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): January 18, 2010

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 January 18, 2010, First Defiance Financial Corp. (“FDEF”) issued a press release regarding its earnings for the quarter and fiscal year ended December 31, 2009.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99	Press Release dated January 18, 2010

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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: January 18, 2010

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EX-99

Exhibit 99

	NEWS RELEASE
	Contact:	William J. Small
		Chairman, President and CEO
		(419) 782-5104
		bsmall@first-fed.com

For Immediate Release

FIRST DEFIANCE FINANCIAL CORP. ANNOUNCES 2009

FOURTH QUARTER AND FULL YEAR EARNINGS

• Net Income of $1.6 million for 2009 fourth quarter, compared with $880,000 in the fourth quarter of 2008

• Provision for Loan Losses of $7.0 million for the fourth quarter

• Other-Than-Temporary Impairment of $1.4 million recognized on certain investment securities

• Recapture of $397,000 valuation allowance on Mortgage Servicing Rights

• Deposit growth of $37.1 million in the fourth quarter

DEFIANCE, OHIO (January 18, 2010) – First Defiance Financial Corp. (NASDAQ: FDEF) today announced that net income for the fiscal year ended December 31, 2009 totaled $8.3 million, or $.76 per diluted common share compared to $7.4 million or $.91 per diluted common share for the year ended December 31, 2008. The 2008 twelve month results included $1.1 million of acquisition-related charges associated with the March 14, 2008 acquisition of Pavilion Bancorp of Adrian, Michigan (Pavilion) and its subsidiary the Bank of Lenawee. Excluding the after-tax impact of those charges, First Defiance had earnings of $8.1 million, or $1.00 per diluted common share for the twelve months ended December 31, 2008. For the fourth quarter ended December 31, 2009, First Defiance earned $1.6 million or $0.14 per diluted common share compared to $880,000 or $0.09 per diluted common share for the fourth quarter of 2008.

“Despite the very difficult operating environment in 2009, the company remained profitable for the quarter and the full year of 2009,” said William J. Small, Chairman, President, and Chief Executive Officer of First Defiance Financial Corp. “Our fundamental operating metrics were again very solid; however the persistent weakness in the economy and the resulting impact on asset quality is reflected in our results for the fourth quarter. Higher provision expense and additional expenses related to collections and OREO as well as charges relating to the closure of two branch office facilities had a negative effect on earnings for the quarter.”

Credit Quality

The fourth quarter 2009 results include expense for provision for loan losses of $7.0 million, compared with $3.8 million in the same period in 2008 and $8.1 million in the third quarter of 2009. “In light of the high unemployment environment, as well as the uncertainty of

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the commercial real estate market, we believe it is prudent to continue to build general reserves,” said Small. “This decision drove the provision expense increase in the fourth quarter.” The allowance for loan loss as a percentage of average total loans increased to 2.17% at December 31, 2009 from 1.92% at September 30, 2009 and 1.52% at December 31, 2008.

Non-performing loans totaled $47.9 million at December 31, 2009, up from $40.1 million at September 30, 2009. The December 31, 2009 balance included $41.2 million of loans that are on non-accrual or 90 days past due and another $6.7 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 $13.5 million of Real Estate Owned at December 31, 2009. For the fourth quarter of 2009, First Defiance recorded net charge-offs of $3.2 million, which represented 0.79% of average loans outstanding (annualized) for the quarter, compared with 0.66% in the third quarter of 2009 and 0.67% in the fourth quarter of 2008.

“Asset quality continues to have an impact on earnings in this economy,” Small said. “However, our delinquency numbers improved in the fourth quarter over the third quarter results and with two consecutive quarters of improvement we hope this indicates a positive trend. We also saw a slight increase 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 categories of loan problems arise in the portfolio, we are focused on the wider economic environment in which we operate. The overall reserve build was appropriate based on our general view regarding the near term direction of the local, regional and national economy.”

Investment Portfolio

The Other-Than-Temporary Impairment (OTTI) charge recognized by First Defiance in the fourth quarter of 2009 totaled $1.4 million. The OTTI charge for the quarter related to three securities which were written down to a total fair value of $25,000 in the fourth quarter, and one other Trust Preferred Collateralized Debt Obligation (CDO) with a remaining book value of $243,000 and a market value of $141,000 at December 31, 2009. The company also has one CDO that has had prior OTTI but did not have additional charges in the fourth quarter with a book value of $751,000 and a market value of $284,000 at December 31, 2009.

First Defiance has other Trust Preferred CDO investments that have not had OTTI charges with a total book value of $2.9 million and market value of $1.1 million at December 31, 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.

Net Interest Margin

Net interest income increased to $17.5 million in the fourth quarter of 2009 compared to $16.0 million in the 2008 fourth quarter, and was basically flat with the third quarter of 2009 which was $17.6 million. Net interest margin was 3.82% for the 2009 fourth quarter compared to 3.88% in the third quarter of 2009 and 3.72% in the fourth quarter of 2008. Yield on interest earning assets declined by 55 basis points, to 5.45% in the fourth quarter of 2009 from 6.00% in

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the 2008 fourth quarter, while the cost of interest-bearing liabilities and non-interest-bearing demand deposits decreased by 63 basis points, to 1.67% from 2.30%.

“We have a very disciplined pricing strategy that resulted in the stable net interest margin for the quarter,” said Small. “We will continue to focus on managing the margin and will adjust our pricing strategy as needed.”

Non-Interest Income

Non-interest income for the 2009 fourth quarter increased to $5.6 million from $2.8 million in the fourth quarter of 2008. Loss on investment securities, net of gains of $5,000, for the fourth quarter of 2009, was $1.4 million, compared with a loss of $596,000 in the fourth quarter of 2008. Mortgage banking income increased to $2.1 million in the fourth quarter of 2009, from a loss of $636,000 for the same period in 2008. Gains from the sale of mortgage loans decreased slightly in the fourth quarter of 2009 to $1.5 million from $1.6 million in the fourth quarter of 2008. Mortgage loan servicing revenue increased $2.8 million over the fourth quarter of 2008.

First Defiance recorded a recapture of $397,000 on mortgage servicing rights (MSR) valuation adjustment in the fourth quarter of 2009, compared with a charge of $2.7 million in the fourth quarter of 2008. The MSR valuation adjustment is a reflection of the increase in the fair value of certain sectors of the Company’s portfolio of mortgage servicing rights.

“The large increase in mortgage banking income this quarter compared to the fourth quarter of 2008 more than offset the increase in the Other Than Temporary Impairment charges this quarter,” commented Small. “We did see a reduction in mortgage originations compared to the first three quarters of 2009, a trend we expect to continue, but originations still out paced 2008.”

Non-Interest Expenses

Total non-interest expense was $14.5 million for the quarter ended December 31, 2009, an increase from the $13.6 million of non-interest expense, which included $85,000 of acquisition-related charges recognized in the 2008 fourth quarter.

Compensation and benefits decreased by $150,000 compared to the 2008 fourth quarter. FDIC insurance expense increased to $637,000 in the fourth quarter of 2009 from $290,000 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 fourth quarter of 2009 from $2.8 million in the fourth quarter of 2008. The fourth quarter of 2009 included approximately $652,000 of write- downs and charges for two branch office facilities that are in process of closing and one branch relocation. Credit, collection and OREO-related costs were $651,000 in the quarter, a $235,000 increase over the fourth quarter of 2008. Legal, consulting and other professional service fees were $575,000 in the quarter, an increase of $234,000 over the fourth quarter of 2008. Deferred compensation expense increased $331,000 from the fourth quarter of 2008. These increases were partially offset by a recovery of $175,000 on a previously recorded loss relating to an investment advisor and decreases in marketing, credit card servicing charges and miscellaneous other operating expenses.

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Annual Results

On an annual basis, earnings for 2009 were $8.3 million, an increase of $902,000 from $7.4 million in 2008. Net interest income for 2009 totaled $67.3 million, a $5.1 million or 8.2% increase over 2008. Average interest-earning assets increased to $1.8 billion for 2009 compared to $1.7 billion in 2008. Net interest margin for 2009 was 3.76%, compared with 3.80% for 2008.

The provision for loan losses for 2009 was $21.7 million, compared to $12.6 million in 2008.

Non-interest income for the twelve month period ended December 31, 2009 was $26.3 million compared to $19.1 million during the same period of 2008. The 2009 results include securities losses of $3.7 million recognized, of which $3.9 million relate to OTTI charges recognized for impaired investment securities partially offset by $284,000 of gains on the sale of securities compared with losses of $3.2 million in 2008 related to OTTI. Service fees and other charges were $13.5 million for the year compared to $13.3 million during 2008. Mortgage banking income for 2009 was $9.7 million, an increase of $6.8 million over 2008 primarily due to an increase of $4.4 million from gain on sale and $4 million due to the impact of positive valuation adjustment in 2009 on Mortgage Servicing Rights.

Non-interest expense increased to $60.4 million for the full year of 2009 from $57.8 million in 2008. Excluding the acquisition-related charges in 2008 of $1.1 million, non-interest expense increased by 6.5%. FDIC insurance expense increased by $2.3 million in large part due to the FDIC special assessment and increased assessments based on higher balances of insured deposits.

Non-interest expense also includes $3.4 million of credit, collection and OREO-related costs compared with $1.3 million in 2008. Costs associated with the branch facilities closure and relocation were $652,000 in 2009. The year over year change in expense relating to deferred compensation was $1.05 million. During 2009 the company recovered $190,000 associated with losses related to a former investment advisor compared with an expense of $727,000 in 2008.

Dividends

The Board of Directors has decided not to declare a cash dividend for the fourth quarter of 2009. “We expect elevated levels of nonperforming loans and loan loss provisions for the near term as well as other challenges posed by the current economic and regulatory environment,” said Small. “Therefore, we believe that this is a time to conserve capital. We believe that the fundamentals of the Company remain sound, but it will take some time to work through the problem credits precipitated by the recession and current real estate downturn. As we get these troubled assets worked through the system we expect to return to levels of profitability more consistent with the past.”

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Total Assets at $2.06 Billion

Total assets at December 31, 2009 were $2.06 billion, compared to $1.96 billion at December 31, 2008. Net loans receivable (excluding loans held for sale) were $1.58 billion at December 31, 2009 compared to $1.59 billion at December 31, 2008. Total cash and cash equivalents were $121.1 million at December 31, 2009 compared with $46.1 million at December 31, 2008, an increase of $75.0 million. Total deposits at December 31, 2009 were $1.58 billion compared to $1.47 billion at December 31, 2008, an increase of $110.3 million. Non-interest bearing deposits at December 31, 2009 were $189.1 million compared to $176.1 million at December 31, 2008. Total stockholders’ equity was $235.2 million at December 31, 2009 compared to $229.2 million at the December 31, 2008. Also at December 31, 2009, goodwill and other intangible assets totaled $63.5 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. (EST) on Tuesday, January 19, 2010 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=128810.

Audio replay of the Internet Web cast will be available at www.fdef.com until January 27, 2010 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

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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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. 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 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)	December 31, 2009			December 31, 2008
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions	$	29,613		$	40,980
Interest-bearing deposits		91,503			5,172
		121,116			46,152
Securities
Available-for sale, carried at fair value		137,458			117,575
Held-to-maturity, carried at amortized cost		1,920			886
		139,378			118,461
Loans		1,617,122			1,617,235
Allowance for loan losses		(35,047	)		(24,592	)
Loans, net		1,582,075			1,592,643
Loans held for sale		10,346			10,960
Mortgage servicing rights		8,958			6,611
Accrued interest receivable		6,851			7,293
Federal Home Loan Bank stock		21,376			21,376
Bank Owned Life Insurance		30,804			28,747
Office properties and equipment		43,597			47,756
Real estate and other assets held for sale		13,527			7,000
Goodwill		56,585			56,585
Core deposit and other intangibles		6,887			8,344
Deferred taxes		1,630			336
Other assets		14,234			5,136
Total Assets	$	2,057,364		$	1,957,400
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits	$	189,132		$	176,063
Interest-bearing deposits		1,391,094			1,293,849
Total deposits		1,580,226			1,469,912
Advances from Federal Home Loan Bank		146,927			156,067
Notes payable and other interest-bearing liabilities		48,398			49,454
Subordinated debentures		36,083			36,083
Advance payments by borrowers for tax and insurance		665			652
Other liabilities		9,914			16,073
Total liabilities		1,822,213			1,728,241
Stockholders’ Equity
Preferred stock, net of discount		36,293			36,133
Common stock, net		127			127
Common stock warrant		878			878
Additional paid-in-capital		140,675			140,449
Accumulated other comprehensive income (loss)		(158	)		(1,904	)
Retained earnings		129,967			126,114
Treasury stock, at cost		(72,631	)		(72,638	)
Total stockholders’ equity		235,151			229,159
Total Liabilities and Stockholders’ Equity	$	2,057,364		$	1,957,400

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Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.

	Three Months Ended December 31,						Twelve Months Ended December 31,
(in thousands, except per share amounts)	2009			2008			2009			2008
Interest Income:
Loans	$	23,473		$	24,301		$	93,702		$	96,522
Investment securities		1,385			1,375			5,773			5,756
Interest-bearing deposits		60			4			149			123
FHLB stock dividends		229			265			955			1,062
Total interest income		25,147			25,945			100,579			103,463
Interest Expense:
Deposits		5,896			7,503			26,102			31,354
FHLB advances and other		1,249			1,572			5,114			6,375
Subordinated debentures		332			462			1,471			1,907
Notes Payable		137			415			570			1,632
Total interest expense		7,614			9,952			33,257			41,268
Net interest income		17,533			15,993			67,322			62,195
Provision for loan losses		6,970			3,824			21,732			12,585
Net interest income after provision for loan losses		10,563			12,169			45,590			49,610
Non-interest Income:
Service fees and other charges		3,514			3,512			13,503			13,268
Mortgage banking income		2,070			(636	)		9,747			2,990
Gain on sale of non-mortgage loans		13			3			264			180
Gain on sale or call of securities		5			3			284			22
Impairment on securities		(1,399	)		(599	)		(3,940	)		(3,182	)
Insurance and investment sales commissions		1,076			1,115			5,021			5,496
Trust income		109			104			415			448
Income from Bank Owned Life Insurance		219			(428	)		557			323
Other non-interest income		(31	)		(310	)		444			(476	)
Total Non-interest Income		5,576			2,764			26,295			19,069
Non-interest Expense:
Compensation and benefits		6,258			6,408			27,759			28,829
Occupancy		1,951			1,922			7,852			7,484
FDIC insurance premium		637			290			3,350			1,082
State franchise tax		326			411			1,994			1,951
Acquisition related charges		—			85			—			1,117
Data processing		1,211			1,274			4,541			4,658
Amortization of intangibles		355			424			1,456			1,459
Other non-interest expense		3,732			2,757			13,433			11,214
Total Non-interest Expense		14,470			13,571			60,385			57,794
Income before income taxes		1,669			1,362			11,500			10,885
Income taxes		49			482			3,241			3,528
Net Income	$	1,620		$	880		$	8,259		$	7,357
Dividends Declared on Preferred Shares		(447	)		(134	)		(1,850	)		(134	)
Accretion on Preferred Shares		(42	)		(11	)		(160	)		(11	)
Net Income Applicable to Common Shares	$	1,131		$	735		$	6,249		$	7,212
Earnings per common share:
Basic	$	0.14		$	0.09		$	0.77		$	0.91
Diluted	$	0.14		$	0.09		$	0.76		$	0.91
Core operating earnings per common share*:
Basic	$	0.14		$	0.10		$	0.77		$	1.01
Diluted	$	0.14		$	0.10		$	0.76		$	1.00
Average Shares Outstanding:
Basic		8,117			8,117			8,117			7,889
Diluted		8,265			8,117			8,196			7,919

* - See Non-GAAP Disclosure Reconciliations

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Financial Summary and Comparison

First Defiance Financial Corp.

	(Unaudited) Three Months Ended December 31,								(Unaudited) Twelve Months Ended December 31,
(dollars in thousands, except per share data)	2009			2008			% change		2009			2008			% change
Summary of Operations
Tax-equivalent interest income (1)		25,434			26,188		(2.9	)		101,727			104,360		(2.5	)
Interest expense		7,614			9,952		(23.5	)		33,257			41,268		(19.4	)
Tax-equivalent net interest income (1)		17,820			16,236		9.8			68,470			63,092		8.5
Provision for loan losses		6,970			3,824		82.3			21,732			12,585		72.7
Tax-equivalent NII after provision for loan loss (1)		10,850			12,412		(12.6	)		46,738			50,507		(7.5	)
Gain on sale or call of securities		5			3		66.7			284			22		1,190.9
Impairment losses on securities		(1,399	)		(599	)	133.6			(3,940	)		(3,160	)	24.7
Non-interest income-excluding securities losses		6,970			3,360		107.4			29,951			22,207		34.9
Non-interest expense		14,470			13,571		6.6			60,385			57,794		4.5
Non-interest expense-excluding non-core charges		14,470			13,486		7.3			60,385			56,677		6.5
Acquisition related charges		—			85		NM			—			1,117		NM
Income taxes		49			482		(89.8	)		3,241			3,528		(8.1	)
Net Income		1,620			880		84.1			8,259			7,357		12.3
Dividends Declared on Preferred Shares		(447	)		(134	)	233.6			(1,850	)		(134	)	1,280.6
Accretion on Preferred Shares		(42	)		(11	)	281.8			(160	)		(11	)	1,354.5
Net Income Applicable to Common Shares		1,131			735		53.9			6,249			7,212		(13.4	)
Core operating earnings (2)		1,620			935		73.3			8,259			8,083		2.2
Tax equivalent adjustment (1)		287			243		18.1			1,148			897		28.0
At Period End
Assets		2,057,364			1,957,400		5.1
Earning assets		1,879,725			1,773,204		6.0
Loans		1,617,122			1,617,235		(0.0	)
Allowance for loan losses		35,047			24,592		42.5
Deposits		1,580,226			1,469,912		7.5
Stockholders’ equity		235,151			229,159		2.6
Average Balances
Assets		2,058,218			1,938,461		6.2			2,025,233			1,852,345		9.3
Earning assets		1,852,418			1,730,284		7.1			1,822,277			1,655,725		10.1
Deposits and interest-bearing liabilities		1,805,090			1,718,315		5.1			1,774,772			1,638,426		8.3
Loans		1,600,281			1,591,144		0.6			1,600,729			1,511,877		5.9
Deposits		1,572,399			1,466,366		7.2			1,547,339			1,390,815		11.3
Stockholders’ equity		235,164			201,499		16.7			232,722			190,872		21.9
Stockholders’ equity / assets		11.43	%		10.39	%	10.0			11.49	%		10.30	%	11.6
Per Common Share Data
Net Income
Basic	$	0.14		$	0.09		55.6		$	0.77		$	0.91		(15.4	)
Diluted		0.14			0.09		55.6			0.76			0.91		(16.5	)
Core operating earnings (2)
Basic	$	0.14		$	0.10		43.2		$	0.77		$	1.01		(23.5	)
Diluted		0.14			0.10		40.6			0.76			1.00		(23.9	)
Dividends		—			0.17		NM			0.295			0.95		(68.9	)
Market Value:
High	$	18.93		$	14.50		30.6		$	18.93		$	22.51		(15.9	)
Low		10.06			6.00		67.7			3.76			6.00		(37.3	)
Close		11.29			7.73		46.1			11.29			7.73		46.1
Book Value		24.39			23.67		3.0			24.39			23.67		3.0
Tangible Book Value		16.57			15.67		5.7			16.57			15.67		5.7
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)		3.82	%		3.72	%	2.7			3.76	%		3.80	%	(1.3	)
Return on average assets -GAAP		0.31	%		0.18	%	72.9			0.41	%		0.40	%	2.7
Return on average assets -Core Operating		0.31	%		0.19	%	62.7			0.41	%		0.44	%	(6.5	)
Return on average equity- GAAP		2.73	%		1.74	%	57.3			3.55	%		3.85	%	(7.9	)
Return on average equity- Core Operating		2.73	%		1.85	%	48.1			3.55	%		4.23	%	(16.2	)
Efficiency ratio (3) -GAAP		58.37	%		69.25	%	(15.7	)		61.35	%		67.75	%	(9.4	)
Efficiency ratio (3) -Core Operating		58.37	%		68.82	%	(15.2	)		61.35	%		66.45	%	(7.7	)
Effective tax rate		2.94	%		35.39	%	(91.7	)		28.18	%		32.41	%	(13.0	)
Dividend payout ratio (basic)		0.00	%		188.89	%	NM			38.31	%		104.40	%	(63.3	)

(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 December 31,					Twelve Months Ended December 31,
(dollars in thousands, except per share data)	2009		2008			2009		2008
Net Income	$	1,620	$	880		$	8,259	$	7,357
Acquisition related charges		—		85			—		1,117
Tax effect		—		(30	)		—		(391	)
After-tax non-operating items		—		55			—		726
Core operating earnings	$	1,620	$	935		$	8,259	$	8,083

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:

	Three months ended December 31,						Twelve Months Ended December 31,
(dollars in thousands)	2009			2008			2009			2008
Gain from sale of mortgage loans	$	1,468		$	1,587		$	8,744		$	4,395
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		751			698		$	2,860			2,537
Amortization of mortgage servicing rights		(546	)		(258	)	$	(3,171	)		(1,266	)
Mortgage servicing rights valuation adjustments		397			(2,663	)	$	1,314			(2,676	)
		602			(2,223	)		1,003			(1,405	)
Total revenue from sale and servicing of mortgage loans	$	2,070		$	(636	)	$	9,747		$	2,990

10

Yield Analysis

First Defiance Financial Corp.

	Three Months Ended December 31,
	2009						2008
	Average Balance		Interest(1)		Yield Rate(2)		Average Balance		Interest(1)		Yield Rate(2)
Interest-earning assets:
Loans receivable	$	1,600,281	$	23,517	5.83	%	$	1,591,144	$	24,329	6.08	%
Securities		134,576		1,628	4.82	%		115,165		1,590	5.20	%
Interest Bearing Deposits		96,185		60	0.25	%		2,599		4	0.61	%
FHLB stock		21,376		229	4.25	%		21,376		265	4.93	%
Total interest-earning assets		1,852,418		25,434	5.45	%		1,730,284		26,188	6.00	%
Non-interest-earning assets		205,800						208,177
Total assets	$	2,058,218					$	1,938,461
Deposits and Interest-bearing liabilities:
Interest bearing deposits	$	1,383,370	$	5,896	1.69	%	$	1,293,560	$	7,503	2.31	%
FHLB advances and other		146,930		1,249	3.37	%		155,954		1,572	4.01	%
Other Borrowings		49,649		137	1.09	%		59,760		415	2.76	%
Subordinated debentures		36,112		332	3.65	%		36,235		462	5.07	%
Total interest-bearing liabilities		1,616,061		7,614	1.87	%		1,545,509		9,952	2.56	%
Non-interest bearing deposits		189,029		—	—			172,806		—	—
Total including non-interest-bearing demand deposits		1,805,090		7,614	1.67	%		1,718,315		9,952	2.30	%
Other non-interest-bearing liabilities		17,964						18,647
Total liabilities		1,823,054						1,736,962
Stockholders’ equity		235,164						201,499
Total liabilities and stockholders’ equity	$	2,058,218					$	1,938,461
Net interest income; interest rate spread			$	17,820	3.58	%			$	16,236	3.44	%
Net interest margin (3)					3.82	%					3.72	%
Average interest-earning assets to average interest bearing liabilities					115	%					112	%
	Twelve Months Ended December 31,
	2009						2008
	Average Balance		Interest(1)		Yield Rate(2)		Average Balance		Interest(1)		Yield Rate(2)
Interest-earning assets:
Loans receivable	$	1,600,729	$	93,850	5.86	%	$	1,511,877	$	96,627	6.39	%
Securities		128,806		6,773	5.23	%		117,972		6,548	5.43	%
Interest Bearing Deposits		71,366		149	0.21	%		5,383		123	2.28	%
FHLB stock		21,376		955	4.47	%		20,493		1,062	5.18	%
Total interest-earning assets		1,822,277		101,727	5.58	%		1,655,725		104,360	6.30	%
Non-interest-earning assets		202,956						196,620
Total assets	$	2,025,233					$	1,852,345
Deposits and Interest-bearing liabilities:
Interest bearing deposits	$	1,370,826	$	26,102	1.90	%	$	1,231,363	$	31,354	2.55	%
FHLB advances and other		146,978		5,114	3.48	%		160,407		6,375	3.97	%
Other Borrowings		44,247		570	1.29	%		50,962		1,632	3.20	%
Subordinated debentures		36,208		1,471	4.06	%		36,242		1,907	5.26	%
Total interest-bearing liabilities		1,598,259		33,257	2.08	%		1,478,974		41,268	2.79	%
Non-interest bearing deposits		176,513		—	—			159,452		—	—
Total including non-interest-bearing demand deposits		1,774,772		33,257	1.87	%		1,638,426		41,268	2.52	%
Other non-interest-bearing liabilities		17,739						23,047
Total liabilities		1,792,511						1,661,473
Stockholders’ equity		232,722						190,872
Total liabilities and stockholders’ equity	$	2,025,233					$	1,852,345
Net interest income; interest rate spread			$	68,470	3.50	%			$	63,092	3.51	%
Net interest margin (3)					3.76	%					3.80	%
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)	4th Qtr 2009			3rd Qtr 2009			2nd Qtr 2009			1st Qtr 2009			4th Qtr 2008
Summary of Operations
Tax-equivalent interest income (1)	$	25,434		$	25,796		$	25,117		$	25,379		$	26,188
Interest expense		7,614			7,914			8,643			9,085			9,952
Tax-equivalent net interest income (1)		17,820			17,882			16,474			16,294			16,236
Provision for loan losses		6,970			8,051			3,965			2,746			3,824
Tax-equivalent NII after provision for loan losses (1)		10,850			9,831			12,509			13,548			12,412
Investment securities gains (losses), including impairment		(1,394	)		(840	)		(750	)		(672	)		(596	)
Non-interest income (excluding securities gains/losses)		6,970			6,396			9,109			7,476			3,360
Non-interest expense		14,470			14,786			16,133			14,996			13,571
Acquisition related charges		—			—			—			—			85
Income taxes		49			(37	)		1,539			1,691			482
Net income		1,620			329			2,901			3,408			880
Dividends Declared on Preferred Shares		(447	)		(473	)		(468	)		(463	)		(134	)
Accretion on Preferred Shares		(42	)		(40	)		(40	)		(38	)		(11	)
Net Income Applicable to Common Shares		1,131			(184	)		2,393			2,907			735
Core operating earnings (2)		1,620			329			2,901			3,408			935
Tax equivalent adjustment (1)		287			309			295			257			243
At Period End
Total assets	$	2,057,364		$	2,018,598		$	2,023,563		$	2,010,662		$	1,957,400
Earning assets		1,879,725			1,845,134			1,846,689			1,838,397			1,773,204
Loans		1,617,122			1,623,627			1,610,460			1,585,897			1,617,235
Allowance for loan losses		35,047			31,248			25,840			25,694			24,592
Deposits		1,580,226			1,543,085			1,553,144			1,540,235			1,469,912
Stockholders’ equity		235,151			234,529			232,683			230,608			229,159
Stockholders’ equity / assets		11.43	%		11.62	%		11.50	%		11.47	%		11.71	%
Goodwill		56,585			56,585			56,585			56,585			56,585
Average Balances
Total assets	$	2,058,218		$	2,029,970		$	2,027,760		$	1,984,985		$	1,938,461
Earning assets		1,852,418			1,826,400			1,828,272			1,782,019			1,730,284
Deposits and interest-bearing liabilities		1,805,090			1,778,223			1,778,848			1,736,933			1,718,315
Loans		1,600,281			1,613,529			1,592,513			1,596,592			1,591,144
Deposits		1,572,399			1,550,369			1,552,533			1,514,059			1,466,366
Stockholders’ equity		235,164			234,241			231,397			230,099			201,499
Stockholders’ equity / assets		11.43	%		11.54	%		11.41	%		11.59	%		10.39	%
Per Common Share Data
Net Income:
Basic	$	0.14		$	(0.02	)	$	0.29		$	0.36		$	0.09
Diluted		0.14			(0.02	)		0.29			0.36			0.09
Core operating earnings (2)
Basic		0.14			(0.02	)		0.29			0.36			0.10
Diluted		0.14			(0.02	)		0.29			0.36			0.10
Dividends		0.00			0.04			0.085			0.17			0.17
Market Value:
High	$	18.93		$	18.33		$	14.25		$	8.95		$	14.50
Low		10.06			12.00			6.10			3.76			6.00
Close		11.29			14.91			13.00			6.08			7.73
Book Value		24.39			24.32			24.10			23.85			23.67
Shares outstanding, end of period (in thousands)		8,118			8,118			8,118			8,117			8,117
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)		3.82	%		3.88	%		3.61	%		3.71	%		3.72	%
Return on average assets -GAAP		0.31	%		0.06	%		0.57	%		0.70	%		0.18	%
Return on average assets -Core Operating		0.31	%		0.06	%		0.57	%		0.70	%		0.19	%
Return on average equity- GAAP		2.73	%		0.56	%		5.03	%		6.02	%		1.74	%
Return on average equity- Core Operating		2.73	%		0.56	%		5.03	%		6.02	%		1.85	%
Efficiency ratio (3) -GAAP		58.37	%		60.90	%		63.06	%		63.09	%		69.25	%
Efficiency ratio (3) -Core Operating		58.37	%		60.90	%		63.06	%		63.09	%		68.82	%
Effective tax rate		2.94	%		-12.67	%		34.66	%		33.16	%		35.39	%
Common dividend payout ratio (basic)		0.00	%		-200.00	%		29.31	%		47.22	%		188.89	%

(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 or losses, net.

12

Selected Quarterly Information

First Defiance Financial Corp.

(dollars in thousands, except per share data)	4th Qtr 2009			3rd Qtr 2009			2nd Qtr 2009			1st Qtr 2009			4th Qtr 2008
Loan Portfolio Composition
One to four family residential real estate	$	227,592		$	233,958		$	238,000		$	241,119		$	251,807
Construction		48,626			53,605			44,670			50,534			72,938
Commercial real estate		806,889			802,434			768,636			764,841			755,740
Commercial		379,408			371,881			382,434			350,070			356,574
Consumer finance		34,105			36,416			38,074			38,676			41,012
Home equity and improvement		147,977			150,379			151,213			156,668			161,106
Total loans		1,644,597			1,648,673			1,623,027			1,601,908			1,639,177
Less:
Loans in process		26,494			23,957			11,602			14,954			20,892
Deferred loan origination fees		981			1,089			965			1,057			1,050
Allowance for loan loss		35,047			31,248			25,840			25,694			24,592
Net Loans	$	1,582,075		$	1,592,379		$	1,584,620		$	1,560,203		$	1,592,643
Allowance for loan loss activity
Beginning allowance		31,248			25,840			25,694			24,592		$	23,445
Provision for loan losses		6,970			8,051			3,965			2,746			3,824
Credit loss charge-offs:
One to four family residential real estate		884			744			505			148			369
Commercial real estate		1,912			1,152			2,066			669			1,480
Commercial		354			658			950			702			593
Consumer finance		75			39			83			123			224
Home equity and improvement		134			196			301			130			57
Total charge-offs		3,359			2,789			3,905			1,772			2,723
Total recoveries		188			146			86			128			46
Net charge-offs (recoveries)		3,171			2,643			3,819			1,644			2,677
Ending allowance	$	35,047		$	31,248		$	25,840		$	25,694		$	24,592
Credit Quality
Non-accrual loans	$	41,191		$	35,490		$	35,528		$	29,473		$	28,017
Restructured loans, accruing		6,715			4,574			4,845			7,199			6,250
Total non-performing loans (1)		47,906			40,064			40,373			36,672			34,267
Real estate owned (REO)		13,527			9,352			8,567			7,839			7,000
Total non-performing assets (2)	$	61,433		$	49,416		$	48,940		$	44,511		$	41,267
Net charge-offs		3,171			2,643			3,819			1,644			2,677
Allowance for loan losses / loans		2.17	%		1.92	%		1.60	%		1.62	%		1.52	%
Allowance for loan losses / non-performing assets		57.05	%		63.23	%		52.80	%		57.73	%		59.59	%
Allowance for loan losses / non-performing loans		73.16	%		78.00	%		64.00	%		70.06	%		71.77	%
Non-performing assets / loans plus REO		3.77	%		3.03	%		3.02	%		2.79	%		2.54	%
Non-performing assets / total assets		2.99	%		2.45	%		2.42	%		2.21	%		2.11	%
Net charge-offs / average loans (annualized)		0.79	%		0.66	%		0.96	%		0.41	%		0.67	%
Deposit Balances
Non-interest-bearing demand deposits	$	189,132		$	174,145		$	180,035		$	163,855		$	176,063
Interest-bearing demand deposits and money market		499,575			477,566			456,177			413,104			374,488
Savings deposits		130,156			132,333			135,821			132,590			132,145
Retail time deposits less than $100,000		550,172			544,957			568,595			608,811			578,245
Retail time deposits greater than $100,000		163,838			166,787			165,401			171,588			170,485
National/Brokered time deposits		47,353			47,297			47,115			50,287			38,486
Total deposits	$	1,580,226		$	1,543,085		$	1,553,144		$	1,540,235		$	1,469,912

(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
December 31, 2009
One to four family residential real estate	$	227,592	$	215,211	$	4,331	$	5,349	$	2,701
Construction		48,626		47,951		—		675		—
Commercial real estate		806,889		775,603		3,280		24,042		3,964
Commercial		379,408		367,592		1,151		10,615		50
Consumer finance		34,105		33,669		377		59		—
Home equity and improvement		147,977		145,481		2,045		451		—
Total loans	$	1,644,597	$	1,585,507	$	11,184	$	41,191	$	6,715
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
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

14