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): July 19, 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 July 19, 2010, First Defiance Financial Corp. (“FDEF”) issued a press release regarding its earnings for the quarter ended June 30, 2010.

Section 9 – Financial Statements and Exhibits.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99	Press Release dated July 19, 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: July 19, 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 2010

SECOND QUARTER EARNINGS

• Net Income of $2.1 million for 2010 second quarter

• Provision for Loan Losses of $5.4 million reflects continued challenging credit environment

• Charge of $571,000 on previously recorded MSR assets

• Other-Than-Temporary Impairment of $71,000 recognized on certain investment securities

• Net Interest Income increased by $1.4 million or 8.5% over 2009 second quarter

• Net Interest Margin of 3.89% up from 2009 second quarter

DEFIANCE, OHIO (July 19, 2010) – First Defiance Financial Corp. (NASDAQ: FDEF) today announced that net income for its quarter ended June 30, 2010 totaled $2.1 million, or $0.19 per diluted common share, compared to $2.9 million or $0.29 per diluted common share for the quarter ended June 30, 2009. The 2010 results included $37,000 of acquisition-related charges associated with the company’s May, 2010 purchase of the group benefits business line from Andres O’Neil & Lowe Insurance Agency.

For the six month period ended June 30, 2010, First Defiance earned $3.6 million or $0.31 per diluted common share compared to $6.3 million or $0.65 per diluted common share for the six month period ended June 30, 2009. Excluding the after-tax cost of the $24,000 acquisition-related charges in 2010, First Defiance earned $3.6 million, or $0.32 per diluted common share for the first half of 2010.

“We are encouraged by our overall second quarter results,” said William J. Small, Chairman, President and Chief Executive Officer of First Defiance Financial Corp. “Credit quality once again had a major impact on our second quarter earnings with a higher provision for loan losses, but we are seeing some positive movement toward improving credit quality over the last several quarters. We are also pleased with the improvement in the net interest margin this quarter despite the low interest rate environment. We do foresee a continuation of a difficult economic environment throughout 2010.”

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Credit Quality

The second quarter 2010 results include expense for provision for loan losses of $5.4 million, compared with $4.0 million in the same period in 2009 and $6.9 million in the first quarter of 2010.

Non-performing loans totaled $40.7 million at June 30, 2010, a slight increase from $40.4 million at June 30, 2009. The June 30, 2010 balance included $31.8 million of loans that are 90 days past due and or are on non-accrual status and another $8.9 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 $12.7 million of Real Estate Owned at June 30, 2010, up from $8.6 million at June 30, 2009. For the second quarter of 2010, First Defiance recorded net charge-offs of $5.6 million, which represented 1.44% of average loans outstanding (annualized) for the quarter.

“First Federal Bank has a history of excellent asset quality and we are working diligently to get back to levels in line with our long term goals. The higher level of charge-offs this quarter was not unexpected, and was accounted for in our provision for loan losses in the quarter as more loans move through the credit cycle. We continue to closely monitor the portfolio and the economic environment in our markets and are encouraged by our recent credit metric trends,” Small said.

Net Interest Margin

Net interest income increased to $17.6 million for the second quarter of 2010, a $1.4 million or 8.5% increase over the second quarter of 2009. Net interest margin was 3.89% for the 2010 second quarter compared to 3.61% in the second quarter of 2009 and 3.85% in the first quarter of 2010. Yield on interest earning assets declined by 14 basis points, to 5.36% from 5.50% in the 2009 second quarter while the cost of interest-bearing liabilities and non-interest-bearing demand deposits decreased by 44 basis points to 1.51% from 1.95%.

“We are pleased with the improvement in the net interest margin although the challenges to net interest margin are far from over,” said Small. “It’s a low rate environment, which requires that we focus on a disciplined pricing strategy to strengthen net interest margin for the remainder of the year.”

Investment Portfolio

The Other-Than-Temporary Impairment (OTTI) charge recognized by First Defiance in the second quarter of 2010 totaled $71,000 compared with $875,000 in the second quarter of 2009. The 2010 second quarter OTTI charge related to two Trust Preferred Collateralized Debt Obligations (CDOs) with a remaining book value of $1.6 million.

First Defiance also has other Trust Preferred CDO investments with a total book value of $2.2 million and fair value of $1.1 million at June 30, 2010. Two of these investments with a book value of $2.0 million and a fair value of $1.0 million continue to pay principal and interest in accordance with the contractual terms of the securities. The decline in value of those investments is primarily due to the overall lack of liquidity in the CDO market. Management has not deemed the impairment in value of these CDO investments to be Other-Than-Temporary,

2

and, therefore, has not recognized the reduction in value of those investments in earnings. The remaining investment with a book value of $197,000 and a fair value of $91,000 has been written down with OTTI charges in prior periods, but the second quarter of 2010 analysis did not result in additional OTTI for this investment.

Non-Interest Income

Non-interest income for the 2010 second quarter decreased to $5.8 million from $8.4 million in the second quarter of 2009. Most of the decrease was in mortgage banking income, which declined to $1.0 million in the 2010 second quarter from $4.0 million for the same period in 2009. Gains from the sale of mortgage loans declined $1.7 million in the second quarter of 2010 to $1.2 million from $2.9 million in the second quarter of 2009. Mortgage loan servicing revenue increased to $754,000 in the second quarter of 2010 from $695,000 in the 2009 second quarter. The charges for the amortization of servicing rights decreased to $410,000 in the second quarter of 2010 from $1.2 million in the second quarter of 2009.

First Defiance recorded a negative valuation allowance adjustment of $571,000 on mortgage servicing rights (MSR) valuation adjustment in the second quarter of 2010 compared with a positive adjustment of $1.5 million in the second quarter of 2009. The MSR valuation adjustment is a reflection of the change in the fair value of certain sectors of the Company’s portfolio of mortgage servicing rights.

Loss on investment securities for the second quarter of 2010 was $71,000, all of which related to OTTI charges. In the second quarter of 2009, loss on investment securities was $750,000 which included OTTI charges of $875,000 and gain on the sale of securities of $125,000.

“Mortgage banking activity in the second quarter declined dramatically from the record highs set in 2009,” commented Small. “In 2009, we broke records that were in place from the refinancing boom of 2002 through 2004. In the second quarter of 2010 we generated $67.0 million in loans compared with $198.2 million in loans in the second quarter of 2009. Due to the lower rate environment, we recorded impairment on our previously recorded servicing rights.”

Non-Interest Expenses

Total non-interest expense decreased to $15.0 million, including $37,000 of acquisition charges, for the quarter ended June 30, 2010, a decrease from the $16.1 million of non-interest expense recognized in the 2009 second quarter. FDIC insurance expense decreased to $929,000 in the second quarter of 2010 from $1.5 million in the same period of 2009. The second quarter of 2009 included a special assessment of $904,000.

Compensation and benefits decreased to $6.6 million from $7.6 million in the second quarter of 2009. Other non-interest expense increased to $3.8 million in the second quarter of 2010 from $3.0 million in the second quarter of 2009. The period over period compensation and benefit expense reduction was offset partially by credit, collection and OREO-related costs, which increased $265,000 over the second quarter of 2009, and $346,000 of charges incurred this quarter related to the core system conversion scheduled for the fourth quarter of 2010.

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Year-To-Date Results

For the six month period ended June 30, 2010, net interest income totaled $34.6 million, compared with $32.2 million in the first six months of 2009. Average interest-earning assets increased to $1.84 billion for the first half of 2010 compared to $1.80 billion for the first half of 2009. Net interest margin for the first six months of 2010 was 3.87%, up 21 basis points from the 3.66% margin reported in the six month period ended June 30, 2009.

The provision for loan losses for the first half of 2010 was $12.3 million, compared to $6.7 million recorded during the first six months of 2009.

Non-interest income for the first half of 2010 was $12.6 million compared to $15.2 million during the same period of 2009. Most of the non-interest income decrease was in mortgage banking, which decreased 58% to $2.8 million for the first six months of 2010 compared to $6.7 million in the first six months of 2009. Service fees and other charges were $6.6 million for the first half of 2010, compared to $6.4 million during the first half of 2009. The 2010 first half non-interest income was reduced by $141,000 of OTTI charges recognized for impaired investment securities compared with $1.5 million in the first half of 2009.

Non-interest expense decreased to $29.9 million for the first six months of 2010 from $31.1 million in 2009. Occupancy costs were $3.5 million in the first half of 2010 compared with $4.0 million in the first half of 2009. Credit, collection and OREO-related costs have increased $699,000 in the first six months of 2010 over the first six months of 2009. Year to date 2010 non-interest expense included the $37,000 of charges associated with the acquisition of a group medical benefits book of business and $417,000 related to the core system conversion that will take place later this year.

“These continue to be very challenging times in banking,” said Small. “We are confident in our ability to meet the challenges, and we are keeping a watchful eye on the federal government initiatives that are coming down the road. Regulation changes, stimulus package ramifications and special assessments by the FDIC will certainly have an impact on our operations in the future.”

Total Assets at $2.04 Billion

Total assets at June 30, 2010 were $2.04 billion, compared to $2.02 billion at June 30, 2009. Net loans receivable (excluding loans held for sale) were $1.53 billion at June 30, 2010 compared to $1.58 billion at June 30, 2009. Total cash and cash equivalents were $122.1 million at June 30, 2010 compared with $88.8 million at June 30, 2009, an increase of $33.3 million. Total deposits at June 30, 2010 were $1.58 billion compared to $1.55 billion at June 30, 2009, an increase of $27.4 million. Non-interest bearing deposits at June 30, 2010 were $190.1 million compared to $180.0 million at June 30, 2009. Total stockholders’ equity was $238.4 million at June 30, 2010 compared to $232.7 million at June 30, 2009. Also at June 30, 2010, goodwill and other intangible assets totaled $64.4 million compared to $64.2 million at June 30, 2009.

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Conference Call

First Defiance Financial Corp. will host a conference call at 11 a.m. EDT on Tuesday, July 20, 2010, to discuss the company’s strategy and the second quarter results. The conference call may be accessed by calling 1-800-860-2442.

Internet access to the call is also available (in listen-only mode) at the following URL: http://www.talkpoint.com/viewer/starthere.asp?Pres=130999

The audio replay of the conference call Webcast will be available at www.fdef.com until Tuesday, August 3, 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 33 full service branches and 45 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, Bryan, Archbold 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, 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.

5

Consolidated Balance Sheets

First Defiance Financial Corp.

(in thousands)	(Unaudited) June 30, 2010			December 31, 2009			June 30, 2009
Assets
Cash and cash equivalents
Cash and amounts due from depository institutions	$	33,528		$	29,613		$	31,606
Interest-bearing deposits		88,544			91,503			57,178
		122,072			121,116			88,784
Securities
Available-for sale, carried at fair value		159,131			137,458			133,009
Held-to-maturity, carried at amortized cost		1,836			1,920			831
		160,967			139,378			133,840
Loans		1,571,413			1,617,122			1,610,460
Allowance for loan losses		(38,852	)		(36,547	)		(25,840	)
Loans, net		1,532,561			1,580,575			1,584,620
Loans held for sale		16,000			10,346			23,835
Mortgage servicing rights		8,720			8,958			8,919
Accrued interest receivable		6,973			6,851			7,023
Federal Home Loan Bank stock		21,376			21,376			21,376
Bank Owned Life Insurance		30,767			30,804			28,884
Office properties and equipment		42,378			43,597			46,835
Real estate and other assets held for sale		12,735			13,527			8,567
Goodwill		57,556			56,585			56,585
Core deposit and other intangibles		6,841			6,888			7,598
Deferred taxes		3,495			3,289			52
Other assets		16,215			14,233			6,645
Total Assets	$	2,038,656		$	2,057,523		$	2,023,563
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits	$	190,140		$	189,132		$	180,035
Interest-bearing deposits		1,390,380			1,391,094			1,373,109
Total deposits		1,580,520			1,580,226			1,553,144
Advances from Federal Home Loan Bank		126,906			146,927			146,947
Notes payable and other interest-bearing liabilities		44,702			48,398			40,284
Subordinated debentures		36,083			36,083			36,083
Advance payments by borrowers for tax and insurance		379			665			389
Other liabilities		11,628			11,138			14,033
Total liabilities		1,800,218			1,823,437			1,790,880
Stockholders’ Equity
Preferred stock- including warrants and amortization of discount on preferred shares		37,000			37,000			37,000
Preferred stock discount		(625	)		(707	)		(789	)
Common stock, net		127			127			127
Common stock warrant		878			878			878
Additional paid-in-capital		140,767			140,677			140,567
Accumulated other comprehensive loss		1,460			(158	)		(1,813	)
Retained earnings		131,459			128,900			129,344
Treasury stock, at cost		(72,628	)		(72,631	)		(72,631	)
Total stockholders’ equity		238,438			234,086			232,683
Total liabilities and stockholders’ equity	$	2,038,656		$	2,057,523		$	2,023,563
		—			—			—

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Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2010			2009			2010			2009
Interest Income:
Loans	$	22,477		$	23,086		$	44,874		$	46,463
Investment securities		1,569			1,474			3,021			2,966
Interest-bearing deposits		69			33			130			47
FHLB stock dividends		234			229			453			468
Total interest income		24,349			24,822			48,478			49,944
Interest Expense:
Deposits		5,126			6,859			10,524			14,042
FHLB advances and other		1,220			1,279			2,438			2,598
Subordinated debentures		327			369			650			795
Notes Payable		115			136			220			293
Total interest expense		6,788			8,643			13,832			17,728
Net interest income		17,561			16,179			34,646			32,216
Provision for loan losses		5,440			3,965			12,329			6,711
Net interest income after provision for loan losses		12,121			12,214			22,317			25,505
Non-interest Income:
Service fees and other charges		3,397			3,326			6,555			6,412
Mortgage banking income		985			3,983			2,792			6,697
Gain on sale of non-mortgage loans		50			45			87			100
Gain on securities		—			125			6			125
Impairment on securities		(71	)		(875	)		(141	)		(1,547	)
Insurance and investment sales commissions		1,309			1,293			2,417			2,816
Trust income		132			103			254			205
Income from Bank Owned Life Insurance		212			78			691			137
Other non-interest income		(223	)		281			(103	)		218
Total Non-interest Income		5,791			8,359			12,558			15,163
Non-interest Expense:
Compensation and benefits		6,589			7,585			13,047			14,950
Occupancy		1,701			1,924			3,529			4,041
FDIC insurance premium		929			1,497			1,975			2,064
State franchise tax		516			596			1,079			1,097
Data processing		1,174			1,176			2,370			2,230
Amortization of intangibles		345			355			782			746
One time acquisition related charges		37			—			37			—
Other non-interest expense		3,754			3,000			7,058			6,001
Total Non-interest Expense		15,045			16,133			29,877			31,129
Income before income taxes		2,867			4,440			4,998			9,539
Income taxes		808			1,539			1,432			3,230
Net Income	$	2,059		$	2,901		$	3,566		$	6,309
Dividends Accrued on Preferred Shares		(462	)		(468	)		(925	)		(930	)
Accretion on Preferred Shares		(42	)		(40	)		(82	)		(78	)
Net Income Applicable to Common Shares	$	1,555		$	2,393		$	2,559		$	5,301
Earnings per common share:
Basic	$	0.19		$	0.29		$	0.32		$	0.65
Diluted	$	0.19		$	0.29		$	0.31		$	0.65
Core operating earnings per common share*:
Basic	$	0.19		$	0.29		$	0.32		$	0.65
Diluted	$	0.19		$	0.29		$	0.32		$	0.65
Average Shares Outstanding:
Basic		8,118			8,117			8,118			8,117
Diluted		8,193			8,182			8,169			8,117

* - See Non-GAAP Disclosure Reconciliations

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Financial Summary and Comparison

First Defiance Financial Corp.

	(Unaudited) Three Months Ended June 30,								(Unaudited) Six Months Ended June 30,
(dollars in thousands, except per share data)	2010			2009			% change		2010			2009			% change
Summary of Operations
Tax-equivalent interest income (1)	$	24,655		$	25,117		(1.8	)	$	49,082		$	50,496		(2.8	)
Interest expense		6,788			8,643		(21.5	)		13,832			17,728		(22.0	)
Tax-equivalent net interest income (1)		17,867			16,474		8.5			35,250			32,768		7.6
Provision for loan losses		5,440			3,965		37.2			12,329			6,711		83.7
Tax-equivalent NII after provision for loan loss (1)		12,427			12,509		(0.7	)		22,921			26,057		(12.0	)
Investment securities gains (losses)		(71	)		(750	)	(90.5	)		(135	)		(1,422	)	(90.5	)
Non-interest income (excluding securities gains/losses)		5,862			9,109		(35.6	)		12,693			16,585		(23.5	)
Non-interest expense		15,045			16,133		(6.7	)		29,877			31,129		(4.0	)
Income taxes		808			1,539		(47.5	)		1,432			3,230		(55.7	)
Net Income		2,059			2,901		(29.0	)		3,566			6,309		(43.5	)
Dividends Declared on Preferred Shares		(462	)		(468	)	(1.3	)		(925	)		(930	)	(0.5	)
Accretion on Preferred Shares		(42	)		(40	)	5.0			(82	)		(78	)	5.1
Net Income Applicable to Common Shares		1,555			2,393		(35.0	)		2,559			5,301		(51.7	)
Tax equivalent adjustment (1)		306			295		3.7			604			552		9.4
At Period End
Assets		2,038,656			2,023,563		0.7
Earning assets		1,858,300			1,846,689		0.6
Loans		1,571,413			1,610,460		(2.4	)
Allowance for loan losses		38,852			25,840		50.4
Deposits		1,580,520			1,553,144		1.8
Stockholders’ equity		238,438			232,683		2.5
Average Balances
Assets		2,060,925			2,027,760		1.6			2,054,716			2,006,373		2.4
Earning assets		1,845,306			1,828,272		0.9			1,838,587			1,805,144		1.9
Deposits and interest-bearing liabilities		1,808,944			1,778,848		1.7			1,803,674			1,757,890		2.6
Loans		1,551,396			1,592,513		(2.6	)		1,555,901			1,594,553		(2.4	)
Deposits		1,597,820			1,552,533		2.9			1,586,979			1,533,295		3.5
Stockholders’ equity		237,076			231,397		2.5			236,283			230,748		2.4
Stockholders’ equity / assets		11.50	%		11.41	%	0.8			11.50	%		11.50	%	(0.0	)
Per Common Share Data
Net Income
Basic	$	0.19		$	0.29		(34.5	)	$	0.32		$	0.65		(50.8	)
Diluted		0.19			0.29		(34.5	)		0.31			0.65		(52.3	)
Dividends		—			0.085		(100.0	)		—			0.255		(100.0	)
Market Value:
High	$	14.85		$	14.25		4.2		$	14.85		$	14.25		4.2
Low		8.53			6.10		39.8			8.53			3.76		126.9
Close		8.94			13.00		(31.2	)		8.94			13.00		(31.2	)
Book Value		24.78			24.10		2.8			24.78			24.10		2.8
Tangible Book Value		16.85			16.19		4.1			16.85			16.19		4.1
Shares outstanding, end of period (000)		8,118			8,118		—			8,118			8,118		—
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)		3.89	%		3.61	%	7.7			3.87	%		3.66	%	5.8
Return on average assets -GAAP		0.40	%		0.57	%	(30.2	)		0.35	%		0.63	%	(44.8	)
Return on average equity- GAAP		3.48	%		5.03	%	(30.7	)		3.04	%		5.51	%	(44.8	)
Efficiency ratio (2) -GAAP		63.40	%		63.06	%	0.5			62.32	%		63.07	%	(1.2	)
Effective tax rate		28.18	%		34.66	%	(18.7	)		28.65	%		33.86	%	(15.4	)
Dividend payout ratio (basic)		0.00	%		29.31	%	(100.0	)		0.00	%		39.23	%	(100.0	)

(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) 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

8

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 June 30,					Six Months Ended June 30,
(dollars in thousands, except per share data)	2010			2009		2010			2009
Net Income	$	2,059		$	2,901	$	3,566		$	6,309
Acquisition related charges		37			—		37			—
Tax effect		(13	)		—		(13	)		—
After-tax non-operating items		24			—		24			—
Core operating earnings	$	2,083		$	2,901	$	3,590		$	6,309

Acquisition related charges in 2010 reflect charges associated with the purchase of the group benefits business from Andres, O’Neil & Lowe.

Income from Mortgage Banking

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

	Three months ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2010			2009			2010			2009
Gain from sale of mortgage loans	$	1,212		$	2,922		$	2,376		$	5,735
Mortgage loan servicing revenue (expense):
Mortgage loan servicing revenue		754			695			1,502			1,384
Amortization of mortgage servicing rights		(410	)		(1,154	)		(836	)		(2,111	)
Mortgage servicing rights valuation adjustments		(571	)		1,520			(250	)		1,689
		(227	)		1,061			416			962
Total revenue from sale and servicing of mortgage loans	$	985		$	3,983		$	2,792		$	6,697

9

Yield Analysis

First Defiance Financial Corp.

	Three Months Ended June 30,
	(dollars in thousands)
	2010						2009
	Average Balance		Interest(1)		Yield Rate(2)		Average Balance		Interest(1)		Yield Rate(2)
Interest-earning assets:
Loans receivable	$	1,551,396	$	22,514	5.82	%	$	1,592,513	$	23,116	5.82	%
Securities		156,263		1,838	4.78	%		130,663		1,739	5.26	%
Interest Bearing Deposits		116,271		69	0.24	%		83,720		33	0.16	%
FHLB stock		21,376		234	4.39	%		21,376		229	4.30	%
Total interest-earning assets		1,845,306		24,655	5.36	%		1,828,272		25,117	5.50	%
Non-interest-earning assets		215,619						199,488
Total assets	$	2,060,925					$	2,027,760
Deposits and Interest-bearing liabilities:
Interest bearing deposits	$	1,404,202	$	5,126	1.46	%	$	1,377,317	$	6,859	2.00	%
FHLB advances and other		126,910		1,220	3.86	%		146,951		1,279	3.49	%
Other Borrowings		47,986		115	0.96	%		43,122		136	1.27	%
Subordinated debentures		36,228		327	3.62	%		36,242		369	4.08	%
Total interest-bearing liabilities		1,615,326		6,788	1.69	%		1,603,632		8,643	2.16	%
Non-interest bearing deposits		193,618		—	—			175,216		—	—
Total including non-interest-bearing demand deposits		1,808,944		6,788	1.51	%		1,778,848		8,643	1.95	%
Other non-interest-bearing liabilities		14,905						17,515
Total liabilities		1,823,849						1,796,363
Stockholders’ equity		237,076						231,397
Total liabilities and stockholders’ equity	$	2,060,925					$	2,027,760
Net interest income; interest rate spread			$	17,867	3.67	%			$	16,474	3.34	%
Net interest margin (3)					3.89	%					3.61	%
Average interest-earning assets to average interest bearing liabilities					114	%					114	%

	Six Months Ended June 30,
	2010						2009
	Average Balance		Interest(1)		Yield Rate(2)		Average Balance		Interest(1)		Yield Rate(2)
Interest-earning assets:
Loans receivable	$	1,555,901	$	44,950	5.83	%	$	1,594,553	$	46,521	5.88	%
Securities		148,955		3,549	4.86	%		124,988		3,460	5.51	%
Interest Bearing Deposits		112,355		130	0.23	%		64,227		47	0.15	%
FHLB stock		21,376		453	4.27	%		21,376		468	4.42	%
Total interest-earning assets		1,838,587		49,082	5.38	%		1,805,144		50,496	5.61	%
Non-interest-earning assets		216,129						201,229
Total assets	$	2,054,716					$	2,006,373
Deposits and Interest-bearing liabilities:
Interest bearing deposits	$	1,398,073	$	10,524	1.52	%	$	1,362,747	$	14,042	2.08	%
FHLB advances and other		134,334		2,438	3.66	%		147,021		2,598	3.56	%
Other Borrowings		46,133		220	0.96	%		41,327		293	1.43	%
Subordinated debentures		36,228		650	3.62	%		36,247		795	4.42	%
Total interest-bearing liabilities		1,614,768		13,832	1.72	%		1,587,342		17,728	2.25	%
Non-interest bearing deposits		188,906		—	—			170,548		—	—
Total including non-interest-bearing demand deposits		1,803,674		13,832	1.55	%		1,757,890		17,728	2.03	%
Other non-interest-bearing liabilities		14,759						17,735
Total liabilities		1,818,433						1,775,625
Stockholders’ equity		236,283						230,748
Total liabilities and stockholders’ equity	$	2,054,716					$	2,006,373
Net interest income; interest rate spread			$	35,250	3.66	%			$	32,768	3.36	%
Net interest margin (3)					3.87	%					3.66	%
Average interest-earning assets to average interest bearing liabilities					114	%					114	%

(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.

10

Selected Quarterly Information

First Defiance Financial Corp.

(dollars in thousands, except per share data)	2nd Qtr 2010			1st Qtr 2010			4th Qtr 2009			3rd Qtr 2009			2nd Qtr 2009
Summary of Operations
Tax-equivalent interest income (1)	$	24,655		$	24,427		$	25,434		$	25,796		$	25,117
Interest expense		6,788			7,044			7,614			7,914			8,643
Tax-equivalent net interest income (1)		17,867			17,383			17,820			17,882			16,474
Provision for loan losses		5,440			6,889			8,470			8,051			3,965
Tax-equivalent NII after provision for loan losses (1)		12,427			10,494			9,350			9,831			12,509
Investment securities gains (losses)		(71	)		(64	)		(1,394	)		(840	)		(750	)
Non-interest income (excluding securities gains/losses)		5,862			6,830			6,970			6,396			9,109
Non-interest expense		15,045			14,832			14,609			14,786			16,133
Income taxes		808			624			(525	)		(37	)		1,539
Net income		2,059			1,506			555			329			2,901
Dividends Declared on Preferred Shares		(462	)		(463	)		(447	)		(473	)		(468	)
Accretion on Preferred Shares		(42	)		(40	)		(41	)		(40	)		(40	)
Net Income Applicable to Common Shares		1,555			1,003			67			(184	)		2,393
Tax equivalent adjustment (1)		306			298			287			309			295
At Period End
Total assets	$	2,038,656		$	2,058,775		$	2,057,523		$	2,018,598		$	2,023,563
Earning assets		1,858,300			1,884,650			1,879,725			1,845,134			1,846,689
Loans		1,571,413			1,576,602			1,617,122			1,623,627			1,610,460
Allowance for loan losses		38,852			38,980			36,547			31,248			25,840
Deposits		1,580,520			1,599,584			1,580,226			1,543,085			1,553,144
Stockholders’ equity		238,438			235,655			234,086			234,529			232,683
Stockholders’ equity / assets		11.70	%		11.45	%		11.38	%		11.62	%		11.50	%
Goodwill		57,556			56,585			56,585			56,585			56,585
Average Balances
Total assets	$	2,060,925		$	2,048,506		$	2,058,219		$	2,029,970		$	2,027,760
Earning assets		1,845,306			1,831,867			1,852,401			1,826,400			1,828,272
Deposits and interest-bearing liabilities		1,808,944			1,798,408			1,805,090			1,778,223			1,778,848
Loans		1,551,396			1,560,405			1,600,265			1,613,529			1,592,513
Deposits		1,597,820			1,576,140			1,572,399			1,550,369			1,552,533
Stockholders’ equity		237,076			235,492			235,152			234,241			231,397
Stockholders’ equity / assets		11.50	%		11.50	%		11.43	%		11.54	%		11.41	%
Per Common Share Data
Net Income:
Basic	$	0.19		$	0.12		$	0.01		$	(0.02	)	$	0.29
Diluted		0.19			0.12			0.01			(0.02	)		0.29
Dividends		—			—			—			0.04			0.09
Market Value:
High	$	14.85		$	12.33		$	18.93		$	18.33		$	14.25
Low		8.53			9.20			10.06			12.00			6.10
Close		8.94			10.12			11.29			14.91			13.00
Book Value		24.78			24.45			24.26			24.32			24.10
Shares outstanding, end of period (in thousands)		8,118			8,117			8,118			8,118			8,118
Performance Ratios (annualized)
Tax-equivalent net interest margin (1)		3.89	%		3.85	%		3.82	%		3.88	%		3.61	%
Return on average assets		0.40	%		0.30	%		0.11	%		0.06	%		0.57	%
Return on average equity		3.48	%		2.59	%		0.94	%		0.56	%		5.03	%
Efficiency ratio (2)		63.40	%		61.26	%		58.93	%		60.90	%		63.06	%
Effective tax rate		28.18	%		29.30	%		-1750.00	%		-12.67	%		34.66	%
Common dividend payout ratio (basic)		0.00	%		0.00	%		0.00	%		-200.00	%		29.31	%

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

11

Selected Quarterly Information

First Defiance Financial Corp.

(dollars in thousands, except per share data)	2nd Qtr 2010			1st Qtr 2010			4th Qtr 2009			3rd Qtr 2009			2nd Qtr 2009
Loan Portfolio Composition
One to four family residential real estate	$	217,603		$	222,099		$	227,592		$	233,958		$	238,000
Construction		43,333			46,369			48,625			53,605			44,670
Commercial real estate		790,521			797,449			806,890			802,434			768,636
Commercial		364,281			352,923			379,408			371,881			382,434
Consumer finance		28,961			31,718			34,105			36,416			38,074
Home equity and improvement		140,969			144,826			147,977			150,379			151,213
Total loans		1,585,668			1,595,384			1,644,597			1,648,673			1,623,027
Less:
Loans in process		13,283			17,794			26,494			23,957			11,602
Deferred loan origination fees		972			988			981			1,089			965
Allowance for loan loss		38,852			38,980			36,547			31,248			25,840
Net Loans	$	1,532,561		$	1,537,622		$	1,580,575		$	1,592,379		$	1,584,620
Allowance for loan loss activity
Beginning allowance		38,980			36,547		$	31,248		$	25,840		$	25,694
Provision for loan losses		5,440			6,889			8,470			8,051			3,965
Credit loss charge-offs:
One to four family residential real estate		1,135			326			884			744			505
Commercial real estate		1,243			3,191			1,912			1,152			2,066
Commercial		3,153			735			354			658			950
Consumer finance		16			25			75			39			83
Home equity and improvement		156			399			134			196			301
Total charge-offs		5,703			4,676			3,359			2,789			3,905
Total recoveries		135			220			188			146			86
Net charge-offs (recoveries)		5,568			4,456			3,171			2,643			3,819
Ending allowance	$	38,852		$	38,980		$	36,547		$	31,248		$	25,840
Credit Quality
Non-accrual loans	$	31,804		$	33,567		$	41,191		$	35,490		$	35,528
Restructured loans, accruing		8,918			7,023			6,715			4,574			4,845
Total non-performing loans (1)		40,722			40,590			47,906			40,064			40,373
Real estate owned (REO)		12,735			12,768			13,527			9,352			8,567
Total non-performing assets (2)	$	53,457		$	53,358		$	61,433		$	49,416		$	48,940
Net charge-offs		5,568			4,456			3,171			2,643			3,819
Allowance for loan losses / loans		2.47	%		2.47	%		2.26	%		1.92	%		1.60	%
Allowance for loan losses / non-performing assets		72.68	%		73.05	%		59.49	%		63.23	%		52.80	%
Allowance for loan losses / non-performing loans		95.41	%		96.03	%		76.29	%		78.00	%		64.00	%
Non-performing assets / loans plus REO		3.37	%		3.36	%		3.77	%		3.03	%		3.02	%
Non-performing assets / total assets		2.62	%		2.59	%		2.99	%		2.45	%		2.42	%
Net charge-offs / average loans (annualized)		1.44	%		1.14	%		0.79	%		0.66	%		0.96	%
Deposit Balances
Non-interest-bearing demand deposits	$	190,140		$	187,231		$	189,132		$	174,145		$	180,035
Interest-bearing demand deposits and money market		517,170			525,311			499,575			477,566			456,177
Savings deposits		140,473			138,364			130,156			132,333			135,821
Retail time deposits less than $100,000		527,421			539,313			550,172			544,957			568,595
Retail time deposits greater than $100,000		158,069			161,071			163,838			166,787			165,401
National/Brokered time deposits		47,247			48,294			47,353			47,297			47,115
Total deposits	$	1,580,520		$	1,599,584		$	1,580,226		$	1,543,085		$	1,553,144

(1) Non-performing loans consist of non-accrual loans that are contractually past due 90 days or more and loans that are deemed impaired.

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

12

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
June 30, 2010
One to four family residential real estate	$	217,603	$	202,472	$	4,790	$	6,457	$	3,884
Construction		43,333		43,079		—		254		—
Commercial real estate		790,521		763,913		4,057		17,912		4,639
Commercial		364,281		356,500		508		6,898		375
Consumer finance		28,961		28,767		177		17		—
Home equity and improvement		140,969		139,219		1,464		266		20
Total loans	$	1,585,668	$	1,533,950	$	10,996	$	31,804	$	8,918
March 31, 2010
One to four family residential real estate	$	222,099	$	207,733	$	4,749	$	6,572	$	3,045
Construction		46,369		46,129		65		175		—
Commercial real estate		797,449		768,335		6,962		18,241		3,911
Commercial		352,923		338,513		6,866		7,498		46
Consumer finance		31,718		31,489		170		59		—
Home equity and improvement		144,826		142,598		1,185		1,022		21
Total loans	$	1,595,384	$	1,534,797	$	19,997	$	33,567	$	7,023
December 31, 2009
One to four family residential real estate	$	227,592	$	215,209	$	4,333	$	5,349	$	2,701
Construction		48,625		47,950		—		675		—
Commercial real estate		809,890		775,604		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	$	1,647,597	$	1,585,505	$	11,186	$	41,191	$	6,715
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

13