CRE Non Owner Occupied		1		212		1		212
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial / Industrial		0		-		0		-
Home Equity / Improvement		4		52		4		52
Consumer		0		-		0		-
Total		11	$	813		12	$	1,481

The TDRs that subsequently defaulted described above decreased the allowance for loan losses by $10,000 for the three month period ended June 30, 2013, and by $12,000 for the six month period ended June 30, 2013.

	Three Months Ended June 30, 2012 ($ in thousands)				Six Months Ended June 30, 2012 ($ 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)
Residential Owner Occupied		0	$	-		0	$	-
Residential 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 / Industrial		1		580		1		580
Home Equity / Improvement		0		-		0		-
Consumer		0		-		0		-
Total		1	$	580		1	$	580

The TDRs that subsequently defaulted described above did not decrease the allowance for loan losses for the three month period ended June 30, 2012 or the six month period ended June 30, 2012.

The terms of certain other loans were modified during the period ending June 30, 2013 that did not meet the definition of a TDR. The modification of these loans involved a modification of the terms of a loan to borrowers who were not experiencing financial difficulties. A total of 33 loans were modified under this definition during the three month period ended June 30, 2013 and a total of 75 loans were modified under this definition during the six month period ended June 30, 2013.

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

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Credit Quality Indicators

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

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

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

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

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

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Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (In Thousands)

Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	4,126	$	39	$	3,491	$	88	$	118,638	$	126,382
Residential Non Owner Occupied		54,823		3,444		6,051		-		6,586		70,904
Total residential real estate		58,949		3,483		9,542		88		125,224		197,286
Construction		18,217		-		263		-		8,147		26,627
Multi Family		132,511		670		2,237		-		992		136,410
CRE Owner Occupied		298,141		15,423		12,858		-		2,120		328,542
CRE Non Owner Occupied		203,780		11,597		18,642		-		59		234,078
Agriculture Land		75,041		590		1,271		-		-		76,902
Other CRE		38,950		2,289		4,655		-		803		46,697
Total Commercial Real Estate		615,912		29,899		37,426		-		2,982		686,219
Commercial Working Capital		157,463		5,891		2,063		-		-		165,417
Commercial Other		217,961		8,434		5,628		-		-		232,023
Total Commercial		375,424		14,325		7,691		-		-		397,440
Consumer		-		-		93		6		16,712		16,811
Home Equity/Improvement		-		-		844		71		106,141		107,056
Total	$	1,205,468	$	43,922	$	58,096	$	165	$	260,198	$	1,567,849

41

As of December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (In Thousands)

Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	4,221	$	75	$	3,617	$	234	$	120,002	$	128,149
Residential Non Owner Occupied		55,771		2,453		8,248		-		6,693		73,165
Total residential real estate		59,992		2,528		11,865		234		126,695		201,314
Construction		11,360		-		45		-		7,891		19,296
Multi Family		118,121		910		2,404		-		1,020		122,455
CRE Owner Occupied		292,765		10,440		18,740		-		2,378		324,323
CRE Non Owner Occupied		207,745		9,077		22,615		-		90		239,527
Agriculture Land		69,924		769		1,514		-		-		72,207
Other CRE		31,875		891		7,222		-		978		40,966
Total Commercial Real Estate		602,309		21,177		50,091		-		3,446		677,023
Commercial Working Capital		156,433		3,587		2,449		-		-		162,469
Commercial Other		208,783		5,204		8,413		-		-		222,400
Total Commercial		365,216		8,791		10,862		-		-		384,869
Consumer		-		-		70		-		15,869		15,939
Home Equity/Improvement		-		-		668		64		108,462		109,194
Total	$	1,156,998	$	33,406	$	76,005	$	298	$	263,383	$	1,530,090

Beginning with the first quarter of 2013 allowance analysis, management decided to return to using a twelve quarter look-back period, from using an eight quarter look-back period that has been used since December 31, 2010, for calculating the historical loss ratio. Management is not certain that the relatively low levels of charge-offs incurred in recent quarters are sustainable given the low levels of economic growth in its markets and believes the longer look-back period better captures loan portfolio risks at this time.

9. Mortgage Banking

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

	Three Months Ended  June 30,						Six Months Ended  June 30,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Gain from sale of mortgage loans	$	1,890		$	2,458		$	4,066		$	5,002
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		875			832			1,745			1,675
Amortization of mortgage servicing rights		(634	)		(855	)		(1,323	)		(1,717	)
Mortgage servicing rights valuation adjustments		312			(177	)		785			(256	)
		553			(200	)		1,207			(298	)
Net revenue from sale and servicing of mortgage loans	$	2,443		$	2,258		$	5,273		$	4,704

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.4 billion at June 30, 2013 and $1.3 billion at December 31, 2012.

42

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,194		$	10,106		$	10,121		$	10,219
Loans sold, servicing retained		674			808			1,436			1,558
Amortization		(634	)		(855	)		(1,323	)		(1,718	)
Carrying value before valuation allowance at end of period		10,234			10,059			10,234			10,059
Valuation allowance:
Balance at beginning of period		(1,815	)		(1,608	)		(2,288	)		(1,529	)
Impairment recovery (charges)		312			(177	)		785			(256	)
Balance at end of period		(1,503	)		(1,785	)		(1,503	)		(1,785	)
Net carrying value of MSRs at end of period	$	8,731		$	8,274		$	8,731		$	8,274
Fair value of MSRs at end of period	$	9,080		$	8,274		$	9,080		$	8,274

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.

An accrual for estimated secondary market buy-back losses of $581,000 was established in the first quarter of 2013. These losses were accrued and expensed as of March 31, 2013 based on an estimated exposure to repurchase requests resulting from notifications received from Fannie Mae’s post-foreclosure review process during the first quarter of 2013. Secondary market buy-back losses were $61,000 in the second quarter of 2013 compared to $73,000 for the same period in 2012. Secondary market buy-back losses were $642,000 for the six months ended June 30, 2013 compared to $73,000 for the same period in 2012. The accrual for estimated buy-back losses was $567,000 at June 30, 2013.

10. Deposits

A summary of deposit balances is as follows (in thousands):

	June 30, 2013		December 31, 2012
Non-interest-bearing checking accounts	$	301,742	$	315,132
Interest-bearing checking and money market accounts		659,249		664,857
Savings accounts		182,784		166,945
Retail certificates of deposit less than $100,000		321,422		342,472
Retail certificates of deposit greater than $100,000		168,573		176,029
Brokered or national certificates of deposit		1,938		2,037
Total	$	1,635,708	$	1,667,472

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11. Borrowings

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

	June 30, 2013		December 31, 2012
	(in thousands)
FHLB Advances:
Overnight borrowings	$	50,000	$	-
Putable advances		12,000		12,000
Amortizable mortgage advances		773		796
Total	$	62,773	$	12,796
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

The putable advances can be put back to the Company at the option of the FHLB on a quarterly basis. $12.0 million of the putable advances with a weighted average rate of 2.72% were not yet callable by the FHLB at June 30, 2013. The call dates for these advances range from July 15, 2013 to September 12, 2013 and the maturity dates range from January 14, 2015 to March 12, 2018. Putable advances are callable at the option of the FHLB on a quarterly basis

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (Trust Affiliate II) that issued $15 million of Guaranteed Capital Trust Securities (Trust Preferred Securities). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (Subordinated Debentures) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a fixed rate equal to 6.441% for the first five years and a floating interest rate based on three-month LIBOR plus 1.5%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 1.77% as of June 30, 2013 and 1.89% as of December 31, 2012.

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (Trust Affiliate I), that issued $20 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 1.65% and 1.77% on June 30, 2013 and December 31, 2012 respectively.

44

The Trust Preferred Securities issued by Trust Affiliates I and II are subject to mandatory redemption, in whole or part, upon repayment of the Subordinated Debentures. The Company has entered into agreements that fully and unconditionally guarantee the Trust Preferred Securities subject to the terms of the guarantees. The Trust Preferred Securities and Subordinated Debentures issued by Trust Affiliate I mature on December 15, 2035 but may be redeemed by the issuer at par after October 28, 2010. The Trust Preferred Securities issued by Trust Affiliate II mature on June 15, 2037, but may be redeemed at the Company’s option at any time on or after June 15, 2012, or at any time upon certain events.

Interest on both issues of trust preferred securities may be deferred for a period of up to five years at the option of the issuer.

12. Commitments, Guarantees and Contingent Liabilities

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

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

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

	June 30, 2013				December 31, 2012
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	53,360	$	46,053	$	50,205	$	48,035
Unused lines of credit		21,820		246,573		21,975		228,269
Standby letters of credit		-		16,492		-		18,166
Total	$	75,180	$	309,118	$	72,180	$	294,470

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

In addition to the above commitments, First Defiance had commitments to sell $37.8 million and $53.6 million of loans to Freddie Mac, Fannie Mae, Federal Home Loan Bank of Cincinnati or BB&T Mortgage at June 30, 2013 and December 31, 2012, respectively.

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13. Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Indiana. The Company is no longer subject to examination by taxing authorities for years before 2008. The Company currently operates primarily in the states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.

14. Derivative Financial Instruments

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. First Federal had approximately $21.3 million and $34.0 million of interest rate lock commitments at June 30, 2013 and December 31, 2012, respectively. There were $37.8 million and $53.6 million of forward commitments for the future delivery of residential mortgage loans at June 30, 2013 and December 31, 2012, respectively.

The fair value of these mortgage banking derivatives are reflected by a derivative asset. The table below provides data about the carrying values of these derivative instruments:

June 30, 2013

December 31, 2012

Assets

(Liabilities)

Assets

(Liabilities)

Derivative

Derivative

Carrying

Carrying

Net Carrying

Carrying

Carrying

Net Carrying

Value

Value

Value

Value

Value

Value

(In Thousands)

Derivatives not designated as hedging instruments

Mortgage Banking Derivatives

$

616

$

-

$

616

$

950

$

(94

)

$

856

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
	(In Thousands)					(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	(79	)	$	117	$	(240	)	$	390

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

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15. Other Comprehensive Income (Loss)

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
Three months ended June 30, 2013:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(5,500	)	$	(1,927	)	$	(3,573	)
Reclassification adjustment for net gains included in net income		(44	)		(13	)		(31	)
Total other comprehensive loss	$	(5,544	)	$	(1,940	)	$	(3,604	)

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Six months ended June 30, 2013:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(6,164	)	$	(2,162	)	$	(4,002	)
Reclassification adjustment for net gains included in net income		(97	)		(29	)		(68	)
Total other comprehensive loss	$	(6,261	)	$	(2,191	)	$	(4,070	)

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Three months ended June 30, 2012:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	1,493		$	503		$	990
Reclassification adjustment for net gains included in net income		(382	)		(115	)		(267	)
Total other comprehensive loss	$	1,111		$	388		$	723

	Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
Six months ended June 30, 2012:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	1,444		$	484		$	960
Reclassification adjustment for net gains included in net income		(425	)		(128	)		(297	)
Total other comprehensive loss	$	1,019		$	356		$	663

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

							Accumulated
	Securities			Post-			Other
	Available			retirement			Comprehensive
	For Sale			Benefit			Income
Balance January 1, 2013	$	4,851		$	(577	)	$	4,274
Other comprehensive loss before reclassifications		(4,002	)		-			(4,002	)
Amounts reclassified from accumulated other comprehensive loss		(68	)		-			(68	)
Net other comprehensive loss during period		(4,070	)		-			(4,070	)
Balance June 30, 2013	$	781		$	(577	)	$	204
Balance January 1, 2012	$	4,704		$	(707	)	$	3,997
Other comprehensive loss before reclassifications		960			-			960
Amounts reclassified from accumulated other comprehensive loss		(297	)		-			(297	)
Net other comprehensive loss during period		(663	)		-			663
Balance June 30, 2012	$	5,367		$	(707	)	$	4,660

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

Forward-Looking Information

Certain statements contained in this quarterly report are not 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 results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of market and other factors. The Company assumes no obligation to update any forward-looking statements.

General

First Defiance is a unitary thrift holding company that conducts business through its subsidiaries, First Federal, First Insurance and First Defiance Risk Management. First Federal is a federally chartered stock savings bank that provides financial services to communities through 33 full service banking centers in communities based in northwest Ohio, northeast Indiana, and southeastern Michigan. First Federal provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network. First Insurance sells a variety of property and casualty, group health and life, and individual health and life insurance products. Insurance products are sold through First Insurance’s offices in Defiance, Archbold, Bryan, Bowling Green, Maumee and Oregon, Ohio areas. First Defiance Risk Management is a wholly-owned insurance company subsidiary of the Company that insures the Company and the Subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. First Defiance Risk Management was incorporated on December 20, 2012.

Impact of Legislation - Over the last several years, Congress and the U.S. Department of the Treasury have enacted legislation and taken actions to address the disruptions in the financial system, declines in the housing market, and the overall regulation of financial institutions and the financial system. In this regard, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), includes provisions affecting large and small financial institutions alike, including several provisions that profoundly affect the regulation of community banks, thrifts, and bank and thrift holding companies, such as First Defiance. Also, the Dodd-Frank Act abolished the Office of Thrift Supervision effective July 21, 2011 and transferred its functions to the Office of the Comptroller of the Currency (“OCC”), FDIC, and Federal Reserve. The Dodd-Frank Act relaxed rules regarding interstate branching, allows financial institutions to pay interest on business checking accounts, changed the scope of federal deposit insurance coverage, imposed new capital requirements on bank and thrift holding companies, and imposed limits on debit card interchange fees charged by issuer banks (commonly known as the Durbin Amendment).

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The Dodd-Frank Act also established the Consumer Financial Protection Bureau (“CFPB”) as an independent bureau within the Federal Reserve, which has broad authority to regulate consumer financial products and services and entities offering such products and services, including banks. Many of the consumer financial protection functions formerly assigned to the federal banking and other designated agencies are now performed by the CFPB. The CFPB has broad rulemaking authority over providers of credit, savings, and payment services and products. In this regard, the CFPB has the authority to implement regulations under federal consumer protection laws and enforce those laws against, and examine, financial institutions. State officials also will be authorized to enforce consumer protection rules issued by the CFPB. This bureau also is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. The CFPB also is directed to prevent “unfair, deceptive or abusive practices” and ensure that all consumers have access to markets for consumer financial products and services and that such markets are fair, transparent, and competitive. Although the CFPB has begun to implement its regulatory, supervisory, examination, and enforcement authority, there continues to be significant uncertainty as to how the agency’s strategies and priorities will impact First Defiance.

The CFPB has indicated that mortgage lending is an area of supervisory focus and that it will concentrate its examination and rulemaking efforts on the variety of mortgage-related topics required under the Dodd-Frank Act, including steering consumers to less-favorable products, discrimination, abusive or unfair lending practices, predatory lending, origination disclosures, minimum mortgage underwriting standards, mortgage loan originator compensation, and servicing practices. The CFPB recently published several final regulations impacting the mortgage industry, including rules related to ability-to-pay, mortgage servicing, and mortgage loan originator compensation. The ability-to-repay rule makes lenders liable if they fail to assess ability to repay under a prescribed test, but also creates a safe harbor for so called “qualified mortgages.” The “qualified mortgages” standards include a tiered cap structure that places limits on the total amount of certain fees that can be charged on a loan, a 43% cap on debt-to-income (i.e., total monthly payments on debt to monthly gross income), exclusion of interest-only products, and other requirements. The 43% debt-to-income cap does not apply for the first seven years the rule is in effect for loans that are eligible for sale to Fannie Mae or Freddie Mac or eligible for government guarantee through the FHA or the Veterans Administration. Failure to comply with the ability-to-repay rule may result in possible CFPB enforcement action and special statutory damages plus actual, class action, and attorney fees damages, all of which a borrower may claim in defense of a foreclosure action at any time. First Defiance’s management team is currently assessing the impact of these requirements on our mortgage lending business.

In addition, the Federal Reserve and other federal bank regulatory agencies have issued a proposed rule under the Dodd-Frank Act that would exempt “qualified residential mortgages” from the securitization risk retention requirements of the Dodd-Frank Act. The final definition of what constitutes a “qualified residential mortgage” may impact the pricing and depth of the secondary market into which the Company may sell mortgages it originates. At this time, First Defiance cannot predict the content of the final CFPB and other federal agency regulations or the impact they might have on First Defiance’s financial results. The CFPB’s authority over mortgage lending, and its authority to change regulations adopted in the past by other regulators, or to rescind or ignore past regulatory guidance, could increase First Defiance’s compliance costs and litigation exposure.

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First Defiance’s management team continues to actively monitor the implementation of the Dodd-Frank Act and the regulations promulgated thereunder and assess its probable impact on the business, financial condition, and results of operations of First Defiance. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and First Defiance in particular, continues to be uncertain.

New Capital Rules. On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to First Defiance and First Federal. The FDIC and the OCC have subsequently approved these rules. The final rules were adopted following the issuance of proposed rules by the Federal Reserve in June 2012, and implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and will refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to First Defiance and First Federal under the final rules bare: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The final rules implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes First Defiance) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including First Federal, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

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The final rules set forth certain changes for the calculation of risk-weighted assets, which First Federal will be required to utilize beginning January 1, 2015. The standardized approach final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.

Based on our current capital composition and levels, management believes it will be in compliance with the requirements as set forth in the final rules.

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 “Bank with the people you know and trust” 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 segments 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. In 2013, management intends to continue to focus on asset quality, core deposit growth, expense control as well as other opportunities to further service our customers.

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 with 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 the needs 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. 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.

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Consumer Banking - First Federal offers customers a full range of deposit and investment products including demand, NOW, money market, certificates of deposit, 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, installment loans and education loans. First Federal also offers online banking services, which include online bill pay along with debit cards.

Fee Income Development - Generation of fee income and the diversification of revenue sources are accomplished through the mortgage banking operation, insurance subsidiary 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 Federal is primarily a collateral lender with an emphasis on cash flow performance, while obtaining additional support from personal guarantees and secondary sources of repayment. First Federal has focused its attention on loan types and markets that it knows well and in which it has historically been successful in. First Federal strives to have loan relationships that are well diversified in both size and industry, and monitor 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, including FDIC-assisted transactions. 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 has successfully integrated acquired financial institutions in the past with the most recent acquisition completed in 2008. 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. First Defiance will also continue the same approach as state above for insurance acquisitions. First Defiance completed its most recent insurance acquisition in 2011, which was merged into First Insurance.

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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 $445,000 at June 30, 2013. Securities not classified as held-to-maturity are classified as available-for-sale, which are stated at fair value and had a recorded value of $188.1 million at June 30, 2013. The available-for-sale portfolio consists of obligations of U.S. Government corporations and agencies ($4.9 million), certain municipal obligations ($78.1 million), CMOs ($54.9 million), corporate bonds ($9.0 million), mortgage backed securities ($39.0 million), and trust preferred and preferred stock ($2.2 million).

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

Lending - In order to properly assess the collateral dependent loans included in its loan portfolio, the Company has established policies regarding the monitoring of the collateral underlying such loans. The Company requires an appraisal that is less than one year old for all new collateral dependent real estate loans, and all renewed collateral dependent real estate loans where significant new money is extended. The appraisal process is handled by the 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.

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

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

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

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

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

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

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 Troubled Debt Restructurings, 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.

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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.

Changes in Financial Condition

At June 30, 2013, First Defiance's total assets, deposits and stockholders' equity amounted to $2.07 billion, $1.64 billion and $264.5 million, respectively, compared to $2.05 billion, $1.67 billion and $258.1 million, respectively, at December 31, 2012.

Net loans receivable (excluding loans held for sale) increased $37.9 million to $1.54 billion. The variance in loans receivable between June 30, 2013 and December 31, 2012 includes decreases in home equity and improvement loans (down $2.1 million) and one to four family residential real estate loans (down $4.0 million), while the remaining categories increased, including commercial real estate loans (up $23.0 million), commercial loans (up $12.3 million), construction loans (up $3.7 million), and consumer loans (up $881,000).

The investment securities portfolio decreased $6.1 million to $188.5 million at June 30, 2013 from $194.6 million at December 31, 2012. The decrease is the result of the change in market values in all the security categories, $14.7 million of securities maturing or being called in the period, principal pay downs of $9.5 million in CMOs and mortgage-backed securities, and $2.9 million from three securities being sold; somewhat offset by $28.6 million of securities being purchased during the first six months of 2013. There was an unrealized gain in the investment portfolio of $1.2 million at June 30, 2013 compared to an unrealized gain of $7.5 million at December 31, 2012.

Deposits decreased from $1.67 billion at December 31, 2012 to $1.64 billion as of June 30, 2013. Non-interest bearing demand deposits decreased $13.4 million to $301.7 million, retail time deposits decreased $28.5 million to $490.0 million, broker/national certificates of deposit decreased $100,000 to $1.9 million, and interest-bearing demand deposits and money market accounts decreased $5.6 million to $659.2 million. These decreases were partially offset by an increase in savings accounts of $15.8 million to $182.8 million.

Stockholders’ equity increased from $258.1 million at December 31, 2012 to $264.5 million at June 30, 2013. The increase in stockholders’ equity was the result of recording net income of $11.7 million, partially offset by $2.0 million of common stock dividends being paid in the first six months of 2013 and a $4.1 million decline in other comprehensive income.

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

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

	Three Months Ended June 30,
	2013							2012
	Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (2)			Balance		Interest (1)		Rate (2)
Interest-earning assets:
Loans receivable	$	1,520,708	$	17,064		4.50	%	$	1,462,312	$	18,223		5.01	%
Securities		195,942		1,800		3.82			273,017		2,384		3.62
Interest bearing deposits		89,116		72		0.32			147,730		114		0.31
FHLB stock		19,964		207		4.16			20,655		214		4.17
Total interest-earning assets		1,825,730		19,143		4.22			1,903,714		20,935		4.44
Non-interest-earning assets		204,977							198,961
Total assets	$	2,030,707						$	2,102,675
Interest-bearing liabilities:
Deposits	$	1,343,678	$	1,511		0.45	%	$	1,368,144	$	2,116		0.62	%
FHLB advances		14,443		92		2.55			81,823		750		3.69
Notes payable		49,728		61		0.49			52,921		97		0.74
Subordinated debentures		36,136		150		1.66			36,198		310		3.44
Total interest-bearing liabilities		1,443,985		1,814		0.50			1,539,086		3,273		0.86
Non-interest bearing deposits		301,099		-					260,950		-
Total including non-interest bearing demand deposits		1,745,084		1,814		0.42			1,800,036		3,273		0.73
Other non-interest-bearing liabilities		21,330							21,608
Total liabilities		1,766,414							1,821,644
Stockholders' equity		264,293							281,031
Total liabilities and stock-holders' equity	$	2,030,707						$	2,102,675
Net interest income; interest rate spread			$	17,329		3.72	%			$	17,662		3.58	%
Net interest margin (3)						3.82	%						3.75	%
Average interest-earning assets to average interest-bearing liabilities						126	%						124	%

(1) Interest on certain tax-exempt loans and securities is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 35%.

(2) Annualized

(3) Net interest margin is net interest income divided by average interest-earning assets.

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	Six Months Ended June 30,
	2013							2012
	Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (2)			Balance		Interest (1)		Rate (2)
Interest-earning assets:
Loans receivable	$	1,510,465	$	33,878		4.50	%	$	1,459,559	$	36,902		5.08	%
Securities		196,257		3,594		3.81			255,279		4,529		3.68
Interest bearing deposits		97,724		130		0.27			156,697		206		0.26
FHLB stock		19,659		426		4.35			20,655		443		4.31
Total interest-earning assets		1,824,105		38,028		4.18			1,892,190		42,080		4.47
Non-interest-earning assets		205,202							199,399
Total assets	$	2,029,307						$	2,091,589
Interest-bearing liabilities:
Deposits	$	1,350,112	$	3,158		0.47	%	$	1,366,583	$	4,485		0.66	%
FHLB advances		13,616		182		2.68			81,828		1,501		3.69
Notes payable		48,062		121		0.50			53,162		201		0.76
Subordinated debentures		36,136		302		1.68			36,198		641		3.56
Total interest-bearing liabilities		1,447,926		3,763		0.52			1,537,771		6,828		0.89
Non-interest bearing deposits		297,662		-					253,102		-
Total including non-interest bearing demand deposits		1,745,588		3,763		0.43			1,790,873		6,828		0.77
Other non-interest-bearing liabilities		21,760							20,276
Total liabilities		1,767,348							1,811,149
Stockholders' equity		261,959							280,440
Total liabilities and stock-holders' equity	$	2,029,307						$	2,091,589
Net interest income; interest rate spread			$	34,265		3.66	%			$	35,252		3.58	%
Net interest margin (3)						3.78	%						3.76	%
Average interest-earning assets to average interest-bearing liabilities						126	%						123	%

(1) Interest on certain tax-exempt loans and securities is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 35%.

(2) Annualized

(3) Net interest margin is net interest income divided by average interest-earning assets.

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Results of Operations

Three Months Ended June 30, 2013 and 2012

On a consolidated basis, First Defiance’s net income for the quarter ended June 30, 2013 was $6.1 million compared to net income of $3.9 million for the comparable period in 2012. Net income applicable to common shares was $6.1 million for the second quarter of 2013 compared to $3.8 million for the comparable period in 2012. On a per share basis, basic and diluted earnings per common share for the three months ended June 30, 2013 were $0.63 and $0.60, respectively, compared to basic and diluted earnings per common share of $0.39 and $0.38, respectively, for the quarter ended June 30, 2012.

Net Interest Income

First Defiance’s net interest income is determined by its interest rate spread (i.e. the difference between the yields on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.

Net interest income was $16.9 million for the quarter ended June 30, 2013, down from $17.2 million for the same period in 2012. The tax-equivalent net interest margin was 3.82% for the quarter ended June 30, 2013, up from 3.75% for the same period in 2012. The increased margin between the 2012 and 2013 second quarters was made possible by a balance sheet restructure completed in the fourth quarter of 2012, where the Company sold securities and paid off higher rate FHLB advances. This helped to offset the decrease in interest-earning asset yields, which decreased by 22 basis points (to 4.22% in the second quarter of 2013 from 4.44% for the same period in 2012) which was partially offset by the cost of interest-bearing liabilities between the two periods decreasing 36 basis points (to 0.50% in the second quarter of 2013 from 0.86% in the same period in 2012). Also, operating at a high level of liquidity along with lower loan yields has impacted the net interest margin negatively in the second quarter of 2013. Management continues to analyze and look for additional opportunities to maintain its margin, as well as other alternatives to minimize the impact of the sustained low rate environment.

Total interest income decreased by $1.8 million or 8.7% to $18.7 million for the quarter ended June 30, 2013 from $20.5 million for the same period in 2012. The decrease in interest income was due to a decline in asset yields, mainly as a result of a drop in yields on loans receivable which declined 51 basis points to 4.50% at June 30, 2013. Interest income from loans decreased to $17.0 million for the quarter ended June 30, 2013 compared to $18.2 million for the same period in 2012, which represents a decline of 6.3%.

Interest expense decreased by $1.5 million in the second quarter of 2013 compared to the same period in 2012, to $1.8 million from $3.3 million. This decrease was due to a 36 basis point decline in the average cost of interest-bearing liabilities in the second quarter of 2013 mainly due to the early payoff of FHLB advances as part of the balance sheet restructure completed in the fourth quarter of 2012 and the continued low rate environment resulting in decreases in rate on all the interest-bearing liability categories. Interest expense related to interest-bearing deposits was $1.5 million in the second quarter of 2013 compared to $2.1 million for the same period in 2012. Interest expense recognized by the Company related to subordinated debentures was $150,000 in the second quarter of 2013 compared to $310,000 for the same period in 2012. Expenses on FHLB advances and securities sold under repurchase agreements were $92,000 and $61,000 respectively in the second quarter of 2013 compared to $750,000 and $97,000 respectively for the same period in 2012.

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Allowance for Loan Losses

The allowance for loan losses represents management’s assessment of the estimated probable credit losses in the loan portfolio at each balance sheet date. Management analyzes the adequacy of the allowance for loan losses 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 is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of all commercial loan and commercial real estate loan relationships that exceed $1.0 million of aggregate exposure over a twelve month period. 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 associated with these types of loans.

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable credit losses within the existing loan portfolio in the normal course of business. The allowance for loan loss is made up of two basic components. The first component is the specific allowance in which the Company sets aside reserves based on the analysis of individual credits that are cash flow dependent, yet there is a discount between the present value of the future cash flows and the carrying value. This was $1.8 million at June 30, 2013. The second component is the general reserve. The general reserve is used to record loan loss reserves for groups of homogenous loans in which the Company estimates the losses incurred in the portfolios based on quantitative and qualitative factors. Due to the uncertainty of risks in the loan portfolio, the Company’s judgment on the amount of the allowance necessary to absorb loans losses is approximate.

The Company charges off any shortfall on collateral dependent loans. First Federal analyzes all loans on its classified and special mention lists at least 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 guarantor in determining the amount of impairment of individual loans and the charge off to be taken.

For purposes of the general reserve analysis, the loan portfolio is stratified into nine different loan pools based on loan type to allocate historic loss experience. The loss experience factor applied to the non-impaired loan portfolio was based upon historical losses of the most recent rolling twelve quarters ending June 30, 2013. Beginning with the first quarter of 2013 allowance analysis, management decided to return to using a twelve quarter look-back period, from using an eight quarter look-back period, for calculating the historical loss ratio. Management is not certain that the relatively low levels of charge-offs incurred in recent quarters are sustainable given the low levels of economic growth in its markets and believes the longer look-back period better captures loan portfolio risks at this time.

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The stratification of the loan portfolio resulted in a quantitative general allowance of $13.4 million at June 30, 2013 compared to $14.4 million at December 31, 2012. The decrease in the quantitative allowance was due to a decrease in the historical loss factors relating to commercial, commercial real estate, residential and consumer loans.

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on the non-impaired loan portfolio for various factors. The overall qualitative factors are based on nine sub-factors. The nine sub-factors have been aggregated into three qualitative factors: economic, environment and risk.

ECONOMIC

1) Changes in international, national and local economic business conditions and developments, including the condition of various market segments.

2) Changes in the value of underlying collateral for collateral dependent loans.

ENVIRONMENT

3) Changes in the nature and volume in the loan portfolio.

4) The existence and effect of any concentrations of credit and changes in the level of such concentrations.

5) Changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.

6) Changes in the quality and breadth of the loan review process.

7) Changes in the experience, ability and depth of lending management and staff.

RISK

8) Changes in the trends of the volume and severity of delinquent and classified loans, and changes in the volume of non-accrual loans, trouble debt restructuring, and other loan modifications.

9) Changes in the political and regulatory environment.

The qualitative analysis at June 30, 2013 indicated a general reserve of $11.1 million compared with $10.8 million at December 31, 2012. Management reviewed the overall economic, environmental and risk factors and determined that it was appropriate to increase several of these due to the continued uncertainty of the economy and the impact on GDP of the fiscal cliff decisions as well as the impacts of the debt ceiling negotiations. The fluctuation in unemployment rates in some of the counties we serve also contributed to an increase in the economic factors. Finally the risk profile was increased due to a continued focus by our regulators for stability in the allowance levels. First Defiance’s general reserve percentages for main loan segments not otherwise classified ranged from 0.20% for construction loans to 1.90% for nonresidential real estate loans.

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As a result of the quantitative and qualitative analyses, along with the change in specific reserves, the Company’s provision for loan losses for the second quarter of 2013 was $448,000, compared to $4.1 million for the same period in 2012. The allowance for loan losses was $26.3 million and $26.7 million and represented 1.68% and 1.75% of loans, net of undisbursed loan funds and deferred fees and costs, as of June 30, 2013 and December 31, 2012, respectively. The provision of $448,000 was offset by charge offs of $961,000 and recoveries of $324,000, resulting in a decrease to the overall allowance for loan loss of $189,000 in the second quarter. In management’s opinion, the overall allowance for loan losses of $26.3 million as of June 30, 2013 is adequate.

Management also assesses the value of real estate owned as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In the three month period ended June 30, 2013, First Defiance had write-downs that totaled $215,000 compared to write-downs of $126,000 for the same period in 2012. Management believes that the values recorded at June 30, 2013 for real estate owned and repossessed assets represent the realizable value of such assets.

Total classified loans decreased to $58.4 million at June 30, 2013, compared to $78.1 million at December 31, 2012. First Federal also has classified $165,000 of loans as doubtful at June 30, 2013, compared to $298,000 at December 31, 2012.

First Federal’s ratio of allowance for loan losses to non-performing loans was 91.7% at June 30, 2013 compared with 82.0% at December 31, 2012. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for those loans at June 30, 2013 were appropriate. The Company experienced a decrease in non-accrual loans in the second quarter of 2013. Of the total non-accrual loans, $17.4 million or 60.5%, are less than 90 days past due.

At June 30, 2013, First Defiance had total non-performing assets of $35.2 million, compared to $36.4 million at December 31, 2012. Non-performing assets include loans that are 90 days past due, real estate owned and other assets held for sale. Non-performing assets at June 30, 2013 and December 31, 2012 by category were as follows:

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Table 1 – Non-Performing Asset

	June 30,			December 31,
	2013			2012
	(In thousands)
Non-performing loans:
Single-family residential	$	3,065		$	3,602
Construction		-			-
Non-residential and multi-family residential real estate		19,994			23,090
Commercial		5,390			5,661
Consumer finance		-			-
Home equity and improvement		201			217
Total non-performing loans		28,650			32,570
Real estate owned and repossessed assets		6,546			3,805
Total non-performing assets	$	35,196		$	36,375
Allowance for loan losses as a percentage of total loans*		1.68	%		1.75	%
Allowance for loan losses as a percentage of non-performing assets		74.64	%		73.43	%
Allowance for loan losses as a percentage of non-performing loans		91.69	%		82.01	%
Total non-performing assets as a percentage of total assets		1.70	%		1.78	%
Total non-performing loans as a percentage of total loans*		1.83	%		2.14	%

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

The decrease in non-performing loans between December 31, 2012 and June 30, 2013 is primarily in commercial real estate loans. The balance of this type of non-performing loan was $4.0 million lower at June 30, 2013 compared to December 31, 2012.

Non-performing loans in the commercial real estate category represented 2.44% of the total loans in those categories at June 30, 2013 compared to 2.90% for the same category at December 31, 2012. Management believes that the current allowance for loan losses is appropriate and that the provision for loan losses recorded in the second quarter of 2013 is consistent with both charge-off experience and the risk inherent in the overall credits in the portfolio.

Non-performing assets, which include non-performing loans (non-accrual) and real estate owned, decreased to $35.2 million at June 30, 2013 from $36.4 million at December 31, 2012.

First Federal’s Asset Review Committee meets monthly to review the status of work-out strategies for all criticized relationships, which include all non-accrual loans. Based on such factors as anticipated collateral values in liquidation scenarios, cash flow projections, assessment of net worth of guarantors and all other factors which may mitigate risk of loss, the Asset Review Committee makes recommendations regarding proposed charge-offs which are approved by the Senior Loan Committee or the Loan Loss Reserve Committee.

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The following table details net charge-offs and nonaccrual loans by loan type. For the six months ended and as of June 30, 2013, commercial real estate, which represented 51.98% of total loans, accounted for 21.38% of net charge-offs and 69.79% of nonaccrual loans, and commercial loans, which represented 25.1% of total loans, accounted for 29.53% of net charge-offs and 18.81% of nonaccrual loans. For the six months ended and as of June 30, 2012, commercial real estate, which represented 51.33% of total loans, accounted for 67.85% of net charge-offs and 69.54% of nonaccrual loans, and commercial loans, which represented 24.64% of total loans, accounted for 20.75% of net charge-offs and 16.55% of nonaccrual loans.

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

	For the Six Months Ended June 30, 2013					As of June 30, 2013
	Net		% of Total Net			Nonaccrual		% of Total Non-
	Charge-offs		Charge-offs			Loans		Accrual Loans
	(in thousands)					(in thousands)
Residential	$	258		19.63	%	$	3,065		10.70	%
Construction		-		0.00	%		-		0.00	%
Commercial real estate		281		21.38	%		19,994		69.79	%
Commercial		388		29.53	%		5,390		18.81	%
Consumer		6		0.46	%		-		0.00	%
Home equity and improvement		381		29.00	%		201		0.70	%
Total	$	1,314		100.00	%	$	28,650		100.00	%

	For the Six Months Ended June 30, 2012					As of June 30, 2012
	Net		% of Total Net			Nonaccrual		% of Total Non-
	Charge-offs		Charge-offs			Loans		Accrual Loans
	(in thousands)					(in thousands)
Residential	$	1,198		8.29	%	$	5,352		12.83	%
Construction		-		0.00	%		-		0.00	%
Commercial real estate		9,801		67.85	%		29,000		69.54	%
Commercial		2,997		20.75	%		6,900		16.55	%
Consumer		23		0.16	%		4		0.01	%
Home equity and improvement		426		2.95	%		446		1.07	%
Total	$	14,445		100.00	%	$	41,702		100.00	%

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Table 3 – Allowance for Loan Loss Activity

	For the Quarter Ended
	2nd 2013		1st 2013		4th 2012		3rd 2012		2nd 2012
	(Dollars in Thousands)
Allowance at beginning of period	$	26,459	$	26,711	$	26,310	$	26,409	$	28,833
Provision for credit losses		448		425		2,619		705		4,097
Charge-offs:
Residential		184		206		976		217		584
Commercial real estate		283		266		595		780		5,448
Commercial		316		205		540		355		486
Consumer finance		8		46		59		19		14
Home equity and improvement		170		272		497		203		254
Total charge-offs		961		995		2,667		1,574		6,786
Recoveries		324		318		449		770		265
Net charge-offs		637		677		2,218		804		6,521
Ending allowance	$	26,270	$	26,459	$	26,711	$	26,310	$	26,409

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

Table 4 – Allowance for Loan Loss Allocation by Loan Category

	June 30, 2013					March 31, 2013					December 31, 2012					September 30, 2012					June 30, 2012
			Percent of					Percent of					Percent of					Percent of					Percent of
			total loans					total loans					total loans					total loans					total loans
	Amount		by category			Amount		by category			Amount		by category			Amount		by category			Amount		by category
Residential	$	3,197		12.47	%	$	3,433		13.00	%	$	3,506		13.00	%	$	2,996		13.75	%	$	3,104		13.94	%
Construction		83		2.63	%		67		2.20	%		75		2.45	%		63		2.06	%		48		1.52	%
Commercial real estate		15,565		51.98	%		15,777		52.74	%		14,899		51.63	%		16,260		51.87	%		16,562		51.33	%
Commercial		5,474		25.10	%		5,304		24.04	%		6,325		24.85	%		5,103		23.92	%		5,087		24.64	%
Consumer		165		1.07	%		155		1.02	%		147		1.03	%		147		1.10	%		140		1.13	%
Home equity and improvement		1,786		6.75	%		1,723		7.00	%		1,759		7.04	%		1,741		7.30	%		1,468		7.44	%
	$	26,270		100.00	%	$	26,459		100.00	%	$	26,711		100.00	%	$	26,310		100.00	%	$	26,409		100.00	%

Key Asset Quality Ratio Trends

Table 5 – Key Asset Quality Ratio Trends

	2nd Qtr 2013			1st Qtr 2013			4th Qtr 2012			3rd Qtr 2012			2nd Qtr 2012
Allowance for loan losses / loans*		1.68	%		1.76	%		1.75	%		1.74	%		1.76	%
Allowance for loan losses to net charge-offs		4124.02	%		3908.27	%		1204.83	%		3272.39	%		404.98	%
Allowance for loan losses / non-performing assets		74.64	%		66.82	%		73.43	%		64.73	%		58.38	%
Allowance for loan losses / non-performing loans		91.69	%		74.99	%		82.01	%		69.60	%		63.33	%
Non-performing assets / loans plus REO*		2.24	%		2.62	%		2.38	%		2.68	%		3.01	%
Non-performing assets / total assets		1.70	%		1.94	%		1.78	%		1.98	%		2.19	%
Net charge-offs / average loans (annualized)		0.17	%		0.18	%		0.59	%		0.22	%		1.78	%

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

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Non-Interest Income

Total non-interest income decreased $146,000 in the second quarter of 2013 to $7.8 million from $8.0 million for the same period in 2012.

Service Fees. Service fees and other charges decreased by $138,000 or 5.1% in the second quarter of 2013 compared to the same period in 2012.

First Federal’s overdraft privilege program generally provides for the automatic payment of modest overdraft limits on all accounts deemed to be in good standing when the account is accessed using paper-based check processing, a teller withdrawal, a point-of-sale terminal, an ACH transaction, an online banking or voice-response transfer, or an ATM. To be in good standing, an account must be brought to a positive balance within a 30-day period and have not excessively used the overdraft privilege program. Overdraft limits are established for all customers without discrimination using a risk assessment approach for each account classification. The approach includes a systematic review and evaluation of the normal deposit flows made to each account classification to establish reasonable and prudent negative balance limits that would be routinely repaid by normal, expected and reoccurring deposits. The risk assessment by portfolio approach assumes a minimal degree of undetermined credit risk associated with unidentified individual accounts that are overdrawn for 30 or more days. Consumer accounts overdrawn for more than 60 days are automatically charged off. Fees are charged as a one-time fee per occurrence, up to five charges per day, and the fee charged for an item that is paid is equal to the fee charged for a non-sufficient fund item that is returned.

Overdrawn balances, net of allowance for losses, are reflected as loans on First Defiance’s balance sheet. The fees charged for this service are established based both on the return of processing costs plus a profit, and on the level of fees charged by competitors in the Company’s market area for similar services. These fees are considered to be compensation for providing a service to the customer and therefore deemed to be noninterest income rather than interest income. Fee income recorded for the quarters ending June 30, 2013 and 2012 related to the overdraft privilege product, net of adjustments to the allowance for uncollectible overdrafts, were $854,000 and $1.1 million, respectively. Accounts charged off are included in noninterest expense. The allowance for uncollectible overdrafts was $5,000 at June 30, 2013, $4,000 at December 31, 2012 and $16,000 at June 30, 2012.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans increased $185,000 to $2.4 million for the second quarter of 2013 compared to $2.3 million for the same period of 2013. The continuing low rate environment helped contribute to a solid second quarter of 2013 mortgage originations, although mortgage originations were down slightly from the same period of 2012. Gains realized from the sale of mortgage loans decreased in the second quarter of 2013 to $1.9 million from $2.5 million in the second quarter of 2012. The amortization of mortgage servicing rights expense decreased $221,000 to $634,000 in the second quarter of 2013 compared to $855,000 in the same period in 2012. The Company recorded a positive valuation adjustment of $312,000 on mortgage servicing rights in the second quarter of 2013 compared to a negative valuation adjustment of $177,000 in the second quarter of 2012. The positive valuation adjustment in the second quarter of 2013 was driven by an increase in the fair values of certain sectors of the Company’s portfolio of mortgage servicing rights. The increase in fair values was driven by a slight increase in market rates in the second quarter of 2013 which also contributed to lower amortization of mortgage servicing rights in the second quarter of 2013.

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Insurance and Investment Sales Commissions. Income from the sale of insurance and investment products increased $85,000 in the second quarter of 2013 to $2.3 million from $2.2 million in the same period of 2012.

Impairment of Securities. First Defiance did not have any other-than-temporary impairment (“OTTI”) charges in the second quarter of 2013 and 2012 reflecting a more stable environment relating to its Trust Preferred Collateralized Debt Obligation (“CDO”) investments.

Non-Interest Expense

Non-interest expense increased to $15.7 million for the second quarter of 2013 compared to $15.5 million for the same period in 2012.

Compensation and Benefits. Compensation and benefits increased to $8.5 million for the quarter ended June 30, 2013 from $8.0 million for the same period in 2012. The increase is mainly attributable to higher health insurance costs. Also, the Company granted pay increases and accrued for bonus payments based on meeting 2013 targeted performance in the second quarter of 2013.

FDIC Insurance Premiums. FDIC expense decreased to $275,000 for the quarter ended June 30, 2013 from $672,000 for the same period in 2012 due to the improvement in the Company’s risk category late in the first quarter of 2013.

Other Non-Interest Expenses. Other non-interest expenses decreased by $44,000 to $3.0 million for the quarter ended June 30, 2013 from $3.0 million for the same period in 2012. Categories within other non-interest expenses that had the most significant changes were an increase in REO related expenses up $157,000 from the comparative period in 2012, an increase in advertising up $76,000 from the comparative period in 2012, offset by a reduction in credit and collections expense down $115,000 from the comparative period in 2012.

The efficiency ratio, considering tax equivalent interest income and excluding securities gains and losses, for the second quarter of 2013 was 62.36% compared to 61.45% for the same period in 2012.

Income Taxes

First Defiance computes federal income tax expense in accordance with ASC Topic 740, Subtopic 942, which resulted in an effective tax rate of 29.3% for the quarter ended June 30, 2013 compared to 30.1% for the same period in 2012. The tax rate 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.

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Six Months Ended June 30, 2013 and 2012

On a consolidated basis, First Defiance’s net income for the six months ended June 30, 2013 of $11.7 million compared to income of $8.1 million for the comparable period in 2012. Net income applicable to common shares was $11.7 million for the six months ended June 30, 2013 compared to $7.5 million for the comparable period in 2012. On a per share basis, basic and diluted earnings per common share for the six months ended June 30, 2013 were $1.20 and $1.15, respectively, compared to basic and diluted earnings per common share of $0.77 and $0.75, respectively, for the comparable period in 2012.

Net Interest Income

Net interest income was $33.4 million for the six months ended June 30, 2013 compared to $34.4 million for the same period in 2012. For the six month period ended June 30, 2013, total interest income was $37.2 million, a $4.1 million decrease from the same period in 2012. At the quarter ended June 30, 2013, average earning assets decreased by $68.1 million compared to June 30, 2012 with the average yield declining 29 basis points as a result of a lower rate environment.

Interest expense decreased by $3.1 million to $3.8 million for the six months ended June 30, 2013 compared to $6.8 million for the same period in 2012. The decline in the average cost of interest-bearing liabilities for the six months ending June 30, 2013, to 0.52%, a 37 basis point decrease from the 0.89% average cost in the first half of 2012 is the result of the continued low rate environment which has given management opportunities to re-price on the liability side.

Provision for Loan Losses

The provision for loan losses was $873,000 for the six months ended June 30, 2013, compared to $7.6 million during the six months ended June 30, 2012. The large decline year over year was primarily the result of an improving economy and stability in the loan portfolio. Appraisal values are starting to level off, resulting in much lower charge offs compared to the same period in 2012. Charge-offs for the first half of 2013 were $2.0 million and recoveries of previously charged off loans totaled $642,000 for net charge-offs of $1.3 million. By comparison, $14.9 million of charge-offs were recorded in the same period of 2012 and $493,000 of recoveries were realized for net charge-offs of $14.4 million.

Non-Interest Income

Total non-interest income increased to $16.8 million for the six months ended June 30, 2013 from $16.4 million recognized in the same period of 2012.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans increased 12.1% to $5.3 million for the six months ended June 30, 2013 from $4.7 million for the same period of 2012. Gains realized from the sale of mortgage loans decreased $960,000 to $4.1 million for the first half of 2013 from $5.0 million during the same period of 2012. Mortgage loan servicing revenue remained flat at $1.7 million in the first half of 2013 compared to the same period of 2012. The gains realized from the sale of mortgage loans were partially offset by the amortization of mortgage servicing rights in the amount of $1.3 million in first half of 2013 down from $1.7 million in the same period of 2012. The Company recorded a positive valuation adjustment of $785,000 in the first half of 2013 compared to a negative adjustment of $255,000 in the first half of 2012.

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Insurance and Investment Sales Commission. Insurance and investment sales commission income increased $586,000 to $5.3 million for the six months ended June 30, 2013, from $4.7 million during the same period of 2012. This is the result of receiving more contingent commission income in the first half of 2013 compared to the first half of 2012. In the first six month of 2013, $944,000 was received compared to $508,000 in the same period of 2012.

Loss on Securities. First Defiance did not have any OTTI charges in the first six months of 2013 or in the first six months of 2012 reflecting a more stable environment relating to its CDO investments.

Non-Interest Expense

Non-interest expense increased to $32.9 million for the first six months of 2013 compared to $31.8 million for the same period in 2012.

Compensation and Benefits. Compensation and benefits increased to $17.3 million for the six months ended June 30, 2013 from $16.5 million for the same period in 2012. The increase is mainly attributable to higher health insurance costs. Also, the Company granted pay increases and accrued for bonus payments based on meeting 2013 targeted performance for the six months ended June 30, 2013.

FDIC Insurance Premiums. FDIC expense decreased to $931,000 in the first six months of 2013, from $1.3 million in the same period of 2012. This decrease was the result of the change in the risk category assigned by our primary bank regulator, which allowed for a rate reduction on FDIC insurance premiums.

Other Non-Interest Expenses. Other non-interest expenses (including state franchise tax, data processing, amortization of intangibles and other) increased by $932,000 to $11.3 million for the first six months of 2013 from $10.4 million for the same period in 2012. Year-over-year increases between 2013 and 2012 include an increase in secondary market buy-back losses as a result of establishing an accrual in the first quarter of 2013 for estimated secondary market buy-back losses of $581,000. These losses were accrued and expensed as of March 31, 2013 based on an estimated exposure to repurchase requests resulting from notifications received from Fannie Mae’s post-foreclosure review process during the first quarter of 2013. Secondary market buy-back losses were $642,000 for the six months ended June 30, 2013 compared to $73,000 for the same period in 2012. The accrual for estimated buy-back losses was $567,000 at June 30, 2013.

The efficiency ratio for the first half of 2013 was 64.48% compared to 62.04% for the same period of 2012.

Liquidity

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

First Defiance had $20.1 million of cash provided by operating activities during the first six months of 2013. The Company's cash used in operating activities resulted from the origination of loans held for sale mostly offset by the proceeds on the sale of loans.

69

At June 30, 2013, First Federal had $127.4 million in outstanding loan commitments and loans in process to be funded generally within the next six months and an additional $282.2 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 $37.8 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.

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

Capital Resources

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

First Federal is required to maintain specified amounts of capital pursuant to regulations promulgated by the Office of the Comptroller of the Currency. The capital standards generally require the maintenance of regulatory capital sufficient to meet a tangible capital requirement, a core capital requirement, and a risk-based capital requirement. The following table sets forth First Federal's compliance with each of the capital requirements at June 30, 2013 (in thousands).

	Actual					Minimum Required for Adequately Capitalized					Minimum Required for Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 Capital (1)
Consolidated	$	238,187		11.89	%	$	80,126		4.0	%		N/A		N/A
First Federal Bank	$	227,451		11.37	%	$	80,006		4.0	%	$	100,007		5.0	%
Tier 1 Capital (to Risk Weighted Assets) (1)
Consolidated	$	238,187		13.79	%	$	69,083		4.0	%		N/A		N/A
First Federal Bank	$	227,451		13.19	%	$	69,000		4.0	%	$	103,499		6.0	%
Total Capital (to Risk Weighted Assets) (1)
Consolidated	$	259,834		15.04	%	$	138,166		8.0	%		N/A		N/A
First Federal Bank	$	249,071		14.44	%	$	137,999		8.0	%	$	172,499		10.0	%

(1) Core capital is computed as a percentage of adjusted total assets of $2.00 billion and $2.00 billion for consolidated and the bank, respectively. Risk-based capital is computed as a percentage of total risk-weighted assets of $1.73 billion and $1.72 billion for consolidated and the bank, respectively.

70

Critical Accounting Policies

First Defiance has established various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of its financial statements. The significant accounting policies of First Defiance are described in the footnotes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. Those policies which are identified and discussed in detail in the Company’s Annual Report on Form 10-K include the Allowance for Loan Losses, Valuation of Securities, Goodwill, and the Valuation of Mortgage Servicing Rights. There have been no material changes in assumptions or judgments relative to those critical policies during the first six months of 2013.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in detail in the 2012 Annual Report on Form 10-K, First Defiance’s ability to maximize net income is dependent on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of First Defiance are monetary in nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company. First Defiance does not use off-balance sheet derivatives to enhance its risk management, nor does it engage in trading activities beyond the sale of mortgage loans.

First Defiance monitors its exposure to interest rate risk on a monthly basis through simulation analysis that measures the impact changes in interest rates can have on net interest income. The simulation technique analyzes the effect of a presumed 100 basis point shift in interest rates (which is consistent with management’s estimate of the range of potential interest rate fluctuations) and takes into account prepayment speeds on amortizing financial instruments, loan and deposit volumes and rates, non-maturity deposit assumptions and capital requirements. The results of the simulation indicate that in an environment where interest rates rise 100 basis points over a 24 month period, using June 30, 2013 amounts as a base case, First Defiance’s net interest income would be impacted by less than the board mandated guidelines of 10%.

In addition to the simulation analysis, First Defiance also uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis calculates the net present value of First Federal’s assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points. The likelihood of a decrease in rates as of June 30, 2013 was considered to be remote given the current interest rate environment and therefore, was not included in this analysis but management believed it to be prudent to include a down 100 basis point environment. The results of this analysis are reflected in the following tables for the six months ended June 30, 2013 and the year-ended December 31, 2012.

71

June 30, 2013
Economic Value of Equity
Change in Rates	$ Amount		$ Change			% Change
	(Dollars in Thousands)
+400 bp		431,900		29,215			7.26	%
+ 300 bp		427,037		24,352			6.05	%
+ 200 bp		420,195		17,510			4.35	%
+ 100 bp		412,423		9,738			2.42	%
0 bp		402,685		–			–
- 100 bp		389,230		(13,454	)		(3.43	)%

December 31, 2012
Economic Value of Equity
Change in Rates	$ Amount		$ Change			% Change
	(Dollars in Thousands)
+400 bp		415,094		46,835			12.72	%
+ 300 bp		407,337		39,078			10.61	%
+ 200 bp		398,150		29,891			8.12	%
+ 100 bp		387,482		19,223			5.22	%
0 bp		368,259		–			–
- 100 bp		343,745		(24,514	)		(6.66	)%

Item 4. Controls and Procedures

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

An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2013. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. No changes occurred in the Company’s internal controls over financial reporting during the quarter ended June 30, 2013 that materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

72

FIRST DEFIANCE FINANCIAL CORP.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

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

First Defiance did not have any common stock repurchases during the second quarter of 2013, but has 93,124 shares that may be purchased under a plan announced by the Board of Directors on July 18, 2003.

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 3.1 Articles of Incorporation (1)

Exhibit 3.2 Code of Regulations (1)

Exhibit 3.3 Amendment to Articles of Incorporation (2)

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

(1) Incorporated herein by reference to the like numbered exhibit in the Registrant’s Form S-1 (File No. 33-93354)

(2) Incorporated herein by reference to exhibit 3 in Form 8-K filed December 8, 2008 (Film No. 081236105)

73

FIRST DEFIANCE FINANCIAL CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	First Defiance Financial Corp.
	(Registrant)
Date:  August 5, 2013	By:	/s/ William J. Small
		William J. Small
		Chairman, President and
		Chief Executive Officer
Date:  August 5, 2013	By:	/s/ Donald P. Hileman
		Donald P. Hileman
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

74

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, William J. Small, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 5, 2013	/s/ William J. Small
	William J. Small
	Chairman, President and
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Donald P. Hileman, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 5, 2013	/s/ Donald P. Hileman
	Donald P. Hileman
	Executive Vice President and
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Defiance Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William J. Small, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this quarterly report on Form 10-Q that:

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

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

Date: August 5, 2013	/s/ William J. Small
	William J. Small
	Chief Executive Officer

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

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Defiance Financial Corp. (the "Company") on Form 10-Q for the period ending June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald P. Hileman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this quarterly report on Form 10-Q that:

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

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

Date: August 5, 2013	/s/ Donald P. Hileman
	Donald P. Hileman
	Chief Financial Officer

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

XML

Derivative Financial Instruments (Details Textual) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Interest Rate Derivative Instruments Not Designated as Hedging Instruments at Fair Value, Net	$ 21.3	$ 34.0
Derivative Asset, Notional Amount	$ 37.8	$ 53.6

XML

Other Comprehensive Income (Loss) (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Securities Available For Sale, Beginning balance			$ 4,851	$ 4,704
Securities Available For Sale, Other comprehensive loss before reclassifications			(4,002)	960
Securities Available For Sale, Amounts reclassified from accumulated other comprehensive loss			(68)	(297)
Securities Available For Sale, Net other comprehensive loss during period	(3,604)	723	(4,070)	663
Securities Available For Sale, Ending balance	781	5,367	781	5,367
Post-retirement Benefit, Beginning balance			(577)	(707)
Post-retirement Benefit, Other comprehensive loss before reclassifications			0	0
Post-retirement Benefit, Amounts reclassified from accumulated other comprehensive loss			0	0
Post-retirement Benefit, Net other comprehensive loss during period			0	0
Post-retirement Benefit, Ending balance	(577)	(707)	(577)	(707)
Accumulated Other Comprehensive Income, Beginning balance			4,274	3,997
Accumulated Other Comprehensive Income, Other comprehensive loss before reclassifications			(4,002)	960
Accumulated Other Comprehensive Income, Amounts reclassified from accumulated other comprehensive loss	(31)	(267)	(68)	(297)
Accumulated Other Comprehensive Income, Net other comprehensive loss during period			(4,070)	663
Accumulated Other Comprehensive Income, Ending balance	$ 204	$ 4,660	$ 204	$ 4,660

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Mortgage Banking

6 Months Ended

Jun. 30, 2013

Mortgage Banking [Abstract]

Mortgage Banking [Text Block]

9. Mortgage Banking

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Gain from sale of mortgage loans	$	1,890	$	2,458	$	4,066	$	5,002
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		875		832		1,745		1,675
Amortization of mortgage servicing rights		(634)		(855)		(1,323)		(1,717)
Mortgage servicing rights valuation adjustments		312		(177)		785		(256)
		553		(200)		1,207		(298)
Net revenue from sale and servicing of mortgage loans	$	2,443	$	2,258	$	5,273	$	4,704

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.4 billion at June 30, 2013 and $1.3 billion at December 31, 2012.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,194	$	10,106	$	10,121	$	10,219
Loans sold, servicing retained		674		808		1,436		1,558
Amortization		(634)		(855)		(1,323)		(1,718)
Carrying value before valuation allowance at end of period		10,234		10,059		10,234		10,059
Valuation allowance:
Balance at beginning of period		(1,815)		(1,608)		(2,288)		(1,529)
Impairment recovery (charges)		312		(177)		785		(256)
Balance at end of period		(1,503)		(1,785)		(1,503)		(1,785)
Net carrying value of MSRs at end of period	$	8,731	$	8,274	$	8,731	$	8,274
Fair value of MSRs at end of period	$	9,080	$	8,274	$	9,080	$	8,274

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.

An accrual for estimated secondary market buy-back losses of $581,000 was established in the first quarter of 2013. These losses were accrued and expensed as of March 31, 2013 based on an estimated exposure to repurchase requests resulting from notifications received from Fannie Mae’s post-foreclosure review process during the first quarter of 2013. Secondary market buy-back losses were $61,000 in the second quarter of 2013 compared to $73,000 for the same period in 2012. Secondary market buy-back losses were $642,000 for the six months ended June 30, 2013 compared to $73,000 for the same period in 2012. The accrual for estimated buy-back losses was $567,000 at June 30, 2013.

XML

Investment Securities (Details 5) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Proceeds	$ 3,008	$ 6,198	$ 4,027	$ 6,416
Gross realized gains	44	382	97	425
Gross realized losses	$ 0	$ 0	$ 0	$ 0

XML

Consolidated Condensed Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Interest Income
Loans	$ 17,047	$ 18,197	$ 33,843	$ 36,847
Investment securities:
Taxable	674	1,268	1,352	2,380
Non-taxable	732	726	1,457	1,397
Interest-bearing deposits	72	114	130	206
FHLB stock dividends	207	214	426	443
Total interest income	18,732	20,519	37,208	41,273
Interest Expense
Deposits	1,511	2,116	3,158	4,485
FHLB advances and other	92	750	182	1,501
Subordinated debentures	150	310	302	641
Notes payable	61	97	121	201
Total interest expense	1,814	3,273	3,763	6,828
Net interest income	16,918	17,246	33,445	34,445
Provision for loan losses	448	4,097	873	7,600
Net interest income after provision for loan losses	16,470	13,149	32,572	26,845
Non-interest Income
Service fees and other charges	2,549	2,687	4,934	5,358
Insurance and investment commission income	2,277	2,192	5,313	4,727
Mortgage banking income	2,443	2,258	5,273	4,704
Gain on sale of non-mortgage loans	2	33	17	42
Gain on sale or call of securities	44	382	97	425
Trust income	186	169	349	323
Income from Bank Owned Life Insurance	231	219	460	439
Other non-interest income	116	54	367	396
Total non-interest income	7,848	7,994	16,810	16,414
Non-interest Expense
Compensation and benefits	8,475	8,049	17,273	16,514
Occupancy	1,694	1,760	3,348	3,548
FDIC insurance premium	275	672	931	1,341
State franchise tax	627	512	1,256	1,026
Data processing	1,313	1,169	2,494	2,337
Amortization of intangibles	312	349	648	724
Other non-interest expense	2,978	3,021	6,923	6,302
Total non-interest expense	15,674	15,532	32,873	31,792
Income before income taxes	8,644	5,611	16,509	11,467
Federal income taxes	2,535	1,690	4,841	3,393
Net Income	6,109	3,921	11,668	8,074
Dividends accrued on preferred shares	0	(435)	0	(897)
Accretion on preferred shares	0	(305)	0	(351)
Redemption of preferred shares	0	642	0	642
Net income applicable to common shares	$ 6,109	$ 3,823	$ 11,668	$ 7,468
Earnings per common share (Note 6)
Basic (in dollars per share)	$ 0.63	$ 0.39	$ 1.20	$ 0.77
Diluted (in dollars per share)	$ 0.60	$ 0.38	$ 1.15	$ 0.75
Dividends declared per share (Note 5) (in dollars per share)	$ 0.10	$ 0.05	$ 0.20	$ 0.10
Average common shares outstanding (Note 6)
Basic (in shares)	9,774	9,729	9,755	9,728
Diluted (in shares)	10,156	9,985	10,130	9,980

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Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. Significant Accounting Policies

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. Actual results could differ from those estimates. Significant areas where First Defiance uses estimates are the valuation of certain investment securities, the determination of the allowance for loan losses, the valuation of mortgage servicing rights and goodwill, the determination of unrecognized income tax benefits, and the determination of post-retirement benefits.

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income applicable to common shares (net income less dividend requirements for preferred stock and accretion of preferred stock discount) 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, warrants, restricted stock awards or units and stock grants.

Accounting Standards Updates

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The standard requires that companies present in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new requirements are effective for public companies in the fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this standard on January 1, 2013. The effect of adopting this standard increased the Company’s disclosure surrounding reclassification items out of accumulated other comprehensive income.

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

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. Actual results could differ from those estimates. Significant areas where First Defiance uses estimates are the valuation of certain investment securities, the determination of the allowance for loan losses, the valuation of mortgage servicing rights and goodwill, the determination of unrecognized income tax benefits, and the determination of post-retirement benefits.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income applicable to common shares (net income less dividend requirements for preferred stock and accretion of preferred stock discount) 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, warrants, restricted stock awards or units and stock grants.

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Standards Updates

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The standard requires that companies present in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new requirements are effective for public companies in the fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this standard on January 1, 2013. The effect of adopting this standard increased the Company’s disclosure surrounding reclassification items out of accumulated other comprehensive income.

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Mortgage Banking (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Mortgage servicing assets:
Balance at beginning of period	$ 10,194	$ 10,106	$ 10,121	$ 10,219
Loans sold, servicing retained	674	808	1,436	1,558
Amortization	(634)	(855)	(1,323)	(1,717)
Carrying value before valuation allowance at end of period	10,234	10,059	10,234	10,059
Valuation allowance:
Balance at beginning of period	(1,815)	(1,608)	(2,288)	(1,529)
Impairment recovery (charges)	312	(177)	785	(256)
Balance at end of period	(1,503)	(1,785)	(1,503)	(1,785)
Net carrying value of MSRs at end of period	8,731	8,274	8,731	8,274
Fair value of MSRs at end of period	$ 9,080	$ 8,274	$ 9,080	$ 8,274

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Loans (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Beginning Allowance	$ 26,459	$ 28,833	$ 26,711	$ 33,254
Charge-Offs	(961)	(6,786)	(1,956)	(14,938)
Recoveries	324	265	642	493
Provisions	448	4,097	873	7,600
Ending Allowance	26,270	26,409	26,270	26,409
One to Four Family Residential Real Estate [Member]
Beginning Allowance	3,433	3,373	3,506	4,095
Charge-Offs	(184)	(584)	(390)	(1,322)
Recoveries	33	69	132	124
Provisions	(85)	246	(51)	207
Ending Allowance	3,197	3,104	3,197	3,104
Construction Loans [Member]
Beginning Allowance	67	73	75	63
Charge-Offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	16	(27)	8	(17)
Ending Allowance	83	46	83	46
Multi Family Residential Real Estate [Member]
Beginning Allowance	2,410	2,831	2,197	2,850
Charge-Offs	(6)	(317)	(6)	(555)
Recoveries	0	0	0	0
Provisions	21	96	234	315
Ending Allowance	2,425	2,610	2,425	2,610
Commercial Real Estate [Member]
Beginning Allowance	13,367	16,200	12,702	17,640
Charge-Offs	(277)	(5,132)	(543)	(9,390)
Recoveries	167	36	268	144
Provisions	(117)	2,810	713	5,520
Ending Allowance	13,140	13,914	13,140	13,914
Commercial Loan [Member]
Beginning Allowance	5,304	4,693	6,325	6,576
Charge-Offs	(316)	(486)	(521)	(3,152)
Recoveries	57	125	133	155
Provisions	429	824	(463)	1,577
Ending Allowance	5,474	5,156	5,474	5,156
Home Equity and Home Improvement [Member]
Beginning Allowance	1,723	1,485	1,759	1,856
Charge-Offs	(170)	(254)	(442)	(465)
Recoveries	38	18	61	39
Provisions	195	186	408	5
Ending Allowance	1,786	1,435	1,786	1,435
Consumer Loan [Member]
Beginning Allowance	155	178	147	174
Charge-Offs	(8)	(13)	(54)	(54)
Recoveries	29	17	48	31
Provisions	(11)	(38)	24	(7)
Ending Allowance	$ 165	$ 144	$ 165	$ 144

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Deposits

6 Months Ended

Jun. 30, 2013

Deposits [Abstract]

Deposit Liabilities Disclosures [Text Block]

10. Deposits

A summary of deposit balances is as follows (in thousands):

	June 30, 2013		December 31, 2012
Non-interest-bearing checking accounts	$	301,742	$	315,132
Interest-bearing checking and money market accounts		659,249		664,857
Savings accounts		182,784		166,945
Retail certificates of deposit less than $100,000		321,422		342,472
Retail certificates of deposit greater than $100,000		168,573		176,029
Brokered or national certificates of deposit		1,938		2,037
Total	$	1,635,708	$	1,667,472

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Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2013		Dec. 31, 2012
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	$ 186,877		$ 186,638
Available-for-Sale Securities, Gross Unrealized Gains	5,250		9,559
Available-for-Sale Securities, Gross Unrealized Losses	(4,048)		(2,096)
Available-for-Sale Securities, Fair Value	188,079		194,101
Held-to-Maturity Securities:
Held-to-Maturity Securities, Amortized Cost	445	[1]	508	[1]
Held-to-Maturity Securities, Gross Unrealized Gains	7	[1]	9	[1]
Held-to-Maturity Securities, Gross Unrealized Losses	(1)	[1]	(1)	[1]
Held-To-Maturity Securities, Fair Value	451	[1]	516	[1]
US Government Corporations and Agencies Securities [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	5,000		11,000
Available-for-Sale Securities, Gross Unrealized Gains	0		69
Available-for-Sale Securities, Gross Unrealized Losses	(81)		0
Available-for-Sale Securities, Fair Value	4,919		11,069
US Treasury Securities [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost			1,000
Available-for-Sale Securities, Gross Unrealized Gains			2
Available-for-Sale Securities, Gross Unrealized Losses			0
Available-for-Sale Securities, Fair Value			1,002
Residential Mortgage Backed Securities [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	39,003		30,020
Available-for-Sale Securities, Gross Unrealized Gains	803		1,441
Available-for-Sale Securities, Gross Unrealized Losses	(802)		0
Available-for-Sale Securities, Fair Value	39,004		31,461
Collateralized Mortgage Backed Securities [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	54,403		55,962
Available-for-Sale Securities, Gross Unrealized Gains	902		1,504
Available-for-Sale Securities, Gross Unrealized Losses	(402)		0
Available-for-Sale Securities, Fair Value	54,903		57,466
Trust Preferred Securities and Preferred Stock [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	3,600		3,600
Available-for-Sale Securities, Gross Unrealized Gains	394		99
Available-for-Sale Securities, Gross Unrealized Losses	(1,830)		(2,091)
Available-for-Sale Securities, Fair Value	2,164		1,608
Corporate Bond Securities [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	8,824		8,717
Available-for-Sale Securities, Gross Unrealized Gains	146		167
Available-for-Sale Securities, Gross Unrealized Losses	(17)		0
Available-for-Sale Securities, Fair Value	8,953		8,884
US States and Political Subdivisions Debt Securities [Member]
Available-for-Sale Securities:
Available-for-Sale Securities, Amortized Cost	76,047		76,339
Available-for-Sale Securities, Gross Unrealized Gains	3,005		6,277
Available-for-Sale Securities, Gross Unrealized Losses	(916)		(5)
Available-for-Sale Securities, Fair Value	78,136		82,611
Held-to-Maturity Securities:
Held-to-Maturity Securities, Amortized Cost	186	[1]	217	[1]
Held-to-Maturity Securities, Gross Unrealized Gains	0	[1]	0	[1]
Held-to-Maturity Securities, Gross Unrealized Losses	0	[1]	0	[1]
Held-To-Maturity Securities, Fair Value	186	[1]	217	[1]
Federal Home Loan Mortgage Corporation Certificates and Obligations (FHLMC) [Member]
Held-to-Maturity Securities:
Held-to-Maturity Securities, Amortized Cost	62	[1]	69	[1]
Held-to-Maturity Securities, Gross Unrealized Gains	0	[1]	0	[1]
Held-to-Maturity Securities, Gross Unrealized Losses	(1)	[1]	(1)	[1]
Held-To-Maturity Securities, Fair Value	61	[1]	68	[1]
Federal National Mortgage Association Certificates and Obligations (FNMA) [Member]
Held-to-Maturity Securities:
Held-to-Maturity Securities, Amortized Cost	142	[1]	162	[1]
Held-to-Maturity Securities, Gross Unrealized Gains	4	[1]	6	[1]
Held-to-Maturity Securities, Gross Unrealized Losses	0	[1]	0	[1]
Held-To-Maturity Securities, Fair Value	146	[1]	168	[1]
Government National Mortgage Association Certificates and Obligations (GNMA) [Member]
Held-to-Maturity Securities:
Held-to-Maturity Securities, Amortized Cost	55	[1]	60	[1]
Held-to-Maturity Securities, Gross Unrealized Gains	3	[1]	3	[1]
Held-to-Maturity Securities, Gross Unrealized Losses	0	[1]	0	[1]
Held-To-Maturity Securities, Fair Value	$ 58	[1]	$ 63	[1]

[1] FHLMC, FNMA, and GNMA certificates are residential mortgage-backed securities.

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Loans (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Allowance for loan losses:
Individually evaluated for impairment	$ 1,846	$ 1,491
Collectively evaluated for impairment	24,424	25,220
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	26,270	26,711
Loans:
Loans individually evaluated for impairment	65,803	71,286
Loans collectively evaluated for impairment	1,501,556	1,458,300
Loans acquired with deteriorated credit quality	490	504
Total ending loans balance	1,567,849	1,530,090
One to Four Family Residential Real Estate [Member]
Allowance for loan losses:
Individually evaluated for impairment	241	281
Collectively evaluated for impairment	2,956	3,225
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	3,197	3,506
Loans:
Loans individually evaluated for impairment	10,970	11,930
Loans collectively evaluated for impairment	186,284	189,348
Loans acquired with deteriorated credit quality	32	36
Total ending loans balance	197,286	201,314
Construction Loans [Member]
Allowance for loan losses:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	83	75
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	83	75
Loans:
Loans individually evaluated for impairment	263	45
Loans collectively evaluated for impairment	26,364	19,251
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	26,627	19,296
Multi Family Residential Real Estate [Member]
Allowance for loan losses:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	2,425	2,197
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	2,425	2,197
Loans:
Loans individually evaluated for impairment	1,292	1,626
Loans collectively evaluated for impairment	135,118	120,829
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	136,410	122,455
Commercial Real Estate [Member]
Allowance for loan losses:
Individually evaluated for impairment	1,505	1,070
Collectively evaluated for impairment	11,635	11,632
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	13,140	12,702
Loans:
Loans individually evaluated for impairment	43,259	46,053
Loans collectively evaluated for impairment	642,532	630,534
Loans acquired with deteriorated credit quality	428	436
Total ending loans balance	686,219	677,023
Commercial Loan [Member]
Allowance for loan losses:
Individually evaluated for impairment	55	138
Collectively evaluated for impairment	5,419	6,187
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	5,474	6,325
Loans:
Loans individually evaluated for impairment	7,223	8,830
Loans collectively evaluated for impairment	390,187	376,007
Loans acquired with deteriorated credit quality	30	32
Total ending loans balance	397,440	384,869
Home Equity and Home Improvement [Member]
Allowance for loan losses:
Individually evaluated for impairment	44	2
Collectively evaluated for impairment	1,742	1,757
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	1,786	1,759
Loans:
Loans individually evaluated for impairment	2,715	2,678
Loans collectively evaluated for impairment	104,341	106,516
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	107,056	109,194
Consumer Loan [Member]
Allowance for loan losses:
Individually evaluated for impairment	1	0
Collectively evaluated for impairment	164	147
Acquired with deteriorated credit quality	0	0
Total ending allowance balance	165	147
Loans:
Loans individually evaluated for impairment	81	124
Loans collectively evaluated for impairment	16,730	15,815
Loans acquired with deteriorated credit quality	0	0
Total ending loans balance	$ 16,811	$ 15,939

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Fair Value (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Impaired loans
Total impaired loans	$ 10,134	$ 14,071
Mortgage servicing rights	3,457	7,833
Real estate held for sale
Total Real Estate held for sale	232	446
Residential Mortgage [Member]
Impaired loans
Total impaired loans	366	599
Real estate held for sale
Total Real Estate held for sale	65	61
Commercial Loan [Member]
Impaired loans
Total impaired loans	181	771
Home Equity Line of Credit [Member]
Impaired loans
Total impaired loans	159	168
Multi Family Loans [Member]
Impaired loans
Total impaired loans	373	407
Commercial Real Estate [Member]
Impaired loans
Total impaired loans	9,055	12,126
Real estate held for sale
Total Real Estate held for sale	167	385
Fair Value, Inputs, Level 1 [Member]
Impaired loans
Total impaired loans	0	0
Mortgage servicing rights	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 1 [Member] | Residential Mortgage [Member]
Impaired loans
Total impaired loans	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 1 [Member] | Commercial Loan [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 1 [Member] | Home Equity Line of Credit [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 1 [Member] | Multi Family Loans [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 1 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 2 [Member]
Impaired loans
Total impaired loans	0	0
Mortgage servicing rights	3,457	7,833
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 2 [Member] | Residential Mortgage [Member]
Impaired loans
Total impaired loans	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 2 [Member] | Commercial Loan [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 2 [Member] | Home Equity Line of Credit [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 2 [Member] | Multi Family Loans [Member]
Impaired loans
Total impaired loans	0	0
Fair Value, Inputs, Level 2 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	0	0
Real estate held for sale
Total Real Estate held for sale	0	0
Fair Value, Inputs, Level 3 [Member]
Impaired loans
Total impaired loans	10,134	14,071
Mortgage servicing rights	0	0
Real estate held for sale
Total Real Estate held for sale	232	446
Fair Value, Inputs, Level 3 [Member] | Residential Mortgage [Member]
Impaired loans
Total impaired loans	366	599
Real estate held for sale
Total Real Estate held for sale	65	61
Fair Value, Inputs, Level 3 [Member] | Commercial Loan [Member]
Impaired loans
Total impaired loans	181	771
Fair Value, Inputs, Level 3 [Member] | Home Equity Line of Credit [Member]
Impaired loans
Total impaired loans	159	168
Fair Value, Inputs, Level 3 [Member] | Multi Family Loans [Member]
Impaired loans
Total impaired loans	373	407
Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate [Member]
Impaired loans
Total impaired loans	9,055	12,126
Real estate held for sale
Total Real Estate held for sale	$ 167	$ 385

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following table sets forth the computation of basic and diluted earnings per common share (in thousands except per share data):

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Numerator for basic and diluted earnings per common share – Net income applicable to common shares	$	6,109	$	3,823	$	11,668	$	7,468
Denominator:
Denominator for basic earnings per common share – weighted average common shares, including participating securities		9,774		9,729		9,755		9,728
Effect of warrants		306		211		301		210
Effect of restricted stock units		27		24		23		21
Effect of employee stock options		49		21		51		21
Denominator for diluted earnings per common share share		10,156		9,985		10,130		9,980
Basic earnings per common share	$	0.63	$	0.39	$	1.20	$	0.77
Diluted earnings per common share	$	0.60	$	0.38	$	1.15	$	0.75

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Stock Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Following is activity under the plans during the six months ended June 30, 2013:

Stock options	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2013		312,350	$	20.33
Forfeited or cancelled		11,850		19.93
Exercised		24,900		18.42
Granted		-		-
Options outstanding, June 30, 2013		275,600	$	20.52		3.82	$	1,154
Vested or expected to vest at June 30, 2013		275,600	$	20.52		3.82	$	1,154
Exercisable at June 30, 2013		257,030	$	21.21		3.67	$	941

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

Total accrued expense of $570,000 was recorded during the six months ended June 30, 2013 and approximately $372,000 is included within other liabilities at June 30, 2013 related to the STIPs and LTIPs.

	Restricted Stock Units				Stock Grants
			Weighted-Average				Weighted-Average
			Grant Date				Grant Date
Unvested Shares	Shares		Fair Value		Shares		Fair Value
Unvested at January 1, 2013		38,871	$	14.74		11,260	$	13.28
Granted		91,187		19.42		20,639		15.77
Vested		(20,639)		15.77		(31,899)		14.89
Forfeited		(3,358)		11.97		-		-
Unvested at June 30, 2013		106,061	$	18.66		-	$	-

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Earnings Per Common Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator for basic and diluted earnings per common share - Net income applicable to common shares (in dollars)	$ 6,109	$ 3,823	$ 11,668	$ 7,468
Denominator:
Denominator for basic earnings per common share - weighted average common shares, including participating securities (in shares)	9,774	9,729	9,755	9,728
Effect of warrants (in shares)	306	211	301	210
Effect of restricted stock units (in shares)	27	24	23	21
Effect of employee stock options (in shares)	49	21	51	21
Denominator for diluted earnings per common share (in shares)	10,156	9,985	10,130	9,980
Basic earnings per common share (in dollars per share)	$ 0.63	$ 0.39	$ 1.20	$ 0.77
Diluted earnings per common share (in dollars per share)	$ 0.60	$ 0.38	$ 1.15	$ 0.75

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position Carrying Value [Table Text Block]

The fair value of these mortgage banking derivatives are reflected by a derivative asset. The table below provides data about the carrying values of these derivative instruments:

June 30, 2013

December 31, 2012

Assets

(Liabilities)

Assets

(Liabilities)

Derivative

Derivative

Carrying

Carrying

Net Carrying

Carrying

Carrying

Net Carrying

Value

Value

Value

Value

Value

Value

(In Thousands)

Derivatives not designated as     hedging instruments

Mortgage Banking Derivatives

$

616

$

-

$

616

$

950

$

(94)

$

856

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block]

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In Thousands)				(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	(79)	$	117	$	(240)	$	390

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Fair Value (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Financial Assets, Carrying Value:
Cash and cash equivalents, Carrying Value	$ 127,743	$ 136,832	$ 103,517	$ 174,931
Investment securities, Carrying Value	188,524	194,609
Federal Home Loan Bank stock, Carrying Value	19,353	20,655
Loans, net, including loans held for sale, Carrying Value	1,551,204	1,520,610
Accrued interest receivable, Carrying Value	5,891	5,594
Financial Liabilities, Carrying Value:
Deposits, Carrying Value	1,635,708	1,667,472
Advances from Federal Home Loan Bank, Carrying Value	62,773	12,796
Securities sold under repurchase agreements, Carrying Value	47,560	51,702
Subordinated debentures, Carrying Value	36,083	36,083
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	127,743	136,832
Investment securities, Fair Value	188,530	194,617
Loans, net, including loans held for sale, Fair Value	1,547,918	1,543,438
Accrued interest receivable, Fair Value	5,891	5,594
Financial Liabilities, Fair Value:
Deposits, Fair Value	1,638,358	1,671,713
Advances from Federal Home Loan Bank, Fair Value	63,171	13,466
Securities sold under repurchase agreements, Fair Value	47,560	51,702
Subordinated debentures, Fair Value	35,334	35,766
Fair Value, Inputs, Level 1 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	127,743	136,832
Investment securities, Fair Value	428	134
Loans, net, including loans held for sale, Fair Value	0	0
Accrued interest receivable, Fair Value	0	0
Financial Liabilities, Fair Value:
Deposits, Fair Value	291,765	315,132
Advances from Federal Home Loan Bank, Fair Value	0	0
Securities sold under repurchase agreements, Fair Value	0	0
Subordinated debentures, Fair Value	0	0
Fair Value, Inputs, Level 2 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	0	0
Investment securities, Fair Value	186,366	193,009
Loans, net, including loans held for sale, Fair Value	14,742	22,577
Accrued interest receivable, Fair Value	697	757
Financial Liabilities, Fair Value:
Deposits, Fair Value	1,346,593	1,356,581
Advances from Federal Home Loan Bank, Fair Value	63,171	13,466
Securities sold under repurchase agreements, Fair Value	47,560	51,702
Subordinated debentures, Fair Value	0	0
Fair Value, Inputs, Level 3 [Member]
Financial Assets, Fair Value:
Cash and cash equivalents, Fair Value	0	0
Investment securities, Fair Value	1,736	1,474
Loans, net, including loans held for sale, Fair Value	1,533,176	1,520,861
Accrued interest receivable, Fair Value	5,194	4,837
Financial Liabilities, Fair Value:
Deposits, Fair Value	0	0
Advances from Federal Home Loan Bank, Fair Value	0	0
Securities sold under repurchase agreements, Fair Value	0	0
Subordinated debentures, Fair Value	$ 35,334	$ 35,766

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Investment Securities (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013		Dec. 31, 2012
Available-for-sale securities, Due in one year or less, Amortized Cost	$ 2,255
Available-for-sale securities, Due after one year through five years, Amortized Cost	6,107
Available-for-sale securities, Due after five years through ten years, Amortized Cost	36,502
Available-for-sale securities, Due after ten years, Amortized Cost	48,607
Available-for-sale securities, MBS/CMO, Amortized Cost	93,406
Available-for-sale Securities, Amortized Cost	186,877
Available-for-sale securities, Due in one year or less, Fair Value	2,268
Available-for-sale securities, Due after one year through five years, Fair Value	6,301
Available-for-sale securities, Due after five years through ten years, Fair Value	37,728
Available-for-sale securities, Due after ten years, Fair Value	47,875
Available-for-sale securities, MBS/CMO, Fair Value	93,907
Available-for-sale Securities, Fair Value	188,079		194,101
Held-to-maturity securities, Due in one year or less, Amortized Cost	0
Held-to-maturity securities, Due after one year through five years, Amortized Cost	186
Held-to-maturity securities, Due after five years through ten years, Amortized Cost	0
Held-to-maturity securities, Due after ten years, Amortized Cost	0
Held-to-maturity securities, MBS/CMO, Amortized Cost	259
Held-to-maturity Securities, Amortized Cost	445	[1]	508	[1]
Held-to-maturity securities, Due in one year or less, Fair Value	0
Held-to-maturity securities, Due after one year through five years, Fair Value	186
Held-to-maturity securities, Due after five years through ten years, Fair Value	0
Held-to-maturity securities, Due after ten years, Fair Value	0
Held-to-maturity securities, MBS/CMO, Fair Value	265
Held-to-maturity Securities, Fair Value	$ 451	[1]	$ 516	[1]

[1] FHLMC, FNMA, and GNMA certificates are residential mortgage-backed securities.

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Deposits (Tables)

6 Months Ended

Jun. 30, 2013

Deposits [Abstract]

Deposits [Table Text Block]

A summary of deposit balances is as follows (in thousands):

	June 30, 2013		December 31, 2012
Non-interest-bearing checking accounts	$	301,742	$	315,132
Interest-bearing checking and money market accounts		659,249		664,857
Savings accounts		182,784		166,945
Retail certificates of deposit less than $100,000		321,422		342,472
Retail certificates of deposit greater than $100,000		168,573		176,029
Brokered or national certificates of deposit		1,938		2,037
Total	$	1,635,708	$	1,667,472

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Loans (Details 9) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Total Commercial Real Estate	$ 1,567,849	$ 1,530,090
Pass [Member]
Total Commercial Real Estate	1,205,468	1,156,998
Special Mention [Member]
Total Commercial Real Estate	43,922	33,406
Substandard [Member]
Total Commercial Real Estate	58,096	76,005
Doubtful [Member]
Total Commercial Real Estate	165	298
Not Graded [Member]
Total Commercial Real Estate	260,198	263,383
Residential Owner Occupied [Member]
Total Commercial Real Estate	126,382	128,149
Residential Owner Occupied [Member] | Pass [Member]
Total Commercial Real Estate	4,126	4,221
Residential Owner Occupied [Member] | Special Mention [Member]
Total Commercial Real Estate	39	75
Residential Owner Occupied [Member] | Substandard [Member]
Total Commercial Real Estate	3,491	3,617
Residential Owner Occupied [Member] | Doubtful [Member]
Total Commercial Real Estate	88	234
Residential Owner Occupied [Member] | Not Graded [Member]
Total Commercial Real Estate	118,638	120,002
Residential Non Owner Occupied [Member]
Total Commercial Real Estate	70,904	73,165
Residential Non Owner Occupied [Member] | Pass [Member]
Total Commercial Real Estate	54,823	55,771
Residential Non Owner Occupied [Member] | Special Mention [Member]
Total Commercial Real Estate	3,444	2,453
Residential Non Owner Occupied [Member] | Substandard [Member]
Total Commercial Real Estate	6,051	8,248
Residential Non Owner Occupied [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Residential Non Owner Occupied [Member] | Not Graded [Member]
Total Commercial Real Estate	6,586	6,693
Residential Real Estate [Member]
Total Commercial Real Estate	197,286	201,314
Residential Real Estate [Member] | Pass [Member]
Total Commercial Real Estate	58,949	59,992
Residential Real Estate [Member] | Special Mention [Member]
Total Commercial Real Estate	3,483	2,528
Residential Real Estate [Member] | Substandard [Member]
Total Commercial Real Estate	9,542	11,865
Residential Real Estate [Member] | Doubtful [Member]
Total Commercial Real Estate	88	234
Residential Real Estate [Member] | Not Graded [Member]
Total Commercial Real Estate	125,224	126,695
Construction Loans [Member]
Total Commercial Real Estate	26,627	19,296
Construction Loans [Member] | Pass [Member]
Total Commercial Real Estate	18,217	11,360
Construction Loans [Member] | Special Mention [Member]
Total Commercial Real Estate	0	0
Construction Loans [Member] | Substandard [Member]
Total Commercial Real Estate	263	45
Construction Loans [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Construction Loans [Member] | Not Graded [Member]
Total Commercial Real Estate	8,147	7,891
Multi Family [Member]
Total Commercial Real Estate	136,410	122,455
Multi Family [Member] | Pass [Member]
Total Commercial Real Estate	132,511	118,121
Multi Family [Member] | Special Mention [Member]
Total Commercial Real Estate	670	910
Multi Family [Member] | Substandard [Member]
Total Commercial Real Estate	2,237	2,404
Multi Family [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Multi Family [Member] | Not Graded [Member]
Total Commercial Real Estate	992	1,020
Commercial Real Estate Owner Occupied [Member]
Total Commercial Real Estate	328,542	324,323
Commercial Real Estate Owner Occupied [Member] | Pass [Member]
Total Commercial Real Estate	298,141	292,765
Commercial Real Estate Owner Occupied [Member] | Special Mention [Member]
Total Commercial Real Estate	15,423	10,440
Commercial Real Estate Owner Occupied [Member] | Substandard [Member]
Total Commercial Real Estate	12,858	18,740
Commercial Real Estate Owner Occupied [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Real Estate Owner Occupied [Member] | Not Graded [Member]
Total Commercial Real Estate	2,120	2,378
Commercial Real Estate Non Owner Occupied [Member]
Total Commercial Real Estate	234,078	239,527
Commercial Real Estate Non Owner Occupied [Member] | Pass [Member]
Total Commercial Real Estate	203,780	207,745
Commercial Real Estate Non Owner Occupied [Member] | Special Mention [Member]
Total Commercial Real Estate	11,597	9,077
Commercial Real Estate Non Owner Occupied [Member] | Substandard [Member]
Total Commercial Real Estate	18,642	22,615
Commercial Real Estate Non Owner Occupied [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Real Estate Non Owner Occupied [Member] | Not Graded [Member]
Total Commercial Real Estate	59	90
Agriculture Land [Member]
Total Commercial Real Estate	76,902	72,207
Agriculture Land [Member] | Pass [Member]
Total Commercial Real Estate	75,041	69,924
Agriculture Land [Member] | Special Mention [Member]
Total Commercial Real Estate	590	769
Agriculture Land [Member] | Substandard [Member]
Total Commercial Real Estate	1,271	1,514
Agriculture Land [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Agriculture Land [Member] | Not Graded [Member]
Total Commercial Real Estate	0	0
Commercial Real Estate Other Receivable [Member]
Total Commercial Real Estate	46,697	40,966
Commercial Real Estate Other Receivable [Member] | Pass [Member]
Total Commercial Real Estate	38,950	31,875
Commercial Real Estate Other Receivable [Member] | Special Mention [Member]
Total Commercial Real Estate	2,289	891
Commercial Real Estate Other Receivable [Member] | Substandard [Member]
Total Commercial Real Estate	4,655	7,222
Commercial Real Estate Other Receivable [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Real Estate Other Receivable [Member] | Not Graded [Member]
Total Commercial Real Estate	803	978
Commercial Real Estate [Member]
Total Commercial Real Estate	686,219	677,023
Commercial Real Estate [Member] | Pass [Member]
Total Commercial Real Estate	615,912	602,309
Commercial Real Estate [Member] | Special Mention [Member]
Total Commercial Real Estate	29,899	21,177
Commercial Real Estate [Member] | Substandard [Member]
Total Commercial Real Estate	37,426	50,091
Commercial Real Estate [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Real Estate [Member] | Not Graded [Member]
Total Commercial Real Estate	2,982	3,446
Commercial Working Capital [Member]
Total Commercial Real Estate	165,417	162,469
Commercial Working Capital [Member] | Pass [Member]
Total Commercial Real Estate	157,463	156,433
Commercial Working Capital [Member] | Special Mention [Member]
Total Commercial Real Estate	5,891	3,587
Commercial Working Capital [Member] | Substandard [Member]
Total Commercial Real Estate	2,063	2,449
Commercial Working Capital [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Working Capital [Member] | Not Graded [Member]
Total Commercial Real Estate	0	0
Commercial Loans Other [Member]
Total Commercial Real Estate	232,023	222,400
Commercial Loans Other [Member] | Pass [Member]
Total Commercial Real Estate	217,961	208,783
Commercial Loans Other [Member] | Special Mention [Member]
Total Commercial Real Estate	8,434	5,204
Commercial Loans Other [Member] | Substandard [Member]
Total Commercial Real Estate	5,628	8,413
Commercial Loans Other [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Loans Other [Member] | Not Graded [Member]
Total Commercial Real Estate	0	0
Commercial Loan [Member]
Total Commercial Real Estate	397,440	384,869
Commercial Loan [Member] | Pass [Member]
Total Commercial Real Estate	375,424	365,216
Commercial Loan [Member] | Special Mention [Member]
Total Commercial Real Estate	14,325	8,791
Commercial Loan [Member] | Substandard [Member]
Total Commercial Real Estate	7,691	10,862
Commercial Loan [Member] | Doubtful [Member]
Total Commercial Real Estate	0	0
Commercial Loan [Member] | Not Graded [Member]
Total Commercial Real Estate	0	0
Consumer Loan [Member]
Total Commercial Real Estate	16,811	15,939
Consumer Loan [Member] | Pass [Member]
Total Commercial Real Estate	0	0
Consumer Loan [Member] | Special Mention [Member]
Total Commercial Real Estate	0	0
Consumer Loan [Member] | Substandard [Member]
Total Commercial Real Estate	93	70
Consumer Loan [Member] | Doubtful [Member]
Total Commercial Real Estate	6	0
Consumer Loan [Member] | Not Graded [Member]
Total Commercial Real Estate	16,712	15,869
Home Equity and Home Improvement [Member]
Total Commercial Real Estate	107,056	109,194
Home Equity and Home Improvement [Member] | Pass [Member]
Total Commercial Real Estate	0	0
Home Equity and Home Improvement [Member] | Special Mention [Member]
Total Commercial Real Estate	0	0
Home Equity and Home Improvement [Member] | Substandard [Member]
Total Commercial Real Estate	844	668
Home Equity and Home Improvement [Member] | Doubtful [Member]
Total Commercial Real Estate	71	64
Home Equity and Home Improvement [Member] | Not Graded [Member]
Total Commercial Real Estate	$ 106,141	$ 108,462

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Commitments, Guarantees and Contingent Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fixed Rate, Commitments to make loans	$ 53,360	$ 50,205
Fixed Rate, Unused lines of credit	21,820	21,975
Fixed Rate, Standby letters of credit	0	0
Fixed Rate, Total	75,180	72,180
Variable Rate, Commitments to make loans	46,053	48,035
Variable Rate, Unused lines of credit	246,573	228,269
Variable Rate, Standby letters of credit	16,492	18,166
Variable Rate, Total	$ 309,118	$ 294,470

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Loans (Details 8) (Subsequently Defaulted [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Number	Jun. 30, 2012 Number	Jun. 30, 2013 Number	Jun. 30, 2012 Number
Troubled Debt Restructurings, Number of Loans	11	1	12	1
Troubled Debt Restructurings, Recorded Investment	$ 813	$ 580	$ 1,481	$ 580
Residential Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	4	0	4	0
Troubled Debt Restructurings, Recorded Investment	303	0	303	0
Residential Non Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	1	0	1	0
Troubled Debt Restructurings, Recorded Investment	77	0	77	0
Commercial Real Estate Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	1	0	2	0
Troubled Debt Restructurings, Recorded Investment	169	0	837	0
Commercial Real Estate Non Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	1	0	1	0
Troubled Debt Restructurings, Recorded Investment	212	0	212	0
Agriculture Land [Member]
Troubled Debt Restructurings, Number of Loans	0	0	0	0
Troubled Debt Restructurings, Recorded Investment	0	0	0	0
Commercial Real Estate Other Receivable [Member]
Troubled Debt Restructurings, Number of Loans	0	0	0	0
Troubled Debt Restructurings, Recorded Investment	0	0	0	0
Commercial and Industrial [Member]
Troubled Debt Restructurings, Number of Loans	0	1	0	1
Troubled Debt Restructurings, Recorded Investment	0	580	0	580
Home Equity and Home Improvement [Member]
Troubled Debt Restructurings, Number of Loans	4	0	4	0
Troubled Debt Restructurings, Recorded Investment	52	0	52	0
Consumer Loan [Member]
Troubled Debt Restructurings, Number of Loans	0	0	0	0
Troubled Debt Restructurings, Recorded Investment	$ 0	$ 0	$ 0	$ 0

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Stock Compensation Plans (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2013
Restricted Stock Units (RSUs) [Member]
Shares, Unvested at January 1, 2013	38,871
Shares, Granted	91,187
Shares, Vested	(20,639)
Shares, Forfeited	(3,358)
Shares, Unvested at June 31, 2013	106,061
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2013	$ 14.74
Weighted-Average Grant Date Fair Value, Granted	$ 19.42
Weighted-Average Grant Date Fair Value, Vested	$ 15.77
Weighted-Average Grant Date Fair Value, Forfeited	$ 11.97
Weighted -Average Grant Date Fair Value, Unvested at June 31, 2013	$ 18.66
Stock Grants [Member]
Shares, Unvested at January 1, 2013	11,260
Shares, Granted	20,639
Shares, Vested	(31,899)
Shares, Forfeited	0
Shares, Unvested at June 31, 2013	0
Weighted-Average Grant Date Fair Value, Unvested at January 1, 2013	$ 13.28
Weighted-Average Grant Date Fair Value, Granted	$ 15.77
Weighted-Average Grant Date Fair Value, Vested	$ 14.89
Weighted-Average Grant Date Fair Value, Forfeited	$ 0
Weighted -Average Grant Date Fair Value, Unvested at June 31, 2013	$ 0

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Deposits (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Non-interest-bearing checking accounts	$ 301,742	$ 315,132
Interest-bearing checking and money market accounts	659,249	664,857
Savings accounts	182,784	166,945
Retail certificates of deposit less than $100,000	321,422	342,472
Retail certificates of deposit greater than $100,000	168,573	176,029
Brokered or national certificates of deposit	1,938	2,037
Total	$ 1,635,708	$ 1,667,472

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Fair Value (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Recurring Basis

June 30, 2013	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	$	-	$	4,919	$	-	$	4,919
Mortgage-backed - residential		-		39,004		-		39,004
Collateralized mortgage obligations		-		54,903		-		54,903
Trust preferred stock		-		-		1,736		1,736
Preferred stock		428		-		-		428
Corporate bonds		-		8,953		-		8,953
Obligations of state and political subdivisions		-		78,136		-		78,136
Mortgage banking derivative - asset		-		616		-		616

December 31, 2012	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	$	-	$	11,069	$	-	$	11,069
U.S. treasury bonds		-		1,002		-		1,002
Mortgage-backed - residential		-		31,461		-		31,461
Collateralized mortgage obligations		-		57,466		-		57,466
Trust preferred stock		-		-		1,474		1,474
Preferred stock		134		-		-		134
Corporate bonds		-		8,884		-		8,884
Obligations of state and political subdivisions		-		82,611		-		82,611
Mortgage banking derivative - asset		-		950		-		950
Mortgage banking derivative - liability		-		(94)		-		(94)

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The table below presents a reconciliation and income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2013 and 2012:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2013	$	1,474
Total gains or losses (realized/unrealized)
Included in earnings (realized)		-
Included in other comprehensive income (presented gross of taxes)		262
Amortization		-
Sales		-
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2013	$	1,736

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, April 1, 2013	$	1,651
Total gains or losses (realized/unrealized)
Included in earnings (realized)		-
Included in other comprehensive income (presented gross of taxes)		85
Amortization		-
Sales		-
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2013	$	1,736

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2012	$	1,342
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		80
Included in other comprehensive income (presented gross of taxes)		70
Amortization		-
Redemption		(265)
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2012	$	1,227

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, April 1, 2012	$	1,377
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		80
Included in other comprehensive income (presented gross of taxes)		35
Amortization		-
Redemption		(265)
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2012	$	1,227

Schedule of Fair Value, Assets Measured on Non Recurring Basis [Table Text Block]

Assets and Liabilities Measured on a Non-Recurring Basis

June 30, 2013	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Residential Loans	$	-	$	-	$	366	$	366
Commercial Loans		-		-		181		181
Multi Family Loans		-		-		373		373
Home Equity Loans		-		-		159		159
CRE loans		-		-		9,055		9,055
Total impaired loans		-		-		10,134		10,134
Mortgage servicing rights		-		3,457		-		3,457
Real estate held for sale
Residential Loans		-		-		65		65
CRE loans		-		-		167		167
Total Real Estate held for sale		-		-		232		232

December 31, 2012	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Residential Loans	$	-	$	-	$	599	$	599
Commercial Loans		-		-		771		771
Home Equity Loans		-		-		168		168
Multi Family Loans		-		-		407		407
CRE loans		-		-		12,126		12,126
Total Impaired loans		-		-		14,071		14,071
Mortgage servicing rights		-		7,833		-		7,833
Real estate held for sale
Residential Loans		-		-		61		61
CRE loans		-		-		385		385
Total Real Estate held for sale		-		-		446		446

Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2013, 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)
Trust preferred stock	$	1,736	Discounted cash flow	Constant prepayment rate		2-40	%		40	%
				Expected asset default		0-30	%		15	%
				Expected recoveries		10-15	%		10	%
Impaired Loans- Applies to all loan classes	$	10,134	Appraisals	Discounts for collection issues and changes in market conditions		0-10	%		10	%
Real estate held for sale – Applies to all classes	$	232	Appraisals	Discounts for changes in market conditions		0-20	%		20	%

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2012, 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)
Trust preferred stock	$	1,474	Discounted cash flow	Constant prepayment rate		2-40	%		40	%
				Expected asset default		0-30	%		15	%
				Expected recoveries		10-15	%		10	%
Impaired Loans- Applies to all loan classes	$	14,071	Appraisals	Discounts for collection issues and changes in market conditions		0-10	%		10	%
Real estate held for sale – Applies to all classes	$	446	Appraisals	Discounts for changes in market conditions		0-20	%		20	%

Fair Value, by Balance Sheet Grouping [Table Text Block]

The cost or value of any call or put options is based on the estimated cost to settle the option at June 30, 2013.

			Fair Value Measurements at June 30, 2013 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	127,743	$	127,743	$	127,743	$	-	$	-
Investment securities		188,524		188,530		428		186,366		1,736
Federal Home Loan Bank Stock		19,353		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,551,204		1,547,918		-		14,742		1,533,176
Accrued interest receivable		5,891		5,891		-		697		5,194
Financial Liabilities:
Deposits	$	1,635,708	$	1,638,358	$	291,765	$	1,346,593	$	-
Advances from Federal Home Loan Bank		62,773		63,171		-		63,171		-
Securities sold under repurchase agreements		47,560		47,560		-		47,560		-
Subordinated debentures		36,083		35,334		-		-		35,334

			Fair Value Measurements at December 31, 2012 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	136,832	$	136,832	$	136,832	$	-	$	-
Investment securities		194,609		194,617		134		193,009		1,474
Federal Home Loan Bank Stock		20,655		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,520,610		1,543,438		-		22,577		1,520,861
Accrued interest receivable		5,594		5,594		-		757		4,837
Financial Liabilities:
Deposits	$	1,667,472	$	1,671,713	$	315,132	$	1,356,581	$	-
Advances from Federal Home Loan Bank		12,796		13,466		-		13,466		-
Securities sold under repurchase agreements		51,702		51,702		-		51,702		-
Subordinated debentures		36,083		35,766		-		-		35,766

XML

Consolidated Statement of Changes in Stockholders' Equity (USD $) In Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Common Stock Warrant [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2011	$ 278,127	$ 36,641	$ 127	$ 878	$ 135,825	$ 3,997	$ 148,010	$ (47,351)
Net income	8,074	0	0	0	0	0	8,074	0
Other comprehensive income (loss)	663	0	0	0	0	663	0	0
Stock option expense	59	0	0	0	59	0	0	0
Shares issued under stock option plan, with no income tax benefit, net of repurchases	2	0	0	0	0	0	(1)	3
Restricted share activity under Stock Incentive Plans	170	0	0	0	141	0	0	29
Shares issued direct purchases	7	0	0	0	0	0	0	7
Preferred Stock Dividends accrued	(897)	0	0	0	0	0	(897)	0
Accretion on preferred shares	0	351	0	0	0	0	(351)	0
Shares purchased in U.S. Treasury auction	(15,942)	(16,560)	0	0	0	0	618	0
Shares purchased in open market	(19,416)	(19,440)	0	0	0	0	24	0
Common stock dividends declared	(977)	0	0	0	0	0	(977)	0
Balance at Jun. 30, 2012	249,870	992	127	878	136,025	4,660	154,500	(47,312)
Balance at Dec. 31, 2012	258,128	0	127	878	136,046	4,274	164,103	(47,300)
Net income	11,668	0	0	0	0	0	11,668	0
Other comprehensive income (loss)	(4,070)	0	0	0	0	(4,070)	0	0
Stock option expense	28	0	0	0	28	0	0	0
Shares issued under stock option plan, with no income tax benefit, net of repurchases	158	0	0	0	1	0	(97)	254
Restricted share activity under Stock Incentive Plans	471	0	0	0	16	0	(45)	500
Shares issued direct purchases	64	0	0	0	20	0	0	44
Common stock dividends declared	(1,950)	0	0	0	0	0	(1,950)	0
Balance at Jun. 30, 2013	$ 264,497	$ 0	$ 127	$ 878	$ 136,111	$ 204	$ 173,679	$ (46,502)

XML

Consolidated Condensed Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Operating Activities
Net income	$ 11,668	$ 8,074
Items not requiring (providing) cash
Provision for loan losses	873	7,600
Depreciation	1,592	1,689
Amortization of mortgage servicing rights, net of impairment recoveries	538	1,973
Amortization of core deposit and other intangible assets	648	724
Net amortization of premiums and discounts on loans and deposits	389	301
Amortization of premiums and discounts on securities	283	381
Loss on sale or disposals of property, plant and equipment	1	19
Change in deferred taxes	(23)	1,649
Proceeds from the sale of loans held for sale	211,479	230,291
Originations of loans held for sale	(201,592)	(226,130)
Gain from sale of loans	(4,083)	(5,044)
Gain from sale or call of securities	(97)	(425)
Loss on sale or write-down of real estate and other assets held for sale	221	295
Stock option expense	28	59
Restricted stock expense	471	170
Income from bank owned life insurance	(460)	(439)
Changes in:
Accrued interest receivable	(297)	79
Other assets	14	(1,020)
Other liabilities	(1,544)	2,536
Net cash provided by (used in) operating activities	20,109	22,782
Investing Activities
Proceeds from maturities of held-to-maturity securities	63	61
Proceeds from maturities, calls and pay-downs of available-for-sale securities	24,110	31,789
Proceeds from sale of real estate and other assets held for sale	1,613	1,766
Proceeds from the sale of available-for-sale securities	4,027	6,416
Proceeds from sale of non-mortgage loans	4,893	363
Purchases of available-for-sale securities	(28,561)	(83,056)
Proceeds from Federal Home Loan Bank stock redemption	1,302	0
Purchase of bank-owned life insurance	0	(5,000)
Purchases of portfolio mortgage loans	(4,545)	0
Purchases of premises and equipment, net	(796)	(2,488)
Net decrease in loans receivable	(44,020)	(30,607)
Net cash provided (used in) by investing activities	(41,914)	(80,756)
Financing Activities
Net increase (decrease) in deposits and advance payments by borrowers	(31,391)	16,965
Repayment of Federal Home Loan Bank advances	(23)	(22)
Increase in Federal Home Loan Bank short-term advances	50,000	0
Decrease in securities sold under repurchase agreements	(4,142)	(9,859)
Cash paid for redemption of preferred stock	0	(18,539)
Proceeds from exercise of stock options	158	2
Proceeds from treasury stock purchases	64	7
Cash dividends paid on common stock	(1,950)	(977)
Cash dividends paid on preferred stock	0	(1,017)
Net cash provided by (used in) financing activities	12,716	(13,440)
Increase (decrease) in cash and cash equivalents	(9,089)	(71,414)
Cash and cash equivalents at beginning of period	136,832	174,931
Cash and cash equivalents at end of period	127,743	103,517
Supplemental cash flow information:
Interest paid	3,757	6,884
Income taxes paid	5,700	0
Transfers from loans to real estate and other assets held for sale	4,575	1,971
Redemption of preferred shares not yet settled	$ 0	$ 16,929

XML

Fair Value

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

3. Fair Value

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

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

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

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Available for sale securities - Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities in Level 1 include federal agency preferred stock securities. Securities in Level 2 include U.S. Government agencies, mortgage-backed securities, corporate bonds and municipal securities. The Company classifies its pooled trust preferred collateralized debt obligations as Level 3. The portfolio consists of collateralized debt obligations backed by pools of trust preferred securities issued by financial institutions and insurance companies. Based on the lack of observable market data, the Company estimated fair values based on the observable data available and reasonable unobservable market data. The Company estimated fair value based on a discounted cash flow model which used appropriately adjusted discount rates reflecting credit and liquidity risks. The Company used an independent third party which is described further in Note 7.

Impaired loans - Fair values for impaired collateral dependent loans are generally based on appraisals obtained from licensed real estate appraisers and in certain circumstances consideration of offers obtained to purchase properties prior to foreclosure.  Appraisals for commercial real estate generally use three methods to derive value: cost, sales or market comparison and income approach.  The cost method bases value in 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 required return.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Comparable sales adjustments are based on known sales prices of similar type and similar use properties and duration of time that the property has been on the market to sell.  Such adjustments made in the appraisal process are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted between a range of 0% to 20% to account for other factors that may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include:  physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

Mortgage servicing rights – On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level based on a model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and are validated against available market data (Level 2).

Mortgage banking derivative - The fair value of mortgage banking derivatives are evaluated monthly based on derivative valuation models using quoted prices for similar assets adjusted for specific attributes of the commitments and other observable market data at the valuation date (Level 2).

The following table summarizes the financial assets measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Assets and Liabilities Measured on a Recurring Basis

June 30, 2013	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	$	-	$	4,919	$	-	$	4,919
Mortgage-backed - residential		-		39,004		-		39,004
Collateralized mortgage obligations		-		54,903		-		54,903
Trust preferred stock		-		-		1,736		1,736
Preferred stock		428		-		-		428
Corporate bonds		-		8,953		-		8,953
Obligations of state and political subdivisions		-		78,136		-		78,136
Mortgage banking derivative - asset		-		616		-		616

December 31, 2012	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	$	-	$	11,069	$	-	$	11,069
U.S. treasury bonds		-		1,002		-		1,002
Mortgage-backed - residential		-		31,461		-		31,461
Collateralized mortgage obligations		-		57,466		-		57,466
Trust preferred stock		-		-		1,474		1,474
Preferred stock		134		-		-		134
Corporate bonds		-		8,884		-		8,884
Obligations of state and political subdivisions		-		82,611		-		82,611
Mortgage banking derivative - asset		-		950		-		950
Mortgage banking derivative - liability		-		(94)		-		(94)

There were no transfers between Level 1 and Level 2 as of June 30, 2013 or December 31, 2012.

The table below presents a reconciliation and income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2013 and 2012:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2013	$	1,474
Total gains or losses (realized/unrealized)
Included in earnings (realized)		-
Included in other comprehensive income (presented gross of taxes)		262
Amortization		-
Sales		-
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2013	$	1,736

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, April 1, 2013	$	1,651
Total gains or losses (realized/unrealized)
Included in earnings (realized)		-
Included in other comprehensive income (presented gross of taxes)		85
Amortization		-
Sales		-
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2013	$	1,736

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2012	$	1,342
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		80
Included in other comprehensive income (presented gross of taxes)		70
Amortization		-
Redemption		(265)
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2012	$	1,227

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, April 1, 2012	$	1,377
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		80
Included in other comprehensive income (presented gross of taxes)		35
Amortization		-
Redemption		(265)
Transfers in and/or out of Level 3		-
Ending balance, June 30, 2012	$	1,227

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

June 30, 2013	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Residential Loans	$	-	$	-	$	366	$	366
Commercial Loans		-		-		181		181
Multi Family Loans		-		-		373		373
Home Equity Loans		-		-		159		159
CRE loans		-		-		9,055		9,055
Total impaired loans		-		-		10,134		10,134
Mortgage servicing rights		-		3,457		-		3,457
Real estate held for sale
Residential Loans		-		-		65		65
CRE loans		-		-		167		167
Total Real Estate held for sale		-		-		232		232

December 31, 2012	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Impaired loans
Residential Loans	$	-	$	-	$	599	$	599
Commercial Loans		-		-		771		771
Home Equity Loans		-		-		168		168
Multi Family Loans		-		-		407		407
CRE loans		-		-		12,126		12,126
Total Impaired loans		-		-		14,071		14,071
Mortgage servicing rights		-		7,833		-		7,833
Real estate held for sale
Residential Loans		-		-		61		61
CRE loans		-		-		385		385
Total Real Estate held for sale		-		-		446		446

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2013, 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)
Trust preferred stock	$	1,736	Discounted cash flow	Constant prepayment rate		2-40	%		40	%
				Expected asset default		0-30	%		15	%
				Expected recoveries		10-15	%		10	%
Impaired Loans- Applies to all loan classes	$	10,134	Appraisals	Discounts for collection issues and changes in market conditions		0-10	%		10	%
Real estate held for sale – Applies to all classes	$	232	Appraisals	Discounts for changes in market conditions		0-20	%		20	%

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2012, 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)
Trust preferred stock	$	1,474	Discounted cash flow	Constant prepayment rate		2-40	%		40	%
				Expected asset default		0-30	%		15	%
				Expected recoveries		10-15	%		10	%
Impaired Loans- Applies to all loan classes	$	14,071	Appraisals	Discounts for collection issues and changes in market conditions		0-10	%		10	%
Real estate held for sale – Applies to all classes	$	446	Appraisals	Discounts for changes in market conditions		0-20	%		20	%

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $10.1 million, with no valuation allowance at June 30, 2013. A provision expense of $551,000 for the three months ended June 30, 2013 was included in earnings. Provision expense of $1.2 million for the six months ended June 30, 2013 was included in earnings.

Mortgage servicing rights which are carried at the lower of cost or fair value had a fair value of $3.5 million at June 30, 2013 with a valuation allowance of $1.5 million. A recovery of $312,000 for the three months and $785,000 for the six months ended June 30, 2013 was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair value of real estate held for sale was $215,000 for the three and six months ended June 30, 2013 which was recorded directly as an adjustment to current earnings through non-interest expense.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $14.1 million with a valuation allowance of $0 at December 31, 2012. A recovery of provision expense of $576,000 for the three months ended June 30, 2012 was included in earnings. Provision expense of $4,187,000 for the six months ended June 30, 2012 was included in earnings.

Mortgage servicing rights which are carried at the lower of cost or fair value had a fair value of $7.8 million at December 31, 2012 resulting in a valuation allowance of $2.3 million. A charge of $177,000 for the three months and $256,000 for the six months ended June 30, 2012 was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for estimated costs to sell. The change in fair value of real estate held for sale was $126,000 for the three months and $263,000 for the six months ended June 30, 2012 which was recorded directly as an adjustment to current earnings through non-interest expense.

In accordance with FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of June 30, 2013 and December 31, 2012. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of First Defiance.

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

The carrying amount of cash and cash equivalents, term notes payable and advance payments by borrowers for taxes and insurance, 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”) stock due to restrictions placed on its transferability.

The fair value of loans which reprice within 90 days is equal to their carrying amount. For other loans, the estimated fair value is calculated based on 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 to estimate the fair value of loans do not necessarily represent an exit price. The fair value of loans held for sale is estimated based on binding contracts and quotes from third party investors resulting in a Level 2 classification.

The fair value of accrued interest receivable is equal to the carrying amounts resulting in a Level 2 or Level 3 classification which is consistent with its underlying value.

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

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

FHLB advances with maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at June 30, 2013.

			Fair Value Measurements at June 30, 2013 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	127,743	$	127,743	$	127,743	$	-	$	-
Investment securities		188,524		188,530		428		186,366		1,736
Federal Home Loan Bank Stock		19,353		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,551,204		1,547,918		-		14,742		1,533,176
Accrued interest receivable		5,891		5,891		-		697		5,194
Financial Liabilities:
Deposits	$	1,635,708	$	1,638,358	$	291,765	$	1,346,593	$	-
Advances from Federal Home Loan Bank		62,773		63,171		-		63,171		-
Securities sold under repurchase agreements		47,560		47,560		-		47,560		-
Subordinated debentures		36,083		35,334		-		-		35,334

			Fair Value Measurements at December 31, 2012 (In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	136,832	$	136,832	$	136,832	$	-	$	-
Investment securities		194,609		194,617		134		193,009		1,474
Federal Home Loan Bank Stock		20,655		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,520,610		1,543,438		-		22,577		1,520,861
Accrued interest receivable		5,594		5,594		-		757		4,837
Financial Liabilities:
Deposits	$	1,667,472	$	1,671,713	$	315,132	$	1,356,581	$	-
Advances from Federal Home Loan Bank		12,796		13,466		-		13,466		-
Securities sold under repurchase agreements		51,702		51,702		-		51,702		-
Subordinated debentures		36,083		35,766		-		-		35,766

XML

Commitments, Guarantees and Contingent Liabilities (Details Textual) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Line of Credit Facility, Period	60 days or less
Commitments and Loans, Available to Sell	$ 37.8	$ 53.6

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Basis of Presentation

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

First Federal is primarily engaged in community banking, attracting deposits from the general public and using 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, commercial and consumer loans and providing a broad range of depository, trust and wealth management services. First Insurance is an insurance agency that does business in the Defiance, Archbold, Bryan, Bowling Green, Maumee and Oregon, Ohio areas, offering property and casualty, and group health and life insurance products. First Defiance Risk Management was incorporated on December 20, 2012, as a wholly-owned insurance company subsidiary of the Company to insure the Company and the 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.

The consolidated condensed statement of financial condition at December 31, 2012 has been derived from the audited financial statements at that date, which were included in First Defiance’s Annual Report on Form 10-K.

The accompanying consolidated condensed financial statements as of June 30, 2013 and for the three and six month periods ended June 30, 2013 and 2012 have been prepared by First Defiance without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States. These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in First Defiance's 2012 Annual Report on Form 10-K for the year ended December 31, 2012. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the entire year.

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Fair Value (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Impaired Financing Receivable, Recorded Investment	$ 10,134,000		$ 10,134,000		$ 14,071,000
Impaired Financing Receivables, Provisional Expenses	551,000		1,200,000
Mortgage Servicing Rights at Fair Value	3,457,000		3,457,000		7,833,000
Valuation Allowance of Mortgage Servicing Rights	1,500,000		1,500,000		2,300,000
Proceeds from Collection of Loans Receivable	312,000		785,000
Real Estate Held-for-sale, Increase (Decrease) in Fair Value	215,000	126,000	215,000	263,000
Provision for Loan Losses Expensed		576,000		4,187,000
Charge of Mortgage Servicing Rights		177,000		256,000
Impaired Financing Receivable, With Related Allowance, Recorded Investment	$ 28,434,000		$ 28,434,000		$ 25,762,000
Minimum [Member]
Fair Value Inputs, Discount Rate			0.00%
Maximum [Member]
Fair Value Inputs, Discount Rate			20.00%

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2013

Marketable Securities [Abstract]

Schedule of Available-for-sale and Held to Maturity Securities [Table Text Block]

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At June 30, 2013
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	5,000	$	-	$	(81)	$	4,919
Mortgage-backed securities – residential		39,003		803		(802)		39,004
Collateralized mortgage obligations		54,403		902		(402)		54,903
Trust preferred securities and preferred stock		3,600		394		(1,830)		2,164
Corporate bonds		8,824		146		(17)		8,953
Obligations of state and political subdivisions		76,047		3,005		(916)		78,136
Totals	$	186,877	$	5,250	$	(4,048)	$	188,079
Held-to-Maturity Securities*:
FHLMC certificates	$	62	$	-	$	(1)	$	61
FNMA certificates		142		4		-		146
GNMA certificates		55		3		-		58
Obligations of state and political subdivisions		186		-		-		186
Totals	$	445	$	7	$	(1)	$	451
At December 31, 2012
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	11,000	$	69	$	-	$	11,069
U.S. treasury bonds		1,000		2		-		1,002
Mortgage-backed securities – residential		30,020		1,441		-		31,461
Collateralized mortgage obligations		55,962		1,504		-		57,466
Trust preferred securities and preferred stock		3,600		99		(2,091)		1,608
Corporate bonds		8,717		167		-		8,884
Obligations of state and political subdivisions		76,339		6,277		(5)		82,611
Totals	$	186,638	$	9,559	$	(2,096)	$	194,101
Held-to-Maturity Securities*:
FHLMC certificates	$	69	$	-	$	(1)	$	68
FNMA certificates		162		6		-		168
GNMA certificates		60		3		-		63
Obligations of state and political subdivisions		217		-		-		217
Totals	$	508	$	9	$	(1)	$	516

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

Investments Classified by Contractual Maturity Date [Table Text Block]

For purposes of the maturity table, mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”), which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	2,255	$	2,268	$	-	$	-
Due after one year through five years		6,107		6,301		186		186
Due after five years through ten years		36,502		37,728		-		-
Due after ten years		48,607		47,875		-		-
MBS/CMO		93,406		93,907		259		265
	$	186,877	$	188,079	$	445	$	451

Unrealized Gain (Loss) on Investments [Table Text Block]

The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2013 and December 31, 2012:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Month or Longer				Total
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Losses
	(In Thousands)
At June 30, 2013
Available-for-sale securities:
Obligations of U.S. government     corporations and agencies	$	4,919	$	(81)	$	-	$	-	$	4,919	$	(81)
Mortgage-backed - residential		19,936		(802)		-		-		19,936		(802)
Collateralized mortgage obligations		19,027		(402)		-		-		19,027		(402)
Trust preferred stock and preferred stock		-		-		1,736		(1,830)		1,736		(1,830)
Corporate bonds		2,983		(17)		-		-		2,983		(17)
Obligations of state and political     subdivisions		18,068		(916)		-		-		18,068		(916)
Held to maturity securities:
Mortgage-backed securities		-		-		32		(1)		32		(1)
Total temporarily impaired securities	$	64,933	$	(2,218)	$	1,768	$	(1,831)	$	66,701	$	(4,049)

	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, 2012
Available-for-sale securities:
Mortgage-backed securities - residential	$	1	$	-	$	-	$	-	$	1	$	-
Obligations of state and political     subdivisions		949		(5)		-		-		949		(5)
Trust preferred stock and preferred stock		-		-		1,474		(2,091)		1,474		(2,091)
Total temporarily impaired securities	$	950	$	(5)	$	1,474	$	(2,091)	$	2,424	$	(2,096)

Schedule of Other than Temporary Impairment, Credit Losses Recognized in Earnings [Table Text Block]

The following table details the six securities with other-than-temporary impairment, their lowest credit rating at June 30, 2013 and the related credit losses recognized in earnings for the three month period ending March 31, 2013 and June 30, 2013 (In Thousands):

	TPREF Funding II Rated		Alesco VIII		Preferred Term Security XXVII		Trapeza CDO I Rated		Alesco Preferred Funding VIII		Alesco Preferred Funding IX
	Caa3		Rated Ca		Rated C		Ca		Not Rated		Not Rated		Total
Cumulative OTTI related to credit loss at January 1, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176
Addition – Qtr 1		-		-		-		-		-		-		-
Cumulative OTTI related to credit loss at March 31, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176
Addition – Qtr 2		-		-		-		-		-		-		-
Cumulative OTTI related to credit loss at June 30, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176

Investment [Table Text Block]

The following table provides additional information related to the four CDO investments for which a balance remains as of June 30, 2013 (dollars in thousands):

CDO	Class	Amortized Cost		Fair Value		Unrealized Loss		OTTI Losses 2013		Lowest Rating	Current Number of Banks and Insurance Companies		Actual Deferrals and Defaults as a % of Current Collateral			Expected Deferrals and Defaults as a % of Remaining Performing Collateral			Excess Sub- ordination as a % of Current Performing Collateral
TPREF Funding II	B		673		242		(431)		-	Caa3		15		43.47	%		15.90	%		-	%
I-Preferred Term Sec I	B-1		1,000		656		(344)		-	CCC-		14		17.24	%		12.04	%		23.78	%
Dekania II CDO	C-1		990		576		(414)		-	CCC		31		-	%		13.29	%		26.51	%
Preferred Term Sec XXVII	C-1		903		262		(641)		-	C		32		26.15	%		18.83	%		5.99	%
Total		$	3,566	$	1,736	$	(1,830)	$	-

Marketable Securities [Table Text Block]

The proceeds from the sales and calls of securities and the associated gains are listed below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)				(In thousands)
Proceeds	$	3,008	$	6,198	$	4,027	$	6,416
Gross realized gains		44		382		97		425
Gross realized losses		-		-		-		-

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Borrowings (Tables)

6 Months Ended

Jun. 30, 2013

Notes Payable and Other Short Term Borrowings [Abstract]

Federal Home Loan Bank Advances Disclosure [Table Text Block]

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

	June 30, 2013		December 31, 2012
	(in thousands)
FHLB Advances:
Overnight borrowings	$	50,000	$	-
Putable advances		12,000		12,000
Amortizable mortgage advances		773		796
Total	$	62,773	$	12,796
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

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Borrowings (Details Textual) (USD $) In Millions, unless otherwise specified	6 Months Ended	3 Months Ended			3 Months Ended
	Jun. 30, 2013 Putable Advances [Member]	Mar. 31, 2005 Trust Affiliate I [Member]	Jun. 30, 2013 Trust Affiliate I [Member]	Dec. 31, 2012 Trust Affiliate I [Member]	Mar. 31, 2007 Trust Affiliate II [Member]	Jun. 30, 2013 Trust Affiliate II [Member]	Dec. 31, 2012 Trust Affiliate II [Member]
Federal Home Loan Bank, Advances, Balance Amount Yet to Be Called Series One	$ 12.0
Federal Home Loan Bank, Advances, Interest Rate on Balance Amount Yet to be Called Series One	2.72%
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Call Date Earliest One	July 15, 2013
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Call Date Last One	September 12, 2013
Federal Home Loan Bank, Advances, General Debt Obligations Disclosures, Due Date Earliest One	January 14, 2015
Federal Home Loan Bank, Advances, General Debt Obligations Disclosures, Due Date Last	March 12, 2018
Issuance of Trust Preferred Securities		20			15
Issuance of Subordinated Debentures		$ 20.6			$ 15.5
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due within One Year of Balance Sheet Date					6.441%
Preferred Securities, Variable Interest Rate		LIBOR rate plus 1.38%			LIBOR plus 1.5%
Coupon Rate on Preferred Securities, Period End			1.65%	1.77%		1.77%	1.89%

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Fair Value (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Beginning balance	$ 1,651	$ 1,377	$ 1,474	$ 1,342
Total gains or losses (realized/unrealized) Included in earnings (realized/unrealized)	0	80	0	80
Total gains or losses (realized/unrealized) Included in other comprehensive income (presented gross of taxes)	85	35	262	70
Amortization	0	0	0	0
Sales	0		0
Redemption		(265)		(265)
Transfers in and/or out of Level 3	0	0	0	0
Ending balance	$ 1,736	$ 1,227	$ 1,736	$ 1,227

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Borrowings (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
FHLB Advances:
Overnight borrowing	$ 50,000	$ 0
Putable advances	12,000	12,000
Amortizable mortgage advances	773	796
Total	62,773	12,796
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$ 36,083	$ 36,083

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Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Real Estate:
Real Estate	$ 1,058,733		$ 1,035,999
Other Loans:
Other Loans	519,545		508,471
Total loans	1,578,278		1,544,470
Deduct:
Undisbursed loan funds	(14,876)		(18,478)
Net deferred loan origination fees and costs	(736)		(735)
Allowance for loan loss	(26,270)	(26,459)	(26,711)	(26,409)	(28,833)	(33,254)
Totals	1,536,396		1,498,546
One to Four Family Residential Real Estate [Member]
Real Estate:
Real Estate	196,802		200,826
Multi Family Residential [Member]
Real Estate:
Real Estate	136,274		122,275
Commercial Real Estate [Member]
Real Estate:
Real Estate	684,138		675,110
Construction Loans [Member]
Real Estate:
Real Estate	41,519		37,788
Commercial Loan [Member]
Other Loans:
Other Loans	396,158		383,817
Home Equity and Home Improvement [Member]
Other Loans:
Other Loans	106,570		108,718
Consumer Loan [Member]
Other Loans:
Other Loans	$ 16,817		$ 15,936

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Investment Securities (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	$ 64,933	$ 950
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(2,218)	(5)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	1,768	1,474
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(1,831)	(2,091)
Available-for-sale securities, Total, Fair Value	66,701	2,424
Available-for-sale securities, Total, Unrealized Loss	(4,049)	(2,096)
Us Government Corporations and Agencies Securities [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	4,919
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(81)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0
Available-for-sale securities, Total, Fair Value	4,919
Available-for-sale securities, Total, Unrealized Loss	(81)
Residential Mortgage Backed Securities [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	19,936	1
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(802)	0
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0	0
Available-for-sale securities, Total, Fair Value	19,936	1
Available-for-sale securities, Total, Unrealized Loss	(802)	0
Held-to-maturity securities, Duration of Unrealized Loss Position, Less than 12 Months, Fair Value	0
Held-to-maturity Securities, Duration of Unrealized Loss Position, Less than 12 Months, Gross Unrealized Loss	0
Held-to-maturity securities, Duration of Unrealized Loss Position, 12 Months or Longer, Fair Value	32
Held-to-maturity Securities, Duration of Unrealized Loss Position, 12 Months or Longer, Gross Unrealized Loss	(1)
Held-to-maturity securities, Duration of Unrealized Loss Position, Total, Fair Value	32
Held-to-maturity Securities, Duration of Unrealized Loss Position, Total, Unrealized Loss	(1)
Collateralized Mortgage Obligations and Remics [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	19,027
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(402)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0
Available-for-sale securities, Total, Fair Value	19,027
Available-for-sale securities, Total, Unrealized Loss	(402)
Trust Preferred Securities and Preferred Stock [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	0	0
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	0	0
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	1,736	1,474
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	(1,830)	(2,091)
Available-for-sale securities, Total, Fair Value	1,736	1,474
Available-for-sale securities, Total, Unrealized Loss	(1,830)	(2,091)
Corporate Bond Securities [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	2,983
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(17)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0
Available-for-sale securities, Total, Fair Value	2,983
Available-for-sale securities, Total, Unrealized Loss	(17)
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities, Duration of Unrealized Loss Position, Less than 12 Month, Fair Value	18,068	949
Available-for-sale Securities, Duration of Unrealized Loss Position, Less than 12 Month, Gross Unrealized Loss	(916)	(5)
Available-for-sale securities, Duration of Unrealized Loss Position, 12 Month or Longer, Fair Value	0	0
Available-for-sale Securities, Duration of Unrealized Loss Position, 12 Month or Longer, Gross Unrealized Loss	0	0
Available-for-sale securities, Total, Fair Value	18,068	949
Available-for-sale securities, Total, Unrealized Loss	$ (916)	$ (5)

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Dividends on Common Stock (Details Textual) (USD $)	3 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2012	Mar. 31, 2012
Common Stock, Dividends, Per Share, Cash Paid	$ 0.10	$ 0.10	$ 0.05	$ 0.05

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Consolidated Condensed Statements of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013		Dec. 31, 2012
Held-to-maturity, fair value (in dollars)	$ 451	[1]	$ 516	[1]
Loans receivable, allowance (in dollars)	26,270		26,711
Preferred stock, par value (in dollars per share)	$ 0.01		$ 0.01
Preferred stock, shares authorized	5,000,000		5,000,000
Preferred stock, shares issued	0		0
Common stock, par value (in dollars per share)	$ 0.01		$ 0.01
Common stock, shares authorized	25,000,000		25,000,000
Common stock, shares issued	12,735,313		12,739,496
Common stock, shares outstanding	9,776,057		9,729,466
Accumulated other comprehensive income, tax effect (in dollars)	$ 111		$ 2,301
Treasury stock, shares	2,959,256		3,010,030

[1] FHLMC, FNMA, and GNMA certificates are residential mortgage-backed securities.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

6. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (in thousands except per share data):

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Numerator for basic and diluted earnings per common share – Net income applicable to common shares	$	6,109	$	3,823	$	11,668	$	7,468
Denominator:
Denominator for basic earnings per common share – weighted average common shares, including participating securities		9,774		9,729		9,755		9,728
Effect of warrants		306		211		301		210
Effect of restricted stock units		27		24		23		21
Effect of employee stock options		49		21		51		21
Denominator for diluted earnings per common share share		10,156		9,985		10,130		9,980
Basic earnings per common share	$	0.63	$	0.39	$	1.20	$	0.77
Diluted earnings per common share	$	0.60	$	0.38	$	1.15	$	0.75

There were 143,350 shares under option granted to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for the three and six months ended June 30, 2013. There were 256,643 shares under option granted to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for the three and six months ended June 30, 2012.

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Consolidated Condensed Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012
Net Income	$ 6,109		$ 3,921		$ 11,668		$ 8,074
Other comprehensive income:
Unrealized losses on securities available for sale	(5,500)		1,493		(6,164)		1,444
Reclassification adjustment for security gains (losses) included in net income	(44)	[1]	(382)	[1]	(97)	[1]	(425)	[1]
Income tax	1,940		(388)		2,191		(356)
Other comprehensive income (loss)	(3,604)		723		(4,070)		663
Comprehensive income	$ 2,505		$ 4,644		$ 7,598		$ 8,737

[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 June 30, 2013 and 2012 was $13 and $115, respectively. . Income tax expense associated with the reclassification adjustments, included in federal income taxes, for the six months ended June 30, 2013 and 2012 was $29 and $128, respectively.

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Loans (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Average Balance	$ 66,989	$ 48,555	$ 68,371	$ 48,353
Interest Income Recognized	598	179	1,067	360
Cash Basis Income Recognized	575	151	1,023	309
Residential Owner Occupied [Member]
Average Balance	6,693	1,933	6,811	1,956
Interest Income Recognized	92	17	180	30
Cash Basis Income Recognized	92	16	178	28
Residential Non Owner Occupied [Member]
Average Balance	4,443	5,395	4,583	4,888
Interest Income Recognized	43	33	79	71
Cash Basis Income Recognized	44	32	79	71
Residential Real Estate [Member]
Average Balance	11,136	7,328	11,394	6,844
Interest Income Recognized	135	50	259	101
Cash Basis Income Recognized	136	48	257	99
Construction Loans [Member]
Average Balance	131	0	102	0
Interest Income Recognized	3	0	3	0
Cash Basis Income Recognized	2	0	2	0
Multi Family [Member]
Average Balance	1,277	598	1,393	443
Interest Income Recognized	5	0	11	1
Cash Basis Income Recognized	6	0	13	1
Commercial Real Estate Owner Occupied [Member]
Average Balance	14,452	11,473	14,536	10,376
Interest Income Recognized	120	26	183	39
Cash Basis Income Recognized	118	32	176	44
Commercial Real Estate Non Owner Occupied [Member]
Average Balance	23,692	14,574	24,080	15,158
Interest Income Recognized	236	89	439	180
Cash Basis Income Recognized	230	56	423	126
Agriculture Land [Member]
Average Balance	889	1,049	886	1,157
Interest Income Recognized	8	0	17	14
Cash Basis Income Recognized	3	0	10	14
Commercial Real Estate Other Receivable [Member]
Average Balance	4,526	6,879	4,783	7,568
Interest Income Recognized	12	1	14	3
Cash Basis Income Recognized	8	2	9	3
Commercial Real Estate [Member]
Average Balance	43,559	33,975	44,285	34,259
Interest Income Recognized	376	116	653	236
Cash Basis Income Recognized	359	90	618	187
Commercial Working Capital [Member]
Average Balance	1,346	2,485	1,593	2,240
Interest Income Recognized	17	2	20	4
Cash Basis Income Recognized	17	2	22	4
Commercial Loans Other [Member]
Average Balance	6,669	4,132	6,759	4,529
Interest Income Recognized	28	10	51	16
Cash Basis Income Recognized	23	10	45	16
Commercial Loan [Member]
Average Balance	8,015	6,617	8,352	6,769
Interest Income Recognized	45	12	71	20
Cash Basis Income Recognized	40	12	67	20
Consumer Loan [Member]
Average Balance	82	0	96	0
Interest Income Recognized	1	0	3	0
Cash Basis Income Recognized	1	0	3	0
Home Equity and Home Improvement [Member]
Average Balance	2,789	37	2,749	38
Interest Income Recognized	33	1	67	2
Cash Basis Income Recognized	$ 31	$ 1	$ 63	$ 2

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Consolidated Condensed Statements of Financial Condition (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Assets
Cash and amounts due from depository institutions	$ 39,743	$ 45,832
Federal funds sold	88,000	91,000
Cash and cash equivalents, at Carrying Value	127,743	136,832
Securities:
Available-for-sale, carried at fair value	188,079	194,101
Held-to-maturity, carried at amortized cost (fair value $451 and $516 at June 30, 2013 and December 31, 2012, respectively)	445	508
Marketable Securities, Total	188,524	194,609
Loans held for sale	14,808	22,064
Loans receivable, net of allowance of $26,270 at June 30, 2013 and $26,711 at December 31, 2012, respectively	1,536,396	1,498,546
Accrued interest receivable	5,891	5,594
Federal Home Loan Bank stock	19,353	20,655
Bank owned life insurance	42,292	41,832
Premises and equipment	38,866	39,663
Real estate and other assets held for sale	6,546	3,805
Goodwill	61,525	61,525
Core deposit and other intangibles	4,090	4,738
Mortgage servicing rights	8,731	7,833
Deferred taxes	2,291	78
Other assets	9,160	9,174
Total assets	2,066,216	2,046,948
Liabilities and stockholders' equity
Deposits	1,635,708	1,667,472
Advances from the Federal Home Loan Bank	62,773	12,796
Subordinated debentures	36,083	36,083
Securities sold under repurchase agreements	47,560	51,702
Advance payments by borrowers	1,844	1,473
Other liabilities	17,751	19,294
Total liabilities	1,801,719	1,788,820
Stockholders' equity:
Preferred stock, $.01 par value per share: 5,000,000 shares authorized; no shares issued	0	0
Common stock, $.01 par value per share: 25,000,000 shares authorized; 12,735,313 and 12,739,496 shares issued and 9,776,057 and 9,729,466 shares outstanding, respectively	127	127
Common stock warrant	878	878
Additional paid-in capital	136,111	136,046
Accumulated other comprehensive income, net of tax of $111 and $2,301, respectively	204	4,274
Retained earnings	173,679	164,103
Treasury stock, at cost, 2,959,256 and 3,010,030 shares respectively	(46,502)	(47,300)
Total stockholders' equity	264,497	258,128
Total liabilities and stockholders' equity	$ 2,066,216	$ 2,046,948

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Investment Securities (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2013	Mar. 31, 2013
Cumulative OTTI related to credit loss beginning balance	$ 3,176	$ 3,176
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	3,176	3,176
TPREF Funding II [Member] | Moodys, Caa3 Rating [Member]
Cumulative OTTI related to credit loss beginning balance	323	323
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	323	323
Alesco VIII [Member] | Moodys, Ca Rating [Member]
Cumulative OTTI related to credit loss beginning balance	1,000	1,000
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	1,000	1,000
Preferred Term Security XXVII [Member] | Moodys, C Rating [Member]
Cumulative OTTI related to credit loss beginning balance	78	78
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	78	78
Trapeza Cdo I [Member] | Moodys, Ca Rating [Member]
Cumulative OTTI related to credit loss beginning balance	857	857
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	857	857
Alesco Preferred Funding VIII [Member] | Not Rated [Member]
Cumulative OTTI related to credit loss beginning balance	453	453
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	453	453
Alesco Preferred Funding IX [Member] | Not Rated [Member]
Cumulative OTTI related to credit loss beginning balance	465	465
Cumulative OTTI related to credit loss, Addtions	0	0
Cumulative OTTI related to credit loss ending balance	$ 465	$ 465

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Derivative Financial Instruments (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives - Gain (Loss)	$ (79)	$ 117	$ (240)	$ 390

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Loans (Tables)

6 Months Ended

Jun. 30, 2013

Loans Receivable, Net [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Loans receivable consist of the following (in thousands):

	June 30, 2013		December 31, 2012
Real Estate:
Secured by 1-4 family residential	$	196,802	$	200,826
Secured by multi-family residential		136,274		122,275
Secured by commercial real estate		684,138		675,110
Construction		41,519		37,788
		1,058,733		1,035,999
Other Loans:
Commercial		396,158		383,817
Home equity and improvement		106,570		108,718
Consumer Finance		16,817		15,936
		519,545		508,471
Total loans		1,578,278		1,544,470
Deduct:
Undisbursed loan funds		(14,876)		(18,478)
Net deferred loan origination fees and costs		(736)		(735)
Allowance for loan loss		(26,270)		(26,711)
Totals	$	1,536,396	$	1,498,546

Schedule of Valuation Allowance for Impairment of Recognized Servicing Assets [Table Text Block]

The following table discloses allowance for loan loss activity for the quarter ended June 30, 2013 and June 30, 2012 by portfolio segment and impairment method ($ in thousands):

Quarter Ended June 30, 2013	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Allowance	$	3,433	$	67	$	2,410	$	13,367	$	5,304	$	1,723	$	155	$	26,459
Charge-Offs		(184)		0		(6)		(277)		(316)		(170)		(8)		(961)
Recoveries		33		0		0		167		57		38		29		324
Provisions		(85)		16		21		(117)		429		195		(11)		448
Ending Allowance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270

Quarter Ended June 30, 2012	1-4 Family Residential Real Estate		Construction		Multi-Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Specific Allocations	$	3,373	$	73	$	2,831	$	16,200	$	4,693	$	1,485	$	178	$	28,833
Charge-Offs		(584)		-		(317)		(5,132)		(486)		(254)		(13)		(6,786)
Recoveries		69		-		-		36		125		18		17		265
Provisions		246		(27)		96		2,810		824		186		(38)		4,097
Ending Allowance	$	3,104	$	46	$	2,610	$	13,914	$	5,156	$	1,435	$	144	$	26,409

The following table discloses allowance for loan loss activity for the year-to-date ended June 30, 2013 and June 30, 2012 by portfolio segment and impairment method ($ in thousands):

Year-to-date Ended June 30, 2013	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Allowance	$	3,506	$	75	$	2,197	$	12,702	$	6,325	$	1,759	$	147	$	26,711
Charge-Offs		(390)		0		(6)		(543)		(521)		(442)		(54)		(1,956)
Recoveries		132		0		0		268		133		61		48		642
Provisions		(51)		8		234		713		(463)		408		24		873
Ending Allowance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270

Year-to-date Ended June 30, 2012	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Specific Allocations	$	4,095	$	63	$	2,850	$	17,640	$	6,576	$	1,856	$	174	$	33,254
Charge-Offs		(1,322)		-		(555)		(9,390)		(3,152)		(465)		(54)		(14,938)
Recoveries		124		-		-		144		155		39		31		493
Provisions		207		(17)		315		5,520		1,577		5		(7)		7,600
Ending Allowance	$	3,104	$	46	$	2,610	$	13,914	$	5,156	$	1,435	$	144	$	26,409

Schedule of Allowance for Loan Losses and Recorded Investment in Portfolio Segment Based on Impairment [Table Text Block]

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2013:

(In Thousands)

	1-4 Family				Multi- Family
	Residential				Residential		Commercial				Home Equity
	Real Estate		Construction		Real Estate		Real Estate		Commercial		& Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	241	$	-	$	-	$	1,505	$	55	$	44	$	1	$	1,846
Collectively evaluated for impairment		2,956		83		2,425		11,635		5,419		1,742		164		24,424
Acquired with deteriorated credit quality		-				-				-				-
Total ending allowance balance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270
Loans:
Loans individually evaluated for impairment	$	10,970	$	263	$	1,292	$	43,259	$	7,223	$	2,715	$	81	$	65,803
Loans collectively evaluated for impairment		186,284		26,364		135,118		642,532		390,187		104,341		16,730		1,501,556
Loans acquired with deteriorated credit quality		32		-		-		428		30		-		-		490
Total ending loans balance	$	197,286	$	26,627	$	136,410	$	686,219	$	397,440	$	107,056	$	16,811	$	1,567,849

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, 2012:

(In Thousands)

	1-4 Family				Multi- Family
	Residential				Residential		Commercial				Home Equity
	Real Estate		Construction		Real Estate		Real Estate		Commercial		& Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	281	$	-	$	-	$	1,070	$	138	$	2	$	-	$	1,491
Collectively evaluated for impairment		3,225		75		2,197		11,632		6,187		1,757		147		25,220
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	3,506	$	75	$	2,197	$	12,702	$	6,325	$	1,759	$	147	$	26,711
Loans:
Loans individually evaluated for impairment	$	11,930	$	45	$	1,626	$	46,053	$	8,830	$	2,678	$	124	$	71,286
Loans collectively evaluated for impairment		189,348		19,251		120,829		630,534		376,007		106,516		15,815		1,458,300
Loans acquired with deteriorated credit quality		36		-		-		436		32		-		-		504
Total ending loans balance	$	201,314	$	19,296	$	122,455	$	677,023	$	384,869	$	109,194	$	15,939	$	1,530,090

Loans Receivable, Impaired, Interest Income, Cash Basis Method [Table Text Block]

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

	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	6,693	$	92	$	92	$	6,811	$	180	$	178
Residential Non Owner Occupied		4,443		43		44		4,583		79		79
Total Residential Real Estate		11,136		135		136		11,394		259		257
Construction		131		3		2		102		3		2
Multi-Family		1,277		5		6		1,393		11		13
CRE Owner Occupied		14,452		120		118		14,536		183		176
CRE Non Owner Occupied		23,692		236		230		24,080		439		423
Agriculture Land		889		8		3		886		17		10
Other CRE		4,526		12		8		4,783		14		9
Total Commercial Real Estate		43,559		376		359		44,285		653		618
Commercial Working Capital		1,346		17		17		1,593		20		22
Commercial Other		6,669		28		23		6,759		51		45
Total Commercial		8,015		45		40		8,352		71		67
Consumer		82		1		1		96		3		3
Home Equity and Home Improvement		2,789		33		31		2,749		67		63
Total Impaired Loans	$	66,989	$	598	$	575	$	68,371	$	1,067	$	1,023

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

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	1,933	$	17	$	16	$	1,956	$	30	$	28
Residential Non Owner Occupied		5,395		33		32		4,888		71		71
Total Residential Real Estate		7,328		50		48		6,844		101		99
Construction		-		-		-		-		-		-
Multi-Family		598		-		-		443		1		1
CRE Owner Occupied		11,473		26		32		10,376		39		44
CRE Non Owner Occupied		14,574		89		56		15,158		180		126
Agriculture Land		1,049		-		-		1,157		14		14
Other CRE		6,879		1		2		7,568		3		3
Total Commercial Real Estate		33,975		116		90		34,259		236		187
Commercial Working Capital		2,485		2		2		2,240		4		4
Commercial Other		4,132		10		10		4,529		16		16
Total Commercial		6,617		12		12		6,769		20		20
Consumer		-		-		-		-		-		-
Home Equity and Home Improvement		37		1		1		38		2		2
Total Impaired Loans	$	48,555	$	179	$	151	$	48,353	$	360	$	309

Impaired Financing Receivables [Table Text Block]

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2013: (In Thousands)

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	5,041	$	5,002	$	-
Residential Non Owner Occupied		3,921		3,187		-
Total Residential Real Estate		8,962		8,189		-
Construction		300		263		-
Multi-Family Residential Real Estate		1,442		1,292		-
CRE Owner Occupied		11,119		8,707		-
CRE Non Owner Occupied		7,882		6,341		-
Agriculture Land		1,097		917		-
Other CRE		6,160		3,840		-
Total Commercial Real Estate		26,258		19,805		-
Commercial Working Capital		1,267		1,271		-
Commercial Other		4,222		4,210		-
Total Commercial		5,489		5,481		-
Consumer		67		67		-
Home Equity and Home Improvement		2,405		2,272		-
Total loans with no allowance recorded	$	44,923	$	37,369	$	-
With an allowance recorded:
Residential Owner Occupied	$	1,545	$	1,552	$	22
Residential Non Owner Occupied		1,227		1,229		219
Total Residential Real Estate		2,772		2,781		241
Construction		-		-		-
Multi-Family Residential Real Estate		-		-		-
CRE Owner Occupied		8,013		6,869		294
CRE Non Owner Occupied		16,336		16,412		1,206
Agriculture Land		111		116		3
Other CRE		85		57		2
Total Commercial Real Estate		24,545		23,454		1,505
Commercial Working Capital		-		-		-
Commercial Other		1,732		1,742		55
Total Commercial		1,732		1,742		55
Consumer		14		14		1
Home Equity and Home Improvement		443		443		44
Total loans with an allowance recorded	$	29,506	$	28,434	$	1,846

*Unpaid principal balance includes partial charge-offs.

Impaired loans have been recognized in conformity with FASB ASC Topic 310.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012: (In Thousands)

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	5,427	$	5,357	$	-
Residential Non Owner Occupied		4,211		3,420		-
Total Residential Real Estate		9,638		8,777		-
Construction		300		45		-
Multi-Family Residential Real Estate		1,775		1,626		-
CRE Owner Occupied		12,314		9,782		-
CRE Non Owner Occupied		11,054		9,105		-
Agriculture Land		1,176		993		-
Other CRE		8,741		5,527		-
Total Commercial Real Estate		33,285		25,407		-
Commercial Working Capital		1,565		1,565		-
Commercial Other		6,367		5,338		-
Total Commercial		7,932		6,903		-
Consumer		125		124		-
Home Equity and Home Improvement		2,777		2,642		-
Total loans with no allowance recorded	$	55,832	$	45,524	$	-
With an allowance recorded:
Residential Owner Occupied	$	1,697	$	1,701	$	257
Residential Non Owner Occupied		1,449		1,452		24
Total Residential Real Estate		3,146		3,153		281
Construction		-		-		-
Multi-Family Residential Real Estate		-		-		-
CRE Owner Occupied		5,735		5,118		245
CRE Non Owner Occupied		15,301		15,357		820
Agriculture Land		111		112		3
Other CRE		88		59		2
Total Commercial Real Estate		21,235		20,646		1,070
Commercial Working Capital		300		301		10
Commercial Other		1,623		1,626		128
Total Commercial		1,923		1,927		138
Consumer		-		-		-
Home Equity and Home Improvement		36		36		2
Total loans with an allowance recorded	$	26,340	$	25,762	$	1,491

*Unpaid principal balance includes partial charge-offs.

Schedule of Non-Performing Loans and Real Estate Owned [Table Text Block]

The following table presents the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned on the dates indicated: 

	June 30, 2013		December 31, 2012
	(in thousands)
Non-accrual loans	$	28,650	$	32,570
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		28,650		32,570
Real estate and other assets held for sale		6,546		3,805
Total non-performing assets	$	35,196	$	36,375

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

The following table presents the aging of the recorded investment in past due and non accrual loans as of June 30, 2013 by class of loans: (In Thousands)

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	124,065	$	1,042	$	499	$	775	$	2,316	$	943
Residential Non Owner Occupied		69,645		365		152		743		1,260		2,117
Total residential real estate		193,710		1,407		651		1,518		3,576		3,060
Construction		26,627		-		-		-		-		-
Multi-Family		136,410		-		-		-		-		1,100
CRE Owner Occupied		323,579		828		1,183		2,953		4,964		8,696
CRE Non Owner Occupied		232,156		-		-		1,922		1,922		6,421
Agriculture Land		76,539		103		260		-		363		699
Other Commercial Real Estate		44,368		837		-		1,491		2,328		3,067
Total Commercial Real Estate		676,642		1,768		1,443		6,366		9,577		18,883
Commercial Working Capital		164,972		-		-		445		445		593
Commercial Other		228,913		174		180		2,756		3,110		4,800
Total Commercial		393,885		174		180		3,201		3,555		5,393
Consumer		16,620		191		-		-		191		-
Home Equity / Home Improvement		105,639		1,030		186		201		1,417		201
Total Loans	$	1,549,533	$	4,570	$	2,460	$	11,286	$	18,316	$	28,637

The following table presents the aging of the recorded investment in past due and non accrual loans as of December 31, 2012 by class of loans: (In Thousands)

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	125,362	$	1,238	$	604	$	945	$	2,787	$	1,125
Residential Non Owner Occupied		71,777		413		126		849		1,388		2,473
Total residential real estate		197,139		1,651		730		1,794		4,175		3,598
Construction		19,296		-		-		-		-		-
Multi-Family		122,455		-		-		-		-		1,178
CRE Owner Occupied		321,071		1,248		382		1,622		3,252		9,652
CRE Non Owner Occupied		235,592		134		1,321		2,480		3,935		6,674
Agriculture Land		72,092		84		31		-		115		813
Other Commercial Real Estate		36,510		21		875		3,560		4,456		4,761
Total Commercial Real Estate		665,265		1,487		2,609		7,662		11,758		21,900
Commercial Working Capital		161,110		-		155		1,204		1,359		1,528
Commercial Other		218,477		584		1,201		2,138		3,923		4,136
Total Commercial		379,587		584		1,356		3,342		5,282		5,664
Consumer		15,702		229		8		-		237		-
Home Equity / Home Improvement		106,458		2,294		225		217		2,736		217
Total Loans	$	1,505,902	$	6,245	$	4,928	$	13,015	$	24,188	$	32,557

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six month period ending June 30, 2013 and June 30, 2012:

	Loans Modified as a TDR for the Three Months Ended June 30, 2013 ($ in thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2013 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Residential Owner Occupied		3	$	316		8	$	752
Residential Non Owner Occupied		0		-		1		194
CRE Owner Occupied		3		758		4		782
CRE Non Owner Occupied		1		1,374		1		1,374
Agriculture Land		0		-		1		217
Other CRE		1		32		1		32
Commercial / Industrial		1		47		1		47
Home Equity / Improvement		4		119		12		609
Consumer		1		11		3		14
Total		14	$	2,657		32	$	4,021

The loans described above increased the ALLL by $327,000 in the three month period ending June 30, 2013 and $355,000 in the six month period ending June 30, 2013.

	Loans Modified as a TDR for the Three Months Ended June 30, 2012 ($ in thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2012 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Residential Owner Occupied		3	$	412		5	$	559
Residential Non Owner Occupied		0		-		1		82
CRE Owner Occupied		0		-		2		922
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		1		320
Other CRE		1		62		1		62
Commercial / Industrial		0		-		0		-
Home Equity / Improvement		0		-		0		-
Consumer		0		-		0		-
Total		4	$	474		10	$	1,945

Troubled Debt Restructurings on Payments [Table Text Block]

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 period ending June 30, 2013 and June 30, 2012:

	Three Months Ended June 30, 2013 ($ in thousands)				Six Months Ended June 30, 2013 ($ 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)
Residential Owner Occupied		4	$	303		4	$	303
Residential Non Owner Occupied		1		77		1		77
CRE Owner Occupied		1		169		2		837
CRE Non Owner Occupied		1		212		1		212
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial / Industrial		0		-		0		-
Home Equity / Improvement		4		52		4		52
Consumer		0		-		0		-
Total		11	$	813		12	$	1,481

The TDRs that subsequently defaulted described above decreased the allowance for loan losses by $10,000 for the three month period ended June 30, 2013, and by $12,000 for the six month period ended June 30, 2013.

	Three Months Ended June 30, 2012 ($ in thousands)				Six Months Ended June 30, 2012 ($ 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)
Residential Owner Occupied		0	$	-		0	$	-
Residential 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 / Industrial		1		580		1		580
Home Equity / Improvement		0		-		0		-
Consumer		0		-		0		-
Total		1	$	580		1	$	580

Financing Receivable Credit Quality Indicators [Table Text Block]

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (In Thousands)

Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	4,126	$	39	$	3,491	$	88	$	118,638	$	126,382
Residential Non Owner Occupied		54,823		3,444		6,051		-		6,586		70,904
Total residential real estate		58,949		3,483		9,542		88		125,224		197,286
Construction		18,217		-		263		-		8,147		26,627
Multi Family		132,511		670		2,237		-		992		136,410
CRE Owner Occupied		298,141		15,423		12,858		-		2,120		328,542
CRE Non Owner Occupied		203,780		11,597		18,642		-		59		234,078
Agriculture Land		75,041		590		1,271		-		-		76,902
Other CRE		38,950		2,289		4,655		-		803		46,697
Total Commercial Real Estate		615,912		29,899		37,426		-		2,982		686,219
Commercial Working Capital		157,463		5,891		2,063		-		-		165,417
Commercial Other		217,961		8,434		5,628		-		-		232,023
Total Commercial		375,424		14,325		7,691		-		-		397,440
Consumer		-		-		93		6		16,712		16,811
Home Equity/Improvement		-		-		844		71		106,141		107,056
Total	$	1,205,468	$	43,922	$	58,096	$	165	$	260,198	$	1,567,849

As of December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (In Thousands)

Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	4,221	$	75	$	3,617	$	234	$	120,002	$	128,149
Residential Non Owner Occupied		55,771		2,453		8,248		-		6,693		73,165
Total residential real estate		59,992		2,528		11,865		234		126,695		201,314
Construction		11,360		-		45		-		7,891		19,296
Multi Family		118,121		910		2,404		-		1,020		122,455
CRE Owner Occupied		292,765		10,440		18,740		-		2,378		324,323
CRE Non Owner Occupied		207,745		9,077		22,615		-		90		239,527
Agriculture Land		69,924		769		1,514		-		-		72,207
Other CRE		31,875		891		7,222		-		978		40,966
Total Commercial Real Estate		602,309		21,177		50,091		-		3,446		677,023
Commercial Working Capital		156,433		3,587		2,449		-		-		162,469
Commercial Other		208,783		5,204		8,413		-		-		222,400
Total Commercial		365,216		8,791		10,862		-		-		384,869
Consumer		-		-		70		-		15,869		15,939
Home Equity/Improvement		-		-		668		64		108,462		109,194
Total	$	1,156,998	$	33,406	$	76,005	$	298	$	263,383	$	1,530,090

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Other Comprehensive Income (Loss)

6 Months Ended

Jun. 30, 2013

Other Comprehensive Income (Loss), Net Of Tax [Abstract]

Other Comprehensive Income Loss [Text Block]

15. Other Comprehensive Income (Loss)

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
Three months ended June 30, 2013:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(5,500)	$	(1,927)	$	(3,573)
Reclassification adjustment for net gains included in net income		(44)		(13)		(31)
Total other comprehensive loss	$	(5,544)	$	(1,940)	$	(3,604)

	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Six months ended June 30, 2013:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(6,164)	$	(2,162)	$	(4,002)
Reclassification adjustment for net gains included in net income		(97)		(29)		(68)
Total other comprehensive loss	$	(6,261)	$	(2,191)	$	(4,070)

	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Three months ended June 30, 2012:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	1,493	$	503	$	990
Reclassification adjustment for net gains included in net income		(382)		(115)		(267)
Total other comprehensive loss	$	1,111	$	388	$	723

	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Six months ended June 30, 2012:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	1,444	$	484	$	960
Reclassification adjustment for net gains included in net income		(425)		(128)		(297)
Total other comprehensive loss	$	1,019	$	356	$	663

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

					Accumulated
	Securities		Post-		Other
	Available		retirement		Comprehensive
	For Sale		Benefit		Income
Balance January 1, 2013	$	4,851	$	(577)	$	4,274
Other comprehensive loss before      reclassifications		(4,002)		-		(4,002)
Amounts reclassified from accumulated other     comprehensive loss		(68)		-		(68)
Net other comprehensive loss during period		(4,070)		-		(4,070)
Balance June 30, 2013	$	781	$	(577)	$	204
Balance January 1, 2012	$	4,704	$	(707)	$	3,997
Other comprehensive loss before reclassifications		960		-		960
Amounts reclassified from accumulated    other comprehensive loss		(297)		-		(297)
Net other comprehensive loss during period		(663)		-		663
Balance June 30, 2012	$	5,367	$	(707)	$	4,660

 

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Stock Compensation Plans (Details Textual) (USD $)	6 Months Ended		6 Months Ended			6 Months Ended			6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Short-term Equity Incentive Plan 2013 [Member]	Jun. 30, 2013 Equity Plan 2010 [Member]	Mar. 15, 2010 Equity Plan 2010 [Member]	Jun. 30, 2013 Long-term Equity Incentive Plan 2013 [Member]	Jun. 30, 2013 Restricted Stock Units (Rsus) [Member]	Dec. 31, 2012 Restricted Stock Units (Rsus) [Member]	Jun. 30, 2013 Stock Option Grant, 2009 [Member]	Jun. 30, 2013 Stock Option Grant, 2011 [Member]	Jun. 30, 2013 Stock Option Grant, Annual [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					350,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	275,600	312,350
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Vested Percentage, Year									20.00%	40.00%	20.00%
Stock Option Period, Description				All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms				10 years
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate, Range Minimum			25.00%			25.00%
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate, Range Maximum			45.00%			45.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							86,065
Option Subscription, Description						The amount of benefit under the 2013 LTIP will be determined individually at the 12 month period ending December 31, 2013, the 24 month period ending December 31, 2014 and the 36 month period ending December 31, 2015. The awards vesting will be as follows: 16.7% of the target award after the end of the performance period ending December 31, 2013, 27.8% of the target award at the end of the performance period ending December 31, 2014 and 55.5% of the target award at the end of the performance period ending December 31, 2015. TheRSUs shall vest between 0% and 100% of the applicable portion of the target award based on the portion of the performance targets that are achieved. RSUs settle in common shares in the first quarter following the close of the applicable performance period. The participants are required to be employed on the day of payout in order to receive the payment.
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 26,000
Employee Service Share Based Compensation Nonvested Awards, Total Compensation Cost Not Yet Recognized, Period For Recognition (in years)	1 year 2 months 12 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number							106,061	38,871
Allocated Share-based Compensation Expense	570,000		372,000			372,000
Compensation Expense, Maximum	2,500,000
Estimated Compensation Expense, Excepted	2,000,000
Unrecognized Compensation Expense	$ 1,400,000

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Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2013		Jun. 30, 2012		Jun. 30, 2013		Jun. 30, 2012
Securities available for sale and transferred securities: Before Tax Amount
Change in net unrealized gain/loss during the period, Before Tax Amount	$ (5,500)		$ 1,493		$ (6,164)		$ 1,444
Reclassification adjustment for net gains included in net income, Before Tax Amount	(44)	[1]	(382)	[1]	(97)	[1]	(425)	[1]
Total other comprehensive loss, Before Tax Amount	(5,544)		1,111		(6,261)		1,019
Securities available for sale and transferred securities: Tax Expense (Benefit)
Change in net unrealized gain/loss during the period, Tax Expense (Benefit)	(1,927)		503		(2,162)		484
Reclassification adjustment for net gains included in net income, Tax Expense (Benefit)	(13)		(115)		(29)		(128)
Total other comprehensive loss, Tax Expense (Benefit)	(1,940)		388		(2,191)		356
Securities available for sale and transferred securities: Net of Tax Amount
Change in net unrealized gain/loss during the period, Net of Tax Amount	(3,573)		990		(4,002)		960
Reclassification adjustment for net gains included in net income, Net of Tax Amount	(31)		(267)		(68)		(297)
Total other comprehensive loss, Net of tax amount	$ (3,604)		$ 723		$ (4,070)		$ 663

[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 June 30, 2013 and 2012 was $13 and $115, respectively. . Income tax expense associated with the reclassification adjustments, included in federal income taxes, for the six months ended June 30, 2013 and 2012 was $29 and $128, respectively.

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Investment Securities (Details Textual) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2013 Number	Jun. 30, 2012	Jun. 30, 2013 Number	Jun. 30, 2012	Dec. 31, 2012
Security Owned and Pledged as Collateral Carrying Value	$ 124,400,000		$ 124,400,000
Investment Portfolio, Number of Securities	336		336
Investment Portfolio, Number of Securities, Unrealized Loss	79		79
Realized Investment Gains (Losses)	44,000	382,000	97,000	425,000
Realized Investment Gains Losses, Net of Tax	29,000	248,000	63,000	276,000
Deferred Collateral Assumed Recovery Rate for Banks	10.00%		10.00%
Deferred Collateral Assumed Recovery Rate for Insurance Companies	15.00%		15.00%
Other Comprehensive Income (Loss), before Tax			696,000		749,000
Debt Instrument Debt Default, Percentage	26.70%
Four Collateralized Debt Obligations [Member]
Collateralized Debt Obligations, Recognized Other than Temporary Impairment	3,600,000		3,600,000
Two Collateralized Debt Obligations [Member]
Collateralized Debt Obligations, Paying Principal and Interest	2,000,000		2,000,000
Collateralized Debt Obligations, Recognized Under Other than Temporary Impairment, Recognized Prior Period	$ 1,600,000		$ 1,600,000

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Loans (Details Textual) (USD $)	3 Months Ended		6 Months Ended				3 Months Ended	6 Months Ended
	Jun. 30, 2013 Number	Jun. 30, 2012	Jun. 30, 2013 Number	Jun. 30, 2012	Jun. 30, 2013 Troubled Debt Restructuring [Member]	Dec. 31, 2012 Troubled Debt Restructuring [Member]	Jun. 30, 2013 Troubled Debt Restructuring [Member] Subsequently Defaulted [Member]	Jun. 30, 2013 Troubled Debt Restructuring [Member] Subsequently Defaulted [Member]
Financing Receivable, Modifications, Recorded Investment					$ 35,000,000	$ 35,500,000
Specified Reserves, Provision for Troubled Debt Restructurings					1,400,000	1,100,000
Loans and Leases Receivable, Impaired, Commitment to Lend					7,000	41,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down					6,300,000
Financing Receivable, Modifications, Number of Contracts	33		75
Financing Receivable, Allowance for Credit Losses, Period Increase (Decrease)	$ 327,000	$ 32,000	$ 355,000	$ 29,000			$ 10,000	$ 12,000

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Fair Value (Details 3) (USD $) In Thousands, unless otherwise specified							6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2013 Range of Input 2-40% [Member]	Dec. 31, 2012 Range of Input 2-40% [Member]	Jun. 30, 2013 Range of Input 0-30% [Member]	Dec. 31, 2012 Range of Input 0-30% [Member]	Jun. 30, 2013 Range Of Input 10-15 [Member]	Dec. 31, 2012 Range Of Input 10-15 [Member]	Jun. 30, 2013 Range of Input 0-10% [Member]	Dec. 31, 2012 Range of Input 0-10% [Member]	Jun. 30, 2013 Range of Input 0-20% [Member]	Dec. 31, 2012 Range of Input 0-20% [Member]
Trust preferred stock, Fair Value	$ 1,736	$ 1,651	$ 1,474	$ 1,227	$ 1,377	$ 1,342	$ 1,736	$ 1,474
Impaired Loans- Applies to all loan classes, Fair Value	10,134		14,071										10,134	14,071
Real estate held for sale - Applies to all classes, Fair Value	$ 232		$ 446												$ 232	$ 446
Valuation Technique, Fair Value							Discounted cash flow	Discounted cash flow					Appraisals	Appraisals	Appraisals	Appraisals
Unobservable Inputs, Fair Value							Constant prepayment rate	Constant prepayment rate	Expected asset default	Expected asset default	Expected recoveries	Expected recoveries	Discounts for collection issues and changes in market conditions	Discounts for collection issues and changes in market conditions	Discounts for changes in market conditions	Discounts for changes in market conditions
Fair Value, Range of Input, Minimum							2.00%	2.00%	0.00%	0.00%	10.00%	10.00%	0.00%	0.00%	0.00%	0.00%
Fair Value, Range of Input, Maximum							40.00%	40.00%	30.00%	30.00%	15.00%	15.00%	10.00%	10.00%	20.00%	20.00%
Fair Value Measurement Weighted Average Range							40.00%	40.00%	15.00%	15.00%	10.00%	10.00%	10.00%	10.00%	20.00%	20.00%

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Other Comprehensive Income (Loss) (Tables)

6 Months Ended

Jun. 30, 2013

Other Comprehensive Income (Loss), Net Of Tax [Abstract]

Other Comprehensive Income Loss Reclassification Adjustments Related To Securities Available For Sale [Table Text Block]

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
Three months ended June 30, 2013:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(5,500)	$	(1,927)	$	(3,573)
Reclassification adjustment for net gains included in net income		(44)		(13)		(31)
Total other comprehensive loss	$	(5,544)	$	(1,940)	$	(3,604)

	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Six months ended June 30, 2013:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(6,164)	$	(2,162)	$	(4,002)
Reclassification adjustment for net gains included in net income		(97)		(29)		(68)
Total other comprehensive loss	$	(6,261)	$	(2,191)	$	(4,070)

	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Three months ended June 30, 2012:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	1,493	$	503	$	990
Reclassification adjustment for net gains included in net income		(382)		(115)		(267)
Total other comprehensive loss	$	1,111	$	388	$	723

	Before Tax Amount		Tax Expense (Benefit)		Net of Tax Amount
Six months ended June 30, 2012:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	1,444	$	484	$	960
Reclassification adjustment for net gains included in net income		(425)		(128)		(297)
Total other comprehensive loss	$	1,019	$	356	$	663

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

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

					Accumulated
	Securities		Post-		Other
	Available		retirement		Comprehensive
	For Sale		Benefit		Income
Balance January 1, 2013	$	4,851	$	(577)	$	4,274
Other comprehensive loss before      reclassifications		(4,002)		-		(4,002)
Amounts reclassified from accumulated other     comprehensive loss		(68)		-		(68)
Net other comprehensive loss during period		(4,070)		-		(4,070)
Balance June 30, 2013	$	781	$	(577)	$	204
Balance January 1, 2012	$	4,704	$	(707)	$	3,997
Other comprehensive loss before reclassifications		960		-		960
Amounts reclassified from accumulated    other comprehensive loss		(297)		-		(297)
Net other comprehensive loss during period		(663)		-		663
Balance June 30, 2012	$	5,367	$	(707)	$	4,660

 

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Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Available for sale securities:
Available for sale securities, Total Fair Value	$ 188,079	$ 194,101
US Government Corporations and Agencies Securities [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	4,919	11,069
US Government Corporations and Agencies Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
US Government Corporations and Agencies Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	4,919	11,069
US Government Corporations and Agencies Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
US Treasury Securities [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		1,002
US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		0
US Treasury Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		1,002
US Treasury Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		0
Residential Mortgage Backed Securities [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	39,004	31,461
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	39,004	31,461
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Collateralized Mortgage Backed Securities [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	54,903	57,466
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	54,903	57,466
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Trust Preferred Stock [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	1,736	1,474
Trust Preferred Stock [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Trust Preferred Stock [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Trust Preferred Stock [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	1,736	1,474
Preferred Stock [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	428	134
Preferred Stock [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	428	134
Preferred Stock [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Preferred Stock [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Corporate Bond Securities [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	8,953	8,884
Corporate Bond Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Corporate Bond Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	8,953	8,884
Corporate Bond Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
US States and Political Subdivisions Debt Securities [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	78,136	82,611
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	78,136	82,611
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage Banking Derivative Asset [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	616	950
Mortgage Banking Derivative Asset [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage Banking Derivative Asset [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	616	950
Mortgage Banking Derivative Asset [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value	0	0
Mortgage Banking Derivative Liability [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		(94)
Mortgage Banking Derivative Liability [Member] | Fair Value, Inputs, Level 1 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		0
Mortgage Banking Derivative Liability [Member] | Fair Value, Inputs, Level 2 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		(94)
Mortgage Banking Derivative Liability [Member] | Fair Value, Inputs, Level 3 [Member]
Available for sale securities:
Available for sale securities, Total Fair Value		$ 0

XML

Dividends on Common Stock

6 Months Ended

Jun. 30, 2013

Dividends, Common Stock [Abstract]

Dividend on Common Stock [Text Block]

5. Dividends on Common Stock

First Defiance declared and paid a $0.10 per share common stock dividend in the first and second quarter of 2013 and declared and paid a $0.05 per share common stock dividend in the first and second quarter of 2012.

XML

Loans (Details 7) (Troubled Debt Restructuring [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Number	Jun. 30, 2012 Number	Jun. 30, 2013 Number	Jun. 30, 2012 Number
Troubled Debt Restructurings, Number of Loans	14	4	32	10
Troubled Debt Restructurings, Recorded Investment	$ 2,657	$ 474	$ 4,021	$ 1,945
Residential Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	3	3	8	5
Troubled Debt Restructurings, Recorded Investment	316	412	752	559
Residential Non Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	0	0	1	1
Troubled Debt Restructurings, Recorded Investment	0	0	194	82
Commercial Real Estate Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	3	0	4	2
Troubled Debt Restructurings, Recorded Investment	758	0	782	922
Commercial Real Estate Non Owner Occupied [Member]
Troubled Debt Restructurings, Number of Loans	1	0	1	0
Troubled Debt Restructurings, Recorded Investment	1,374	0	1,374	0
Agriculture Land [Member]
Troubled Debt Restructurings, Number of Loans	0	0	1	1
Troubled Debt Restructurings, Recorded Investment	0	0	217	320
Commercial Real Estate Other Receivable [Member]
Troubled Debt Restructurings, Number of Loans	1	1	1	1
Troubled Debt Restructurings, Recorded Investment	32	62	32	62
Commercial and Industrial [Member]
Troubled Debt Restructurings, Number of Loans	1	0	1	0
Troubled Debt Restructurings, Recorded Investment	47	0	47	0
Home Equity and Home Improvement [Member]
Troubled Debt Restructurings, Number of Loans	4	0	12	0
Troubled Debt Restructurings, Recorded Investment	119	0	609	0
Consumer Loan [Member]
Troubled Debt Restructurings, Number of Loans	1	0	3	0
Troubled Debt Restructurings, Recorded Investment	$ 11	$ 0	$ 14	$ 0

XML

Mortgage Banking (Tables)

6 Months Ended

Jun. 30, 2013

Mortgage Banking [Abstract]

Mortgage Loans [Table Text Block]

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Gain from sale of mortgage loans	$	1,890	$	2,458	$	4,066	$	5,002
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		875		832		1,745		1,675
Amortization of mortgage servicing rights		(634)		(855)		(1,323)		(1,717)
Mortgage servicing rights valuation adjustments		312		(177)		785		(256)
		553		(200)		1,207		(298)
Net revenue from sale and servicing of mortgage loans	$	2,443	$	2,258	$	5,273	$	4,704

Capitalized Mortgage and Valuation Allowance [Table Text Block]

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Mortgage servicing assets:
Balance at beginning of period	$	10,194	$	10,106	$	10,121	$	10,219
Loans sold, servicing retained		674		808		1,436		1,558
Amortization		(634)		(855)		(1,323)		(1,718)
Carrying value before valuation allowance at end of period		10,234		10,059		10,234		10,059
Valuation allowance:
Balance at beginning of period		(1,815)		(1,608)		(2,288)		(1,529)
Impairment recovery (charges)		312		(177)		785		(256)
Balance at end of period		(1,503)		(1,785)		(1,503)		(1,785)
Net carrying value of MSRs at end of period	$	8,731	$	8,274	$	8,731	$	8,274
Fair value of MSRs at end of period	$	9,080	$	8,274	$	9,080	$	8,274

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Stock Compensation Plans (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Options Outstanding, January 1, 2013	312,350
Options,Forfeited or cancelled	11,850
Options, Exercised	24,900
Options, Granted	0
Options Outstanding, June 30, 2013	275,600
Options Outstanding, Vested or expected to vest at June 30, 2013	275,600
Options, Exercisable at June 30, 2013	257,030
Weighted Average Exercise Price, Outstanding, January 1, 2013	$ 20.33
Weighted Average Exercise Price, Forfeited or cancelled	$ 19.93
Weighted Average Exercise Price, Exercised	$ 18.42
Weighted Average Exercise Price, Granted	$ 0
Weighted Average Exercise Price, Outstanding, June 30, 2013	$ 20.52
Weighted Average Exercise Price, Vested or expected to vest at June 30, 2013	$ 20.52
Weighted Average Exercise Price, Exercisable at June 30, 2013	$ 21.21
Weighted Average Remaining Contractual Term (in years), Outstanding, June 30, 2013	3 years 9 months 25 days
Weighted Average Remaining Contractual Term (in years), Vested or expected to vest at June 30, 2013	3 years 9 months 25 days
Weighted Average Remaining Contractual Term (in years), Exercisable at June 30, 2013	3 years 8 months 1 day
Aggregate Intrinsic Value, Outstanding, June 30, 2013	$ 1,154
Aggregate Intrinsic Value, Vested or expected to vest at June 30, 2013	1,154
Aggregate Intrinsic Value, Exercisable at June 30, 2013	$ 941

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Loans

6 Months Ended

Jun. 30, 2013

Loans Receivable, Net [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8. Loans

Loans receivable consist of the following (in thousands):

	June 30, 2013		December 31, 2012
Real Estate:
Secured by 1-4 family residential	$	196,802	$	200,826
Secured by multi-family residential		136,274		122,275
Secured by commercial real estate		684,138		675,110
Construction		41,519		37,788
		1,058,733		1,035,999
Other Loans:
Commercial		396,158		383,817
Home equity and improvement		106,570		108,718
Consumer Finance		16,817		15,936
		519,545		508,471
Total loans		1,578,278		1,544,470
Deduct:
Undisbursed loan funds		(14,876)		(18,478)
Net deferred loan origination fees and costs		(736)		(735)
Allowance for loan loss		(26,270)		(26,711)
Totals	$	1,536,396	$	1,498,546

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

The following table discloses allowance for loan loss activity for the quarter ended June 30, 2013 and June 30, 2012 by portfolio segment and impairment method ($ in thousands):

Quarter Ended June 30, 2013	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Allowance	$	3,433	$	67	$	2,410	$	13,367	$	5,304	$	1,723	$	155	$	26,459
Charge-Offs		(184)		0		(6)		(277)		(316)		(170)		(8)		(961)
Recoveries		33		0		0		167		57		38		29		324
Provisions		(85)		16		21		(117)		429		195		(11)		448
Ending Allowance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270

Quarter Ended June 30, 2012	1-4 Family Residential Real Estate		Construction		Multi-Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Specific Allocations	$	3,373	$	73	$	2,831	$	16,200	$	4,693	$	1,485	$	178	$	28,833
Charge-Offs		(584)		-		(317)		(5,132)		(486)		(254)		(13)		(6,786)
Recoveries		69		-		-		36		125		18		17		265
Provisions		246		(27)		96		2,810		824		186		(38)		4,097
Ending Allowance	$	3,104	$	46	$	2,610	$	13,914	$	5,156	$	1,435	$	144	$	26,409

The following table discloses allowance for loan loss activity for the year-to-date ended June 30, 2013 and June 30, 2012 by portfolio segment and impairment method ($ in thousands):

Year-to-date Ended June 30, 2013	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Allowance	$	3,506	$	75	$	2,197	$	12,702	$	6,325	$	1,759	$	147	$	26,711
Charge-Offs		(390)		0		(6)		(543)		(521)		(442)		(54)		(1,956)
Recoveries		132		0		0		268		133		61		48		642
Provisions		(51)		8		234		713		(463)		408		24		873
Ending Allowance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270

Year-to-date Ended June 30, 2012	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity and Improvement		Consumer		Total
Beginning Specific Allocations	$	4,095	$	63	$	2,850	$	17,640	$	6,576	$	1,856	$	174	$	33,254
Charge-Offs		(1,322)		-		(555)		(9,390)		(3,152)		(465)		(54)		(14,938)
Recoveries		124		-		-		144		155		39		31		493
Provisions		207		(17)		315		5,520		1,577		5		(7)		7,600
Ending Allowance	$	3,104	$	46	$	2,610	$	13,914	$	5,156	$	1,435	$	144	$	26,409

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2013:

(In Thousands)

	1-4 Family				Multi- Family
	Residential				Residential		Commercial				Home Equity
	Real Estate		Construction		Real Estate		Real Estate		Commercial		& Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	241	$	-	$	-	$	1,505	$	55	$	44	$	1	$	1,846
Collectively evaluated for impairment		2,956		83		2,425		11,635		5,419		1,742		164		24,424
Acquired with deteriorated credit quality		-				-				-				-
Total ending allowance balance	$	3,197	$	83	$	2,425	$	13,140	$	5,474	$	1,786	$	165	$	26,270
Loans:
Loans individually evaluated for impairment	$	10,970	$	263	$	1,292	$	43,259	$	7,223	$	2,715	$	81	$	65,803
Loans collectively evaluated for impairment		186,284		26,364		135,118		642,532		390,187		104,341		16,730		1,501,556
Loans acquired with deteriorated credit quality		32		-		-		428		30		-		-		490
Total ending loans balance	$	197,286	$	26,627	$	136,410	$	686,219	$	397,440	$	107,056	$	16,811	$	1,567,849

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, 2012:

(In Thousands)

	1-4 Family				Multi- Family
	Residential				Residential		Commercial				Home Equity
	Real Estate		Construction		Real Estate		Real Estate		Commercial		& Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	281	$	-	$	-	$	1,070	$	138	$	2	$	-	$	1,491
Collectively evaluated for impairment		3,225		75		2,197		11,632		6,187		1,757		147		25,220
Acquired with deteriorated credit quality		-		-		-		-		-		-		-		-
Total ending allowance balance	$	3,506	$	75	$	2,197	$	12,702	$	6,325	$	1,759	$	147	$	26,711
Loans:
Loans individually evaluated for impairment	$	11,930	$	45	$	1,626	$	46,053	$	8,830	$	2,678	$	124	$	71,286
Loans collectively evaluated for impairment		189,348		19,251		120,829		630,534		376,007		106,516		15,815		1,458,300
Loans acquired with deteriorated credit quality		36		-		-		436		32		-		-		504
Total ending loans balance	$	201,314	$	19,296	$	122,455	$	677,023	$	384,869	$	109,194	$	15,939	$	1,530,090

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

	Three Months Ended June 30, 2013						Six Months Ended June 30, 2013
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	6,693	$	92	$	92	$	6,811	$	180	$	178
Residential Non Owner Occupied		4,443		43		44		4,583		79		79
Total Residential Real Estate		11,136		135		136		11,394		259		257
Construction		131		3		2		102		3		2
Multi-Family		1,277		5		6		1,393		11		13
CRE Owner Occupied		14,452		120		118		14,536		183		176
CRE Non Owner Occupied		23,692		236		230		24,080		439		423
Agriculture Land		889		8		3		886		17		10
Other CRE		4,526		12		8		4,783		14		9
Total Commercial Real Estate		43,559		376		359		44,285		653		618
Commercial Working Capital		1,346		17		17		1,593		20		22
Commercial Other		6,669		28		23		6,759		51		45
Total Commercial		8,015		45		40		8,352		71		67
Consumer		82		1		1		96		3		3
Home Equity and Home Improvement		2,789		33		31		2,749		67		63
Total Impaired Loans	$	66,989	$	598	$	575	$	68,371	$	1,067	$	1,023

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

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	1,933	$	17	$	16	$	1,956	$	30	$	28
Residential Non Owner Occupied		5,395		33		32		4,888		71		71
Total Residential Real Estate		7,328		50		48		6,844		101		99
Construction		-		-		-		-		-		-
Multi-Family		598		-		-		443		1		1
CRE Owner Occupied		11,473		26		32		10,376		39		44
CRE Non Owner Occupied		14,574		89		56		15,158		180		126
Agriculture Land		1,049		-		-		1,157		14		14
Other CRE		6,879		1		2		7,568		3		3
Total Commercial Real Estate		33,975		116		90		34,259		236		187
Commercial Working Capital		2,485		2		2		2,240		4		4
Commercial Other		4,132		10		10		4,529		16		16
Total Commercial		6,617		12		12		6,769		20		20
Consumer		-		-		-		-		-		-
Home Equity and Home Improvement		37		1		1		38		2		2
Total Impaired Loans	$	48,555	$	179	$	151	$	48,353	$	360	$	309

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2013: (In Thousands)

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	5,041	$	5,002	$	-
Residential Non Owner Occupied		3,921		3,187		-
Total Residential Real Estate		8,962		8,189		-
Construction		300		263		-
Multi-Family Residential Real Estate		1,442		1,292		-
CRE Owner Occupied		11,119		8,707		-
CRE Non Owner Occupied		7,882		6,341		-
Agriculture Land		1,097		917		-
Other CRE		6,160		3,840		-
Total Commercial Real Estate		26,258		19,805		-
Commercial Working Capital		1,267		1,271		-
Commercial Other		4,222		4,210		-
Total Commercial		5,489		5,481		-
Consumer		67		67		-
Home Equity and Home Improvement		2,405		2,272		-
Total loans with no allowance recorded	$	44,923	$	37,369	$	-
With an allowance recorded:
Residential Owner Occupied	$	1,545	$	1,552	$	22
Residential Non Owner Occupied		1,227		1,229		219
Total Residential Real Estate		2,772		2,781		241
Construction		-		-		-
Multi-Family Residential Real Estate		-		-		-
CRE Owner Occupied		8,013		6,869		294
CRE Non Owner Occupied		16,336		16,412		1,206
Agriculture Land		111		116		3
Other CRE		85		57		2
Total Commercial Real Estate		24,545		23,454		1,505
Commercial Working Capital		-		-		-
Commercial Other		1,732		1,742		55
Total Commercial		1,732		1,742		55
Consumer		14		14		1
Home Equity and Home Improvement		443		443		44
Total loans with an allowance recorded	$	29,506	$	28,434	$	1,846

*Unpaid principal balance includes partial charge-offs.

Impaired loans have been recognized in conformity with FASB ASC Topic 310.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012: (In Thousands)

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	5,427	$	5,357	$	-
Residential Non Owner Occupied		4,211		3,420		-
Total Residential Real Estate		9,638		8,777		-
Construction		300		45		-
Multi-Family Residential Real Estate		1,775		1,626		-
CRE Owner Occupied		12,314		9,782		-
CRE Non Owner Occupied		11,054		9,105		-
Agriculture Land		1,176		993		-
Other CRE		8,741		5,527		-
Total Commercial Real Estate		33,285		25,407		-
Commercial Working Capital		1,565		1,565		-
Commercial Other		6,367		5,338		-
Total Commercial		7,932		6,903		-
Consumer		125		124		-
Home Equity and Home Improvement		2,777		2,642		-
Total loans with no allowance recorded	$	55,832	$	45,524	$	-
With an allowance recorded:
Residential Owner Occupied	$	1,697	$	1,701	$	257
Residential Non Owner Occupied		1,449		1,452		24
Total Residential Real Estate		3,146		3,153		281
Construction		-		-		-
Multi-Family Residential Real Estate		-		-		-
CRE Owner Occupied		5,735		5,118		245
CRE Non Owner Occupied		15,301		15,357		820
Agriculture Land		111		112		3
Other CRE		88		59		2
Total Commercial Real Estate		21,235		20,646		1,070
Commercial Working Capital		300		301		10
Commercial Other		1,623		1,626		128
Total Commercial		1,923		1,927		138
Consumer		-		-		-
Home Equity and Home Improvement		36		36		2
Total loans with an allowance recorded	$	26,340	$	25,762	$	1,491

*Unpaid principal balance includes partial charge-offs.

The following table presents the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned on the dates indicated: 

	June 30, 2013		December 31, 2012
	(in thousands)
Non-accrual loans	$	28,650	$	32,570
Loans over 90 days past due and still accruing		-		-
Total non-performing loans		28,650		32,570
Real estate and other assets held for sale		6,546		3,805
Total non-performing assets	$	35,196	$	36,375

The following table presents the aging of the recorded investment in past due and non accrual loans as of June 30, 2013 by class of loans: (In Thousands)

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	124,065	$	1,042	$	499	$	775	$	2,316	$	943
Residential Non Owner Occupied		69,645		365		152		743		1,260		2,117
Total residential real estate		193,710		1,407		651		1,518		3,576		3,060
Construction		26,627		-		-		-		-		-
Multi-Family		136,410		-		-		-		-		1,100
CRE Owner Occupied		323,579		828		1,183		2,953		4,964		8,696
CRE Non Owner Occupied		232,156		-		-		1,922		1,922		6,421
Agriculture Land		76,539		103		260		-		363		699
Other Commercial Real Estate		44,368		837		-		1,491		2,328		3,067
Total Commercial Real Estate		676,642		1,768		1,443		6,366		9,577		18,883
Commercial Working Capital		164,972		-		-		445		445		593
Commercial Other		228,913		174		180		2,756		3,110		4,800
Total Commercial		393,885		174		180		3,201		3,555		5,393
Consumer		16,620		191		-		-		191		-
Home Equity / Home Improvement		105,639		1,030		186		201		1,417		201
Total Loans	$	1,549,533	$	4,570	$	2,460	$	11,286	$	18,316	$	28,637

The following table presents the aging of the recorded investment in past due and non accrual loans as of December 31, 2012 by class of loans: (In Thousands)

	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	125,362	$	1,238	$	604	$	945	$	2,787	$	1,125
Residential Non Owner Occupied		71,777		413		126		849		1,388		2,473
Total residential real estate		197,139		1,651		730		1,794		4,175		3,598
Construction		19,296		-		-		-		-		-
Multi-Family		122,455		-		-		-		-		1,178
CRE Owner Occupied		321,071		1,248		382		1,622		3,252		9,652
CRE Non Owner Occupied		235,592		134		1,321		2,480		3,935		6,674
Agriculture Land		72,092		84		31		-		115		813
Other Commercial Real Estate		36,510		21		875		3,560		4,456		4,761
Total Commercial Real Estate		665,265		1,487		2,609		7,662		11,758		21,900
Commercial Working Capital		161,110		-		155		1,204		1,359		1,528
Commercial Other		218,477		584		1,201		2,138		3,923		4,136
Total Commercial		379,587		584		1,356		3,342		5,282		5,664
Consumer		15,702		229		8		-		237		-
Home Equity / Home Improvement		106,458		2,294		225		217		2,736		217
Total Loans	$	1,505,902	$	6,245	$	4,928	$	13,015	$	24,188	$	32,557

Troubled Debt Restructurings

As of June 30, 2013 and December 31, 2012, the Company has a recorded investment in troubled debt restructurings (“TDRs”) of $35.0 million and $35.5 million, respectively. The Company has allocated $1.4 million of specific reserves to those loans as of June 30, 2013 and $1.1 million as of December 31, 2012, and has committed to lend additional amounts totaling up to $7,000 and $41,000 at June 30, 2013 and December 31, 2012, respectively.

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

Of the loans modified in a TDR, $6.3 million are 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 effective interest rate.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six month period ending June 30, 2013 and June 30, 2012:

	Loans Modified as a TDR for the Three Months Ended June 30, 2013 ($ in thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2013 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Residential Owner Occupied		3	$	316		8	$	752
Residential Non Owner Occupied		0		-		1		194
CRE Owner Occupied		3		758		4		782
CRE Non Owner Occupied		1		1,374		1		1,374
Agriculture Land		0		-		1		217
Other CRE		1		32		1		32
Commercial / Industrial		1		47		1		47
Home Equity / Improvement		4		119		12		609
Consumer		1		11		3		14
Total		14	$	2,657		32	$	4,021

The loans described above increased the ALLL by $327,000 in the three month period ending June 30, 2013 and $355,000 in the six month period ending June 30, 2013.

	Loans Modified as a TDR for the Three Months Ended June 30, 2012 ($ in thousands)				Loans Modified as a TDR for the Six Months Ended June 30, 2012 ($ in thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Residential Owner Occupied		3	$	412		5	$	559
Residential Non Owner Occupied		0		-		1		82
CRE Owner Occupied		0		-		2		922
CRE Non Owner Occupied		0		-		0		-
Agriculture Land		0		-		1		320
Other CRE		1		62		1		62
Commercial / Industrial		0		-		0		-
Home Equity / Improvement		0		-		0		-
Consumer		0		-		0		-
Total		4	$	474		10	$	1,945

The loans described above increased the ALLL by $32,000 in the three month period ending June 30, 2012 and decreased the ALLL by $29,000 in the six month period ending June 30, 2012.

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 period ending June 30, 2013 and June 30, 2012:

	Three Months Ended June 30, 2013 ($ in thousands)				Six Months Ended June 30, 2013 ($ 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)
Residential Owner Occupied		4	$	303		4	$	303
Residential Non Owner Occupied		1		77		1		77
CRE Owner Occupied		1		169		2		837
CRE Non Owner Occupied		1		212		1		212
Agriculture Land		0		-		0		-
Other CRE		0		-		0		-
Commercial / Industrial		0		-		0		-
Home Equity / Improvement		4		52		4		52
Consumer		0		-		0		-
Total		11	$	813		12	$	1,481

The TDRs that subsequently defaulted described above decreased the allowance for loan losses by $10,000 for the three month period ended June 30, 2013, and by $12,000 for the six month period ended June 30, 2013.

	Three Months Ended June 30, 2012 ($ in thousands)				Six Months Ended June 30, 2012 ($ 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)
Residential Owner Occupied		0	$	-		0	$	-
Residential 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 / Industrial		1		580		1		580
Home Equity / Improvement		0		-		0		-
Consumer		0		-		0		-
Total		1	$	580		1	$	580

The TDRs that subsequently defaulted described above did not decrease the allowance for loan losses for the three month period ended June 30, 2012 or the six month period ended June 30, 2012.

The terms of certain other loans were modified during the period ending June 30, 2013 that did not meet the definition of a TDR. The modification of these loans involved a modification of the terms of a loan to borrowers who were not experiencing financial difficulties. A total of 33 loans were modified under this definition during the three month period ended June 30, 2013 and a total of 75 loans were modified under this definition during the six month period ended June 30, 2013.

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

Credit Quality Indicators

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

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (In Thousands)

Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	4,126	$	39	$	3,491	$	88	$	118,638	$	126,382
Residential Non Owner Occupied		54,823		3,444		6,051		-		6,586		70,904
Total residential real estate		58,949		3,483		9,542		88		125,224		197,286
Construction		18,217		-		263		-		8,147		26,627
Multi Family		132,511		670		2,237		-		992		136,410
CRE Owner Occupied		298,141		15,423		12,858		-		2,120		328,542
CRE Non Owner Occupied		203,780		11,597		18,642		-		59		234,078
Agriculture Land		75,041		590		1,271		-		-		76,902
Other CRE		38,950		2,289		4,655		-		803		46,697
Total Commercial Real Estate		615,912		29,899		37,426		-		2,982		686,219
Commercial Working Capital		157,463		5,891		2,063		-		-		165,417
Commercial Other		217,961		8,434		5,628		-		-		232,023
Total Commercial		375,424		14,325		7,691		-		-		397,440
Consumer		-		-		93		6		16,712		16,811
Home Equity/Improvement		-		-		844		71		106,141		107,056
Total	$	1,205,468	$	43,922	$	58,096	$	165	$	260,198	$	1,567,849

As of December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (In Thousands)

Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	4,221	$	75	$	3,617	$	234	$	120,002	$	128,149
Residential Non Owner Occupied		55,771		2,453		8,248		-		6,693		73,165
Total residential real estate		59,992		2,528		11,865		234		126,695		201,314
Construction		11,360		-		45		-		7,891		19,296
Multi Family		118,121		910		2,404		-		1,020		122,455
CRE Owner Occupied		292,765		10,440		18,740		-		2,378		324,323
CRE Non Owner Occupied		207,745		9,077		22,615		-		90		239,527
Agriculture Land		69,924		769		1,514		-		-		72,207
Other CRE		31,875		891		7,222		-		978		40,966
Total Commercial Real Estate		602,309		21,177		50,091		-		3,446		677,023
Commercial Working Capital		156,433		3,587		2,449		-		-		162,469
Commercial Other		208,783		5,204		8,413		-		-		222,400
Total Commercial		365,216		8,791		10,862		-		-		384,869
Consumer		-		-		70		-		15,869		15,939
Home Equity/Improvement		-		-		668		64		108,462		109,194
Total	$	1,156,998	$	33,406	$	76,005	$	298	$	263,383	$	1,530,090

Beginning with the first quarter of 2013 allowance analysis, management decided to return to using a twelve quarter look-back period, from using an eight quarter look-back period that has been used since December 31, 2010, for calculating the historical loss ratio. Management is not certain that the relatively low levels of charge-offs incurred in recent quarters are sustainable given the low levels of economic growth in its markets and believes the longer look-back period better captures loan portfolio risks at this time. 

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Derivative Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives Assets, Carrying Value	$ 616	$ 950
Mortgage Banking Derivatives Liabilities, Carrying Value	0	(94)
Mortgage Banking Derivatives, Net Carrying Value	$ 616	$ 856

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Stock Compensation Plans

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4. Stock Compensation Plans

First Defiance has established equity based compensation plans for its directors and employees. On March 15, 2010, the Board adopted, and the shareholders approved at the 2010 Annual Shareholders Meeting, the First Defiance Financial Corp. 2010 Equity Incentive Plan (the “2010 Equity Plan”). The 2010 Equity Plan replaces all existing plans. All awards currently outstanding under prior plans will remain in effect in accordance with their respective terms. Any new awards will be made under the 2010 Equity Plan. The 2010 Equity Plan allows for issuance of up to 350,000 common shares through the award of options, stock grants, restricted stock units (“RSU”), stock appreciation rights or other stock-based awards.

As of June 30, 2013, 275,600 options had been granted and remain outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted under all plans vest 20% per year except for the 2009 grant to the Company’s executive officers, which vested 40% in 2011 and then 20% annually. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

In August 2011, the Company approved a 2011 Short-Term (“STIP”) and a 2011 Long-Term (“LTIP”) Equity Incentive Plan for selected members of management. The Plans became effective January 1, 2011 and provide for cash and/or equity benefits if certain performance targets are achieved. Awards issued under these Plans will reduce the amount of awards available to be issued under the 2010 Equity Plan.

In March 2012, the Company approved a 2012 STIP and a 2012 LTIP for selected members of management. The Plans are effective January 1, 2012 and provide for cash and/or equity benefits if certain performance targets are achieved. Awards issued under these Plans reduce the amount of awards available to be issued under the 2010 Equity Plan.

Cash and/or equity benefits under the 2011 STIP and LTIP and 2012 STIP were paid out to the selected members of management in the first quarter of 2013 based on the achievement of certain performance targets. One member of management was not paid until April 2013.

In March 2013, the Company approved a 2013 STIP and a 2013 LTIP for selected members of management.

Under the 2013 STIP the participants may earn up to 25% 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 awards earned under the 2013 STIP will be determined as of December 31, 2013 and will be paid out in cash in the first quarter of 2014. The participants are required to be employed on the day of payout in order to receive such payment.

Under the 2013 LTIP the participants may earn up to 25% to 45% of their salary, depending upon their position, 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 86,065 RSU’s to the participants in this Plan effective January 1, 2013, which represents the maximum target award. The amount of benefit under the 2013 LTIP will be determined individually at the 12 month period ending December 31, 2013, the 24 month period ending December 31, 2014 and the 36 month period ending December 31, 2015. The awards’ vesting will be as follows: 16.7% of the target award after the end of the performance period ending December 31, 2013, 27.8% of the target award at the end of the performance period ending December 31, 2014 and 55.5% of the target award at the end of the performance period ending December 31, 2015. The RSUs shall vest between 0% and 100% of the applicable portion of the target award based on the portion of the performance targets that are achieved. RSUs settle in common shares in the first quarter following the close of the applicable performance period. The participants are required to be employed on the day of payout in order to receive the payment. 

The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no options granted during the six months ended June 30, 2013 or 2012.

Following is activity under the plans during the six months ended June 30, 2013:

Stock options	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2013		312,350	$	20.33
Forfeited or cancelled		11,850		19.93
Exercised		24,900		18.42
Granted		-		-
Options outstanding, June 30, 2013		275,600	$	20.52		3.82	$	1,154
Vested or expected to vest at June 30, 2013		275,600	$	20.52		3.82	$	1,154
Exercisable at June 30, 2013		257,030	$	21.21		3.67	$	941

As of June 30, 2013, there was $26,000 of total unrecognized compensation costs related to unvested stock options granted under the Company’s equity plans. The cost is expected to be recognized over a weighted-average period of 1.2 years.

At June 30, 2013, 106,061 RSU’s were outstanding. Compensation expense is recognized over the performance period based on the achievements of targets as established under the plan documents. Total accrued expense of $570,000 was recorded during the six months ended June 30, 2013 and approximately $372,000 is included within other liabilities at June 30, 2013 related to the STIPs and LTIPs.

	Restricted Stock Units				Stock Grants
			Weighted-Average				Weighted-Average
			Grant Date				Grant Date
Unvested Shares	Shares		Fair Value		Shares		Fair Value
Unvested at January 1, 2013		38,871	$	14.74		11,260	$	13.28
Granted		91,187		19.42		20,639		15.77
Vested		(20,639)		15.77		(31,899)		14.89
Forfeited		(3,358)		11.97		-		-
Unvested at June 30, 2013		106,061	$	18.66		-	$	-

The maximum amount of compensation expense that may be recorded for the 2013 STIP and the 2012 and 2013 LTIPs at June 30, 2013 is approximately $2.5 million. However, the estimated expense expected to be recorded as of June 30, 2013 based on the performance measures in the plans, is $2.0 million of which $1.4 million is unrecognized at June 30, 2013 and will be recognized over the remaining performance periods.

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Shares issued under stock option plan, with no income tax benefit (in shares)	12,027	200
Restricted share activity under Stock Incentive Plans (in shares)	31,796
Shares issued direct purchases (in shares)	2,768	419
Shares purchased in U.S. Treasury auction (in shares)		16,560
Shares purchased in open market (in shares)		19,440

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Investment Securities (Details 4) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Amortized Cost	$ 3,566
Fair Value	1,736
Unrealized Loss	(1,830)
OTTI Losses 2013	0
Class B [Member] | TPREF Funding II [Member] | Moodys, Caa3 Rating [Member]
Amortized Cost	673
Fair Value	242
Unrealized Loss	(431)
OTTI Losses 2013	0
Current Number of Banks and Insurance Companies	15
Actual Deferrals and Defaults as a percentage of Current Collateral	43.47%
Expected Deferrals and Defaults as a percentage of Remaining Performing Collateral	15.90%
Excess Sub-ordination as a percentage of Current Performing Collateral	0.00%
Class B 01 [Member] | I Preferred Term Sec I [Member] | Fitch, CCC Rating [Member]
Amortized Cost	1,000
Fair Value	656
Unrealized Loss	(344)
OTTI Losses 2013	0
Current Number of Banks and Insurance Companies	14
Actual Deferrals and Defaults as a percentage of Current Collateral	17.24%
Expected Deferrals and Defaults as a percentage of Remaining Performing Collateral	12.04%
Excess Sub-ordination as a percentage of Current Performing Collateral	23.78%
Class C 01 [Member] | Dekania Il Collateralized Debt Obligations [Member] | Fitch, CCC Rating [Member]
Amortized Cost	990
Fair Value	576
Unrealized Loss	(414)
OTTI Losses 2013	0
Current Number of Banks and Insurance Companies	31
Actual Deferrals and Defaults as a percentage of Current Collateral	0.00%
Expected Deferrals and Defaults as a percentage of Remaining Performing Collateral	13.29%
Excess Sub-ordination as a percentage of Current Performing Collateral	26.51%
Class C 01 [Member] | Preferred Term Sec XXVII [Member] | Moodys, C Rating [Member]
Amortized Cost	903
Fair Value	262
Unrealized Loss	(641)
OTTI Losses 2013	$ 0
Current Number of Banks and Insurance Companies	32
Actual Deferrals and Defaults as a percentage of Current Collateral	26.15%
Expected Deferrals and Defaults as a percentage of Remaining Performing Collateral	18.83%
Excess Sub-ordination as a percentage of Current Performing Collateral	5.99%

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Earnings Per Common Share (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	143,350	256,643	143,350	256,643

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Commitments, Guarantees and Contingent Liabilities (Tables)

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of Line of Credit Facilities [Table Text Block]

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

	June 30, 2013				December 31, 2012
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	53,360	$	46,053	$	50,205	$	48,035
Unused lines of credit		21,820		246,573		21,975		228,269
Standby letters of credit		-		16,492		-		18,166
Total	$	75,180	$	309,118	$	72,180	$	294,470

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Mortgage Banking (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Gain from sale of mortgage loans	$ 1,890	$ 2,458	$ 4,066	$ 5,002
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue	875	832	1,745	1,675
Amortization of mortgage servicing rights	(634)	(855)	(1,323)	(1,717)
Mortgage servicing rights valuation adjustments	312	(177)	785	(256)
Mortgage Loans Servicing Revenue (Expense),Total	553	(200)	1,207	(298)
Net revenue from sale and servicing of mortgage loans	$ 2,443	$ 2,258	$ 5,273	$ 4,704

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Loans (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013		Dec. 31, 2012
Impaired loans
Unpaid Principal Balance, With No Related Allowance	$ 44,923	[1]	$ 55,832	[1]
Recorded Investment, With No Related Allowance	37,369		45,524
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	29,506	[1]	26,340	[1]
Recorded Investment, With Related Allowance	28,434		25,762
Allowance for Loan Losses Allocated, With Related Allowance	1,846		1,491
Residential Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	5,041	[1]	5,427	[1]
Recorded Investment, With No Related Allowance	5,002		5,357
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	1,545	[1]	1,697	[1]
Recorded Investment, With Related Allowance	1,552		1,701
Allowance for Loan Losses Allocated, With Related Allowance	22		257
Residential Non Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	3,921	[1]	4,211	[1]
Recorded Investment, With No Related Allowance	3,187		3,420
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	1,227	[1]	1,449	[1]
Recorded Investment, With Related Allowance	1,229		1,452
Allowance for Loan Losses Allocated, With Related Allowance	219		24
Residential Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	8,962	[1]	9,638	[1]
Recorded Investment, With No Related Allowance	8,189		8,777
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	2,772	[1]	3,146	[1]
Recorded Investment, With Related Allowance	2,781		3,153
Allowance for Loan Losses Allocated, With Related Allowance	241		281
Construction Loans [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	300	[1]	300	[1]
Recorded Investment, With No Related Allowance	263		45
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	0	[1]	0	[1]
Recorded Investment, With Related Allowance	0		0
Allowance for Loan Losses Allocated, With Related Allowance	0		0
Multi Family [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	1,442	[1]	1,775	[1]
Recorded Investment, With No Related Allowance	1,292		1,626
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	0	[1]	0	[1]
Recorded Investment, With Related Allowance	0		0
Allowance for Loan Losses Allocated, With Related Allowance	0		0
Commercial Real Estate Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	11,119	[1]	12,314	[1]
Recorded Investment, With No Related Allowance	8,707		9,782
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	8,013	[1]	5,735	[1]
Recorded Investment, With Related Allowance	6,869		5,118
Allowance for Loan Losses Allocated, With Related Allowance	294		245
Commercial Real Estate Non Owner Occupied [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	7,882	[1]	11,054	[1]
Recorded Investment, With No Related Allowance	6,341		9,105
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	16,336	[1]	15,301	[1]
Recorded Investment, With Related Allowance	16,412		15,357
Allowance for Loan Losses Allocated, With Related Allowance	1,206		820
Agriculture Land [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	1,097	[1]	1,176	[1]
Recorded Investment, With No Related Allowance	917		993
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	111	[1]	111	[1]
Recorded Investment, With Related Allowance	116		112
Allowance for Loan Losses Allocated, With Related Allowance	3		3
Commercial Real Estate Other Receivables [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	6,160	[1]	8,741	[1]
Recorded Investment, With No Related Allowance	3,840		5,527
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	85	[1]	88	[1]
Recorded Investment, With Related Allowance	57		59
Allowance for Loan Losses Allocated, With Related Allowance	2		2
Commercial Real Estate [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	26,258	[1]	33,285	[1]
Recorded Investment, With No Related Allowance	19,805		25,407
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	24,545	[1]	21,235	[1]
Recorded Investment, With Related Allowance	23,454		20,646
Allowance for Loan Losses Allocated, With Related Allowance	1,505		1,070
Commercial Working Capital [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	1,267	[1]	1,565	[1]
Recorded Investment, With No Related Allowance	1,271		1,565
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	0	[1]	300	[1]
Recorded Investment, With Related Allowance	0		301
Allowance for Loan Losses Allocated, With Related Allowance	0		10
Commercial Loans Other [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	4,222	[1]	6,367	[1]
Recorded Investment, With No Related Allowance	4,210		5,338
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	1,732	[1]	1,623	[1]
Recorded Investment, With Related Allowance	1,742		1,626
Allowance for Loan Losses Allocated, With Related Allowance	55		128
Commercial Loan [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	5,489	[1]	7,932	[1]
Recorded Investment, With No Related Allowance	5,481		6,903
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	1,732	[1]	1,923	[1]
Recorded Investment, With Related Allowance	1,742		1,927
Allowance for Loan Losses Allocated, With Related Allowance	55		138
Consumer Loan [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	67	[1]	125	[1]
Recorded Investment, With No Related Allowance	67		124
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	14	[1]	0	[1]
Recorded Investment, With Related Allowance	14		0
Allowance for Loan Losses Allocated, With Related Allowance	1		0
Home Equity and Home Improvement [Member]
Impaired loans
Unpaid Principal Balance, With No Related Allowance	2,405	[1]	2,777	[1]
Recorded Investment, With No Related Allowance	2,272		2,642
Allowance for Loan Losses Allocated, With No Related Allowance	0		0
Unpaid Principal Balance, With Related Allowance	443	[1]	36	[1]
Recorded Investment, With Related Allowance	443		36
Allowance for Loan Losses Allocated, With Related Allowance	$ 44		$ 2

[1] Unpaid principal balance includes partial charge-offs.

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Borrowings

6 Months Ended

Jun. 30, 2013

Subordinated Borrowings [Abstract]

Subordinated Borrowings Disclosure [Text Block]

11. Borrowings

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

	June 30, 2013		December 31, 2012
	(in thousands)
FHLB Advances:
Overnight borrowings	$	50,000	$	-
Putable advances		12,000		12,000
Amortizable mortgage advances		773		796
Total	$	62,773	$	12,796
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083

The putable advances can be put back to the Company at the option of the FHLB on a quarterly basis. $12.0 million of the putable advances with a weighted average rate of 2.72% were not yet callable by the FHLB at June 30, 2013. The call dates for these advances range from July 15, 2013 to September 12, 2013 and the maturity dates range from January 14, 2015 to March 12, 2018. Putable advances are callable at the option of the FHLB on a quarterly basis

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (Trust Affiliate II) that issued $15 million of Guaranteed Capital Trust Securities (Trust Preferred Securities). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (Subordinated Debentures) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a fixed rate equal to 6.441% for the first five years and a floating interest rate based on three-month LIBOR plus 1.5%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 1.77% as of June 30, 2013 and 1.89% as of December 31, 2012.

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (Trust Affiliate I), that issued $20 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 1.65% and 1.77% on June 30, 2013 and December 31, 2012 respectively.

The Trust Preferred Securities issued by Trust Affiliates I and II are subject to mandatory redemption, in whole or part, upon repayment of the Subordinated Debentures. The Company has entered into agreements that fully and unconditionally guarantee the Trust Preferred Securities subject to the terms of the guarantees. The Trust Preferred Securities and Subordinated Debentures issued by Trust Affiliate I mature on December 15, 2035 but may be redeemed by the issuer at par after October 28, 2010. The Trust Preferred Securities issued by Trust Affiliate II mature on June 15, 2037, but may be redeemed at the Company’s option at any time on or after June 15, 2012, or at any time upon certain events.

Interest on both issues of trust preferred securities may be deferred for a period of up to five years at the option of the issuer.

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Investment Securities

6 Months Ended

Jun. 30, 2013

Marketable Securities [Abstract]

Investment [Text Block]

7. Investment Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At June 30, 2013
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	5,000	$	-	$	(81)	$	4,919
Mortgage-backed securities – residential		39,003		803		(802)		39,004
Collateralized mortgage obligations		54,403		902		(402)		54,903
Trust preferred securities and preferred stock		3,600		394		(1,830)		2,164
Corporate bonds		8,824		146		(17)		8,953
Obligations of state and political subdivisions		76,047		3,005		(916)		78,136
Totals	$	186,877	$	5,250	$	(4,048)	$	188,079
Held-to-Maturity Securities*:
FHLMC certificates	$	62	$	-	$	(1)	$	61
FNMA certificates		142		4		-		146
GNMA certificates		55		3		-		58
Obligations of state and political subdivisions		186		-		-		186
Totals	$	445	$	7	$	(1)	$	451
At December 31, 2012
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	11,000	$	69	$	-	$	11,069
U.S. treasury bonds		1,000		2		-		1,002
Mortgage-backed securities – residential		30,020		1,441		-		31,461
Collateralized mortgage obligations		55,962		1,504		-		57,466
Trust preferred securities and preferred stock		3,600		99		(2,091)		1,608
Corporate bonds		8,717		167		-		8,884
Obligations of state and political subdivisions		76,339		6,277		(5)		82,611
Totals	$	186,638	$	9,559	$	(2,096)	$	194,101
Held-to-Maturity Securities*:
FHLMC certificates	$	69	$	-	$	(1)	$	68
FNMA certificates		162		6		-		168
GNMA certificates		60		3		-		63
Obligations of state and political subdivisions		217		-		-		217
Totals	$	508	$	9	$	(1)	$	516

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

The amortized cost and fair value of the investment securities portfolio at June 30, 2013 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”), which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	2,255	$	2,268	$	-	$	-
Due after one year through five years		6,107		6,301		186		186
Due after five years through ten years		36,502		37,728		-		-
Due after ten years		48,607		47,875		-		-
MBS/CMO		93,406		93,907		259		265
	$	186,877	$	188,079	$	445	$	451

Investment securities with a carrying amount of $124.4 million at June 30, 2013 were pledged as collateral on public deposits, securities sold under repurchase agreements, Federal Reserve discount window and FHLB advances.

As of June 30, 2013, the Company’s investment portfolio consisted of 336 securities, 79 of which were in an unrealized loss position.

The following tables summarize First Defiance’s securities that were in an unrealized loss position at June 30, 2013 and December 31, 2012:

	Duration of Unrealized Loss Position
	Less than 12 Months				12 Month or Longer				Total
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Losses
	(In Thousands)
At June 30, 2013
Available-for-sale securities:
Obligations of U.S. government     corporations and agencies	$	4,919	$	(81)	$	-	$	-	$	4,919	$	(81)
Mortgage-backed - residential		19,936		(802)		-		-		19,936		(802)
Collateralized mortgage obligations		19,027		(402)		-		-		19,027		(402)
Trust preferred stock and preferred stock		-		-		1,736		(1,830)		1,736		(1,830)
Corporate bonds		2,983		(17)		-		-		2,983		(17)
Obligations of state and political     subdivisions		18,068		(916)		-		-		18,068		(916)
Held to maturity securities:
Mortgage-backed securities		-		-		32		(1)		32		(1)
Total temporarily impaired securities	$	64,933	$	(2,218)	$	1,768	$	(1,831)	$	66,701	$	(4,049)

	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, 2012
Available-for-sale securities:
Mortgage-backed securities - residential	$	1	$	-	$	-	$	-	$	1	$	-
Obligations of state and political     subdivisions		949		(5)		-		-		949		(5)
Trust preferred stock and preferred stock		-		-		1,474		(2,091)		1,474		(2,091)
Total temporarily impaired securities	$	950	$	(5)	$	1,474	$	(2,091)	$	2,424	$	(2,096)

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

Realized gains from the sales of investment securities totaled $44,000 ($29,000 after tax) in the second quarter of 2013 while there were realized gains of $382,000 ( $248,000 after tax) in the second quarter of 2012. Realized gains from the sales of investment securities totaled $97,000 ($63,000 after tax) for the first six months of 2013 compared to realized gains of $425,000 ($276,000 after tax) for the first six months of 2012.

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

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

For the first six months of 2013 and 2012, management determined there was no OTTI.

The Company held eight CDOs at June 30, 2013. Four of those CDOs were written down in full prior to January 1, 2010. The remaining four CDOs have a total amortized cost of $3.6 million at June 30, 2013. Of these, two, with a total amortized cost of $1.6 million, were identified as OTTI in prior periods. The final two CDOs, with a total amortized cost of $2.0 million, continue to pay principal and interest payments in accordance with the contractual terms of the securities and no credit loss impairment has been identified in management’s analysis. Therefore, these two CDO investments have not been deemed by management to be OTTI.

Given the conditions in the debt markets today and the absence of observable transactions in the secondary and new issue markets, the Company’s CDOs will be classified within Level 3 of the fair value hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

As required under FASB ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses.

The Company’s CDO valuations were supported by analysis prepared by an independent third party. Their approach to determining fair value involved several steps: 1) detailed credit and structural evaluation of each piece of collateral in the CDO; 2) collateral performance projections for each piece of collateral in the CDO (default, recovery and prepayment/amortization probabilities) and 3) discounted cash flow modeling.

Trust Preferred CDOs Discount Rate Methodology

First Defiance uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific CDO instruments. The primary focus is on the returns a fixed income investor would require in order to allocate capital on a risk adjusted basis. There is currently no active market for trust preferred CDOs, however, First Defiance looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market. The next step is to make a series of adjustments to reflect the differences that nevertheless exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific CDOs. Importantly, as part of the analysis described above, First Defiance considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and make adjustments as necessary to reflect this additional risk.

Fundamental to this evaluation is an assessment of the likelihood of CDO coverage test failures that would have the effect of diverting cash flow away from the relevant CDO bond for some period of time. Generally speaking, the Company adjusts indicative credit spreads upwards in the case of CDOs that have relatively weaker collateral and/or less cushion with respect to overcollateralization and interest coverage test ratios and downwards if the reverse is true. This aspect of the Company’s discount rate methodology is important because there is frequently a great difference in the risks present in CDO instruments that are otherwise very similar (i.e. CDOs with the same basic type of collateral, the same manager, the same vintage, etc., may exhibit vastly different performance characteristics). With respect to this last point, First Defiance notes that given today’s credit environment, characterized by high default and deferral rates, it is typically the case that deal-specific credit performance (determined on the basis of the credit characteristics of remaining collateral) is the best indicator of what a willing market participant would pay for an instrument.

The Company uses the same methodology for all of its CDOs and believes its valuation methodology is appropriate for all of its CDOs in accordance with FASB ASC Topic 320 as well as other related guidance. Beginning with the first quarter of 2013, the Company made the decision to only obtain the third party analysis twice a year, June and December, as a result of the stabilization in its current CDO portfolio. Management still obtains the fair value and cash flow value on a quarterly basis and prepares its internal other-than-temporary impairment analysis.

The default and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review of historical industry default data and current/near-term operating conditions. For collateral that has already deferred, the Company assumed a recovery of 10% of par for banks, thrifts or other depository institutions and 15% for insurance companies. Although there is a possibility that the deferring collateral will become current at some point in the future, First Defiance has conservatively assumed that it will continue to defer and gradually will default.

The following table details the six securities with other-than-temporary impairment, their lowest credit rating at June 30, 2013 and the related credit losses recognized in earnings for the three month period ending March 31, 2013 and June 30, 2013 (In Thousands):

	TPREF Funding II Rated		Alesco VIII		Preferred Term Security XXVII		Trapeza CDO I Rated		Alesco Preferred Funding VIII		Alesco Preferred Funding IX
	Caa3		Rated Ca		Rated C		Ca		Not Rated		Not Rated		Total
Cumulative OTTI related to credit loss at January 1, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176
Addition – Qtr 1		-		-		-		-		-		-		-
Cumulative OTTI related to credit loss at March 31, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176
Addition – Qtr 2		-		-		-		-		-		-		-
Cumulative OTTI related to credit loss at June 30, 2013	$	323	$	1,000	$	78	$	857	$	453	$	465	$	3,176

The amount of OTTI recognized in accumulated other comprehensive income (“AOCI”) was $696,000 for the above securities at June 30, 2013. There was $749,000 recognized in AOCI at December 31, 2012.

The following table provides additional information related to the four CDO investments for which a balance remains as of June 30, 2013 (dollars in thousands):

CDO	Class	Amortized Cost		Fair Value		Unrealized Loss		OTTI Losses 2013		Lowest Rating	Current Number of Banks and Insurance Companies		Actual Deferrals and Defaults as a % of Current Collateral			Expected Deferrals and Defaults as a % of Remaining Performing Collateral			Excess Sub- ordination as a % of Current Performing Collateral
TPREF Funding II	B		673		242		(431)		-	Caa3		15		43.47	%		15.90	%		-	%
I-Preferred Term Sec I	B-1		1,000		656		(344)		-	CCC-		14		17.24	%		12.04	%		23.78	%
Dekania II CDO	C-1		990		576		(414)		-	CCC		31		-	%		13.29	%		26.51	%
Preferred Term Sec XXVII	C-1		903		262		(641)		-	C		32		26.15	%		18.83	%		5.99	%
Total		$	3,566	$	1,736	$	(1,830)	$	-

The Company’s assumed average lifetime default rate was 26.7% at the end of the second quarter 2013, flat with the first quarter 2013.

There were no changes in the accumulated credit losses recognized in earnings for debt securities during the periods ended June 30, 2013 and 2012.

The proceeds from the sales and calls of securities and the associated gains are listed below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)				(In thousands)
Proceeds	$	3,008	$	6,198	$	4,027	$	6,416
Gross realized gains		44		382		97		425
Gross realized losses		-		-		-		-

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Mortgage Banking (Details Textual) (USD $)	6 Months Ended		3 Months Ended			6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Secondary Market Buy Back Losses [Member]	Mar. 31, 2013 Secondary Market Buy Back Losses [Member]	Jun. 30, 2012 Secondary Market Buy Back Losses [Member]	Jun. 30, 2013 Secondary Market Buy Back Losses [Member]	Jun. 30, 2012 Secondary Market Buy Back Losses [Member]
Residential Mortgage Loans, Unpaid Balance	$ 1,400,000,000	$ 1,300,000,000
Accrual For Estimated Secondary Market Buy Back Losses	$ 567,000		$ 61,000	$ 581,000	$ 73,000	$ 642,000	$ 73,000

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

14. Derivative Financial Instruments

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. First Federal had approximately $21.3 million and $34.0 million of interest rate lock commitments at June 30, 2013 and December 31, 2012, respectively. There were $37.8 million and $53.6 million of forward commitments for the future delivery of residential mortgage loans at June 30, 2013 and December 31, 2012, respectively.

The fair value of these mortgage banking derivatives are reflected by a derivative asset. The table below provides data about the carrying values of these derivative instruments:

June 30, 2013

December 31, 2012

Assets

(Liabilities)

Assets

(Liabilities)

Derivative

Derivative

Carrying

Carrying

Net Carrying

Carrying

Carrying

Net Carrying

Value

Value

Value

Value

Value

Value

(In Thousands)

Derivatives not designated as     hedging instruments

Mortgage Banking Derivatives

$

616

$

-

$

616

$

950

$

(94)

$

856

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In Thousands)				(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	(79)	$	117	$	(240)	$	390

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

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Commitments, Guarantees and Contingent Liabilities

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments Contingencies and Guarantees [Text Block]

12. Commitments, Guarantees and Contingent Liabilities

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

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

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

	June 30, 2013				December 31, 2012
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	53,360	$	46,053	$	50,205	$	48,035
Unused lines of credit		21,820		246,573		21,975		228,269
Standby letters of credit		-		16,492		-		18,166
Total	$	75,180	$	309,118	$	72,180	$	294,470

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

In addition to the above commitments, First Defiance had commitments to sell $37.8 million and $53.6 million of loans to Freddie Mac, Fannie Mae, Federal Home Loan Bank of Cincinnati or BB&T Mortgage at June 30, 2013 and December 31, 2012, respectively.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 29, 2013
Document Information [Line Items]
Entity Registrant Name	FIRST DEFIANCE FINANCIAL CORP
Entity Central Index Key	0000946647
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Trading Symbol	FDEF
Entity Common Stock, Shares Outstanding		9,776,957
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2013

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

13. Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Indiana. The Company is no longer subject to examination by taxing authorities for years before 2008. The Company currently operates primarily in the states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.

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Loans (Details 6) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current	$ 1,549,533	$ 1,505,902
30-59 days	4,570	6,245
60-89 days	2,460	4,928
90+ days	11,286	13,015
Total Past Due	18,316	24,188
Total Non Accrual	28,637	32,557
Residential Owner Occupied [Member]
Current	124,065	125,362
30-59 days	1,042	1,238
60-89 days	499	604
90+ days	775	945
Total Past Due	2,316	2,787
Total Non Accrual	943	1,125
Residential Non Owner Occupied [Member]
Current	69,645	71,777
30-59 days	365	413
60-89 days	152	126
90+ days	743	849
Total Past Due	1,260	1,388
Total Non Accrual	2,117	2,473
Residential Real Estate [Member]
Current	193,710	197,139
30-59 days	1,407	1,651
60-89 days	651	730
90+ days	1,518	1,794
Total Past Due	3,576	4,175
Total Non Accrual	3,060	3,598
Construction Loans [Member]
Current	26,627	19,296
30-59 days	0	0
60-89 days	0	0
90+ days	0	0
Total Past Due	0	0
Total Non Accrual	0	0
Multi Family [Member]
Current	136,410	122,455
30-59 days	0	0
60-89 days	0	0
90+ days	0	0
Total Past Due	0	0
Total Non Accrual	1,100	1,178
Commercial Real Estate Owner Occupied [Member]
Current	323,579	321,071
30-59 days	828	1,248
60-89 days	1,183	382
90+ days	2,953	1,622
Total Past Due	4,964	3,252
Total Non Accrual	8,696	9,652
Commercial Real Estate Non Owner Occupied [Member]
Current	232,156	235,592
30-59 days	0	134
60-89 days	0	1,321
90+ days	1,922	2,480
Total Past Due	1,922	3,935
Total Non Accrual	6,421	6,674
Agriculture Land [Member]
Current	76,539	72,092
30-59 days	103	84
60-89 days	260	31
90+ days	0	0
Total Past Due	363	115
Total Non Accrual	699	813
Commercial Real Estate Other Receivable [Member]
Current	44,368	36,510
30-59 days	837	21
60-89 days	0	875
90+ days	1,491	3,560
Total Past Due	2,328	4,456
Total Non Accrual	3,067	4,761
Commercial Real Estate [Member]
Current	676,642	665,265
30-59 days	1,768	1,487
60-89 days	1,443	2,609
90+ days	6,366	7,662
Total Past Due	9,577	11,758
Total Non Accrual	18,883	21,900
Commercial Working Capital [Member]
Current	164,972	161,110
30-59 days	0	0
60-89 days	0	155
90+ days	445	1,204
Total Past Due	445	1,359
Total Non Accrual	593	1,528
Commercial Loans Other [Member]
Current	228,913	218,477
30-59 days	174	584
60-89 days	180	1,201
90+ days	2,756	2,138
Total Past Due	3,110	3,923
Total Non Accrual	4,800	4,136
Commercial Loan [Member]
Current	393,885	379,587
30-59 days	174	584
60-89 days	180	1,356
90+ days	3,201	3,342
Total Past Due	3,555	5,282
Total Non Accrual	5,393	5,664
Consumer Loan [Member]
Current	16,620	15,702
30-59 days	191	229
60-89 days	0	8
90+ days	0	0
Total Past Due	191	237
Total Non Accrual	0	0
Home Equity and Home Improvement [Member]
Current	105,639	106,458
30-59 days	1,030	2,294
60-89 days	186	225
90+ days	201	217
Total Past Due	1,417	2,736
Total Non Accrual	$ 201	$ 217

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Loans (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Non-accrual loans	$ 28,650	$ 32,570
Loans over 90 days past due and still accruing	0	0
Total non-performing loans	28,650	32,570
Real estate and other assets held for sale	6,546	3,805
Total non-performing assets	$ 35,196	$ 36,375