8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 19, 2009

FIRST DEFIANCE FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

OHIO	0-26850	34-1803915
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer I.D. No.)

601 Clinton Street, Defiance, Ohio 43512

(Address of principal executive offices) (Zip Code)

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

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2 – Financial Information.

Item 2.02 Results of Operations and Financial Condition.

On October 19, 2009, First Defiance Financial Corp. (“FDEF”) issued a press release regarding its earnings for the quarter ended September 30, 2009.

Section 9 – Financial Statements and Exhibits.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99	Press Release dated October 19, 2009

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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.
By:	/S/ DONALD P. HILEMAN
	Donald P. Hileman
	Chief Financial Officer

Date: October 20, 2009

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EX-99

Exhibit 99

	NEWS RELEASE
	Contact:	William J. Small Chairman, President and CEO (419) 782-5015 bsmall@first-fed.com

For Immediate Release

FIRST DEFIANCE ANNOUNCES 2009

THIRD QUARTER EARNINGS

• Net Income of $329,000 for 2009 third quarter, even with $322,000 in the third quarter of 2008

• Provision for Loan Losses of $8.1 million

• Other-Than-Temporary Impairment of $994,000 recognized on certain investment securities

• Charge of $772,000 on previously recorded Mortgage Servicing Rights

• Third quarter loan growth of $7.8 million

DEFIANCE, OHIO (October 19, 2009) – First Defiance Financial Corp. (NASDAQ: FDEF) today announced that net income for its third quarter ended September 30, 2009 totaled $329,000, or ($0.02) per diluted common share, compared to $322,000 or $0.04 per diluted common share for the quarter ended September 30, 2008.

For the nine month period ended September 30, 2009, First Defiance earned $6.6 million or $0.63 per diluted common share compared to $6.5 million or $0.83 per diluted common share for the nine month period ended September 30, 2008. Excluding the after-tax cost of $700,000 of acquisition-related charges from the 2008 results, First Defiance earned $7.1 million or $0.91 per diluted common share for the first nine months of 2008.

“The impact of the economic environment continues to be reflected in our results for the third quarter,” said William J. Small, Chairman, President, and Chief Executive Officer of First Defiance Financial Corp. “Most core operating metrics were again very solid; however, higher provision expense and additional expenses related to collections and OREO had a negative effect on earnings. Through all of this, net income remained flat with the third quarter 2008 due primarily to better net interest margin and a larger loan base this year compared to September 30, 2008.”

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Credit Quality

The third quarter 2009 results include expense for provision for loan losses of $8.1 million, compared with $4.9 million in the same period in 2008 and $4.0 million in the second quarter of 2009. “In light of the continued environment of high unemployment, as well as the continued uncertainty of the commercial real estate market, we believe it is prudent to build general reserves,” said Small. “This decision drove the provision expense increase in the third quarter.” The allowance for loan loss as a percentage of average total loans increased to 1.92% at September 30, 2009 from 1.60% at June 30, 2009 and 1.47% at September 30, 2008.

Non-performing loans totaled $40.1 million at September 30, 2009, down slightly from $40.4 million at June 30, 2009. The September 30, 2009 balance included $35.5 million of loans that are on non-accrual or 90 days past due and another $4.6 million of loans considered non-performing because of changes in terms granted to borrowers although the loans are still accruing interest. In addition, First Defiance had $9.4 million of Real Estate Owned at September 30, 2009. For the third quarter of 2009, First Defiance recorded net charge-offs of $2.6 million, which represented 0.66% of average loans outstanding (annualized) for the quarter, down from 0.96% in the second quarter of 2009.

“Asset quality continues to be a drag on earnings in this economy,” Small said. “However, our delinquency numbers improved in the third quarter over the second quarter results and we hope this indicates a positive trend. We also saw a reduction in charge offs in the linked quarters. We continue to devote significant resources to the monitoring and early recognition of any weaknesses in the portfolio. While we are not seeing new specific loan problems arise in the portfolio, we are focused on the overall economic environment we are operating in. The overall reserve build was appropriate based on our general view regarding the near term direction of the economy.”

Investment Portfolio

The Other-Than-Temporary Impairment (OTTI) charge recognized by First Defiance in the third quarter of 2009 totaled $994,000. The OTTI charge for the quarter related to one security with a book value of $163,000 at June 30, 2009 which was written down to zero in the third quarter, and four other Trust Preferred Collateralized Debt Obligations (CDOs) with a remaining book value of $2.2 million. First Defiance also has another CDO investment that had an OTTI charge in the first quarter of 2009, which has a remaining book value of $243,000 and market value of $170,000 at September 30, 2009, which has seen positive upward movement in its discounted cash flows and resulted in no additional OTTI charge for the current and previous quarter. OTTI charges are due to the deterioration of the underlying collateral and relate to the credit component of the security.

First Defiance also has other Trust Preferred CDO investments with a total book value of $2.9 million and market value of $1.2 million at September 30, 2009. The decline in value of those investments is primarily due to the overall lack of liquidity in the CDO market. These investments continue to pay principal and interest payments in accordance with the contractual terms of the securities. Management has not deemed the impairment in value of these CDO investments to be Other-Than-Temporary, and, therefore, has not recognized the reduction in value of those investments in earnings.

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Net Interest Margin

Net interest income increased to $17.6 million in the third quarter of 2009 compared to $16.4 million in the 2008 third quarter, and was up from $16.2 million for the second quarter of 2009. Net interest margin was 3.88% for the 2009 third quarter compared to 3.61% in the second quarter of 2009 and 3.81% in the third quarter of 2008. Yield on interest earning assets declined by 58 basis points, to 5.60% in the third quarter of 2009 from 6.18% in the 2008 third quarter while the cost of interest-bearing liabilities and non-interest-bearing demand deposits decreased by 62 basis points, to 1.77% from 2.39%.

“Our disciplined pricing strategy resulted in the improved net interest margin,” said Small. “We will continue to focus on managing the margin and adjusting our pricing strategy in this challenging rate environment.”

Non-Interest Income

Non-interest income for the 2009 third quarter increased to $5.6 million from $4.1 million in the third quarter of 2008. Loss on investment securities, net of gains of $154,000, for the third quarter of 2009 was $840,000, which included $994,000 of OTTI charges compared with a loss of $2.1 million in the third quarter of 2008 related to OTTI charges. Mortgage banking income decreased to $980,000 in the third quarter of 2009, from $1.0 million for the same period in 2008. Gains from the sale of mortgage loans increased in the third quarter of 2009 to $1.5 million from $624,000 in the third quarter of 2008. Mortgage loan servicing revenue increased slightly for the 2009 third quarter compared to 2008. The increases in gains and servicing revenue were offset by expense increases of $246,000 for the amortization of mortgage servicing rights and increases of $736,000 for valuation adjustments.

First Defiance recorded a charge of $772,000 on mortgage servicing rights (MSR) valuation adjustment in the third quarter of 2009 compared with a charge of $36,000 in the third quarter of 2008. The MSR valuation adjustment is a reflection of the decrease in the fair value of certain sectors of the Company’s portfolio of mortgage servicing rights.

“Other Than Temporary Impairment charges and the adjustment to the valuation of the mortgage serving rights more than offset the large increase in the gain on sale of mortgages this quarter, but we increased non-interest income $1.5 million over the third quarter 2008,” commented Small. “We did see a reduction in mortgage originations compared to the first two quarters of 2009, a trend we expect to continue, but originations are still ahead of the 2008 pace.”

Non-Interest Expenses

Total non-interest expense was $14.8 million for the quarter ended September 30, 2009, a decrease from the $15.2 million of non-interest expense, which included $20,000 of acquisition related charges recognized in the 2008 third quarter.

Compensation and benefits decreased by $1.4 million or 18%, compared to 2008 third quarter. The decrease is primarily due to adjustments in performance based variable compensation. FDIC insurance expense increased to $649,000 in the third quarter of 2009 from

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$327,000 in the same period of 2008 as a result of the FDIC rate increases and higher insured deposits. Other non-interest expense increased to $3.7 million in the third quarter of 2009 from $2.8 million in the third quarter of 2008. Credit, collection and OREO-related costs increased $777,000 over the third quarter of 2008. Deferred compensation expense increased $462,000 from the third quarter of 2008. These increases were partially offset by decreases in marketing, credit card servicing charges and miscellaneous other operating expenses.

Year-To-Date Results

For the nine month period ended September 30, 2009, net interest income totaled $49.8 million, compared with $46.2 million in the first nine months of 2008. Average interest-earning assets increased to $1.81 billion for the nine months of 2009 compared to $1.63 billion for the first nine months of 2008. Net interest margin for the first nine months of 2009 was 3.73%, down 10 basis points from the 3.83% margin reported in the nine month period ended September 30, 2008.

The provision for loan losses for the nine months of 2009 was $14.8 million, compared to $8.8 million recorded during the first nine months of 2008.

Non-interest income for the first nine months of 2009 was $20.7 million compared to $16.3 million during the same period of 2008. Most of the non-interest income increase was in mortgage banking, which increased 112% to $7.7 million for the first nine months of 2009 compared to $3.6 million in the first nine months of 2008. In addition, service fees and other charges were $10.0 million for the first nine months of 2009 compared to $9.8 million during the first nine months of 2008. Non-interest income for the first nine month period of 2009 was reduced by $2.5 million of OTTI charges recognized for impaired investment securities.

Non-interest expense increased to $45.9 million for the first nine months of 2009 from $44.2 million in 2008. Excluding one-time acquisition-related charges of $1.0 million, non-interest expense was $43.2 million for the first nine months of 2008. For the nine months ending September 30, 2009 compared to the same period in 2008, FDIC insurance expense increased by $1.9 million due to increases in the assessment rates, a 2009 special assessment of $900,000 recorded in the second quarter and full utilization early in the 2008 first quarter of credits issued by the FDIC. Credit, collection and OREO-related costs have increased $1.9 million. Year to date 2008 non-interest expense included the $752,000 of expense associated with losses related to a former investment advisor.

“We are proceeding cautiously in this tentative environment,” said Small. “We believe that we will see indications of improvement in the national and local economies, but we realize there are still many challenges out there for certain sectors. We also are monitoring the Washington scene for new regulatory initiatives and potential FDIC premium increases and additional assessments.”

Total Assets at $2.02 Billion

Total assets at September 30, 2009 were $2.02 billion, compared to $1.96 billion at December 31, 2008. Net loans receivable (excluding loans held for sale) were $1.59 billion at September 30, 2009 compared to $1.59 billion at December 31, 2008. Total cash and cash

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equivalents were $77.3 million at September 30, 2009 compared with $46.1 million at December 31, 2008, an increase of $31.1 million. Total deposits at September 30, 2009 were $1.54 billion compared to $1.47 billion at December 31, 2008, an increase of $73.2 million. Non-interest bearing deposits at September 30, 2009 were $174.1 million compared to $176.1 million at December 31, 2008. Total stockholders’ equity was $234.5 million at September 30, 2009 compared to $229.2 million at the December 31, 2008. Also at September 30, 2009, goodwill and other intangible assets totaled $63.8 million compared to $64.9 million at December 31, 2008.

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m. (EDT) on Tuesday, October 20th 2009 to discuss the earnings results and business trends. The conference call may be accessed by calling 1-800-860-2442. A live webcast may be accessed at http://www.talkpoint.com/viewer/starthere.asp?Pres=127665.

Audio replay of the Internet Web cast will be available at www.fdef.com until Wednesday November 4th, 2009 at 9:00 a.m.

First Defiance Financial Corp.

First Defiance Financial Corp., headquartered in Defiance, Ohio, is the holding company for First Federal Bank of the Midwest and First Insurance & Investments. First Federal operates 35 full service branches and 47 ATM locations in northwest Ohio, southeast Michigan and Fort Wayne, Indiana. First Insurance & Investments specializes in property and casualty and group health and life insurance, with offices in Defiance and Bowling Green, Ohio.

For more information, visit the company’s Web site at www.fdef.com.

Financial Statements and Highlights Follow-

Safe Harbor Statement

This news release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 B of the Securities Act of 1934, as amended, which are intended to be safe harbors created thereby. Those statements may include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts and plans of First Defiance Financial Corp. and its management, and specifically include statements regarding: changes in economic conditions, the nature, extent and timing of governmental actions and reforms, future movements of interest rates, the production levels of mortgage loan generation, the ability to continue to grow loans and deposits, the ability to benefit from a changing interest rate environment, the ability to sustain credit quality ratios at current or improved levels, the ability to sell OREO properties, continued strength in the market area for First Federal Bank of the Midwest, and the ability of the Company to grow in existing and adjacent markets. These forward-looking statements involve numerous risks and uncertainties, including those inherent in general and local banking, insurance and mortgage conditions, competitive factors specific to markets in which the Company and its subsidiaries operate, future interest rate levels, legislative and regulatory decisions or capital market conditions and other risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission (SEC) filings, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. One or more of these factors have affected or could in the future affect the Company’s business and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore, there can be no assurances that the forward-looking statements

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included in this news release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other persons, that the objectives and plans of the Company will be achieved. All forward-looking statements made in this news release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

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Consolidated Balance Sheets

First Defiance Financial Corp.

	(Unaudited)
(in thousands)	September 30, 2009			December 31, 2008			September 30, 2008
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions	$	30,207		$	40,980		$	34,230
Interest-bearing deposits		47,109			5,172			358
		77,316			46,152			34,588
Securities
Available-for sale, carried at fair value		126,985			117,575			113,036
Held-to-maturity, carried at amortized cost		1,697			886			978
		128,682			118,461			114,014
Loans		1,623,627			1,617,235			1,596,327
Allowance for loan losses		(31,248	)		(24,592	)		(23,445	)
Loans, net		1,592,379			1,592,643			1,572,882
Loans held for sale		24,340			10,960			9,363
Mortgage servicing rights		8,350			6,611			9,335
Accrued interest receivable		8,110			7,293			8,672
Federal Home Loan Bank stock		21,376			21,376			21,376
Bank Owned Life Insurance		30,585			28,747			29,174
Office properties and equipment		46,372			47,756			47,379
Real estate and other assets held for sale		9,352			7,000			4,776
Goodwill		56,585			56,585			56,830
Core deposit and other intangibles		7,242			8,344			8,771
Deferred taxes		1,305			336			—
Other assets		6,604			5,136			4,866
Total Assets	$	2,018,598		$	1,957,400		$	1,922,026
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits	$	174,145		$	176,063		$	158,139
Interest-bearing deposits		1,368,940			1,293,849			1,277,665
Total deposits		1,543,085			1,469,912			1,435,804
Advances from Federal Home Loan Bank		146,937			156,067			173,581
Notes payable and other interest-bearing liabilities		43,280			49,454			70,238
Subordinated debentures		36,083			36,083			36,083
Advance payments by borrowers for tax and insurance		492			652			496
Deferred taxes		—			—			1,469
Other liabilities		14,192			16,073			14,679
Total liabilities		1,784,069			1,728,241			1,732,350
Stockholders’ Equity
Preferred stock- including warrants and amortization of discount on preferred shares		37,000			37,000			—
Preferred stock discount		(748	)		(867	)		—
Common stock, net		127			127			127
Common stock warrant		878			878			—
Additional paid-in-capital		140,622			140,449			140,360
Accumulated other comprehensive income (loss)		446			(1,904	)		(4,933	)
Retained earnings		128,835			126,114			126,760
Treasury stock, at cost		(72,631	)		(72,638	)		(72,638	)
Total stockholders’ equity		234,529			229,159			189,676
Total liabilities and stockholders’ equity	$	2,018,598		$	1,957,400		$	1,922,026

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Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.

(in thousands, except per share amounts)	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Interest Income:
Loans	$	23,766		$	24,902		$	70,229		$	72,220
Investment securities		1,422			1,435			4,388			4,382
Interest-bearing deposits		41			5			89			119
FHLB stock dividends		258			301			726			797
Total interest income		25,487			26,643			75,432			77,518
Interest Expense:
Deposits		6,163			7,658			20,206			23,851
FHLB advances and other		1,267			1,603			3,865			4,803
Subordinated debentures		344			461			1,139			1,445
Notes Payable		140			555			433			1,217
Total interest expense		7,914			10,277			25,643			31,316
Net interest income		17,573			16,366			49,789			46,202
Provision for loan losses		8,051			4,907			14,762			8,761
Net interest income after provision for loan losses		9,522			11,459			35,027			37,441
Non-interest Income:
Service fees and other charges		3,577			3,717			9,989			9,756
Mortgage banking income		980			1,011			7,677			3,627
Gain on sale of non-mortgage loans		151			134			251			177
Loss on securities		(840	)		(2,051	)		(2,262	)		(2,564	)
Insurance and investment sales commissions		1,129			1,179			3,945			4,381
Trust income		101			114			306			343
Income from Bank Owned Life Insurance		201			224			338			751
Other non-interest income		257			(188	)		475			(166	)
Total Non-interest Income		5,556			4,140			20,719			16,305
Non-interest Expense:
Compensation and benefits		6,551			7,980			21,501			22,421
Occupancy		1,860			1,949			5,901			5,562
FDIC insurance premium		649			327			2,713			792
State franchise tax		571			533			1,668			1,540
Acquisition related charges		—			20			—			1,032
Data processing		1,100			1,221			3,330			3,384
Amortization of intangibles		355			424			1,101			1,035
Other non-interest expense		3,700			2,779			9,701			8,458
Total Non-interest Expense		14,786			15,233			45,915			44,224
Income before income taxes		292			366			9,831			9,522
Income taxes		(37	)		44			3,193			3,046
Net Income	$	329		$	322		$	6,638		$	6,476
Dividends Accrued on Preferred Shares		(473	)		—			(1,403	)		—
Accretion on Preferred Shares		(40	)		—			(118	)		—
Net Income Applicable to Common Shares	$	(184	)	$	322		$	5,117		$	6,476
Earnings per common share:
Basic	$	(0.02	)	$	0.04		$	0.63		$	0.83
Diluted	$	(0.02	)	$	0.04		$	0.63		$	0.83
Core operating earnings per common share*:
Basic	$	(0.02	)	$	0.04		$	0.63		$	0.91
Diluted	$	(0.02	)	$	0.04		$	0.63		$	0.91
Average Shares Outstanding:
Basic		8,117			8,113			8,117			7,813
Diluted		8,117			8,123			8,172			7,842

*-See Non-GAAP Disclosure Reconciliations

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Financial Summary and Comparison

First Defiance Financial Corp.

	(Unaudited) Three Months Ended September 30,								(Unaudited) Nine Months Ended September 30,
(dollars in thousands, except per share data)	2009			2008			% change		2009			2008			% change
Summary of Operations
Tax-equivalent interest income (1)		25,796			26,876		(4.0	)		76,293			78,171		(2.4	)
Interest expense		7,914			10,277		(23.0	)		25,643			31,316		(18.1	)
Tax-equivalent net interest income (1)		17,882			16,599		7.7			50,650			46,855		8.1
Provision for loan losses		8,051			4,907		64.1			14,762			8,761		68.5
Tax-equivalent NII after provision for loan loss (1)		9,831			11,692		(15.9	)		35,888			38,094		(5.8	)
Securities losses		(840	)		(2,051	)	(59.0	)		(2,262	)		(2,564	)	(11.8	)
Non-interest income-excluding securities losses		6,396			6,191		3.3			22,981			18,869		21.8
Non-interest expense		14,786			15,233		(2.9	)		45,915			44,224		3.8
Non-interest expense-excluding non-core charges		14,786			15,213		(2.8	)		45,915			43,192		6.3
One time acquisition related charges		-			20		NM			-			1,032		NM
Income taxes		(37	)		44		(184.1	)		3,193			3,046		4.8
Net Income		329			322		2.2			6,638			6,476		2.5
Dividends Declared on Preferred Shares		(473	)		-		NM			(1,403	)		-		NM
Accretion on Preferred Shares		(40	)		-		NM			(118	)		-		NM
Net Income Applicable to Common Shares		(184	)		322		(157.1	)		5,117			6,476		(21.0	)
Core operating earnings (2)		329			335		(1.8	)		6,638			7,147		(7.1	)
Tax equivalent adjustment (1)		309			233		32.6			861			653		31.9
At Period End
Assets		2,018,598			1,922,026		5.0
Earning assets		1,845,134			1,741,438		6.0
Loans		1,623,627			1,596,327		1.7
Allowance for loan losses		31,248			23,445		33.3
Deposits		1,543,085			1,435,804		7.5
Stockholders’ equity		234,529			189,676		23.6
Average Balances
Assets		2,029,970			1,928,987		5.2			2,014,238			1,824,197		10.4
Earning assets		1,826,400			1,727,343		5.7			1,812,230			1,630,873		11.1
Deposits and interest-bearing liabilities		1,778,223			1,712,212		3.9			1,764,667			1,611,785		9.5
Loans		1,613,529			1,585,489		1.8			1,600,878			1,485,455		7.8
Deposits		1,550,369			1,437,273		7.9			1,538,986			1,365,631		12.7
Stockholders’ equity		234,241			194,452		20.5			231,912			187,330		23.8
Stockholders’ equity / assets		11.54	%		10.08	%	14.5			11.51	%		10.27	%	12.1
Per Common Share Data
Net Income
Basic	$	(0.02	)	$	0.04		(150.0	)	$	0.63		$	0.83		(24.1	)
Diluted		(0.02	)		0.04		(150.0	)		0.63			0.83		(24.1	)
Core operating earnings (2)
Basic	$	(0.02	)	$	0.04		(154.9	)	$	0.63		$	0.91		(31.1	)
Diluted		(0.02	)		0.04		(155.0	)		0.63			0.91		(31.3	)
Dividends		0.04			0.26		(84.6	)		0.295			0.78		(62.2	)
Market Value:
High	$	18.33		$	17.66		3.8		$	18.33		$	22.51		(18.6	)
Low		12.00			10.00		20.0			3.76			10.00		(62.4	)
Close		14.91			11.01		35.4			14.91			11.01		35.4
Book Value		24.32			23.37		4.1			24.32			23.37		4.1
Tangible Book Value		16.45			15.29		7.6			16.45			15.29		7.6
Shares outstanding, end of period (000)		8,118			8,117		0.0			8,118			8,117		0.0
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)		3.88	%		3.81	%	1.8			3.73	%		3.83	%	(2.6	)
Return on average assets -GAAP		0.06	%		0.07	%	(3.2	)		0.44	%		0.47	%	(7.1	)
Return on average assets -Core Operating		0.06	%		0.07	%	(6.9	)		0.44	%		0.52	%	(15.8	)
Return on average equity- GAAP		0.56	%		0.66	%	(15.4	)		3.83	%		4.62	%	(17.1	)
Return on average equity- Core Operating		0.56	%		0.69	%	(18.7	)		3.83	%		5.10	%	(24.9	)
Efficiency ratio (3) -GAAP		60.90	%		66.84	%	(8.9	)		62.36	%		67.29	%	(7.3	)
Efficiency ratio (3) -Core Operating		60.90	%		66.75	%	(8.8	)		62.36	%		65.72	%	(5.1	)
Effective tax rate		-12.67	%		12.02	%	(205.4	)		32.48	%		31.99	%	1.5
Dividend payout ratio (basic)		-200.00	%		650.00	%	(130.8	)		46.83	%		93.98	%	(50.2	)

(1) Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal income tax rate of 35%

(2) Core operating earnings = Net income plus after tax effect of acquisition related and other one-time charges. See Non-GAAP Disclosure Reconciliation.

(3) Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities gains or losses, net.

NM Percentage change not meaningful

9

Non-GAAP Disclosure Reconciliations

First Defiance Financial Corp.

Management believes that the presentation of the non-GAAP financial measures in this release assists investors when comparing results period-to-period in a more meaningful and consistent manner and provides a better measure of results for First Defiance’s ongoing operations.

Core operating earnings are net income adjusted to exclude discontinued operations, merger, integration and restructuring expenses and the results of certain significant transactions not representative of ongoing operations.

Core Operating Earnings	Three months ended September 30,					Nine Months Ended September 30,
(dollars in thousands, except per share data)	2009		2008			2009		2008
Net Income	$	329	$	322		$	6,638	$	6,476
Acquisition related charges		-		20			-		1,032
Tax effect		-		(7	)		-		(361	)
After-tax non-operating items		-		13			-		671
Core operating earnings	$	329	$	335		$	6,638	$	7,147

Acquisition related charges in 2008 reflect charges associated with the acquisition of Pavilion Bancorp.

Core operating earnings is used as the numerator to calculate core operating return on average assets, core operating return on average equity and core operating earnings per share. Additionally, non-operating items are deducted from non-interest expense in the numerator and non-interest income in the denominator of the core operating efficiency ratio disclosed in the tables. Comparable information on a GAAP basis is also provided in the tables.

Income from Mortgage Banking

Revenue from sales and servicing of mortgage loans consisted of the following:

(dollars in thousands)	Three months ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Gain from sale of mortgage loans	$	1,541		$	624		$	7,276		$	2,808
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		725			691			2,109			1,839
Amortization of mortgage servicing rights		(514	)		(268	)		(2,625	)		(1,008	)
Mortgage servicing rights valuation adjustments		(772	)		(36	)		917			(12	)
		(561	)		387			401			819
Total revenue from sale and servicing of mortgage loans	$	980		$	1,011		$	7,677		$	3,627

10

Yield Analysis

First Defiance Financial Corp.

	Three Months Ended September 30,
	2009						2008
	Average Balance		Interest(1)		Yield Rate(2)		Average Balance		Interest(1)		Yield Rate(2)
Interest-earning assets:
Loans receivable	$	1,613,529	$	23,812	5.85	%	$	1,585,489	$	24,934	6.26	%
Securities		130,673		1,685	5.08	%		118,502		1,636	5.31	%
Interest Bearing Deposits		60,822		41	0.27	%		2,231		5	0.89	%
FHLB stock		21,376		258	4.79	%		21,121		301	5.67	%
Total interest-earning assets		1,826,400		25,796	5.60	%		1,727,343		26,876	6.18	%
Non-interest-earning assets		203,570						201,644
Total assets	$	2,029,970					$	1,928,987
Deposits and Interest-bearing liabilities:
Interest bearing deposits	$	1,374,441	$	6,163	1.78	%	$	1,268,016	$	7,658	2.40	%
FHLB advances and other		146,941		1,267	3.42	%		174,343		1,603	3.66	%
Other Borrowings		44,685		140	1.24	%		64,368		555	3.43	%
Subordinated debentures		36,228		344	3.77	%		36,228		461	5.06	%
Total interest-bearing liabilities		1,602,295		7,914	1.96	%		1,542,955		10,277	2.65	%
Non-interest bearing deposits		175,928		-	-			169,257		-	-
Total including non-interest-bearing demand deposits		1,778,223		7,914	1.77	%		1,712,212		10,277	2.39	%
Other non-interest-bearing liabilities		17,506						22,323
Total liabilities		1,795,729						1,734,535
Stockholders’ equity		234,241						194,452
Total liabilities and stockholders’ equity	$	2,029,970					$	1,928,987
Net interest income; interest rate spread			$	17,882	3.64	%			$	16,599	3.53	%
Net interest margin (3)					3.88	%					3.81	%
Average interest-earning assets to average interest bearing liabilities					114	%					112	%
	Nine Months Ended September 30,
	2009						2008
	Average Balance		Interest(1)		Yield Rate(2)		Average Balance		Interest(1)		Yield Rate(2)
Interest-earning assets:
Loans receivable	$	1,600,878	$	70,333	5.87	%	$	1,485,455	$	72,297	6.50	%
Securities		126,883		5,145	5.36	%		118,908		4,959	5.50	%
Interest Bearing Deposits		63,093		89	0.19	%		6,311		119	2.52	%
FHLB stock		21,376		726	4.54	%		20,199		797	5.27	%
Total interest-earning assets		1,812,230		76,293	5.61	%		1,630,873		78,172	6.40	%
Non-interest-earning assets		202,008						193,324
Total assets	$	2,014,238					$	1,824,197
Deposits and Interest-bearing liabilities:
Interest bearing deposits	$	1,366,645	$	20,206	1.98	%	$	1,210,631	$	23,851	2.63	%
FHLB advances and other		146,994		3,865	3.52	%		161,891		4,803	3.96	%
Other Borrowings		42,446		433	1.36	%		48,018		1,217	3.39	%
Subordinated debentures		36,241		1,139	4.19	%		36,245		1,445	5.33	%
Total interest-bearing liabilities		1,592,326		25,643	2.15	%		1,456,785		31,316	2.87	%
Non-interest bearing deposits		172,341		-	-			155,000		-	-
Total including non-interest-bearing demand deposits		1,764,667		25,643	1.94	%		1,611,785		31,316	2.60	%
Other non-interest-bearing liabilities		17,659						25,082
Total liabilities		1,782,326						1,636,867
Stockholders’ equity		231,912						187,330
Total liabilities and stockholders’ equity	$	2,014,238					$	1,824,197
Net interest income; interest rate spread			$	50,650	3.46	%			$	46,856	3.53	%
Net interest margin (3)					3.73	%					3.83	%
Average interest-earning assets to average interest bearing liabilities					114	%					112	%

(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.

11

Selected Quarterly Information

First Defiance Financial Corp.

(dollars in thousands, except per share data)	3rd Qtr 2009			2nd Qtr 2009			1st Qtr 2009			4th Qtr 2008			3rd Qtr 2008
Summary of Operations
Tax-equivalent interest income (1)	$	25,796		$	25,117		$	25,379		$	26,188		$	26,876
Interest expense		7,914			8,643			9,085			9,952			10,277
Tax-equivalent net interest income (1)		17,882			16,474			16,294			16,236			16,599
Provision for loan losses		8,051			3,965			2,746			3,824			4,907
Tax-equivalent NII after provision for loan losses (1)		9,831			12,509			13,548			12,412			11,692
Investment securities gains (losses)		(840	)		(750	)		(672	)		(596	)		(2,051	)
Non-interest income (excluding securities gains/losses)		6,396			9,109			7,476			3,360			6,191
Non-interest expense		14,786			16,133			14,996			13,571			15,233
Acquisition and other on-time charges		-			-			-			85			20
Income taxes		(37	)		1,539			1,691			482			44
Net income		329			2,901			3,408			880			322
Dividends Declared on Preferred Shares		(473	)		(468	)		(463	)		(134	)		-
Accretion on Preferred Shares		(40	)		(40	)		(38	)		(11	)		-
Net Income Applicable to Common Shares		(184	)		2,393			2,907			735			322
Core operating earnings (2)		329			2,901			3,408			935			335
Tax equivalent adjustment (1)		309			295			257			243			233
At Period End
Total assets	$	2,018,598		$	2,023,563		$	2,010,662		$	1,957,400		$	1,922,026
Earning assets		1,845,134			1,846,689			1,838,397			1,773,204			1,741,438
Loans		1,623,627			1,610,460			1,585,897			1,617,235			1,596,327
Allowance for loan losses		31,248			25,840			25,694			24,592			23,445
Deposits		1,543,085			1,553,144			1,540,235			1,469,912			1,435,804
Stockholders’ equity		234,529			232,683			230,608			229,159			189,676
Stockholders’ equity / assets		11.62	%		11.50	%		11.47	%		11.71	%		9.87	%
Goodwill		56,585			56,585			56,585			56,585			56,830
Average Balances
Total assets	$	2,029,970		$	2,027,760		$	1,984,985		$	1,938,461		$	1,928,987
Earning assets		1,826,400			1,828,272			1,782,019			1,730,284			1,727,343
Deposits and interest-bearing liabilities		1,778,223			1,778,848			1,736,933			1,718,315			1,712,212
Loans		1,613,529			1,592,513			1,596,592			1,591,144			1,585,489
Deposits		1,550,369			1,552,533			1,514,059			1,466,366			1,437,273
Stockholders’ equity		234,241			231,397			230,099			201,499			194,452
Stockholders’ equity / assets		11.54	%		11.41	%		11.59	%		10.39	%		10.08	%
Per Common Share Data
Net Income:
Basic	$	(0.02	)	$	0.29		$	0.36		$	0.09		$	0.04
Diluted		(0.02	)		0.29			0.36			0.09			0.04
Core operating earnings (2)
Basic		(0.02	)		0.29			0.36			0.10			0.04
Diluted		(0.02	)		0.29			0.36			0.10			0.04
Dividends		0.04			0.085			0.17			0.17			0.26
Market Value:
High	$	18.33		$	14.25		$	8.95		$	14.50		$	17.66
Low		12.00			6.10			3.76			6.00			10.00
Close		14.91			13.00			6.08			7.73			11.01
Book Value		24.32			24.10			23.85			23.67			23.37
Shares outstanding, end of period (in thousands)		8,118			8,118			8,117			8,117			8,117
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)		3.88	%		3.61	%		3.71	%		3.72	%		3.81	%
Return on average assets -GAAP		0.06	%		0.57	%		0.70	%		0.18	%		0.07	%
Return on average assets -Core Operating		0.06	%		0.57	%		0.70	%		0.19	%		0.07	%
Return on average equity- GAAP		0.56	%		5.03	%		6.02	%		1.74	%		0.66	%
Return on average equity- Core Operating		0.56	%		5.03	%		6.02	%		1.85	%		0.69	%
Efficiency ratio (3) -GAAP		60.90	%		63.06	%		63.09	%		69.25	%		66.84	%
Efficiency ratio (3) -Core Operating		60.90	%		63.06	%		63.09	%		68.82	%		66.75	%
Effective tax rate		-12.67	%		34.66	%		33.16	%		35.39	%		12.02	%
Common dividend payout ratio (basic)		-200.00	%		29.31	%		47.22	%		188.89	%		650.00	%

(1) Interest income on tax-exempt securities and loans has been adjusted to a tax-equivalent basis using the statutory federal income tax rate of 35%

(2) See Non-GAAP Disclosure Reconciliation

(3) Efficiency ratio = Non-interest expense divided by sum of tax-equivalent net interest income plus non-interest income, excluding securities gains, net and asset sales gains, net.

12

Selected Quarterly Information

First Defiance Financial Corp.

(dollars in thousands, except per share data)	3rd Qtr 2009			2nd Qtr 2009			1st Qtr 2009			4th Qtr 2008			3rd Qtr 2008
Loan Portfolio Composition
One to four family residential real estate	$	233,958		$	238,000		$	241,119		$	251,807		$	250,244
Construction		53,605			44,670			50,534			72,938			75,822
Commercial real estate		802,434			768,636			764,841			755,740			746,676
Commercial		371,881			382,434			350,070			356,574			353,453
Consumer finance		36,416			38,074			38,676			41,012			41,964
Home equity and improvement		150,379			151,213			156,668			161,106			158,992
Total loans		1,648,673			1,623,027			1,601,908			1,639,177			1,627,151
Less:
Loans in process		23,957			11,602			14,954			20,892			29,794
Deferred loan origination fees		1,089			965			1,057			1,050			1,030
Allowance for loan loss		31,248			25,840			25,694			24,592			23,445
Net Loans	$	1,592,379		$	1,584,620		$	1,560,203		$	1,592,643		$	1,572,882
Allowance for loan loss activity
Beginning allowance		25,840			25,694			24,592		$	23,445		$	20,578
Provision for loan losses		8,051			3,965			2,746			3,824			4,907
Reserve from acquisitions		—			—			—			—			121
Credit loss charge-offs:
One to four family residential real estate		744			505			148			369			478
Commercial real estate		1,152			2,066			669			1,480			1,495
Commercial		658			950			702			593			—
Consumer finance		39			83			123			224			73
Home equity and improvement		196			301			130			57			216
Total charge-offs		2,789			3,905			1,772			2,723			2,262
Total recoveries		146			86			128			46			101
Net charge-offs (recoveries)		2,643			3,819			1,644			2,677			2,161
Ending allowance	$	31,248		$	25,840		$	25,694		$	24,592		$	23,445
Credit Quality
Non-accrual loans	$	35,490		$	35,528		$	29,473		$	28,017		$	24,630
Restructured loans, accruing		4,574			4,845			7,199			6,250			905
Total non-performing loans (1)		40,064			40,373			36,672			34,267			25,535
Real estate owned (REO)		9,352			8,567			7,839			7,000			4,776
Total non-performing assets (2)	$	49,416		$	48,940		$	44,511		$	41,267		$	30,311
Net charge-offs		2,643			3,819			1,644			2,677			2,161
Allowance for loan losses / loans		1.92	%		1.60	%		1.62	%		1.52	%		1.47	%
Allowance for loan losses / non-performing assets		63.23	%		52.80	%		57.73	%		59.59	%		77.35	%
Allowance for loan losses / non-performing loans		78.00	%		64.00	%		70.06	%		71.77	%		91.82	%
Non-performing assets / loans plus REO		3.03	%		3.02	%		2.79	%		2.54	%		1.89	%
Non-performing assets / total assets		2.45	%		2.42	%		2.21	%		2.11	%		1.58	%
Net charge-offs / average loans (annualized)		0.66	%		0.96	%		0.41	%		0.67	%		0.55	%
Deposit Balances
Non-interest-bearing demand deposits	$	174,145		$	180,035		$	163,855		$	176,063		$	158,139
Interest-bearing demand deposits and money market		477,566			456,177			413,104			374,488			365,251
Savings deposits		132,333			135,821			132,590			132,145			145,019
Retail time deposits less than $100,000		544,957			568,595			608,811			578,245			557,643
Retail time deposits greater than $100,000		166,787			165,401			171,588			170,485			177,848
National/Brokered time deposits		47,297			47,115			50,287			38,486			31,904
Total deposits	$	1,543,085		$	1,553,144		$	1,540,235		$	1,469,912		$	1,435,804

(1) Non-performing loans consist of non-accrual loans that are contractually past due 90 days or more and loans that are deemed impaired under the criteria of FASB Statement No. 114.

(2) Non-performing assets are non-performing loans plus real estate and other assets acquired by foreclosure or deed-in-lieu thereof.

13

Loan Delinquency Information

First Defiance Financial Corp.

(dollars in thousands)	Total Balance		Current		30 to 89 days past due		Non Accrual Loans		Troubled Debt Restructuring
September 30, 2009
One to four family residential real estate	$	233,958	$	221,077	$	4,637	$	5,839	$	2,405
Construction		53,605		53,340		71		194		-
Commercial real estate		802,434		765,469		11,570		23,279		2,116
Commercial		371,881		363,739		2,525		5,564		53
Consumer finance		36,416		35,913		454		49		-
Home equity and improvement		150,379		147,031		2,783		565		-
Total loans	$	1,648,673	$	1,586,569	$	22,040	$	35,490	$	4,574
June 30, 2009
One to four family residential real estate	$	238,000	$	223,846	$	5,594	$	5,541	$	3,019
Construction		44,670		44,416		194		60		-
Commercial real estate		768,636		727,983		13,212		25,672		1,769
Commercial		382,434		375,007		3,781		3,589		57
Consumer finance		38,074		37,595		440		39		-
Home equity and improvement		151,213		147,975		2,611		627		-
Total loans	$	1,623,027	$	1,556,822	$	25,832	$	35,528	$	4,845
December 31, 2008
One to four family residential real estate	$	251,807	$	241,446	$	4,676	$	4,584	$	1,101
Construction		72,938		72,814		52		72		-
Commercial real estate		755,740		728,150		5,406		19,979		2,205
Commercial		356,574		349,078		1,671		2,881		2,944
Consumer finance		41,012		40,428		515		69		-
Home equity and improvement		161,106		155,650		5,024		432		-
Total loans	$	1,639,177	$	1,587,566	$	17,344	$	28,017	$	6,250
September 30, 2008
One to four family residential real estate	$	250,244	$	239,889	$	4,053	$	5,400	$	902
Construction		75,822		74,232		101		1,489		-
Commercial real estate		746,676		726,013		6,914		13,749		-
Commercial		353,453		348,504		1,371		3,575		3
Consumer finance		41,964		41,341		473		150		-
Home equity and improvement		158,992		156,645		2,080		267		-
Total loans	$	1,627,151	$	1,586,624	$	14,992	$	24,630	$	905

14