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

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. Common Stock, $.01 Par Value – ~~9,725,634~~9,728,491 shares outstanding at ~~November~~May 4, ~~2011.~~2012.


	September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	30,234	$	24,977	$	32,882	$	31,931
Interest-bearing deposits		160,000		144,187
Federal funds sold						217,000		143,000

		190,234		169,164		249,882		174,931
Securities:
Available-for-sale, carried at fair value		232,628		165,252		242,964		232,919
Held-to-maturity, carried at amortized cost (fair value $754 and $865 at September 30, 2011 and December 31, 2010, respectively)		736		839
Held-to-maturity, carried at amortized cost (fair value $654 and $672 at March 31, 2012 and December 31, 2011, respectively)						644		661

		233,364		166,091		243,608		233,580
Loans held for sale		12,951		18,127		11,201		13,841
Loans receivable, net of allowance of $38,110 at September 30, 2011 and $41,080 at December 31, 2010, respectively		1,422,404		1,478,423
Loans receivable, net of allowance of $28,833 at March 31, 2012 and $33,254 at December 31, 2011, respectively						1,445,122		1,453,822
Accrued interest receivable		6,654		6,374		6,243		6,142
Federal Home Loan Bank stock		20,655		21,012		20,655		20,655
Bank owned life insurance		35,682		34,979		36,128		35,908
Premises and equipment		40,428		41,743		40,548		40,045
Real estate and other assets held for sale		5,805		9,591		3,408		3,628
Goodwill		61,568		57,556		61,525		61,525
Core deposit and other intangibles		6,499		6,128		5,776		6,151
Mortgage servicing rights		8,660		9,477		8,498		8,690
Deferred taxes		2,988		5,805		—		629
Other assets		10,465		11,047		9,670		8,643

Total assets	$	2,058,357	$	2,035,517	$	2,142,264	$	2,068,190


	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	1,589,980		$	1,575,419		$	1,671,370		$	1,596,241
Advances from the Federal Home Loan Bank		81,852			116,885			81,830			81,841
Subordinated debentures								36,083			36,083
Securities sold under repurchase agreements		55,477			56,247			54,609			60,386
Subordinated debentures		36,083			36,083
Advance payments by borrowers		897			937			1,316			1,402
Deferred taxes								404			—
Other liabilities		18,950			9,615			15,288			14,110

Total liabilities		1,783,239			1,795,186			1,860,900			1,790,063

Stockholders’ equity:

Preferred stock, $.01 par value per share: 37,000 shares authorized and issued with a liquidation preference of $37,231, net of discount		36,594			36,463			36,687			36,641
Preferred stock, $.01 par value per share:
4,963,000 shares authorized; no shares issued		—			—			—			—
Common stock, $.01 par value per share:
25,000,000 shares authorized; 12,739,496 and 12,739,496 shares issued and 9,725,634 and 8,117,770 shares outstanding, respectively		127			127
25,000,000 shares authorized; 12,739,496 and 12,739,496 shares issued and 9,728,491 and 9,726,243 shares outstanding, respectively								127			127
Common stock warrant		878			878			878			878
Additional paid-in capital		135,763			140,845			135,888			135,825
Accumulated other comprehensive income (loss), net of tax of $2,251 and $(184), respectively		4,179			(342	)
Accumulated other comprehensive income (loss), net of tax of $2,121 and $2,153, respectively								3,937			3,997
Retained earnings		144,937			134,988			151,163			148,010
Treasury stock, at cost, 3,013,862 and 4,621,726 shares respectively		(47,360	)		(72,628	)
Treasury stock, at cost, 3,011,005 and 3,013,253 shares respectively								(47,316	)		(47,351	)

Total stockholders’ equity		275,118			240,331			281,364			278,127

Total liabilities and stockholders’ equity	$	2,058,357		$	2,035,517		$	2,142,264		$	2,068,190


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2011			2010			2011			2010			2012			2011
Interest Income
Loans	$	19,488		$	22,230		$	59,553		$	67,104		$	18,650		$	20,224
Investment securities:
Taxable		1,207			1,022			3,398			3,091			1,111			1,029
Non-taxable		658			512			1,833			1,465			672			569
Interest-bearing deposits		110			68			351			198			92			101
FHLB stock dividends		203			225			662			678			229			235

Total interest income		21,666			24,057			65,797			72,536			20,754			22,158
Interest Expense
Deposits		2,791			4,667			9,648			15,192			2,369			3,594
FHLB advances and other		768			1,187			2,442			3,625			751			906
Subordinated debentures		333			332			945			982			331			326
Notes payable		127			109			397			329
Securities sold under repurchase agreements														104			130

Total interest expense		4,019			6,295			13,432			20,128			3,555			4,956

Net interest income		17,647			17,762			52,365			52,408			17,199			17,202
Provision for loan losses		3,097			5,196			8,335			17,525			3,503			2,833

Net interest income after provision for loan losses		14,550			12,566			44,030			34,883			13,696			14,369
Non-interest Income
Service fees and other charges		3,071			3,301			8,435			9,856			2,671			2,617
Insurance commission income		2,042			1,421			5,146			3,838			2,536			1,655
Mortgage banking income		1,355			2,322			4,549			5,114			2,445			1,288
Gain on sale of non-mortgage loans		52			10			351			97			9			104
Gain on sale or call of securities		—			—			49			6			43			49
Other-than-temporary impairment (OTTI) losses on investment securities
Total impairment losses on investment securities		—			(190	)		(23	)		(331	)		—			(13	)
Losses recognized in other comprehensive income		—			—			21			—			—			11

Net impairment loss recognized in earnings		—			(190	)		(2	)		(331	)		—			(2	)
Trust income		143			118			465			372			153			148
Income from Bank Owned Life Insurance		228			226			703			649			220			237
Gain on life insurance		—			—			—			268
Other non-interest income		(34	)		271			(56	)		167			342			(151	)

Total non-interest income		6,857			7,479			19,640			20,036			8,419			5,945
Non-interest Expense
Compensation and benefits		8,173			7,114			23,458			20,161			8,465			7,834
Occupancy		1,779			1,734			5,423			5,264			1,788			1,852
FDIC insurance premium		674			907			2,264			2,881			669			913
State franchise tax		541			542			1,625			1,621			514			542
Data processing		1,077			1,186			3,117			3,556			1,169			1,061
Acquisition related charges		99			16			234			53
Amortization of intangibles		386			356			1,051			1,139			375			344
Other non-interest expense		2,733			5,247			10,003			12,303			3,279			4,080

Total non-interest expense		15,462			17,102			47,175			46,978			16,259			16,626

Income before income taxes		5,945			2,943			16,495			7,941			5,856			3,688
Federal income taxes		1,884			668			5,024			2,100			1,703			1,028

Net Income	$	4,061		$	2,275		$	11,471		$	5,841		$	4,153		$	2,660

Dividends accrued on preferred shares	$	(463	)	$	(463	)	$	(1,388	)	$	(1,388	)	$	(462	)	$	(462	)
Accretion on preferred shares	$	(45	)	$	(43	)	$	(132	)	$	(125	)	$	(46	)	$	(43	)

Net income applicable to common shares	$	3,553		$	1,769		$	9,951		$	4,328		$	3,645		$	2,155

Earnings per common share (Note 7)
Earnings per common share (Note 6)
Basic	$	0.37		$	0.22		$	1.08		$	0.53		$	0.37		$	0.25
Diluted	$	0.36		$	0.22		$	1.06		$	0.53		$	0.37		$	0.25
Dividends declared per share (Note 6)	$	—		$	—		$	—		$	—
Average common shares outstanding (Note 7)
Dividends declared per share (Note 5)													$	0.05		$	—
Average common shares outstanding (Note 6)
Basic		9,725			8,118			9,248			8,118			9,726			8,519
Diluted		9,895			8,118			9,417			8,143			9,970			8,671

Consolidated Condensed Statements of ~~Changes in Stockholders’ Equity~~Comprehensive Income

Consolidated Condensed Statements of ~~Cash Flows~~Changes in Stockholders’ Equity

Net cash received from common stock issuance
   19,859    —
Proceeds from exercise of stock options
   11    3
Proceeds from restricted stock units
   183    —
Proceeds from treasury stock purchase
   21    —
Cash dividends paid on preferred stock
   (1,388 ) (1,388 )


Net cash provided by (used in) financing activities
   (2,575 ) (24,646 )


Increase (decrease) in cash and cash equivalents
   21,070    27,546
Cash and cash equivalents at beginning of period
   169,164    121,116


Cash and cash equivalents at end of period
   $ 190,234    $ 148,662


Supplemental cash flow information:

Interest paid
   $ 13,644    $ 20,425


Income taxes paid
   $ 3,200    $ 4,650


Transfers from loans to real estate and other assets held for sale
   $ 4,373    $ 10,086


Transfers from loans held for sale to loans
   $ 7,596    $ —


Securities traded but not yet settled
   $ 2,673    $ —


Increase (decrease) in cash and cash equivalents		74,951		66,153
Cash and cash equivalents at beginning of period		174,931		169,164

Cash and cash equivalents at end of period	$	249,882	$	235,317


Supplemental cash flow information:
Interest paid	$	3,556	$	5,047

Income taxes paid	$	—	$	—

Transfers from loans to real estate and other assets held for sale	$	263	$	1,778

Transfers from loans held for sale to loans	$	—	$	7,213

Securities traded but not yet settled	$	1,212	$	—

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

First Federal is primarily engaged in attracting deposits from the general public ~~through its offices~~ and using those and other available sources of funds to originate loans primarily in the counties in which its offices are located. First Federal’s traditional banking activities include originating and servicing residential, commercial and consumer loans and providing a broad range of depository, trust and wealth management services. First Insurance is an insurance agency that does business in the Defiance, Archbold, Bryan and Bowling Green, Maumee and Oregon, Ohio areas, offering property and casualty, and group health and life insurance products. On July 1, 2011, the Company completed its acquisition of Payak-Dubbs Insurance Agency, Inc. (“PDI”), an independent property and casualty insurance agency with two office locations based in Maumee, Ohio and Oregon, Ohio for a cash price of $4.8 million. PDI was merged into First Insurance.

The consolidated condensed statement of financial condition at December 31, ~~2010~~2011 has been derived from the audited financial statements at that date, which were included in First Defiance’s Annual Report on Form 10-K.

The accompanying consolidated condensed financial statements as of ~~September 30, 2011~~March 31, 2012 and for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ have been prepared by First Defiance without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States. These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in First Defiance’s ~~2010~~2011 Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2011~~March 31, 2012 are not necessarily indicative of the results that may be expected for the entire year.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that

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

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

~~In April 2011, the FASB issued ASU No. 2011-02,~~~~A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring~~, updated to amend previous guidance with respect to troubled debt restructurings. This updated guidance is designed to assist creditors with determining whether or not a restructuring constitutes a troubled debt restructuring. In particular, additional guidance has been added to help creditors determine whether a concession has been granted and whether a debtor is experiencing financial difficulties. Both of these conditions are required to be met for a restructuring to constitute a troubled debt restructuring. The amendments in the update are effective for the first interim period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The provisions of this update did not have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04,Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities iswas not permitted. The amendments of this update ~~are~~did not ~~expected to~~ have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011-05,Amendments to Topic 220, Comprehensive Income. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net

income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments of this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption iswas permitted because compliance with the amendments iswas already permitted. The amendments do not require any transition disclosures. The provisions of this update ~~are~~did not ~~expected to~~ have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2011, the FASB issued ASU No. 2011-08,Testing Goodwill for Impairment. The provisions of ASU No. 2011-08 permits an entity an option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further impairment testing is required. ASU No. 2011-08 includes examples of events and circumstances that may indicate that a reporting unit’s fair value is less than its carrying amount. The provisions of ASU No. 2011-08 are effective for annual and interim goodwill

impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption iswas permitted provided that the entity has not yet performed its annual impairment test for goodwill. The provisions of this update ~~are~~did not ~~expected~~have a material impact on the Company’s financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-12,Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to re-deliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 were not affected by ASU 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after December 15, 2011 and did not have a material impact on the Company’s financial position, results of operations or cash flows.

Comprehensive income consists of net income and other comprehensive income (“OCI”). OCI includes unrealized gains and losses on securities available-for-sale and the net unrecognized actuarial losses and unrecognized prior services costs associated with the Company’s Defined Benefit Postretirement Medical Plan. All items reported in OCI are reported net of tax. Following is a summary of OCI for the three and nine months ended September 30, 2011 and 2010:

~~The following table summarizes the changes within each classification of accumulated other comprehensive income for the nine months ended September 30, 2011 and 2010:~~

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

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

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

Available for sale securities - Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an

independent pricing service which uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities in Level 1 include federal agency preferred stock securities. Securities in Level 2 include U.S. Government agencies, mortgage-backed securities, corporate bonds ~~U.S. treasury bonds~~ and municipal securities. The Company classifies its pooled trust preferred collateralized debt obligations as Level 3. The portfolio consists of collateralized debt obligations backed by pools of trust preferred securities issued by financial institutions and insurance companies. Based on the lack of observable market data, the Company estimated fair values based on the observable data available and reasonable unobservable market data. The Company estimated fair value based on a discounted cash flow model which used appropriately adjusted discount rates reflecting credit and liquidity risks. The Company used an independent third party which is described further in Note 8.7.

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

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

Appraisals for both collateral-dependent impaired loans ~~being valued using Level 3 inputs.~~and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal. Appraisal values are discounted between a range of 10% to 30% to account for various disposal costs and other factors than may impact the value of collateral. In determining the value of impaired collateral dependent loans and other real estate owned, significant unobservable inputs may be used which include: physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

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

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

~~Real estate held for sale~~ ~~- Real estate held for sale is determined using Level 3 inputs which include current and prior appraisals and estimated costs to sell.~~

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


September 30, 2011	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
March 31, 2012											Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
	*(In Thousands)*										*(In Thousands)*
Available for sale securities: Obligations of U.S. Government corporations and agencies	$	—	$	20,076		$	—	$	20,076		$	—	$	19,955		$	—	$	19,955
U.S. treasury bonds		—		2,011			—		2,011					2,007					2,007
Mortgage-backed – residential		—		63,781			—		63,781			—		70,583			—		70,583
REMICs		—		3,282			—		3,282			—		1,608			—		1,608
Collateralized mortgage obligations		—		63,522			—		63,522			—		65,074			—		65,074
Trust preferred stock		—		—			1,367		1,367			—		—			1,377		1,377
Preferred stock		156		—			—		156			114		—			—		114
Corporate bonds		—		8,232			—		8,232			—		8,591			—		8,591
Obligations of state and political subdivisions		—		70,201			—		70,201			—		73,655			—		73,655
Mortgage banking derivative – asset		—		1,716			—		1,716			—		1,037			—		1,037
Mortgage banking derivative – liability		—		(578	)		—		(578	)		—		(157	)		—		(157	)

December 31, 2010	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
	*(In Thousands)*
Available for sale securities: Obligations of U.S. Government corporations and agencies	$	—	$	11,985		$	—	$	11,985
Mortgage-backed – residential		—		40,576			—		40,576
REMICs		—		3,541			—		3,541
Collateralized mortgage obligations		—		51,057			—		51,057
Trust preferred stock		—		—			1,498		1,498
Preferred stock		48		—			—		48
Corporate bonds				3,797					3,797
Obligations of state and political subdivisions		—		52,750			—		52,750
Mortgage banking derivative – asset		—		265			—		265


December 31, 2011	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
	*(In Thousands)*
Available for sale securities: Obligations of U.S. Government corporations and agencies	$	—	$	17,085		$	—	$	17,085
U.S. treasury bonds				2,010					2,010
Mortgage-backed – residential		—		70,716			—		70,716
REMICs		—		2,894			—		2,894
Collateralized mortgage obligations		—		59,009			—		59,009
Trust preferred stock		—		—			1,342		1,342
Preferred stock		108		—			—		108
Corporate bonds				8,252					8,252
Obligations of state and political subdivisions		—		71,503			—		71,503
Mortgage banking derivative – asset		—		865			—		865
Mortgage banking derivative – liability				(258	)				(258	)

The table below presents a reconciliation and income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010:~~March 31, 2011:

   Fair Value Measurements
Using Significant Unobservable
Inputs (Level 3)
(In Thousands)
Beginning balance, January 1, 2011
   $ 1,498
Total gains or losses (realized/unrealized)

Included in earnings
   (2 )
Included in other comprehensive income (presented gross of taxes)
   (133 )
Amortization
   4
Transfers in and/or out of Level 3
   —


Ending balance, September 30, 2011
   $ 1,367


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)			Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, July 1, 2011	$	1,538
Beginning balance, January 1, 2012				$	1,342
Total gains or losses (realized/unrealized)
Included in earnings		—
Included in earnings (unrealized)					—
Included in other comprehensive income (presented gross of taxes)		(171	)		35
Amortization		—			—
Sales					—
Transfers in and/or out of Level 3		—			—

Ending balance, September 30, 2011	$	1,367
Ending balance, March 31, 2012				$	1,377


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2011	$	1,498
Total gains or losses (realized/unrealized)
Included in earnings (unrealized)		(2	)
Included in other comprehensive income (presented gross of taxes)		66
Amortization		4
Sales		—
Transfers in and/or out of Level 3		—

Ending balance, March 31, 2011	$	1,566

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


September 30, 2011	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2012									Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	*(In Thousands)*								*(In Thousands)*
Impaired loans
Residential and Home Equity Loans	$	—	$	—	$	1,471	$	1,471
Residential Loans									$	—	$	—	$	685	$	685
Commercial Loans						4,687		4,687		—		—		16		16
Multi Family Loans						322		322		—		—		455		455
CRE loans						16,422		16,422		—		—		5,854		5,854

Total Impaired loans						22,902		22,902		—		—		7,010		7,010
Mortgage servicing rights		—		8,660		—		8,660		—		8,498		—		8,498
Real estate held for sale
Residential Loans						28		28		—		—		—		—
CRE loans						383		383		—		—		296		296

Total Real Estate held for sale						411		411		—		—		296		296

December 31, 2010	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2011									Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	*(In Thousands)*								*(In Thousands)*
Impaired loans
Residential and Home Equity Loans	$		$		$	2,541	$	2,541
Residential Loans									$	—	$	—	$	1,092	$	1,092
Commercial Loans						7,236		7,236		—		—		1,268		1,268
Multi Family Loans						962		962		—				103		103
CRE loans						16,835		16,835		—		—		8,449		8,449

Total Impaired loans						27,574		27,574		—		—		10,912		10,912
Mortgage servicing rights		—		9,477		—		9,477		—		8,690		—		8,690
Real estate held for sale		—		—		3,449		3,449
Residential Loans										—		—		28		28
CRE loans										—		—		1,600		1,600

Total Real Estate held for sale										—		—		1,628		1,628

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of ~~$22.9 million,~~$7,010,000, with a valuation allowance of ~~$14.3 million~~$5,184,000 at ~~September 30, 2011.~~March 31, 2012. A provision expense of ~~$717,000~~$4,763,000 for the three months ~~and $6.2 million for the nine months~~ ended ~~September 30, 2011 were~~March 31, 2012 was included in earnings.

Mortgage servicing rights which are carried at the lower of cost or fair value had a fair value of ~~$8.7 million~~$8,498,000 at ~~September 30, 2011,~~March 31, 2012, resulting in a valuation allowance of ~~$1.7 million.~~$1,608,000. A charge of ~~$1.1 million~~$79,000 for the three months ~~and $585,000 for the nine months~~ ended ~~September 30, 2011 were~~March 31, 2012 was included in earnings.

Real estate held for sale is determined using Level 3 inputs which include appraisals and estimated costs to sell. The change in fair value of real estate held for sale was ~~$93,000~~$137,000 for the three months ~~and $644,000 for the nine months~~ ended ~~September 30, 2011,~~March 31, 2012 which was recorded directly as an adjustment to current earnings through non-interest expense.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of ~~$27.6~~$10.9 million, with a valuation allowance of ~~$16.6~~$7.2 million at December 31, ~~2010.~~2011. A provision expense of ~~$18.0~~$5.4 million for ~~the~~ year ended December 31, ~~2010~~2011 was included in earnings.

Mortgage servicing rights which are carried at the lower of cost or fair value had a fair value of ~~$9.5 million~~$8,690,000 at December 31, ~~2010,~~2011, resulting in a valuation allowance of ~~$1.1 million.~~$1,529,000. A ~~recovery~~charge of ~~$353,000~~$404,000 was included in the earnings for the year ended December 31, ~~2010.~~2011.

Real estate held for sale is determined using Level 3 inputs which include current and prior appraisals and estimated costs to sell. The change in fair value of real estate held for sale was ~~$3.2 million~~$1,047,000 for the year ended December 31, ~~2010 and~~2011 was recorded directly as an adjustment to current earnings through non-interest expense.

In accordance with FASB ASC Topic 825, the following table ~~below~~ is a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of First Defiance.

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

The carrying amount of cash and cash equivalents, term notes payable and advance payments by borrowers for taxes and insurance, as a result of their short-term nature, is considered to be equal to fair ~~value.~~value and are classified as Level 1.

Investment securities fair value has been based on current market quotations. If market prices are not available, fair value has been estimated based upon the quoted price of similar instruments or based on observable and unobservable data. It was not practicable to determine the fair value of ~~FHLB~~Federal Home Loan Bank (“FHLB”) stock due to restrictions placed on its transferability.

The fair value of loans which reprice within 90 days is equal to their carrying amount. For other loans, the estimated fair value is calculated based on discounted cash flow analysis, using interest rates currently being offered for loans with similar ~~terms.~~terms, resulting in a Level 3 classification. Impaired loans are valued at the lower of cost of fair value as previously described. The allowance for loan losses is considered to be a reasonable adjustment for credit risk.

~~FASB ASC Topic 825 requires that~~ The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. The fair value of loans held for sale is estimated based on binding contracts and quotes from third party investors resulting in a Level 2 classification.

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

The fair value of non-interest bearing deposits are considered equal to the amount payable on demand at the reporting date (i.e. carrying value) and are classified as Level 1. The fair value of savings, NOW and certain money market accounts beare equal to their carrying ~~amount.~~ amounts and are a Level 2 classification. Fair values of fixed rate certificates of deposit are estimated using a discounted cash flow calculation

that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

The ~~Company believes that the~~ fair ~~value~~values of ~~these deposits may be greater or less than that prescribed by FASB ASC Topic 825.~~

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

FHLB advances with maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted for similar characteristics and ~~maturities.~~maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at ~~September 30, 2011.~~March 31, 2012.


	December 31, 2011
	Carrying Value		Estimated Fair Values
Assets:
Cash and cash equivalents	$	174,931	$	174,931
Investment securities		233,580		233,591
Federal Home Loan Bank Stock		20,655		N/A
Loans, net, including loans held for sale		1,467,663		1,494,573
Mortgage banking derivative asset		865		865
Accrued interest receivable		6,142		6,142

		1,903,836	$	1,910,102

Other assets		164,354

Total assets	$	2,068,190


Liabilities and stockholders’ equity:
Deposits	$	1,596,241	$	1,603,111
Advances from Federal Home Loan Bank		81,841		85,196
Securities sold under repurchase agreements		60,386		60,386
Subordinated debentures		36,083		31,814
Accrued interest payable		446		446
Mortgage banking derivative liability		258		258
Advance payments by borrowers for taxes and insurance		1,402		1,402

		1,776,399	$	1,782,613

Other liabilities		13,664

Total liabilities		1,790,063
Stockholders’ equity		278,127

Total liabilities and stockholders’ equity	$	2,068,190

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

As of ~~September 30, 2011, 320,000~~March 31, 2012, 317,650 options ~~(298,000 for employees and 22,000 for directors)~~ have been granted and remain outstanding at option prices based on the market value of the underlying shares on the date the options were granted. Options granted under all plans vest 20% per year except for the 2009 grant to the Company’s executive ~~officer’s,~~officers, which ~~vest~~vested 40% in 2011 and then 20% annually, subject to certain other limitations required by the Emergency Economic Stabilization Act of 2008. All options expire ten years from the date of

grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

On August 15, 2011, the Company approved a 2011 Short-Term (“STIP”) and a 2011 Long-Term (“LTIP”) Equity Incentive Plan for selected members of management. The Plans are effective January 1, 2011 and provide for cash and/or equity benefits if certain performance targets are achieved. Awards issued under these Plans will reduce the amount of awards available to be issued under the 2010 Equity Plan.

~~The Short-Term Equity Incentive Plan includes nine~~On March 9, 2012, the Company approved a 2012 STIP and a 2012 LTIP for selected members of management. ~~These~~The Plans are effective January 1, 2012 and provide for cash and/or equity benefits if certain performance targets are achieved. Awards issued under these Plans will reduce the amount of awards available to be issued under the 2010 Equity Plan.

Under both STIPs the participants may earn up to 25% to 45% of their ~~2011~~ salary for potential payout ~~under the Short-Term Equity Incentive Plan. The final amount of benefit will be determined December 31, 2011~~ based on the achievement of certain corporate and/or market area performance targets ~~which~~during the calendar year. The final amount of benefits under the STIP will be determined at December 31 of each contribute from 10% to 25% of the total potential benefit earned. The targets include diluted earnings per share, net charge offs to average loans, non-performing assets to total assets, classified assets to total assets, return on average equityyear and ~~return on average assets. Two of the Participants in the Plan are high-compensated employees (“HCE’s”) who are not eligible to receive cash payments and therefore their total potential benefit~~ will be paid out in cash and/or equity, as restricted share awards. These participants may earn up to a maximum of 13,554 awards if all targets are achieved. Any estimated expense associated with payment of these awards is considered an equity arrangement for accounting purposes and will be accounted for as a component of equity. Forelected by the ~~quarter ended September 30, 2011 total expense of $122,000 has been recorded through equity associated~~participant, in accordance with the estimated benefits to these participants. The remaining participants have the option to receive their potential benefits in cash, restricted share awards, or a combination thereof. Accordingly any expense associated with payment of these benefits is considered a liability award for accounting purposes and will be accounted for as an accrued liability. For the quarter ended September 30, 2011 total expense of $168,000 was recorded and is included within other liabilities. The benefits earned under this plan will be paid out as followsfollowing vesting schedule: 50% in the first quarter ~~of 2012,~~after the calendar year, 25% inon the ~~first quarter of 2013,~~one-year anniversary, and 25% inon the ~~first quarter of 2014.~~second-year anniversary. The participants are required to be employed on the day of payout in order to receive such payment.

~~The Long-Term Equity Incentive Plan includes nine members of management. These~~Under both LTIPs the participants may earn up to 25% to 45% of their ~~2011~~ salary for potential payout ~~under~~based on the ~~Long-Term Equity Incentive Plan.~~achievement of certain corporate performance targets either over a two or three year period. The final amount of benefit under the 2011 LTIP will be determined at December 31, 2012 ~~based on~~and the ~~achievement~~final amount of

~~certain targets which will each contribute from 33% to 34% of~~ benefit under the total potential benefit earned. The targets include a peer comparison of return on average equity, earnings per share growth and revenue growth. Two of the Participants in the Plan are high-compensated employees (“HCE’s”) who are not eligible to receive cash payments and therefore their total potential benefit2012 LTIP will be paid out as restricted share awards. These participants may earn up to a maximum of 13,554 awards if all targets are achieved. Any estimated expense associated with payment of these awards is considered an equity arrangement for accounting purposes and will be accounted for as a component of equity. For the quarter ended September 30, 2011 total expense of $61,000 has been recorded through equity associated with the estimated benefits to these participants. The remaining participants have the option to receive their potential benefits in cash, restricted share awards, or a combination thereof. Accordingly any expense associated with payment of these benefits is considered a liability award for accounting purposes and will be accounted for as an accrued liability. For the quarter ended September 30, 2011 total expense of $103,000 was recorded and is included within other liabilities.determined on December 31, 2014. The benefits earned under ~~this~~the plan will be paid out in ~~full~~cash and/or equity, as elected by the participant, in the first quarter following the close of ~~2013.~~the performance period. The participants are required to be employed on the day of payout in order to receive such payment.

The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no options granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2012 or 2011.

Following is activity under the plans during the ~~nine~~three months ended ~~September 30, 2011:~~March 31, 2012:

~~Proceeds, related tax benefits realized from options exercised and intrinsic value of options exercised were as follows:~~

As of ~~September 30, 2011,~~March 31, 2012, there ~~was $149,000~~were $97,000 of total unrecognized compensation costs related to unvested stock options granted under the ~~Company Stock Option Plans.~~Company’s equity plans. The cost is expected to be recognized over a weighted-average period of ~~2.0~~1.8 years.

InAt March ~~2011, First Defiance granted restricted~~31, 2012, 5,681 stock ~~awards (“RSA”) under the 2010 Equity Plan, which provides for the issuance of shares to directors, officers~~grants and ~~employees.~~51,849 RSU’s were outstanding. Compensation expense is recognized over the ~~vesting~~performance period ~~of the awards~~ based on the ~~fair value~~achievements of targets as established with the ~~stock~~plan documents. Total expense of $163,000 was recorded during the three months ended March 31, 2012 and approximately $272,000 is included within other liabilities at ~~issue date. The fair value of~~March 31, 2012 related to the ~~stock was determined using the closing price of First Defiance common stock on the date of the grant. The restricted stock shares fully vest on the second anniversary of the grant date.~~STIPs and LTIPs.


					Restricted Stock Units					Stock Grants
Unvested Shares	Shares		Weighted-Average Grant Date Fair Value Per Share		Shares			Weighted-Average Grant Date Fair Value		Shares			Weighted-Average Grant Date Fair Value
Unvested at January 1, 2011		0	$	—
Unvested at January 1, 2012						27,108		$	11.97		4,738		$	14.00
Granted		4,738		14.00		29,535			14.59		1,887			17.46
Vested		0		—		—			—		(944	)		17.46
Forfeited		0		—		(4,794	)		11.97		—			—

Unvested at September 30, 2011		4,738		14.00
Unvested at March 31, 2012						51,849		$	13.46		5,681		$	14.57

AsThe maximum amount of ~~September 30, 2011, there was $47,000 of total unrecognized~~ compensation ~~cost related to unvested shares granted under~~expense that may be recorded for the ~~Plan. The cost~~STIP and both LTIPs at March 31, 2012 is approximately $1.3 million. However, the estimated expense expected to be recorded as of March 31, 2012 based on the performance measures in the plans, is $1.1 million of which $785,000 is unrecognized at March 31, 2012 and will be recognized over ~~a weighted-average period of 1.43 years.~~

~~As of September 30, 2011, 340,263 options/restricted shares remain available for future grants.~~the remaining performance period.

NoFirst Defiance declared and paid a $0.05 per common stock ~~dividends were declared by First Defiance~~dividend in the first ~~three quarters~~quarter of ~~2011~~2012. There was no common stock dividend declared or ~~for~~paid in the ~~same periods in 2010.~~

~~On November 7, 2011, the Company announced it has received permission from its regulators to pay a cash dividend~~first quarter of ~~$0.05 per common share payable on December 1, 2011 to shareholders of record at the close of business on November 15,~~ 2011.

As a result of its participation in the Capital Purchase Program (“CPP”), First Defiance is prohibited without prior approval of the U.S. Treasury, from paying a quarterly cash dividend of more than $0.26 per share until the ~~earlier of December 5, 2011 or the date the~~ U.S. Treasury’s preferred stock is redeemed or transferred to an unaffiliated third

party. Further, First Defiance has agreed in its Memorandum of Understanding with ~~its primary regulator~~the Federal Reserve to obtain the approval of ~~cash dividends~~the Federal Reserve prior to ~~declaration.~~

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


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2011		2010		2011		2010		2012		2011
Numerator for basic and diluted earnings per common share – Net income applicable to common shares	$	3,553	$	1,769	$	9,951	$	4,328	$	3,645	$	2,155
Denominator:
Denominator for basic earnings per common share – weighted average common shares, including participating securities		9,725		8,118		9,248		8,118
Denominator for basic earnings per common share – weighted average common shares										9,726		8,519
Effect of warrants		151		—		151		25		208		140
Effect of restricted stock units										10		—
Effect of employee stock options		15		—		14		—		26		12
Effect of employee restricted stock units		4		—		4		—


Denominator for diluted earnings per common share share		9,895		8,118		9,417		8,143		9,970		8,671


Basic earnings per common share	$	0.37	$	0.22	$	1.08	$	0.53	$	0.37	$	0.25


Diluted earnings per common share	$	0.36	$	0.22	$	1.06	$	0.53	$	0.37	$	0.25

There were ~~257,900~~256,643 shares under option granted to employees excluded from the diluted earnings per common share calculation as they were anti-dilutive for the three ~~and nine~~ months ended ~~September 30, 2010. There were 428,750 shares~~March 31, 2012. Shares under option ~~granted to employees~~of 355,538 were excluded from the diluted earnings per common share ~~calculation~~calculations as they were anti-dilutive for the three ~~and nine~~ months ended ~~September 30, 2010 and 550,595 shares issuable related to warrants were anti-dilutive for the three months ended September 30, 2010.~~March 31, 2011.

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At September 30, 2011
At March 31, 2012
Available-for-Sale Securities:

Obligations of U.S. government corporations and agencies	$	19,982	$	98	$	(4	)	$	20,076	$	19,995	$	46	$	(86	)	$	19,955
U.S. treasury bonds		2,000		11		—			2,011		2,000		7		—			2,007
Mortgage-backed securities – residential		61,299		2,500		(18	)		63,781		68,282		2,326		(25	)		70,583
REMICs		3,216		66		—			3,282		1,596		12		—			1,608
Collateralized mortgage obligations		60,820		2,702		—			63,522		63,025		2,049		—			65,074
Trust preferred securities and preferred stock		3,790		121		(2,388	)		1,523		3,790		79		(2,378	)		1,491
Corporate bonds		8,607		—		(375	)		8,232		8,651		86		(146	)		8,591
Obligations of state and political subdivisions		65,910		4,304		(13	)		70,201		68,480		5,231		(56	)		73,655

Totals	$	225,624	$	9,802	$	(2,798	)	$	232,628	$	235,819	$	9,836	$	(2,691	)	$	242,964


Held-to-Maturity Securities*:
FHLMC certificates	$	85	$	6	$	—		$	91	$	79	$	—	$	(1	)	$	78
FNMA certificates		208		4		—			212		188		5		—			193
GNMA certificates		75		3		—			78		69		3		—			72
Obligations of state and political subdivisions		368		5		—			373		308		3		—			311

Totals	$	736	$	18	$	—		$	754	$	644	$	11	$	(1	)	$	654


At December 31, 2010
At December 31, 2011
Available-for-Sale Securities:

Obligations of U.S. government corporations and agencies	$	11,980	$	80	$	(75	)	$	11,985	$	16,989	$	96	$	—		$	17,085
U.S. treasury bonds											2,000		10		—			2,010
Mortgage-backed securities – residential		39,561		1,244		(229	)		40,576		68,400		2,318		(2	)		70,716
REMICs		3,378		163		—			3,541		2,863		31		—			2,894
Collateralized mortgage obligations		49,862		1,364		(169	)		51,057		57,083		1,926		—			59,009
Trust preferred securities and preferred stock		3,787		13		(2,254	)		1,546		3,790		73		(2,413	)		1,450
Corporate bonds		3,782		15		—			3,797		8,629		—		(377	)		8,252
Obligations of state and political subdivisions		52,853		779		(882	)		52,750		65,928		5,580		(5	)		71,503

Totals	$	165,203	$	3,658	$	(3,609	)	$	165,252	$	225,682	$	10,034	$	(2,797	)	$	232,919

Held-to-Maturity Securities*:
FHLMC certificates	$	95	$	7	$	—		$	102	$	82	$	1	$	—		$	83
FNMA certificates		259		6		—			265		199		4		—			203
GNMA certificates		86		3		—			89		72		3		—			75
Obligations of state and political subdivisions		399		10		—			409		308		3		—			311

Totals	$	839	$	26	$	—		$	865	$	661	$	11	$	—		$	672

The amortized cost and fair value of the investment securities portfolio at ~~September 30, 2011~~March 31, 2012 are shown below by contractual maturity. Expected maturities will differ from contractual maturities because

borrowers may have the right to call or prepay obligations with or without call or prepayment

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


	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	*(In Thousands)*								*(In Thousands)*
Due in one year or less	$	1,844	$	1,855	$	60	$	61	$	1,729	$	1,739	$	60	$	63
Due after one year through five years		15,498		15,260		60		64		11,927		11,891		—		—
Due after five years through ten years		30,730		31,797		248		248		38,193		39,689		248		248
Due after ten years		52,217		53,130		—		—		51,068		52,380		—		—
MBS/CMO/REMIC		125,335		130,586		368		381		132,902		137,265		336		343

	$	225,624	$	232,628	$	736	$	754	$	235,819	$	242,964	$	644	$	654

Investment securities with a carrying amount of ~~$137.2~~$136.7 million at ~~September 30, 2011~~March 31, 2012 were pledged as collateral on public deposits, securities sold under repurchase agreements ~~Federal Reserve discount window~~ and FHLB advances.

As of ~~September 30, 2011,~~March 31, 2012, the Company’s investment portfolio consisted of ~~369~~370 securities, 2230 of which were in an unrealized loss position.

The following ~~table summarizes~~tables summarize First Defiance’s securities that were in an unrealized loss position at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010:~~2011:


	Duration of Unrealized Loss Position															Duration of Unrealized Loss Position
	Less than 12 Months					12 Month or Longer					Total					Less than 12 Months					12 Month or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses
	*(In Thousands)*															*(In Thousands)*
At September 30, 2011
At March 31, 2012
Available-for-sale securities:
Obligations of U.S. govt. corps. and agencies	$	1,995	$	(4	)	$	—	$	—		$	1,995	$	(4	)
Mortgage-backed – residential		4,123		(18	)		—		—			4,123		(18	)
Obligations of U.S. govt. corps. And agencies																$	9,909	$	(86	)	$	—	$	—		$	9,909	$	(86	)
Mortgage-backed -residential																	4,047		(25	)		—		—			4,047		(25	)
Corporate bonds																	2,722		(146	)		—		—			2,722		(146	)
Trust preferred stock and preferred stock		—		—			1,367		(2,388	)		1,367		(2,388	)		—		—			1,377		(2,378	)		1,377		(2,378	)
Corporate bonds		8,231		(375	)		—		—			8,231		(375	)
Obligations of state and political subdivisions		846		(6	)		1,726		(7	)		2,572		(13	)		1,900		(52	)		243		(4	)		2,143		(56	)
Held-to-maturity securities:
FHLMC certificates																	78		(1	)		—		—			78		(1	)

Total temporarily impaired securities	$	15,195	$	(403	)	$	3,093	$	(2,395	)	$	18,288	$	(2,798	)	$	18,656	$	(310	)	$	1,620	$	(2,382	)	$	20,276	$	(2,692	)


	Duration of Unrealized Loss Position															Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Losses			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Loses
	*(In Thousands)*															*(In Thousands)*
At December 31, 2010
At December 31, 2011
Available-for-sale securities:
Obligations of U.S. govt. corps. and agencies	$	3,925	$	(75	)	$	—	$	—		$	3,925	$	(75	)
Mortgage-backed securities – residential		11,876		(229	)		—		—			11,876		(229	)	$	2,030	$	(2	)	$	—	$	—		$	2,030	$	(2	)
Collateralized mortgage obligations and REMICs		6,011		(169	)		—		—			6,011		(169	)
Obligations of state and political subdivisions		21,431		(729	)		1,116		(153	)		22,547		(882	)		—		—			746		(5	)		746		(5	)
Trust preferred stock and preferred stock		—		—			1,498		(2,254	)		1,498		(2,254	)		—		—			1,342		(2,413	)		1,342		(2,413	)
Corporate bonds																	8,252		(377	)		—		—			8,252		(377	)

Total temporarily impaired securities	$	43,243	$	(1,202	)	$	2,614	$	(2,407	)	$	45,857	$	(3,609	)	$	10,282	$	(379	)	$	2,088	$	(2,418	)	$	12,370	$	(2,797	)

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

~~There were no realized gains from the sales, calls or maturities of investment securities in the third quarter of 2011 or for the same period in 2010.~~ Realized gains from the sales ~~calls or maturities~~ of investment securities totaled $43,000 ($28,000 after tax) in the first quarter of 2012 while there were realized gains of $49,000 ($32,000 after tax) ~~for~~in the first ~~nine months~~quarter of ~~2011 compared to realized gains of $6,000 ($4,000 after tax) for the first nine months of 2010.~~2011.

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

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

flows expected to be collected compared to the book value of the security and is recognized in earnings. The amount of OTTI related to other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings shall become the new amortized cost basis of the investment.

In the ~~third~~first quarter of 2012, management determined there was no OTTI. In the first quarter of 2011, management determined ~~there was no~~ OTTI ~~compared to OTTI of $190,000 for the same period~~on one CDO resulting in ~~2010. For the first nine months of 2011, the Company recorded OTTI write-downs~~a write-down of $2,200 ~~compared to $331,000 for the same period in 2010.~~($1,400 after tax).

The Company held nine CDOs at ~~September 30, 2011.~~March 31, 2012. Four of those CDOs were written down in full prior to January 1, 2010. The remaining five CDOs have a total amortized cost of $3.8 million at ~~September 30, 2011.~~March 31, 2012. Of these, three, with a total amortized cost of $1.8 million, were identified as OTTI in prior periods. The final two CDOs, with a total amortized cost of $2.0 million, continue to pay principal and interest payments in accordance with the contractual terms of the securities and no credit loss impairment has been identified in management’s analysis. Therefore, these two CDO investments have not been deemed by management to be OTTI.

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

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

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

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

Fundamental to this evaluation is an assessment of the likelihood of CDO coverage test failures that would have the effect of diverting cash flow away from the relevant CDO bond for some period of time. Generally speaking, the Company adjusts indicative credit spreads upwards in the case of CDOs that have relatively weaker collateral and/or less cushion with respect to overcollateralization and interest coverage test ratios and downwards if the reverse is true. This aspect of the Company’s discount rate methodology is important because there is frequently a great difference in the risks present in CDO instruments that are otherwise very similar (i.e. CDOs with the same basic type of collateral, the same

manager, the same vintage, etc., may exhibit vastly different performance characteristics). With respect to this last point, First Defiance notes that given today’s credit environment, characterized by high default and deferral rates, it is typically the case that deal-specific credit performance (determined on the basis of the credit characteristics of remaining collateral) is the best indicator of what a willing market participant would pay for an instrument.

The Company uses the same methodology for all of its CDOs and believes its valuation methodology is appropriate for all of its CDOs in accordance with FASB ASC Topic 320 as well as other related guidance.

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

The following table details the seven securities with ~~OTTI,~~other-than-temporary impairment, their lowest credit rating at ~~September 30, 2011~~March 31, 2012 and the related credit losses recognized in earnings for the three month ~~periods~~period ended March 31, ~~2011, June 30, 2011 and September 30, 2011~~2012 (In Thousands):

   Preferred
Term VI    TPREF
Funding II    Alesco
VIII    Preferred
Term
Security
XXVII    Trapeza
CDO I    Alesco
Preferred
Funding
VIII    Alesco
Preferred
Funding
IX
   Rated Ca    Rated Caa3    Rated Ca    Rated C    Rated Ca    Not Rated    Not Rated    Total
Cumulative OTTI related to credit loss at January 1, 2011
   $ 80       $ 318       $ 1,000       $ 76       $ 857       $ 453       $ 465       $ 3,249
Addition – Qtr 1
   —         —         —         2       —         —         —         2
















Cumulative OTTI related to credit loss at March 31, 2011
   $ 80       $ 318       $ 1,000       $ 78       $ 857       $ 453       $ 465       $ 3,251
















Addition – Qtr 2
   —         —         —         —         —         —         —         —
















Cumulative OTTI related to credit loss at June 30, 2011
   $ 80       $ 318       $ 1,000       $ 78       $ 857       $ 453       $ 465       $ 3,251
















Addition – Qtr 3
   —         —         —         —         —         —         —         —
















Cumulative OTTI related to credit loss at September 30, 2011
   $ 80       $ 318       $ 1,000       $ 78       $ 857       $ 453       $ 465       $ 3,251


	Preferred Term VI		TPREF Funding II		Alesco VIII		Preferred Term Security XXVII		Trapeza CDO I		Alesco Preferred Funding VIII		Alesco Preferred Funding IX

	Rated Caa1		Rated Caa3		Rated Ca		Rated C		Rated Ca		Not Rated		Not Rated		Total
Cumulative OTTI related to credit loss at January 1, 2012	$	80	$	318	$	1,000	$	78	$	857	$	453	$	465	$	3,251

Addition – Qtr 1		—		—		—		—		—		—		—		—

Cumulative OTTI related to credit loss at March 31, 2012	$	80	$	318	$	1,000	$	78	$	857	$	453	$	465	$	3,251

The amount of OTTI recognized in accumulated other comprehensive income (“AOCI”) was ~~$854,000~~$836,000 for the above securities at ~~September 30, 2011.~~March 31, 2012. There was ~~$820,000~~$808,000 recognized in AOCI at ~~December~~March 31, ~~2010.~~2011.

The following table provides additional information related to the five CDO investments for which a balance remains as of ~~September 30, 2011~~March 31, 2012 (dollars in thousands):


CDO	Class		Amortized Cost		Fair Value		Unrealized Loss		OTTI Losses 2011		Lowest Rating		Current Number of Banks and Insurance Companies		Actual Deferrals and Defaults as a % of Current Collateral			Expected Deferrals and Defaults as a % of Remaining Performing Collateral			Excess Sub-ordination as a % of Current Performing Collateral			Class		Amortized Cost		Fair Value		Unrealized Loss		OTTI Losses 2012		Lowest Rating		Current Number of Banks and Insurance Companies		Actual Deferrals and Defaults as a % of Current Collateral			Expected Deferrals and Defaults as a % of Remaining Performing Collateral			Excess Sub-ordination as a % of Current Performing Collateral

Preferred Term VI		Mezz	$	185	$	50	$	135	$	—		Ca		5		64.39	%		—	%		—	%		Mezz	$	185	$	53	$	132	$	—		Caa1		5		73.62	%		—	%		—	%

TPREF Funding II		B		677		248		429		—		Caa3		17		38.81	%		18.87	%		—			B		677		240		437		—		Caa3		17		38.81	%		16.61	%		—

I-Preferred Term Sec I		B-1		1,000		473		527		—		CCC		15		16.80	%		12.94	%		27.38	%		B-1		1,000		466		534		—		CCC		14		17.24	%		14.66	%		27.36	%

Dekania II CDO		C-1		990		443		547		—		CCC		34		3.73	%		12.49	%		31.74	%		C-1		990		433		557		—		CCC		34		—	%		13.15	%		32.36	%

Preferred Term Sec XXVII		C-1		903		153		750		2		C		33		28.14	%		23.52	%		—			C-1		903		185		718		—		C		33		28.14	%		25.26	%		4.59	%


Total			$	3,755	$	1,367	$	2,388	$	2																$	3,755	$	1,377	$	2,378	$	—

There was no OTTI recorded in the third quarter of 2011. The increase in OTTI in the first quarter of 2011 was the result of deterioration in the performance of the underlying collateral. Specifically, depreciation was driven by both realized credit events (i.e. defaults and deferrals) and weakening credit fundamentals in some of the performing collateral, which led to an increased probability of default going forward. Excluding the Preferred Term VI, the Company’s assumed average lifetime default rate ~~decreased slightly to 29.7%~~declined from 30.3% at the end of the ~~third~~first quarter 2011 ~~from~~to a rate of ~~29.8%~~28.5% at the end of the ~~third~~first quarter ~~2010 and declined from 30.2% at the end of the second quarter 2011.~~2012.

The table below presents a roll-forward of the credit losses relating to debt securities recognized in earnings for the ~~three~~period ended March 31, 2012 and ~~nine month periods ended September 30,~~March 31, 2011 ~~and 2010~~ (in thousands):

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2011		2010		2011		2010		2012		2011
	*(In thousands)*				*(In thousands)*				*(In thousands)*
Proceeds	$	—	$	—	$	1,982	$	28	$	218	$	1,982
Gross realized gains		—		—		49		6		43		49
Gross realized losses		—		—		—		—		—		—

The following table summarizes the changes within each classification of accumulated other comprehensive income for the quarters ended March 31, 2012 and 2011:

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

The following table discloses allowance for loan loss activity for the quarter ended ~~September 30,~~March 31, 2012 and 2011 by portfolio segment and impairment method ~~(in~~($ in thousands):


Quarter Ended September 30, 2011	1-4 Family Residential Real Estate			Construction		Multi- Family Residential Real Estate			Commercial Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Quarter Ended March 31, 2012																								1-4 Family Residential Real Estate			Construction		Multi- Family Residential Real Estate			Commercial Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Allowance for loans individually evaluated
Beginning Specific Allocations	$	1,610		$	—	$	146		$	12,194		$	4,440		$	36		$	—		$	18,426		$	654		$	—	$	195		$	5,400		$	969		$	—		$	—		$	7,218
Charge-Offs		(152	)		—		(78	)		(2,218	)		(2,458	)		—			—			(4,906	)		(355	)		—		(238	)		(2,867	)		(1,994	)		—			—			(5,454	)
Recoveries		—			—		—			—			—			—			—			—			—			—		—			—			—			—			—			—
Provisions		(759	)		—		392			941			183			—			—			757			206			—		198			1,978			1,038			—			—			3,420

Ending Specific Allocations	$	699		$	—	$	460		$	10,917		$	2,165		$	36		$	—		$	14,277		$	505		$	—	$	155		$	4,511		$	13		$	—		$	—		$	5,184

Allowance for loans collectively evaluated
Beginning General Allocations	$	4,320		$	47	$	1,807		$	10,250		$	3,850		$	1,603		$	227		$	22,104		$	3,441		$	63	$	2,655		$	12,240		$	5,607		$	1,856		$	174		$	26,036
Charge-Offs		(495	)		—		—			(326	)		(75	)		(290	)		(36	)		(1,222	)		(383	)		—		—			(1,391	)		(672	)		(211	)		(41	)		(2,698	)
Recoveries		38			—		—			185			342			35			11			611			55			—		—			108			30			21			14			228
Provisions		(539	)		22		370			860			1,522			88			17			2,340			(245	)		10		21			732			(285	)		(181	)		31			83

Ending General Allocations	$	3,324		$	69	$	2,177		$	10,969		$	5,639		$	1,436		$	219		$	23,833		$	2,868		$	73	$	2,676		$	11,689		$	4,680		$	1,485		$	178		$	23,649

~~The following table discloses allowance for loan loss activity for year-to-date September 30, 2011 by portfolio segment and impairment method (in thousands):~~


Year-to-Date September 30, 2011	1-4 Family Residential Real Estate			Construction			Multi- Family Residential Real Estate			Commercial Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Quarter Ended March 31, 2011																									1-4 Family Residential Real Estate			Construction			Multi- Family Residential Real Estate		Commercial Real Estate			Commercial			Home Equity and Improvement			Consumer			Total
Allowance for loans individually evaluated
Beginning Specific Allocations	$	1,741		$	13		$	230		$	10,213		$	4,362		$	36		$	—		$	16,595		$	1,741		$	13		$	230	$	10,213		$	4,362		$	36		$	—		$	16,595
Charge-Offs		(1,013	)		—			(442	)		(4,619	)		(2,664	)		—			—			(8,738	)		(145	)		—			—		(1,777	)		(206	)		—			—			(2,128	)
Recoveries		—			—			—			—			—			—			—			—			—			—			—		—			—			—			—			—
Provisions		(29	)		(13	)		672			5,323			467			—			—			6,420			180			(13	)		20		2,261			163			—			—			2,611

Ending Specific Allocations	$	699		$	—		$	460		$	10,917		$	2,165		$	36		$	—		$	14,277		$	1,776		$	—		$	250	$	10,697		$	4,319		$	36		$	—		$	17,078

Allowance for loans collectively evaluated
Beginning General Allocations	$	4,215		$	60		$	1,917		$	9,995		$	6,509		$	1,492		$	297		$	24,485		$	4,215		$	60		$	1,917	$	9,995		$	6,509		$	1,492		$	297		$	24,485
Charge-Offs		(1,074	)		—			—			(1,352	)		(311	)		(801	)		(67	)		(3,605	)		(402	)		—			—		(497	)		(129	)		(201	)		(11	)		(1,240	)
Recoveries		56			—			—			497			374			56			55			1,038			5			—			—		211			8			—			29			253
Provisions		127			9			260			1,829			(933	)		689			(66	)		1,915			569			10			16		801			(1,189	)		123			(108	)		222

Ending General Allocations	$	3,324		$	69		$	2,177		$	10,969		$	5,639		$	1,436		$	219		$	23,833		$	4,387		$	70		$	1,933	$	10,510		$	5,199		$	1,414		$	207		$	23,720

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of ~~September 30, 2011:~~March 31, 2012:


	1-4 Family Residential Real Estate		Construction		Multi- Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity & Improvement		Consumer		Total		1-4 Family Residential Real Estate		Construction		Multi-Family Residential Real Estate		Commercial Real Estate		Commercial		Home Equity & Improvement		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	699	$	—	$	460	$	10,557	$	2,055	$	36	$	—	$	13,807	$	505	$	—	$	155	$	4,511	$	13	$	—	$	—	$	5,184
Collectively evaluated for impairment		3,324		69		2,177		10,969		5,639		1,436		219		23,833		2,868		73		2,676		11,689		4,680		1,485		178		23,649
Acquired with deteriorated credit quality		—		—		—		360		110		—		—		470		—		—		—		—		—		—		—		—

Total ending allowance balance	$	4,023	$	69	$	2,637	$	21,886	$	7,804	$	1,472	$	219	$	38,110	$	3,373	$	73	$	2,831	$	16,200	$	4,693	$	1,485	$	178	$	28,833

Loans:
Loans individually evaluated for impairment	$	4,457	$	—	$	1,790	$	38,345	$	9,408	$	324	$	—	$	54,324	$	4,713	$	159	$	3,137	$	33,477	$	6,619	$	38	$	—	$	48,143
Loans collectively evaluated for impairment		185,526		35,193		125,100		602,090		330,377		125,166		19,727		1,423,179		197,947		22,741		132,256		622,515		321,085		115,330		17,662		1,429,536
Loans acquired with deteriorated credit quality		74		—		—		1,243		655		—		—		1,972		43		—		—		807		307		—		—		1,157

Total ending loans balance	$	190,057	$	35,193	$	126,890	$	641,678	$	340,441	$	125,490	$	19,726	$	1,479,475	$	202,703	$	22,900	$	135,393	$	656,799	$	328,011	$	115,368	$	17,662	$	1,478,836

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, ~~2010:~~2011:

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

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


	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011						Three Months Ended March 31, 2012
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized		Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	2,224	$	14	$	14	$	2,763	$	53	$	51	$	1,931	$	13	$	12
Residential Non Owner Occupied		2,249		28		28		2,656		64		68		2,728		23		23

Total Residential Real Estate		4,473		42		42		5,419		117		119		4,659		36		35
Construction		—		—		—		31		—		—		80		—		—
Multi-Family		1,836		16		16		2,263		73		67		2,288		16		16
CRE Owner Occupied		10,210		52		55		11,340		267		249		9,476		13		12
CRE Non Owner Occupied		19,830		184		183		19,950		674		624		15,580		91		71
Agriculture Land		1,773		17		16		2,072		39		39		1,441		14		14
Other CRE		8,483		10		7		7,869		51		42		8,044		1		1

Total Commercial Real Estate		40,296		263		261		41,231		1,031		954		34,541		119		98
Commercial Working Capital		3,346		21		21		4,260		68		71		2,210		3		3
Commercial Other		9,012		40		39		10,745		180		179		4,786		5		5

Total Commercial		12,358		61		60		15,005		248		250		6,996		8		8
Consumer		—		—		—		—		—		—		—		—		—
Home Equity and Home Improvement		311		4		3		313		11		11		38		1		1

Total Impaired Loans	$	59,274	$	386	$	382	$	64,262	$	1,480	$	1,401	$	48,602	$	180	$	158


	Three Months Ended March 31, 2011
	Average Balance		Interest Income Recognized		Cash Basis Income Recognized
Residential Owner Occupied	$	3,190	$	20	$	20
Residential Non Owner Occupied		4,840		33		37

Total Residential Real Estate		8,030		53		57
Construction		62		—		—
Multi-Family		1,330		12		10
CRE Owner Occupied		10,955		115		94
CRE Non Owner Occupied		21,030		233		203
Agriculture Land		2,371		11		12
Other CRE		7,505		12		13

Total Commercial Real Estate		41,861		371		322
Commercial Working Capital		5,175		23		27
Commercial Other		12,477		72		71

Total Commercial		17,652		95		98
Consumer		—		—		—
Home Equity and Home Improvement		315		4		4

Total Impaired Loans	$	69,250	$	535	$	491

The following table presents loans individually evaluated for impairment by class of loans as of ~~September 30, 2011:~~March 31, 2012:(In Thousands)


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	1,057	$	1,060	$	—	$	927	$	928	$	—
Residential Non Owner Occupied		1,530		1,540		—		2,629		2,638		—

Total Residential Real Estate		2,587		2,600		—		3,556		3,566		—
Construction		—		—		—		159		159		—
Multi-Family Residential Real Estate		1,009		1,010		—		2,530		2,527		—
CRE Owner Occupied		4,131		4,140		—		7,789		7,787		—
CRE Non Owner Occupied		5,641		5,647		—		8,853		8,864		—
Agriculture Land		1,462		1,464		—		1,509		1,509		—
Other CRE		948		946		—		5,734		5,733		—

Total Commercial Real Estate		12,182		12,197		—		23,885		23,893		—
Commercial Working Capital		1,541		1,546		—		2,672		2,673		—
Commercial Other		1,654		1,663		—		4,222		4,224		—

Total Commercial		3,195		3,209		—		6,894		6,897		—
Consumer		—		—		—		—		—		—
Home Equity and Home Improvement		41		41		—		37		38		—

Total loans with no allowance recorded	$	19,014	$	19,058	$	—	$	37,061	$	37,080	$	—


With an allowance recorded:
Residential Owner Occupied	$	1,061	$	1,060	$	362	$	932	$	932	$	329
Residential Non Owner Occupied		864		871		337		258		258		176

Total Residential Real Estate		1,925		1,931		699		1,190		1,190		505
Construction		—		—		—		—		—		—
Multi-Family Residential Real Estate		782		780		460		610		610		155
CRE Owner Occupied		5,610		5,618		2,192		2,980		2,981		1,428
CRE Non Owner Occupied		13,886		13,923		5,868		5,979		6,003		2,466
Agriculture Land		304		305		163		—		—		—
Other CRE		7,539		7,545		2,694		1,406		1,407		617

Total Commercial Real Estate		27,339		27,391		10,917		10,365		10,391		4,511
Commercial Working Capital		939		941		360		—		—		—
Commercial Other		5,913		5,913		1,805		29		29		13

Total Commercial		6,852		6,854		2,165		29		29		13
Consumer		—		—		—		—		—		—
Home Equity and Home Improvement		281		282		36		—		—		—

Total loans with an allowance recorded	$	37,179	$	37,238	$	14,277	$	12,194	$	12,220	$	5,184

The following table presents loans individually evaluated for impairment by class of loans as of December 31, ~~2010:~~2011:(In Thousands)


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no allowance recorded:
Residential Owner Occupied	$	1,679	$	1,685	$	—	$	981	$	984	$	—
Residential Non Owner Occupied		3,300		3,311		—		1,871		1,877		—

Total Residential Real Estate		4,979		4,996		—		2,852		2,861		—
Construction		—		—		—		—		—		—
Multi-Family Residential Real Estate		137		139		—		1,138		1,137		—
CRE Owner Occupied		4,530		4,534		—		5,868		5,879		—
CRE Non Owner Occupied		6,909		6,921		—		8,408		8,421		—
Agriculture Land		2,394		2,401		—		1,072		1,073		—
Other CRE		1,639		1,645		—		5,607		5,605		—

Total Commercial Real Estate		15,472		15,501		—		20,955		20,978		—
Commercial Working Capital		1,713		1,718		—		1,391		1,393		—
Commercial Other		4,435		4,454		—		3,444		3,453		—

Total Commercial		6,148		6,172		—		4,835		4,846		—
Consumer		—		—		—		—		—		—
Home Equity and Home Improvement		35		35		—		39		40		—

Total loans with no allowance recorded	$	26,771	$	26,843	$	—	$	29,819	$	29,862	$	—


With an allowance recorded:
Residential Owner Occupied	$	800	$	803	$	259	$	1,020	$	1,020	$	373
Residential Non Owner Occupied		3,185		3,195		1,482		726		726		281

Total Residential Real Estate		3,985		3,998		1,741		1,746		1,746		654
Construction		64		64		13		—		—		—
Multi-Family Residential Real Estate		1,193		1,194		230		298		298		195
CRE Owner Occupied		6,436		6,451		2,860		2,284		2,284		589
CRE Non Owner Occupied		13,743		13,789		5,554		8,589		8,596		3,235
Agriculture Land		315		316		163		300		300		163
Other CRE		6,554		6,558		1,636		2,676		2,676		1,413

Total Commercial Real Estate		27,048		27,114		10,213		13,849		13,856		5,400
Commercial Working Capital		3,658		3,660		1,763		358		358		192
Commercial Other		7,940		7,968		2,599		1,879		1,881		777

Total Commercial		11,598		11,628		4,362		2,237		2,239		969
Consumer		—		—		—		—		—		—
Home Equity and Home Improvement		281		282		36		—		—		—

Total loans with an allowance recorded	$	44,169	$	44,280	$	16,595	$	18,130	$	18,139	$	7,218

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

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

The following table presents the aging of the recorded investment in past due and non accrual loans as of ~~September 30,~~December 31, 2011 by class of loans:(In Thousands)

~~The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:~~~~(In Thousands)~~


	Current		30-59 days		60-89 days		90+ days		Total Past Due		Total Non Accrual
Residential Owner Occupied	$	131,014	$	1,573	$	220	$	1,996	$	3,789	$	2,490
Residential Non Owner Occupied		67,516		563		410		768		1,741		1,397

Total residential real estate		198,530		2,136		630		2,764		5,530		3,887
Construction		18,288		—		—		—		—		—
Multi-Family		125,050		1,022		—		443		1,465		443
CRE Owner Occupied		288,096		1,468		993		4,771		7,232		7,691
CRE Non Owner Occupied		243,016		921		1,990		3,384		6,295		10,398
Agriculture Land		70,490		—		—		456		456		1,275
Other Commercial Real Estate		30,056		98		—		5,951		6,049		8,342

Total Commercial Real Estate		631,658		2,487		2,983		14,562		20,032		27,706
Commercial Working Capital		137,310		—		223		242		465		1,410
Commercial Other		209,187		278		59		2,933		3,270		5,481

Total Commercial		346,497		278		282		3,175		3,735		6,891
Consumer		18,736		129		35		10		174		10
Home Equity / Home Improvement		119,400		2,602		267		394		3,263		394

Total Loans	$	1,458,159	$	8,654	$	4,197	$	21,348	$	34,199	$	39,331

The Company has allocated ~~$4.9~~$859,000 and $1.8 million, ~~and $2.3 million~~respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011. The Company has committed to lend additional amounts totaling up to ~~$4,000 and $33,000~~$64,000 as of ~~September 30, 2011 and~~ December 31, ~~2010~~2011 to customers with outstanding loans that are classified as troubled debt restructurings. No such additional commitments existed at March 31, 2012.

During the three ~~and nine~~ month ~~periods ending September 30, 2011,~~period ended March 31, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; ~~an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk;~~ a permanent reduction of the recorded investment in the loan; or some other modification deeming the loan a troubled debt restructuring.

Modifications involving a reduction of the stated interest rate of the loan were for ~~one~~two loans. One loan ~~and were~~was for the remaining maturity of ~~that~~the loan, which is in 14 ~~years. Modifications involving~~years, and the other was for 16 months, after which it will convert to an ~~extension of~~adjustable rate loan over an index at a market spread. There were 3 loans which involved a partial write-down along with new terms and 1 other loan where interest was capitalized and the ~~maturity date were for periods ranging from 4 months to 18 months.~~loan was reamortized.

The following table presents loans by class modified as troubled debt restructurings that occurred during the period ending ~~September 30, 2011:~~March 31, 2012:


	Loans Modified as a TDR for the Three Months Ended September 30, 2011								Loans Modified as a TDR for the Nine Months Ended September 30, 2011						Loans Modified as a TDR for the Three Months Ended March 31, 2012
Troubled Debt Restructurings	Number of Loans			Recorded Investment (as of Period End)		Increase in the Allowance (as of Period End)			Number of Loans		Recorded Investment (as of Period End)		Increase in the Allowance (as of Period End)		Number of Loans		Recorded Investment (as of Period End)		Increase/(Decrease) in the Allowance (as of Period End)
Residential Owner Occupied		1		$	13	$	—			2	$	29	$	—		2	$	148	$	(14	)
Residential Non Owner Occupied																1		83		—
CRE Owner Occupied		2			553		—			3		698		434		2		951		—
CRE Non Owner Occupied		3	��		3,433		240			4		5,148		1,397		0		—		—
Home Equity/Improvement		1			23		(7	)		1		23		—
Agriculture Land																1		339		(1	)
Commercial / Industrial																—		—		—
Home Equity / Improvement																—		—		—

Total		7		$	4,022	$	233			10	$	5,898	$	1,831		6	$	1,521	($	15	)

The troubled debt restructurings described above ~~increased~~decreased the allowance for loan losses by ~~$233,000 and $1.8 million~~$15,000 for the ~~three and nine months ending September 30, 2011, and resulted in $78,000~~quarter ended March 31, 2012, after $700,000 of ~~charge offs~~charge-offs during the ~~three and nine months ending September 30, 2011.~~quarter ended March 31, 2012.

There ~~was one loan~~were no loans that defaulted during 2012 which had been modified within one year of the ~~three and nine months ending September 30, 2011 that was modified as a troubled debt restructured loan within the prior 12 months.~~default date. A default for purposes of this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due.

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

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

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

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

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make

collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of ~~September 30,~~March 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:(In Thousands)

As of December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:(In Thousands)

Category
   Pass    Special
Mention    Substandard    Doubtful    Not
Graded    Total
Residential Owner Occupied
   $ 6,285       $ 220       $ 3,847       $ —         $ 111,466       $ 121,818
Residential Non Owner Occupied
   49,426       4,001       7,912       —         6,900       68,239












Total residential real estate
   55,711       4,221       11,759       —         118,366       190,057
Construction
   27,984       114       393       —         6,702       35,193
Multi Family
   118,464       2,944       4,349       —         1,133       126,890
CRE Owner Occupied
   246,325       10,112       29,015       —         129       285,581
CRE Non Owner Occupied
   208,779       3,465       36,493       —         161       248,898
Agriculture Land
   65,509       902       3,176       —         —         69,587
Other CRE
   21,985       2,038       12,413       —         1,176       37,612












Total Commercial Real Estate
   542,598       16,517       81,097       —         1,466       641,678
Commercial Working Capital
   120,909       11,155       9,102       —         —         141,166
Commercial Other
   167,722       11,960       19,593       —         —         199,275












Total Commercial
   288,631       23,115       28,695       —         —         340,441
Consumer
   —         —         76       15       19,635       19,726
Home Equity/Improvement
   —         —         992       —         124,498       125,490












Total
   $ 1,033,388       $ 46,911       $ 127,361       $ 15       $ 271,800       $ 1,479,475

~~As of December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:~~~~(In Thousands)~~


Category	Pass		Special Mention		Substandard		Doubtful		Not Graded		Total
Residential Owner Occupied	$	5,496	$	205	$	4,383	$	—	$	124,720	$	134,804
Residential Non Owner Occupied		48,653		2,965		8,408		—		9,231		69,257

Total residential real estate		54,149		3,170		12,791		—		133,951		204,061
Construction		13,417		—		127		—		4,744		18,288
Multi Family		117,699		3,519		4,186		—		1,111		126,515
CRE Owner Occupied		256,861		12,058		26,323		—		84		295,326
CRE Non Owner Occupied		210,113		5,390		33,656		—		152		249,311
Agriculture Land		66,484		1,723		2,740		—		—		70,947
Other CRE		21,616		2,687		10,661		—		1,141		36,105

Total Commercial Real Estate		555,074		21,858		73,380		—		1,377		651,689
Commercial Working Capital		125,149		6,125		6,501		—		—		137,775
Commercial Other		182,964		10,328		19,165		—		—		212,457

Total Commercial		308,113		16,453		25,666		—		—		350,232
Consumer		—		—		63		10		18,837		18,910
Home Equity/Improvement		—		—		1,734		—		120,928		122,662

Total	$	1,048,452	$	45,000	$	117,947	$	10	$	280,948	$	1,492,357

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2011			2010			2011			2010			2012			2011
	*(in thousands)*						*(in thousands)*						*(in thousands)*
Gain from sale of mortgage loans	$	2,128		$	2,886		$	3,954		$	5,262		$	2,544		$	726
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		852			761			2,529			2,263			844			845
Amortization of mortgage servicing rights		(553	)		(798	)		(1,349	)		(1,634	)		(864	)		(454	)
Mortgage servicing rights valuation adjustments		(1,072	)		(527	)		(585	)		(777	)		(79	)		171

		(773	)		(564	)		595			(148	)		(99	)		562

Net revenue from sale and servicing of mortgage loans	$	1,355		$	2,322		$	4,549		$	5,114		$	2,445		$	1,288

The unpaid principal balance of residential mortgage loans serviced for third parties was $1.3 billion for ~~September 30, 2011~~March 31, 2012 and ~~$1.2 billion for September 30, 2010.~~December 31, 2011.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010:~~2011:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010			March 31, 2012			March 31, 2011
	*(in thousands)*						*(in thousands)*						*(in thousands)*
Mortgage servicing assets:
Balance at beginning of period	$	10,477		$	10,448		$	10,602		$	10,436		$	10,219		$	10,602
Loans sold, servicing retained		446			894			1,117			1,742			749			362
Amortization		(553	)		(798	)		(1,349	)		(1,634	)		864			(454	)

Carrying value before valuation allowance at end of period		10,370			10,544			10,370			10,544			10,106			10,510
Valuation allowance:
Balance at beginning of period		(638	)		(1,728	)		(1,125	)		(1,478	)		(1,529	)		(1,125	)
Impairment recovery (charges)		(1,072	)		(527	)		(585	)		(777	)
Impairment (expense) recovery														(79	)		171

Balance at end of period		(1,710	)		(2,255	)		(1,710	)		(2,255	)		(1,608	)		(954	)

Net carrying value of MSRs at end of period	$	8,660		$	8,289		$	8,660		$	8,289		$	8,498		$	9,556

Fair value of MSRs at end of period	$	8,660		$	8,289		$	8,660		$	8,289		$	8,498		$	9,556

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily ~~estimable~~.


	September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
Non-interest-bearing checking accounts	$	239,594	$	216,699	$	265,716	$	245,927
Interest-bearing checking and money market accounts		607,965		555,434		665,889		609,057
Savings accounts		155,244		144,491		165,325		155,101
Retail certificates of deposit less than $100,000		429,686		465,774		383,471		387,607
Retail certificates of deposit greater than $100,000		143,477		151,258		183,420		187,913
Brokered or national certificates of deposit		14,014		41,763		7,549		10,636

	$	1,589,980	$	1,575,419	$	1,671,370	$	1,596,241

First Defiance’s debt, ~~Federal Home Loan Bank (“FHLB”)~~FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts are comprised of the following:


	September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
	*(in thousands)*				*(in thousands)*
FHLB Advances:
Overnight borrowings					$	—	$	—
Single maturity fixed rate advances	$	20,000	$	35,000		20,000		20,000
Putable advances		44,000		54,000		44,000		44,000
Strike-rate advances		17,000		27,000		17,000		17,000
Amortizable mortgage advances		852		885		830		841

Total	$	81,852	$	116,885	$	81,830	$	81,841


Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083	$	36,083	$	36,083

The putable advances can be put back to the Company at the option of the FHLB on a quarterly basis. ~~As of September 30, 2011,~~ $14.0 million of the putable advances with a weighted average rate of 2.69% ~~were~~are not yet callable by the FHLB. The call dates for these advances range from ~~October 14, 2011~~April 16, 2012 to ~~December~~June 12, ~~2011~~2012 and the maturity dates range from February 11, 2013 to March 12, 2018. The FHLB has the option to call the remaining $30.0 million of putable advances with a weighted average rate of 4.76%. The maturity dates of these advances range from October 28, 2013 to January 14, 2015. The strike-rate advances are putable at the option of the FHLB only when the three month LIBOR rates exceed the agreed upon strike-rate in the advance contract which ranges from 7.5% to 8.0%. The three month LIBOR rate at ~~September 30, 2011~~March 31, 2012 was ~~0.37%~~0.47%. The weighted average rate of the strike-rate advances is 3.61% and the maturity dates range from October 15, 2012 to February 25, 2013.

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (Trust Affiliate II) that issued ~~$15.0~~$15 million of Guaranteed Capital Trust Securities (Trust Preferred

Securities). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (Subordinated Debentures) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a fixed rate equal to 6.441% for the first five years and a floating interest rate based on three-month LIBOR plus 1.50% points, repricing quarterly, thereafter. The rate will switch to the floating interest rate on June 15, 2012.

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (Trust Affiliate I), that issued ~~$20.0~~$20 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was ~~1.75%~~1.85% and ~~1.67%~~1.73% on ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 respectively.

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

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

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

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

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


	September 30, 2011				December 31, 2010				March 31, 2012				December 31, 2011
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	49,389	$	61,582	$	26,382	$	48,801	$	54,405	$	36,466	$	38,399	$	47,037
Unused lines of credit		25,827		178,161		34,735		193,092		26,649		214,369		24,943		184,446
Standby letters of credit		0		20,243		0		21,533		0		20,772		4,600		21,507

Total	$	75,216	$	259,986	$	61,117	$	263,426	$	81,054	$	271,607	$	67,942	$	252,990

In addition to the above commitments, First Defiance had commitments to sell ~~$57.2~~$59.4 million and ~~$34.7~~$34.5 million of loans to Freddie Mac, Fannie Mae, ~~FHLB~~Federal Home Loan Bank of Cincinnati or BB&T Mortgage at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Indiana. The Company is no longer subject to examination by taxing authorities for years before 2007. The Company currently operates primarily in the states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. First Federal had approximately ~~$45.9~~$49.7 million and ~~$24.9~~$21.7 million of interest rate lock commitments at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively. There were ~~$57.2~~$59.4 million and ~~$34.7~~$34.4 million of forward commitments for the future delivery of residential mortgage loans at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively.

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


	September 30, 2011							December 31, 2010						March 31, 2012							December 31, 2011
	Assets		(Liabilities)					Assets		(Liabilities)				Assets		(Liabilities)					Assets		(Liabilities)
	Carrying Value		Carrying Value			Derivative Net Carrying Value		Carrying Value		Carrying Value		Derivative Net Carrying Value		Carrying Value		Carrying Value			Derivative Net Carrying Value		Carrying Value		Carrying Value			Derivative Net Carrying Value
	*(In Thousands)*													*(In Thousands)*
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives	$	1,716	$	(578	)	$	1,137	$	265	$	—	$	265	$	1,037	$	(157	)	$	880	$	865	$	(258	)	$	607

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2011		2010		2011		2010		2012		2011
	*(In Thousands)*				*(In Thousands)*				*(In Thousands)*
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	734	$	760	$	782	$	864	$	273	$	(162	)

The above amounts are included in mortgage banking income with gain on sale of mortgage loans. During the first quarter of 2011, management determined that a group of loans, previously classified as held for sale, were no longer sellable and were transferred back into the portfolio. As a result, a $90,000 loss related to a fair value adjustment on those loans was recorded in the first quarter of 2011.

~~During the first quarter of~~In March 2011, the Company completed its previously announced underwritten public common stock offering by issuing 1,600,800 shares of the Company’s common stock, including 208,800 shares issued pursuant to the exercise of the underwriter’s over-allotment option, at a price of $13.25 per share for gross proceeds of $21.2 million. The net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were $19.9 million.

On July 1, 2011, First Defiance acquired ~~PDI, an insurance agency~~Payak-Dubbs Insurance Agency, Inc. (“PDI”), headquartered in Maumee and Oregon, Ohio for a cash purchase price $4.8 million and future consideration to be paid in cash in 2012 and 2013. As of ~~September 30,~~December 31, 2011, management ~~has preliminarily~~ reported goodwill of approximately $4.0 million and identifiable intangible assets of ~~$1.4~~$1.5 million consisting of customer relationship intangible of ~~$896,000~~$947,000 and a non-compete intangible of ~~$526,000.~~$518,000. The customer relationship and non-compete intangibles were $818,000 and $440,000, respectively, at March 31, 2012. A contingent payable of $626,000 was also recorded in the transaction and is still outstanding at March 31, 2012. The Company accounted for the transaction under the acquisition method of accounting which

requires purchased assets and assumed liabilities to be recorded at their respective acquisition date fair value. ~~Fair values are preliminary and subject~~Disclosure of pro forma results of this acquisition is not material to ~~revision until final values are determined by management, which is expected to occur by December 31, 2011 and cannot extend beyond one year after~~ the ~~closing date of the acquisition.~~Company’s consolidated financial statements.

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

General - First Defiance is a unitary thrift holding company that conducts business through its two wholly owned subsidiaries, First Federal and First Insurance. First Federal is a federally chartered savings bank that provides financial services through 33 full service banking centers in communities based in northwest Ohio, northeast Indiana, and southeastern Michigan. First Federal provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust ~~services.~~and wealth management services through its extensive branch network. First Insurance sells a variety of property and casualty, group health and life, and individual health and life insurance ~~products and investment and annuity~~ products. Insurance products are sold through First Insurance’s offices in Defiance, Archbold, ~~Maumee, Oregon,~~ Bryan, ~~and~~ Bowling Green, Maumee and Oregon, Ohio ~~while investment and annuity products are sold through registered investment representatives located at certain First Federal banking center locations.~~areas.

Business Strategy - First Defiance’s primary objective is to be a high performing community banking organization, well regarded in its market areas. First Defiance accomplishes this through emphasis on local decision making and empowering its employees with tools and knowledge to serve its customers’ needs. First Defiance believes in a “Customer First” philosophy that is strengthened by its Trusted Advisor initiative. First Defiance also has a tagline of “Bank with the people you know and trust” as an indication of its commitment to local, responsive, personalized service. First Defiance believes this strategy results in greater customer loyalty and profitability through core relationships. First Defiance is focused on diversification of revenue sources and increased market penetration in areas where the growth potential exists for a balance between acquisition and organic growth. The primary segments of First Defiance’s business strategy are commercial banking, consumer banking, including the origination and sale of single family residential loans, enhancement of fee income, wealth management and insurance sales, each united by a strong customer service culture throughout the organization. In ~~2011,~~2012, management intends to continue to focus on asset quality, core deposit growth, expense control as well as other opportunities to further service our customers.

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

lending programs. Maintaining a diversified portfolio with an emphasis on monitoring industry

concentrations and reacting to changes in the credit characteristics of industries is an ongoing focus.

Consumer Banking - - First Federal offers customers a full range of deposit and investment products including demand, NOW, money market, certificates of deposit, CDARS and savings accounts. First Federal offers a full range of investment products through the wealth management department and a wide variety of consumer loan products, including residential mortgage loans, home equity loans, installment loans and education loans. First Federal also offers online banking services, which include online bill pay along with debit cards.

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

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

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

Expansion Opportunities - - First Defiance believes it is well positioned to take advantage of acquisitions or other business opportunities in its market areas, including FDIC-assisted transactions. First Defiance believes it has a track record of successfully accomplishing both acquisitions and de novo branching in its market area. This track record puts the Company in a solid position to enter or expand its business. First Defiance has successfully integrated acquired ~~banking~~ institutions in the past with the most recent acquisition completed in 2008. First Defiance will continue to be disciplined as well as opportunistic in its approach to future acquisitions and de novo branching with a focus on its primary geographic market area, which it knows well and has been competing in for a long period of time. First Defiance completed its

acquisition of ~~Payak-Dubbs Insurance Agency Inc. (“PDI”),~~PDI, on July 1, 2011, which was merged into First Insurance with offices located in Maumee and Oregon, ~~Ohio~~Ohio.

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

Securities are classified as held-to-maturity when First Defiance has the positive intent and ability to hold the security to maturity. Held-to-maturity securities are stated at amortized cost and had a recorded value of ~~$736,000~~$644,000 at ~~September 30, 2011.~~March 31, 2012. Securities not classified as held-to-maturity are classified as available-for-sale, which are stated at fair value and had a recorded value of ~~$232.6~~$243.0 million at ~~September 30, 2011.~~March 31, 2012. The available-for-sale portfolio consists of obligations of U.S. Government corporations and agencies ($~~20.1~~20.0 million), certain municipal obligations ($73.7 million), CMOs and REMICs ($66.7 million), corporate bonds ($8.6 million), mortgage backed securities ($70.6 million), U.S. treasury bonds ($2.0 ~~million), certain municipal obligations ($70.2 million), CMOs and REMICs ($66.8 million), corporate bonds ($8.2 million), mortgage backed securities ($63.8~~ million) and trust preferred and preferred stock ($1.5 million).

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

Lending - In order to properly assess the collateral dependent loans included in its loan portfolio, the Company has established policies regarding the monitoring of the collateral underlying such loans. The Company ~~generally~~ requires an appraisal that is less than one year old for all new collateral dependent real estate loans, and all renewed collateral dependent real estate loans where significant new money is extended. The appraisal process is handled by the Credit Department, which selects the appraiser and orders the appraisal. First Defiance’s loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making their determination of value.

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

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

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

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

All loans over 90 days past due ~~and~~ and/or on non-accrual as well as all ~~troubled debt restructured~~Troubled Debt Restructured loans are classified as non-performing loans. Non-performing status automatically occurs in the month in which the 90 day delinquency occurs. For Troubled Debt Restructured loans, the loans are put into non-performing status in the month in which the restructure occurs.

As stated above, once a collateral dependent loan is identified as non-performing, First Federal generally gets an appraisal. Troubled debt ~~restructured~~restructure collateral dependent loans receive an appraisal as part of the restructure credit decision.

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

Any partially charged-off collateral dependent loans are considered non-performing, and as such, would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before First Federal will consider an upgrade to performing status. If the loan maintains a rate at restructuring that is lower than the market rate for similar credits, the loan will remain classified as a troubled debt restructuring until such time as it is paid off or restructured at prevailing rates and terms. First Federal may consider moving the loan to an accruing status after six months of satisfactory payment performance.

For loans where First Federal determines that an updated appraisal is not necessary, other means are used to verify the value of the real estate, such as recent sales of similar properties on which First Federal had loans as well as calls to appraisers, brokers, realtors and investors. First Federal monitors and tracks its reserves quarterly to determine accuracy. Based on these results, changes may occur in ~~specific reserves assigned.~~the processes used. The most recent analysis indicates that ~~First Federal is within its target range of the ultimate losses on liquidated loans being~~our actual charge-offs are on average within 10% of the specific reserves previously established for these loans.

Loan modifications constitute a troubled debt restructuring if First Federal for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. For loans that are considered troubled debt restructurings, First Federal either computes the present value of expected future cash flows discounted at the original loan’s effective interest rate or, as a practical expedient, it may measure

impairment based on the observable market price of the loan or the fair value of the collateral ~~if the~~even though troubled debt restructurings are not expected to be deemed

collateral dependent. If the troubled debt restructuring is deemed collateral dependent, then reserves are calculated based on the fair value of the collateral. The difference between the carrying value and fair value of the loan is recorded as a valuation allowance.

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

During the first quarter of 2011, the Company completed ~~its previously announced~~an underwritten public common stock offering by issuing 1,600,800 shares of the Company’s common stock, including 208,800 shares issued pursuant to the exercise of the underwriter’s over-allotment option, at a price of $13.25 per share for gross proceeds of $21.2 million. The net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses were $19.9 million.

On December 5, 2008, as part of the CPP, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the U.S. Treasury, pursuant to which the Company sold $37.0 million shares of newly authorized Fixed Rate Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation value $1,000 per share (“Senior Preferred Shares”) and also issued warrants (the “Warrants”) to the U.S. Treasury to acquire an additional 550,595 of common shares having an exercise price of $10.08 per share. The Warrants have a term of 10 years.

The Senior Preferred Shares qualify as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Senior Preferred Shares may be redeemed by the Company after three years. The Senior Preferred Shares are not subject to any contractual restrictions on transfer, except that the U.S. Treasury or any its transferees may ~~not~~ affect any transfer that, as a result of such transfer, would require the Company to become subject to the periodic reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.

Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, its common shares will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share of $0.26 declared on the common stock prior to October 14, 2008. The redemption, purchase or other acquisition of trust preferred securities of

the Company or its affiliates also will be restricted. These restrictions ~~will terminate~~terminated on ~~the earlier of (a) December 5, 2011,~~ the third anniversary of the date of issuance of the Senior

Preferred Shares ~~and (b) the date on which the Senior Preferred Shares have been redeemed in whole or the U.S. Treasury has transferred all of the Senior Preferred Shares to third parties,~~ except that, after the third anniversary of the date of issuance of the Senior Preferred Shares, ~~if the Senior Preferred Shares remain outstanding at such time,~~ the Company may not increase its common dividends per share without obtaining consent of the U.S. Treasury.

The Purchase Agreement also subjects the Company to certain of the executive compensation limitations included in the Emergency Economic Stabilization Act of 2008 (the “EESA”). As a condition to the closing of the transaction, the Company’s Senior Executive Officers (as defined in the Purchase Agreement) (the “Senior Executive Officers”), (i) voluntarily waived any claim against the U.S. Treasury or the Company for any changes to such officer’s compensation or benefits that are required to comply with the regulation issued by the U.S. Treasury under the CPP and acknowledged that the regulation may require modification of the compensation, bonus, incentive and other benefit plans, arrangements and policies and agreements as they relate to the period the U.S. Treasury owns the Senior Preferred Shares of the Company; and (ii) entered into a letter agreement with the Company amending the Benefit Plans with respect to such Senior Executive Officers as may be necessary, during the period that the U.S. Treasury owns the Senior Preferred Shares, as necessary to comply with Section 111(b) of the EESA.

The Company intends to redeem the Senior Preferred Shares and the Warrants as soon as it is prudent to do so. However, there are three factors the Company will continue to consider when evaluating redemption: (a) evidence of a sustained economic recovery, (b) the Company’s sustained profitable performance with growth in earnings, and (c) additional clarity of any new regulatory capital thresholds. The Company anticipates that it will redeem the Senior Preferred Shares and the Warrants within five years from the date of issuance, December 5, 2013, utilizing existing funds at that time. The ~~companies’~~Companies’ earnings and capital levels have steadily improved over the past several quarters and the Company has seen improvement in the economic environment it operates. While the Company still believes that more clarity of any new capital level requirements is necessary, the Company feels that its overall financial position has improved to a level that would indicate a higher likelihood that the company would request approval for the ~~repayment~~redemption of ~~TARP~~the CPP equity in the near term.

Certain statements contained in this quarterly report are not historical facts, including but not limited to statements that can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, or “continue” or the negative thereof or other variations thereon or comparable terminology are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Act of 1934, as amended. Actual results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of market and other factors. The Company assumes no obligation to update any forward-looking statements.

At ~~September 30, 2011,~~March 31, 2012, First Defiance’s total assets, deposits and stockholders’ equity amounted to ~~$2.06~~$2.14 billion, ~~$1.59~~$1.67 billion and ~~$275.1~~$281.4 million, respectively, compared to ~~$2.04~~$2.07 billion, ~~$1.58~~$1.60 billion and ~~$240.3~~$278.1 million, respectively, at December 31, ~~2010.~~2011.

Net loans receivable (excluding loans held for sale) declined ~~$56.0~~$8.7 million to ~~$1.42 billion from $1.48 billion at December 31, 2010.~~$1.45 billion. The variances in loans receivable between ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 include decreases in commercial ~~real estate~~ loans (down ~~$553,000), commercial loans (down $30.8~~$22.1 million), home equity and improvement loans (down ~~$8.6~~$7.3 million), consumer loans (down ~~$3.1~~$1.2 million) and one to four family residential real estate loans (down ~~16.3 million)~~$1.3 million while commercial real estate and construction loans increased ~~$4.9 million. Included in net loans receivable are $10.7~~$14.2 million ~~of one to four family residential real estate loans purchased in the first quarter of 2011. Also included in net loans receivable are $7.6~~and $4.8 million, ~~of mortgage loans transferred from loans held for sale in the first nine months of 2011. These loans were identified by management as having rates too low to sell into the secondary market.~~respectively.

The investment securities portfolio increased ~~$67.3~~$10.0 million to ~~$233.4~~$243.6 million at ~~September 30, 2011~~March 31, 2012 from ~~$166.1~~$233.6 million at December 31, ~~2010.~~2011. The increase is the result of ~~$87.8~~$26.8 million of securities being purchased during the first ~~nine~~three months of ~~2011,~~2012, offset by ~~$11.1~~$7.1 million of securities maturing or being called in the period, principal pay downs of ~~$17.4~~$9.3 million in CMOs and mortgage-backed securities, and ~~$1.9 million~~$175,000 of securities being sold. There was an unrealized gain in the investment portfolio of ~~$7.0~~$7.1 million at ~~September 30, 2011~~March 31, 2012 compared to an unrealized gain of ~~$49,000~~$7.2 million at December 31, ~~2010.~~2011.

Deposits increased from ~~$1.58~~$1.60 billion at December 31, ~~2010~~2011 to ~~$1.59~~$1.67 billion as of ~~September 30, 2011.~~March 31, 2012. Of the ~~$14.6~~$75.1 million increase, interest-bearing demand deposits and money market accounts increased ~~$52.5~~$56.8 million to ~~$608.0~~$665.9 million, savings accounts increased ~~$10.8~~$10.2 million to ~~$155.2~~$165.3 million and non-interest-bearing demand deposits increased ~~$22.9~~$19.8 million to ~~$239.6~~$265.7 million. These increases were ~~partially~~slightly offset by ~~decreases~~a decline in retail time deposits of ~~$43.9~~$8.6 million to ~~$573.2~~$566.9 million and broker/national certificates of deposit ~~of $27.7~~decreasing by $3.1 million to ~~$14.0~~$7.5 million.

FHLB advances decreased $35.0 million to $81.9 million at September 30, 2011 from $116.9 million at December 31, 2010. The decrease is the result of paying off a $10.0 million putable advance and a $10.0 million strike-rate advance, both at maturity, in the first quarter of 2011. The Company also paid off a $15.0 million single maturity fixed rate advance in the third quarter of 2011 at maturity.

Stockholders’ equity increased from ~~$240.3~~$278.1 million at December 31, ~~2010~~2011 to ~~$275.1~~$281.4 million at ~~September 30, 2011. First Defiance completed an underwritten public common stock offering~~March 31, 2012. The increases in stockholders’ equity were the ~~first quarter of 2011 by issuing 1,600,800 shares of the Company’s common stock. As a~~ result of ~~the common stock offering, total equity increased a net $19.9 million. The other increases resulted from~~recording net income of ~~$11.5~~$4.2 million ~~and a $4.5 million unrealized gain on available-for-sale securities~~ partially offset by ~~$1.4 million~~$491,000 of common stock dividends being paid and $462,000 of accrued dividends on preferred stock.

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


	Three Months Ended September 30,														Three Months Ended March 31,
	2011							2010							2012							2011
	Average Balance		Interest(1)		Yield/ Rate(2)			Average Balance		Interest(1)		Yield/ Rate(2)			Average Balance		Interest(1)		Yield/ Rate(2)			Average Balance		Interest(1)		Yield/ Rate(2)
Interest-earning assets:
Loans receivable	$	1,419,987	$	19,519		5.45	%	$	1,545,378	$	22,266		5.72	%	$	1,456,807	$	18,678		5.16	%	$	1,457,736	$	20,257		5.64	%
Securities		220,040		2,220		4.10			159,045		1,814		4.64			237,541		2,145		3.76			171,089		1,908		4.54
Interest-earning deposits		183,199		110		0.24			98,112		68		0.27
FHLB stock and other		20,655		203		3.90			21,376		225		4.18
Interest bearing deposits																164,390		92		0.23			179,079		101		0.23
FHLB stock																20,655		229		4.46			21,012		235		4.54

Total interest-earning assets		1,843,881		22,052		4.76			1,823,911		24,373		5.31			1,879,393		21,144		4.54			1,828,916		22,501		4.99
Non-interest-earning assets		212,230							221,924							201,109							215,471

Total assets	$	2,056,111						$	2,045,835						$	2,080,502						$	2,044,387


Interest-bearing liabilities:
Deposits	$	1,353,009	$	2,791		0.82	%	$	1,385,093	$	4,667		1.34	%	$	1,365,021	$	2,369		0.70	%	$	1,370,007	$	3,594		1.06	%
FHLB advances		88,146		768		3.46			123,566		1,187		3.81			81,834		751		3.69			107,750		906		3.41
Notes payable		55,149		127		0.91			44,927		109		0.96			53,403		104		0.78			54,079		130		0.97
Subordinated debentures		36,195		333		3.65			36,229		332		3.64			36,198		331		3.68			36,231		326		3.65

Total interest-bearing liabilities		1,532,499		4,019		1.04			1,589,815		6,295		1.57			1,536,456		3,555		0.93			1,568,067		4,956		1.28
Non-interest bearing deposits		230,164		—					200,207		—					245,254		—					220,610		—

Total including non-interest bearing demand deposits		1,762,663		4,019		0.90			1,790,022		6,295		1.40			1,781,710		3,555		0.80			1,788,677		4,956		1.12
Other non-interest-bearing liabilities		21,712							15,104							18,944							14,185

Total liabilities		1,784,375							1,805,126							1,800,654							1,802,862
Stockholders’ equity		271,736							240,709							279,848							241,525

Total liabilities and stock-holders’ equity	$	2,056,111						$	2,045,835						$	2,080,502						$	2,044,387

Net interest income; interest rate spread			$	18,033		3.72	%			$	18,078		3.74	%			$	17,589		3.61	%			$	17,545		3.71	%

Net interest margin (3)						3.89	%						3.94	%						3.78	%						3.89	%

Average interest-earning assets to average interest-bearing liabilities						120	%						115	%						122	%						117	%

   Nine Months Ended September 30,
   2011 2010
   Average
Balance    Interest(1)    Yield/
Rate(2) Average
Balance    Interest(1)    Yield/
Rate(2)
Interest-earning assets:

Loans receivable
   $ 1,436,505       $ 59,650       5.57 % $ 1,552,393       $ 67,216       5.79 %
Securities
   195,640       6,218       4.33    152,318       5,364       4.79
Interest-earning deposits
   190,776       351       0.25    107,608       198       0.25
FHLB stock and other
   20,890       662       4.25    21,376       678       4.24









Total interest-earning assets
   1,843,811       66,881       4.86    1,833,695       73,456       5.36
Non-interest-earning assets
   211,388          218,060





Total assets
   $ 2,055,199          $ 2,051,755





Interest-bearing liabilities:

Deposits
   $ 1,362,239       $ 9,648       0.95 % $ 1,393,747       $ 15,192       1.46 %
FHLB advances
   97,610       2,442       3.35    130,745       3,625       3.71
Notes payable
   55,341       397       0.96    45,731       329       0.96
Subordinated debentures
   36,219       945       3.50    36,229       982       3.62









Total interest-bearing liabilities
   1,551,409       13,432       1.16    1,606,452       20,128       1.67
Non-interest bearing deposits
   226,287       —         192,673       —









Total including non-interest bearing demand deposits
   1,777,696       13,432       1.01    1,799,125       20,128       1.50
Other non-interest-bearing liabilities
   17,568          14,871





Total liabilities
   1,795,264          1,813,996
Stockholders’ equity
   259,935          237,759





Total liabilities and stock-holders’ equity
   $ 2,055,199          $ 2,051,755





Net interest income; interest rate spread
      $ 53,449       3.70 %    $ 53,328       3.69 %








Net interest margin (3)
         3.89 %       3.89 %




Average interest-earning assets to average interest-bearing liabilities
         119 %       114 %

On a consolidated basis, First Defiance’s net income for the quarter ended ~~September 30, 2011~~March 31, 2012 was ~~$4.1~~$4.2 million compared to net income of ~~$2.3~~$2.7 million for the comparable period in ~~2010.~~2011. Net income applicable to common shares was $3.6 million for the ~~third~~first quarter of ~~2011~~2012 compared to ~~$1.8~~$2.2 million for the comparable period in ~~2010.~~2011. On a per share basis, basic and diluted earnings per common share for the three months ended ~~September 30, 2011~~March 31, 2012 were both $0.37, ~~and $0.36, respectively,~~ compared to basic and diluted earnings per common share of ~~$0.22~~$0.25 for the quarter ended ~~September 30, 2010.~~March 31, 2011.

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

As demand for new lending opportunities ~~has~~ remained soft ~~through the third quarter of~~in 2011 and into 2012, the Company ~~invested some~~accelerated its strategy to increase investment security purchases by selectively deploying lower yielding overnight deposits into investment securities on the short to intermediate end of the yield curve. This will continue in 2012 as management deems it appropriate within its liquidity ~~in investment securities.~~strategy and until management sees evidence of sustainable net loan growth.

Net interest income was ~~$17.6~~$17.2 million for the quarter ended ~~September 30, 2011~~March 31, 2012; relatively flat with the same period in 2011. The tax-equivalent net interest margin was 3.78% for the quarter ended March 31, 2012 compared to ~~$17.8~~3.89% for the same period in 2011. The decrease in margin between the 2011 and 2012 first quarters is mainly due to a declining of the interest rate spread, which decreased to 3.61% in the first quarter of 2012 from 3.71% for the same period in 2011. The decrease in spread occurred due to interest-earning asset yields decreasing by 45 basis points (to 4.54% in the first quarter of 2012 from 4.99% for the same period in 2011) which was partially offset by the cost of interest-bearing liabilities between the two periods decreasing 35 basis points (to 0.93% in the first quarter of 2012 from 1.28% in the same period in 2011). Also, operating at a high level of liquidity along with lower loan yields has impacted the net interest margin negatively in the first quarter of 2012.

Total interest income decreased by $1.4 million or 6.3% to $20.8 million for the quarter ended March 31, 2012 from $22.2 million for the same period in 2010. The tax-equivalent net interest margin was 3.89% for the quarter ended September 30, 2011 compared to 3.94% for the same period in 2010. The decrease in margin between the 2010 and 2011 third quarters is mainly due to a decline in the yield on interest earning assets of 55 basis points, to 4.76% for the quarter ended September 30, 2011, from 5.31% for the same period in 2010. This was mostly offset by a decrease in the cost of interest-bearing liabilities and non-interest bearing demand deposits by 50 basis points, to 0.90% for the quarter ended September 30, 2011, from 1.40% for the same period in 2010.

~~Total interest income decreased by $2.4 million or 9.9% to $21.7 million for the quarter ended September 30, 2011 from $24.1 million for the same period in 2010.~~2011. The decrease in interest income was due to a decline in asset yields, mainly as a result of a drop in yields on loans receivable which declined 2748 basis points to ~~5.45%~~5.16% at ~~September 30, 2011.~~March 31, 2012. Interest income from loans decreased to ~~$19.5~~$18.7 million for the quarter ended ~~September 30, 2011~~March 31, 2012 compared to ~~$22.2~~$20.2 million for the same period in ~~2010~~2011, which represents a decline of ~~12.3%~~7.8%.

Interest expense decreased by ~~$2.3~~$1.4 million in the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010,~~2011, to ~~$4.0~~$3.6 million from ~~$6.3~~$5.0 million. This decrease was due to a 5335 basis point decline in the average cost of interest-bearing liabilities in the ~~third~~first quarter of ~~2011 as compared to the same period in the prior year.~~2012. Interest expense related to interest-bearing deposits was ~~$2.8~~$2.4 million in the ~~third~~first quarter of ~~2011~~2012 compared to ~~$4.7~~$3.6 million for the same period in ~~2010.~~2011. Interest expense recognized by the

Company related to subordinated debentures was $331,000 in the first quarter of 2012 compared to $326,000 for the same period in 2011. Expenses on FHLB advances and ~~other borrowings~~securities sold under repurchase agreements were ~~$768,000~~$751,000 and ~~$127,000~~$104,000 respectively in the ~~third~~first quarter of ~~2011~~2012 compared to ~~$1.2 million~~$906,000 and ~~$109,000~~$130,000 respectively for the same period in ~~2010. Interest expense recognized by the Company related to subordinated debentures was $333,000 in the third quarter of 2011 compared to $332,000 for the same period in 2010.~~2011.

The allowance for loan losses represents management’s assessment of the estimated probable credit losses in the loan portfolio at each balance sheet date. Management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrower’s ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of all commercial loan and commercial real estate loan relationships that exceed $750,000 of aggregate exposure over a twelve month period. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the allowance for loan losses associated with these types of loans.

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable credit losses within the existing loan portfolio in the normal course of business. The allowance for loan loss is made up of two basic components. The first component is the specific allowance in which the Company sets aside reserves based on the analysis of individual credits. The second component is the general reserve. The general reserve is used to record loan loss reserves for groups of homogenous loans in which the Company estimates the losses incurred in the portfolios based on quantitative and qualitative factors. Due to the uncertainty of risks in the loan portfolio, the Company’s judgment on the amount of the allowance necessary to absorb loans losses is ~~approximate. See Note 9 - Loans for the allocation of the specific and general components of the allowance by signification loan types.~~approximate

In establishing specific reserves, First Federal analyzes all loans on its classified and special mention lists at least quarterly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantor in determining the amount of impairment of individual loans and the specific reserve to be recorded.

For ~~the purpose~~purposes of the general reserve analysis, the loan portfolio is stratified into nine different loan pools based on loan type and by market area to allocate historic loss experience. The loss experience factor applied to the non-impaired loan portfolio was based upon historical losses of the most recent weighted rolling eight quarters ending ~~September 30, 2011.~~March 31, 2012.

The stratification of the loan portfolio resulted in a quantitative general allowance of ~~$14.6~~$15.8 million at ~~September 30, 2011~~March 31, 2012 compared to ~~$14.0~~$19.5 million at December 31, ~~2010. The increase in the quantitative general allowance was the result of increased commercial historical loss factors.~~2011.

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on the non-impaired loan portfolio for various factors that have a bearing on its loss content, including but not limited to the following:

The qualitative analysis at ~~September 30, 2011~~March 31, 2012 indicated a general reserve of ~~$9.2~~$7.8 million compared with ~~$10.5~~$6.5 million at December 31, ~~2010. Management believes that~~2011. Four of the ~~overall economy and operating environment has stabilized in our markets but still stresses that high unemployment and declining real estate values~~fourteen counties in the ~~Midwest remain a concern. All 14 counties that represent the~~Company’s footprint ~~of the Company have seen improvements in their unemployment rates from December 31, 2010, with six being at or~~were below the national average of ~~8.8% at September 30, 2011. August~~8.4% as of March 31, 2012. The unemployment rates in March 2012 range from a low of 6.5% to a high of 13.1% compared to the unemployment rates in December 2011 ~~was the latest census information available for Ohio.~~ranging from a low of 7.4% to a high of 13.3%.

As a result of the quantitative and qualitative analyses, along with the change in specific reserves, the Company’s provision for loan losses for the ~~third~~first quarter of ~~2011~~2012 was ~~$3.1~~$3.5 million, compared to ~~$5.2~~$2.8 million for the same period in ~~2010.~~2011. The allowance for loan losses was ~~$38.1~~$28.8 million and ~~$41.1~~$33.3 million and represented ~~2.61%~~1.96% and ~~2.70%~~2.24% of loans, net of undisbursed loan funds and deferred fees and costs, as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively. The provision ~~expense~~ of ~~$3.1~~$3.5 million was offset by charge offs of ~~$4.9~~$5.5 million against specific reserves and ~~$1.2~~$2.7 million against general reserves and recoveries of ~~$611,000~~$228,000 resulting in a decrease to the overall allowance for loan loss at ~~September 30, 2011 as~~March 31, 2012. The decline in the ~~majority~~allowance for loan loss is supported by the overall improvement in asset quality evidenced by the decline in loan delinquencies and classified loans. Total charge-offs were elevated in the first quarter of 2012 but management acknowledges that these were not due to any new credits, but from previously identified credits finally working their way through the cycle. Of the total charge-offs in the first quarter of 2012, $4.3 million or 53.0%, were reserved for in a prior period resulting in no new losses from those charge-offs in the first quarter of 2012. The Company did experience an increase in non-accrual loans in the first quarter of 2012. However, of the total non-accrual loans, $25.8 million or 56.8%, are 60 days or less past due and paying in accordance with the terms of the note. The Company’s general reserve declined as a result of the historical loss factor

declining in the first quarter of 2012. This is the result of a mix of charge-offs ~~were specifically reserve for in prior periods.~~moving out of the look back period or moving to a lower weighting time period. In management’s opinion, the overall allowance for loan losses of ~~$38.1~~$28.8 million as of ~~September 30, 2011~~March 31, 2012 is adequate.

Management also assesses the value of real estate owned as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In the ~~third~~first quarter of ~~2011,~~2012, First Defiance recorded OREO write-downs that totaled ~~$93,000~~$137,000 compared to write-downs of ~~$1.6 million~~$292,000 for the same period in ~~2010.~~2011. These write-downs are primarily due to decreasing the liquidation values in order to spur interest in our market areas to sell these properties. These amounts are included in other non-interest expense. Management believes that the values recorded at ~~September 30, 2011~~March 31, 2012 for real estate owned and repossessed assets represent the realizable value of such assets.

Total classified loans decreased to ~~$127.4~~$100.5 million at ~~September 30, 2011,~~March 31, 2012, compared to ~~$133.1~~$122.5 million at December 31, ~~2010.~~2011. At ~~September 30, 2011,~~March 31, 2012, a total of ~~$40.5~~$11.8 million of loans are classified as substandard for which a specific reserve is required. A total of ~~$86.9~~$88.7 million in additional credits were classified as substandard at September 30, 2011 for which no specific reserve is required because of factors such as the level of collateral or the strength of guarantors. First Defiance also has classified $15,000 of loans as doubtful at September 30, 2011. By contrast, at DecemberMarch 31, 2010, a total of $47.5 million of loans were classified as substandard for which a specific reserve is required. A total of $83.2 million in additional credits were classified as substandard at December 31, 20102012 for which no reserve is required because of factors such as the level of collateral or the strength of guarantors. First ~~Defiance~~Federal also has classified $63,000 of loans doubtful at March 31, 2012. By contrast, at December 31, 2011, a total of $18.9 million of loans were classified as substandard for which a specific reserve is required. A total of $103.6 million in additional credits were classified as substandard at December 31, 2011 for which no reserve is required because of factors such as the level of collateral or the strength of guarantors. First Federal also had classified ~~$2.4 million~~$10,000 of loans as doubtful at December 31, ~~2010.~~2011.

First ~~Defiance’s~~Federal’s ratio of allowance for loan losses to non-performing loans was ~~74.4%~~58.6% at ~~September 30, 2011~~March 31, 2012 compared with ~~87.3%~~77.9% at December 31, ~~2010.~~2011. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for those loans at ~~September 30, 2011~~March 31, 2012 are appropriate. The Company did experience an increase in non-accrual loans in the first quarter of 2012. However, of the total non-accrual loans, $25.8 million or 56.8%, are 60 days or less past due and paying in accordance with the terms of the note.

At ~~September 30, 2011,~~March 31, 2012, First Defiance had total non-performing assets of ~~$57.0~~$52.6 million, compared to ~~$56.6~~$46.3 million at December 31, ~~2010.~~2011. Non-performing assets include loans that are 90 days past due, troubled debt restructured loans and real estate owned and other assets held for sale. Non-performing assets at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 by category were as follows:


	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
	*(In thousands)*						*(In thousands)*
Non-performing loans:
Single-family residential	$	4,017		$	7,161		$	3,883		$	3,890
Construction		60			64			159			—
Non-residential and multi-family residential real estate		35,268			21,737			33,065			28,150
Commercial		8,478			11,547			7,618			6,884
Consumer finance		20			14			5			10
Home equity and improvement		454			517			621			394
Troubled debt restructured loans, accruing		2,934			6,001			3,820			3,380

Total non-performing loans		51,231			47,041			49,171			42,708
Real estate owned and repossessed assets		5,805			9,591			3,408			3,628

Total non-performing assets	$	57,036		$	56,632		$	52,579		$	46,336

Allowance for loan losses as a percentage of total loans*		2.61	%		2.70	%		1.96	%		2.24	%
Allowance for loan losses as a percentage of non-performing assets		66.82	%		72.54	%		54.84	%		71.77	%
Allowance for loan losses as a percentage of non-performing loans		74.39	%		87.33	%		58.64	%		77.86	%
Total non-performing assets as a percentage of total assets		2.77	%		2.78	%		2.45	%		2.24	%
Total non-performing loans as a percentage of total loans*		3.51	%		3.10	%		3.34	%		2.87	%

The increase in non-performing loans between December 31, ~~2010~~2011 and ~~September 30, 2011~~March 31, 2012 is ~~mostly~~primarily in ~~the non-residential and multi-family residential~~commercial real estate ~~category.~~loans. The balance of this type of non-performing loan was ~~$13.5~~$4.9 million higher at ~~September 30, 2011~~March 31, 2012 compared to December 31, 2010. The increase in this category is a result of management’s review of certain loans and determining that a higher likelihood exists that all principal and interest will not be recovered in case of default and that the probability of default has increased. Most of these loans are current but management believes it is prudent to place these loans on non-performing status.2011.

Non-performing loans in the ~~single-family residential, non-residential and multi-family and~~ commercial ~~loan categories represent 2.12%, 4.60% and 2.50%~~real estate category represented 4.18% of the total loans in those categories ~~respectively~~ at ~~September 30, 2011~~March 31, 2012 compared to ~~3.48%, 2.83% and 3.12% respectively~~3.63% for the same ~~categories~~category at December 31, ~~2010. Even though the level of non-performing loans increased quarter over quarter, management~~2011. Management believes that the current allowance for loan losses is appropriate and that the provision for loan losses recorded in the ~~third~~first quarter of ~~2011~~2012 is consistent with both charge-off experience and the risk inherent in the overall credits in the portfolio.

Non-performing assets, which include non-accrual loans, accruing troubled debt restructured loans and real estate owned, increased to $52.6 million at March 31, 2012 from $46.3 million at December 31, 2011.

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

The following table details net charge-offs and nonaccrual loans by loan type. For the three months ended and as of ~~September 30, 2011,~~March 31, 2012, commercial real estate, which represented ~~51.96%~~53.10% of total loans, accounted for ~~44.17%~~55.38% of net charge-offs and ~~73.02%~~72.91% of nonaccrual loans, and

commercial loans, which represented ~~22.99%~~21.97% of total loans, accounted for ~~39.71%~~33.27% of net charge-offs and ~~17.56%~~16.80% of nonaccrual loans. For the three months ended and as of ~~September 30, 2010,~~March 31, 2011, commercial real estate, which represented ~~49.82%~~50.42% of total loans, accounted for ~~25.14%~~66.20% of net charge-offs and ~~62.66%~~53.51% of nonaccrual loans, and commercial loans, which represented ~~23.89%~~23.06% of total loans, accounted for ~~28.06%~~10.50% of net charge-offs and ~~18.61%~~32.13% of nonaccrual loans.


	For the Three Months Ended March 31, 2012						As of March 31, 2012
	Net Charge-offs			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
		*(in thousands)*						*(in thousands)*
Residential	$	683			8.63	%	$	3,883		8.56	%

Construction		—			0.00	%		159		0.35	%
Commercial real estate		4,388			55.38	%		33,065		72.91	%
Commercial		2,636			33.27	%		7,618		16.80	%
Consumer		27			0.33	%		5		0.01	%
Home equity and improvement		190			2.39	%		621		1.37	%

Total	$	7,924			100.00	%	$	45,351		100.00	%


	For the Three Months Ended March 31, 2011						As of March 31, 2011
	Net Charge-offs			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
		*(in thousands)*						*(in thousands)*
Residential	$	542			17.40	%	$	5,366		13.10	%

Construction		—			0.00	%		60		0.15	%
Commercial real estate		2,063			66.23	%		21,909		53.51	%
Commercial		327			10.50	%		13,156		32.13	%
Consumer		(18	)		(0.58	%)		18		0.04	%
Home equity and improvement		201			6.45	%		439		1.07	%

Total	$	3,115			100.00	%	$	40,948		100.00	%


	For the Quarter Ended										For the Quarter Ended
	3rd 2011		2nd 2011		1st 2011		4th 2010		3rd 2010		1st 2012		4th 2011		3rd 2011		2nd 2011		1st 2011
	*(Dollars in Thousands)*										*(Dollars in Thousands)*
Allowance at beginning of period	$	40,530	$	40,798	$	41,080	$	41,343	$	38,852	$	33,254	$	38,110	$	40,530	$	40,798	$	41,080
Provision for credit losses		3,097		2,405		2,833		5,652		5,196		3,503		4,099		3,097		2,405		2,833
Charge-offs:
Residential		647		893		547		467		1,164		738		666		647		893		547
Commercial real estate		2,622		1,517		2,273		4,806		688		4,496		6,737		2,622		1,517		2,274
Commercial		2,533		107		335		388		842		2,666		1,423		2,533		107		335
Consumer finance		36		20		12		55		28		41		28		36		20		11
Home equity and improvement		290		310		201		363		148		211		251		290		310		201

Total charge-offs		6,128		2,847		3,368		6,079		2,870		8,152		9,105		6,128		2,847		3,368
Recoveries		611		174		253		164		165		228		150		611		174		253

Net charge-offs		5,517		2,673		3,115		5,915		2,705		7,924		8,955		5,517		2,673		3,115

Ending allowance	$	38,110	$	40,530	$	40,798	$	41,080	$	41,343	$	28,833	$	33,254	$	38,110	$	40,530	$	40,798

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


	September 30, 2011					June 30, 2011					March 31, 2011					December 31, 2010					September 30, 2010					March 31, 2012					December 31, 2011					September 30, 2011					June 30, 2011					March 31, 2011
	Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category
Residential	$	4,023		12.86	%	$	5,930		14.62	%	$	6,163		14.76	%	$	5,956		13.46	%	$	6,161		13.69	%	$	3,373		13.58	%	$	4,095		13.55	%	$	4.023		12.86	%	$	5.930		14.62	%	$	6,163		14.76	%
Construction		69		2.38	%		47		1.64	%		70		1.65	%		73		1.98	%		189		2.03	%		73		2.44	%		63		2.10	%		69		2.39	%		47		1.64	%		70		1.65	%
Commercial real estate		24,523		51.96	%		24,397		50.46	%		23,390		50.42	%		22,355		50.14	%		22,294		49.82	%		19,031		53.10	%		20,490		51.70	%		24,523		51.96	%		24,397		50.46	%		23,390		50.42	%
Commercial		7,804		22.99	%		8,290		23.10	%		9,518		23.06	%		10,871		24.19	%		10,679		23.89	%		4,693		21.97	%		6,576		23.25	%		7,804		22.99	%		8,290		23.10	%		9,518		23.06	%
Consumer		219		1.34	%		227		1.40	%		207		1.41	%		297		1.49	%		527		1.74	%		178		1.19	%		174		1.26	%		219		1.34	%		227		1.40	%		207		1.41	%
Home equity and improvement		1,472		8.47	%		1,639		8.78	%		1,450		8.70	%		1,528		8.74	%		1,493		8.83	%		1,485		7.72	%		1,856		8.14	%		1,472		8.47	%		1,639		8.78	%		1,450		8.70	%

	$	38,110		100.00	%	$	40,530		100.00	%	$	40,798		100.00	%	$	41,080		100.00	%	$	41,343		100.00	%	$	28,833		100.00	%	$	33,254		100.00	%	$	38,110		100.00	%	$	40,530		100.00	%	$	40,798		100.00	%


	3rd Qtr 2011			2nd Qtr 2011			1st Qtr 2011			4th Qtr 2010			3rd Qtr 2010			1st Qtr 2012			4th Qtr 2011			3rd Qtr 2011			2nd Qtr 2011			1st Qtr 2011
Allowance for loan losses / loans*		2.61	%		2.80	%		2.77	%		2.70	%		2.67	%		1.96	%		2.24	%		2.61	%		2.80	%		2.77	%
Allowance for loan losses to net charge-offs		690.77	%		1,526.30	%		1,309.73	%		694.51	%		1,528.39	%		363.87	%		371.35	%		690.77	%		1,516.27	%		1,309.73	%
Allowance for loan losses / non-performing assets		66.82	%		84.16	%		74.56	%		72.54	%		72.17	%		54.84	%		71.77	%		66.82	%		84.16	%		74.56	%
Allowance for loan losses / non-performing loans		74.39	%		99.41	%		89.53	%		87.33	%		89.56	%		58.64	%		77.86	%		74.39	%		99.41	%		89.53	%
Non-performing assets / loans plus REO*		3.89	%		3.31	%		3.70	%		3.70	%		3.67	%		3.56	%		3.11	%		3.89	%		3.31	%		3.70	%
Non-performing assets / total assets		2.77	%		2.35	%		2.65	%		2.78	%		2.81	%		2.45	%		2.24	%		2.77	%		2.35	%		2.65	%
Net charge-offs / average loans (annualized)		1.55	%		0.75	%		0.85	%		1.58	%		0.70	%		2.18	%		2.49	%		1.55	%		0.75	%		0.85	%

Total non-interest income ~~decreased $622,000~~increased $2.5 million in the ~~third~~first quarter of ~~2011~~2012 to ~~$6.9~~$8.4 million from ~~$7.5~~$5.9 million for the same period in ~~2010.~~2011.

Service Fees.Service fees and other charges ~~decreased~~increased by ~~$230,000~~$54,000 or ~~7.0%~~2.1% in the ~~2011 third~~2012 first quarter compared to the same period in ~~2010. The decrease can be attributed to regulation changes which resulted in lower NSF fee income.~~2011.

First Federal’s overdraft privilege program generally provides for the automatic payment of modest overdraft limits on all accounts deemed to be in good standing when the account is accessed using paper-based check processing, a teller withdrawal, a point-of-sale terminal, an ACH transaction, an online banking or voice-response transfer, or an ATM. To be in good standing, an account must be brought to a positive balance within a 30-day ~~period.~~period and have not excessively used the overdraft privilege program. Overdraft limits are established for all customers without discrimination using a risk assessment approach for each account classification. The approach includes a systematic review and evaluation of the normal deposit flows made to each account classification to establish reasonable and prudent negative balance

limits that would be routinely repaid by normal, expected and reoccurring deposits. The risk assessment by portfolio approach assumes a minimal degree of undetermined credit risk associated with unidentified individual accounts that are overdrawn for 30 or more days. ~~Accounts~~Consumer accounts overdrawn for more than 60 days are automatically charged off. Fees are charged as a one-time fee per occurrence, up to five charges per day, and the fee charged for an item that is paid is equal to the fee charged for a non-sufficient fund item that is returned.

Overdrawn balances, net of allowance for losses, are reflected as loans on First Defiance’s balance sheet. The fees charged for this service are established based both on the return of processing costs plus a profit, and on the level of fees charged by competitors in the Company’s market area for similar services. These fees are considered to be compensation for providing a service to the customer and therefore deemed to be noninterest income rather than interest income. Fee income recorded for the quarters ending ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ related to the overdraft privilege product, net of adjustments to the allowance for uncollectible overdrafts, were ~~$1.5~~$1.1 million and ~~$1.9~~$1.2 million, respectively. Accounts charged off are included in noninterest expense. The allowance for uncollectible overdrafts was ~~$60,000~~$19,000 at ~~September 30, 2011, $83,000~~March 31, 2012, $67,000 at December 31, ~~2010~~2011 and ~~$77,000~~$126,000 at ~~September 30, 2010.~~March 31, 2011.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans ~~decreased $967,000~~increased $1.2 million to ~~$1.4~~$2.4 million for the ~~third~~first quarter of ~~2011~~2012 compared to ~~$2.3~~$1.3 million for the same period of ~~2010.~~2011. This increase was primarily due to higher loan origination volume for the quarter, the result of higher refinancing activity due to lower interest rates on conforming saleable mortgage-based products in the first quarter of 2012 compared to the same period in 2011. Gains realized from the sale of mortgage loans ~~declined~~increased in the ~~third~~first quarter of ~~2011~~2012 to ~~$2.1~~$2.5 million from ~~$2.9 million~~$726,000 in the ~~third~~first quarter of ~~2010. Mortgage loan servicing revenue increased $91,000 in the third quarter of 2011 compared to the third quarter of 2010.~~2011. The ~~increase in servicing revenue was coupled with expense decreases of $245,000 for the~~ amortization of mortgage servicing rights expense increased $410,000 to $864,000 in the ~~third~~first quarter of 2012 compared to $454,000 in the same period in 2011. The Company recorded a negative ~~change in the~~ valuation adjustment of ~~$1.1 million~~$79,000 on ~~MSR’s~~mortgage servicing rights in the ~~third~~first quarter of ~~2011~~2012 compared to a ~~negative change in the~~positive valuation adjustment of ~~$527,000~~$171,000 in the ~~third~~first quarter of ~~2010.~~2011. The negative ~~MSR~~ valuation adjustment isin the first quarter of 2012 was driven by a ~~reflection of the~~ decline in the fair ~~value~~values of certain sectors of the Company’s portfolio of ~~MSR’s. The interest rate environment that gives rise to increased~~ mortgage ~~origination activity also typically causes increases in MSR amortization and impairment, creating a natural hedge in the mortgage banking line of business.~~servicing rights.

Insurance and Investment Sales Commissions.Income from the sale of insurance and investment products increased ~~$621,000~~$881,000 in the ~~third~~first quarter of ~~2011~~2012 to ~~$2.0~~$2.5 million from ~~$1.4~~$1.7 million in the same period of ~~2010. The acquisition~~2011. First Defiance’s insurance subsidiary, First Insurance, typically recognizes contingent revenues during the first quarter. These revenues are bonuses paid by insurance carriers when the Company achieves certain loss ratios or growth targets. In the first quarter of ~~PDI contributed~~2012, First Insurance earned $504,000 of contingent income compared to $329,000 for the first quarter of 2011. In July 2011, First Insurance acquired a full insurance agency. This acquired agency added approximately ~~$579,000 of income~~$622,000 in revenue in the ~~third~~first quarter of ~~2011.~~2012.

~~Loss on Sale or Write-Down~~Impairment of Securities. ~~Non-interest income also includes investment securities gains or losses. In the third quarter of 2011,~~ First Defiance did not ~~recognize~~have any ~~OTTI charges.~~other-than-temporary impairment (“OTTI”) charges in the first quarter of 2012 reflecting a more stable environment relating to its Trust Preferred Collateralized Debt Obligation (“CDO”) investments. In the ~~third~~first quarter of ~~2010,~~2011, First Defiance recognized OTTI charges of ~~$190,000~~$2,200 for ~~certain~~one impaired investment ~~securities,~~security, where in management’s opinion, the value of the investment will not be fully recovered. The OTTI charge related to ~~two Trust Preferred Collateralized Debt Obligation (“CDO”)~~one CDO investments with a remaining book value of ~~$860,000 and preferred stock in Fannie Mae and Freddie Mac with a remaining combined book value of $35,000.~~$902,000.

Other non-interest income.Other non-interest income ~~decreased $306,000 to~~increased $493,000 in the first quarter of 2012 from a loss of ~~$34,000 in the third quarter of 2011 compared to $271,000 of income~~$151,000 in the same period in ~~2010.~~2011. This ~~decrease~~increase was the result of a ~~decline~~lower level of ~~$285,000~~real estate owned sales that resulted in net losses of $60,000 in the first quarter of 2012 compared to losses of $290,000 in the same period of 2011. The Company also recorded an increase in the value of the assets of the deferred compensation plan of $137,000 in the ~~third~~first quarter of ~~2011~~2012 compared to an increase ~~in those assets~~ of $165,000 for the same period of 2010. Mitigating the decrease in non-interest income were net gains of $117,000 on real estate owned sales in the third quarter of 2011, compared to net losses of $45,000$28,000 for the same period in ~~2010.~~2011.

Non-interest expense decreased to ~~$15.5~~$16.3 million for the ~~third~~first quarter of ~~2011~~2012 compared to ~~$17.1~~$16.6 million for the same period in ~~2010.~~2011.

Compensation and Benefits. Compensation and benefits increased to ~~$8.2~~$8.5 million for the quarter ended ~~September 30, 2011~~March 31, 2012 from ~~$7.1~~$7.8 million for the same period in ~~2010.~~2011. The increase is mainly attributable to the ~~Company freezing pay~~July 2011 insurance acquisition that added approximately $407,000 in ~~2010, coupled with an increase in incentive~~compensation and benefits expense ~~and bonuses being paid in the third quarter of 2011 due to an increase in performance. The Company increased compensation late~~ in the first quarter of ~~2011.~~2012. Also, ~~PDI had approximately $415,000 of expenses related to compensation and benefits~~the Company granted pay increases in the ~~third~~first quarter of ~~2011.~~2012 and experienced an increase in commission expense as a result of the increased insurance revenues.

FDIC Insurance ~~Premiums~~Premium. FDIC insurance premium expense decreased to ~~$674,000~~$669,000 in the ~~third~~first quarter of ~~2011,~~2012 from ~~$907,000 in~~$913,000 for the same period in 2011. This decrease was the result of ~~2010 due to changes made~~the change in the rate assessment calculation in September 2011 affected by the ~~FDIC in the method of calculating assessment rates under the~~ Dodd-Frank ~~Act.~~legislation.

Other Non-Interest Expenses. Other non-interest expenses decreased by $801,000 to ~~$2.7~~$3.3 million for the quarter ended ~~September 30, 2011~~March 31, 2012 from ~~$5.2~~$4.1 million for the same period in ~~2010. The majority of the decrease~~2011. Decreases between the 2012 and 2011 ~~and 2010 third~~first quarters ~~was the decline of credit, collection and real estate owned expenses of $1.8 million. This was coupled with~~include a ~~decrease~~reduction in secondary market buy-back losses of ~~$280,000~~$228,000 as a result of underwriting issues identified in the ~~third~~first quarter of 2011 after the loan had been sold and ~~the decline~~a $280,000 reduction in ~~the value of the liability of the deferred compensation of plan of $283,000 in the third quarter of 2011.~~other credit related costs which includes credit, collection and other real estate owned expenses.

The efficiency ratio, considering tax equivalent interest income and excluding securities gains and losses, for the ~~third~~first quarter of ~~2011~~2012 was ~~62.12%~~62.62% compared to ~~66.42%~~70.92% for the ~~third~~first quarter of ~~2010.~~2011.

First Defiance computes federal income tax expense in accordance with ASC Topic 740, Subtopic 942, which resulted in an effective tax rate of ~~31.69%~~29.08% for the quarter ended ~~September 30, 2011~~March 31, 2012 compared to ~~22.70%~~27.87% for the same period in 2010. The increase in the tax rate for the quarter ended September 30, 2011 compared to the same period in 2010 was the result of a higher estimate of annual pre-tax income in 2011 compared to 2010 as the permanent differences remained relatively flat during those periods.2011. The tax rate is lower than the statutory 35% tax rate for the Company mainly because of investments in tax-exempt securities. The earnings on tax-exempt securities are not subject to federal income tax.

On a consolidated basis, First Defiance’s net income for the nine months ended September 30, 2011 of $11.5 million compared to income of $5.8 million for the comparable period in 2010. Net income applicable to common shares was $10.0 million for the nine months ended September 30, 2011 compared to $4.3 million for the comparable period in 2010. On a per share basis, basic and diluted earnings per common share for the nine months ended September 30, 2011 were $1.08 and $1.06, respectively, compared to basic and diluted earnings per common share of $0.53 for the nine months ended September 30, 2010.

Net interest income was $52.4 million for the nine months ended September 30, 2011, flat with the same period in 2010. For the nine month period ended September 30, 2011, total interest income was $65.8 million, a $6.7 million decrease from the same period in 2010. Despite average earning assets increasing $10.1 million in the first nine months of 2011, the average yield declined 50 basis points as a result of a lower rate environment.

Interest expense decreased by $6.7 million to $13.4 million for the nine months ended September 30, 2011 compared to $20.1 million in the first nine months of 2010. The average balance of interest-bearing deposits decreased by $31.5 million between the first nine months of 2010 and 2011, resulting in a decline in the average cost of interest-bearing deposits for the nine months ending September 30, 2011, to 0.95%, a 51 basis point decrease from the 1.46% average cost in the first nine months of 2010. This decline is the result of the continued low rate environment which has given management opportunities to re-price on the liability side.

The provision for loan losses was $8.3 million for the nine months ended September 30, 2011, compared to $17.5 million during the nine months ended September 30, 2010. The year over year decrease was primarily the result of a slow-down in the over all credit deterioration in the portfolio. A lower volume of credits requiring larger reserves mitigates the need for a larger provision for loan loss.

~~Total non-interest income decreased to $19.6 million for the nine months ended September 30, 2011 from $20.0 million recognized in the same period of 2010.~~

~~Service Fees.~~Service fees and other charges decreased by $1.4 million or 14.4% in the nine months ended September 30, 2011 compared to the same period in 2010. The decrease can be attributed to regulation changes which resulted in lower NSF fee income.

~~Mortgage Banking Activity.~~ Total revenue from the sale and servicing of mortgage loans decreased 11.1% to $4.5 million for the nine months ended September 30, 2011 from $5.1 million for the same period of 2010. Gains realized from the sale of mortgage loans decreased $1.3 million to $4.0 million for the first nine months of 2011 from $5.3 million during the same period of 2010. Mortgage loan servicing revenue increased $266,000 in the first nine months of 2011 compared to the same period of 2010. The decrease in gains were partially offset by expense decreases of $285,000 for the amortization of mortgage servicing rights in the first nine months of 2011 when compared to 2010. The Company recorded a negative valuation adjustment of $585,000 in the first nine months of 2011 compared to a negative adjustment of $777,000 in the first nine months of 2010.

~~Insurance and Investment Sales Commission.~~Insurance and investment sales commission income increased $1.3 million, to $5.1 million for the nine months ended September 30, 2011, from $3.8 million during the same period of 2010. This is the result of receiving more contingent commission income in the first nine months of 2011 compared to the same period in 2010. In 2011, $329,000 was received compared to $104,000 in 2010. In May 2010, First Insurance acquired a group medical benefits business line from Andres O’Neil & Lowe Insurance Agency. This acquired group medical benefits business line added approximately $661,000 in revenue in the first nine months of 2011 compared to approximately $305,000 in the same period of 2010. Aiding the increase in insurance and investment sales commissions is the aforementioned acquisition of PDI.

~~Loss on Securities.~~Non-interest income was increased in the first nine months of 2011 by $47,000 as First Defiance recognized $2,000 of OTTI charges for certain impaired investment securities offset by the gain on sale of $49,000 from available for sale securities. In the first nine months of 2010, $331,000 of OTTI charges were recorded on impaired investments partially offset by $6,000 in gains recorded from the sale and calls of available for sale securities.

~~Non-interest expense increased to $47.2 million for the first nine months of 2011 compared to $47.0 million for the same period in 2010.~~

~~Compensation and Benefits~~. Compensation and benefits increased to $23.5 million in the first nine months ended September 30, 2011 from $20.2 million for the same period in 2010. The increase is mainly attributable to the Company freezing pay in 2010, coupled with incentive expenses and bonuses being paid in the first nine months of 2011 due to an increase in performance. The Company increased compensation late in the first quarter of 2011.

~~FDIC Insurance Premiums~~. FDIC expense decreased to $2.3 million in the first nine months of 2011, from $2.9 million in the same period of 2010 due to the changes made by the FDIC in the method of calculating assessment rates under the Dodd-Frank Act.

~~Other Non-Interest Expenses~~. Other non-interest expenses (including state franchise tax, data processing, amortization of intangibles and other) decreased by $2.8 million to $15.8 million for the first nine months of 2011 from $18.6 million for the same period in 2010. The significant decrease between the first nine months of 2011 and 2010 of expenses are credit, collection and real estate owned expenses that decreased $2.2 million. The other item contributing to the decrease was data processing expenses that decreased $439,000 for the first nine months of 2011 compared to the same period of 2010 resulting from the efficiencies gained from the new core system that was converted late in the fourth quarter of 2010.

~~The efficiency ratio for the first nine months of 2011 was 64.59% compared to 63.75% for the same period of 2010.~~

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

First Defiance had ~~$28.2~~$12.0 million of cash provided by operating activities during the first ~~nine~~three months of ~~2011.~~2012. The Company’s cash used in operating activities resulted from the origination of loans held for sale mostly offset by the proceeds on the sale of loans.

At ~~September 30, 2011,~~March 31, 2012, First ~~Defiance~~Federal had ~~$111.0~~$90.9 million in outstanding loan commitments and loans in process to be funded generally within the next six months and an additional ~~$224.2~~$261.8 million committed under existing consumer and commercial lines of credit and standby letters of credit. Also at that date, First ~~Defiance~~Federal had commitments to sell ~~$57.2~~$59.4 million of loans held-for-sale. First Defiance believes that it has adequate resources to fund commitments as they arise and that it can adjust the rate on savings certificates to retain deposits in changing interest rate environments. If First Defiance requires funds beyond its internal funding capabilities, advances from the FHLB of Cincinnati and other financial institutions are available.

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

ALCO uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis calculates the net present value of First Federal’s assets and liabilities in rate shock

environments that range from -400 basis points to +400 basis points. The likelihood of a decrease in rates as of ~~September 30, 2011~~March 31, 2012 was considered to be remote given the current interest rate environment and therefore, was not included in this analysis. The results of this analysis are reflected in the following tables for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 and the year-ended December 31, ~~2010.~~2011.


September 30, 2011 Economic Value of Equity
March 31, 2012 Economic Value of Equity								March 31, 2012 Economic Value of Equity
Change in Rates	$ Amount		$ Change		% Change				$ Amount		$ Change		% Change
	*(Dollars in Thousands)*								*(Dollars in Thousands)*
+400 bp		452,935		72,556		19.07	%			486,779		70,099		16.82	%
+ 300 bp		439,738		59,359		15.61	%			474,549		57,869		13.89	%
+ 200 bp		424,315		43,936		11.55	%			459,055		42,375		10.17	%
+ 100 bp		405,623		25,244		6.64	%			440,744		24,064		5.78	%
0 bp		380,379		—		—				416,680		—		—

December 31, 2011 Economic Value of Equity								December 31, 2011 Economic Value of Equity
Change in Rates									$ Amount		$ Change		% Change
									*(Dollars in Thousands)*
+400 bp										471,564		64,772		15.92	%
+ 300 bp										460,756		53,964		13.27	%
+ 200 bp										447,035		40,243		9.89	%
+ 100 bp										430,361		23,570		5.79	%
0 bp										406,792		—		—

The dollar and percentage change in the EVE analysis in the third quarter of 2011 is due to using bank specific decay speeds on non maturity deposits beginning in September 2011 as opposed to using the OTS default speeds. This extended the duration on the funding base resulting in a higher valuation of capital in today’s rate environment as well as when term interest rates shift higher.

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

During 2008, weFirst Defiance received $37 million of equity capital by issuing 37,000 shares of Preferred Stock to the U.S. Department of Treasury, and a ten-year warrant to purchase up to ~~555,000~~550,595 shares of ~~our~~First Defiance’s common stock, par value $0.01 per share, at an exercise price of $10.08 per share. The proceeds received were allocated to the preferred stock and additional paid-in-capital.

over the past several quarters and the Company has seen improvement in the economic environment it operates. While the Company still believes that more clarity of any new capital level requirements is necessary, ~~the Company~~management feels that ~~its~~the Company’s overall financial position has improved to a level that would indicate a higher likelihood that the ~~company~~Company would request approval for the ~~repayment~~redemption of ~~TARP~~the CPP equity in the near term.

First Federal is required to maintain specified amounts of capital pursuant to regulations promulgated by the ~~OCC.~~Office of the Comptroller of the Currency. The capital standards generally require the maintenance of regulatory capital sufficient to meet a tangible capital requirement, a core capital requirement, and a risk-based capital requirement. The following table sets forth First Federal’s compliance with each of the capital requirements at ~~September 30, 2011~~March 31, 2012 (in thousands).


	Actual					Minimum Required for Adequately Capitalized					Minimum Required for Well Capitalized					Actual					Minimum Required for Adequately Capitalized					Minimum Required for Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier 1 Capital (1)
Consolidated	$	241,799		12.17	%	$	79,445		4.0	%	$	99,307		5.0	%	$	249,214		12.04	%	$	82,817		4.0	%	$	103,521		5.0	%
First Federal Bank	$	227,087		11.46	%	$	79,269		4.0	%	$	99,086		5.0	%	$	236,399		11.44	%	$	82,683		4.0	%	$	103,354		5.0	%
Total Capital (to Risk Weighted Assets) (1)
Consolidated	$	261,975		16.23	%	$	129,129		8.0	%	$	161,411		10.0	%	$	269,828		16.44	%	$	131,271		8.0	%	$	164,089		10.0	%
First Federal Bank	$	247,338		15.34	%	$	128,972		8.0	%	$	161,215		10.0	%	$	256,987		15.68	%	$	131,108		8.0	%	$	163,885		10.0	%

First Defiance has established various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of its financial statements. The significant accounting policies of First Defiance are described in the footnotes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. Those policies which are identified and discussed in detail in the Company’s Annual Report on Form 10-K include the Allowance for Loan Losses, Valuation of Securities, and the Valuation of Mortgage Servicing Rights. There have been no material changes in assumptions or judgments relative to those critical policies during the first ~~nine~~three months of ~~2011.~~2012.

As discussed in detail in the ~~2010~~2011 Annual Report on Form 10-K, First Defiance’s ability to maximize net income is dependent on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of First Defiance are monetary in nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company. First Defiance does not use off-balance sheet derivatives to enhance its risk management, nor does it engage in trading activities beyond the sale of mortgage loans.

First Defiance monitors its exposure to interest rate risk on a monthly basis through simulation analysis ~~which~~that measures the impact changes in interest rates can have on net interest income. The simulation technique analyzes the effect of a presumed 100 basis point shift in interest rates (which is consistent with management’s estimate of the range of potential interest rate fluctuations) and takes into account prepayment speeds on amortizing financial instruments, loan and deposit volumes and rates, non-maturity deposit assumptions and capital requirements. The results of the simulation indicate that in an environment where interest rates rise ~~or fall~~ 100 basis points over a 1224 month period, using ~~September 30, 2011~~March 31, 2012 amounts as a base case, First Defiance’s net interest income would be impacted by less than the board mandated guidelines of 10%.

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

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of ~~September 30, 2011.~~March 31, 2012. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. No changes occurred in the Company’s internal controls over financial reporting during the quarter ended ~~September 30, 2011~~March 31, 2012 that materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011.

First Defiance did not have any common stock repurchases during the first quarter of ~~2011,~~2012, but has 93,124 shares that may be purchased under a plan announced by the Board of Directors on July 18, 2003. Participation in the CPP prohibits the Company from repurchasing any of its common shares without the prior approval of the U.S. Treasury until the ~~earlier of December 5, 2011 or the date the~~ U.S. Treasury’s preferred stock is redeemed or transferred to an unaffiliated third party.

Exhibit 10.1 First Amendment to 2010 Equity Plan ~~Form of Long-Term Incentive Plan Award Agreement~~(3)

Exhibit 10.2 ~~2010 Equity~~First Defiance Incentive Compensation Plan ~~Form of Short-Term Incentive Plan Award Agreement~~(3)

Exhibit 10.3 ~~2010 Equity Plan Form of~~Long-Term Restricted Stock Unit Award Agreement (2012 Long-Term Incentive ~~Plan Award Agreement (with~~– TARP ~~Restrictions)~~Applicable (3)

Exhibit 10.4 ~~2010 Equity Plan Form of Short-Term Incentive Plan~~Long-Term Restricted Stock Unit Award Agreement ~~(with TARP Restrictions)~~(2012 Long-Term Incentive) (3)

Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

~~Exhibit 101 Interactive data files pursuant to Rule 405~~ of Regulation S-T: (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Income, (iii) the Consolidated Condensed Statements of Changes in Equity, (iv) the Consolidated Condensed Statements of Cash Flows, and (v) the Notes to Consolidated Condensed Financial Statements tagged as blocks of text and in detail. (3)2002

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.


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

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


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


		Page Number
PART I.-FINANCIAL INFORMATION

Item 1.	Consolidated Condensed Financial Statements (Unaudited):

	Consolidated Condensed Statements of Financial Condition - ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011		2

	Consolidated Condensed Statements of Income - Three ~~and nine~~ months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~		4

	Consolidated Condensed Statements of ~~Changes in Stockholders’ Equity~~Comprehensive Income - ~~Nine~~Three months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~		5

	Consolidated Condensed Statements of ~~Cash Flows~~Changes in Stockholders’ Equity - ~~Nine~~Three months ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~		6

	Consolidated Condensed Statements of Cash Flows - Three months ended March 31, 2012 and 2011		7

	Notes to Consolidated Condensed Financial Statements		89

Item 2.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations		5148

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		7468

Item 4.	Controls and Procedures		7468

PART II-OTHER INFORMATION:

Item 1.	Legal Proceedings		7569

Item 1A.	Risk Factors		7569

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		7569

Item 3.	Defaults upon Senior Securities		7569

Item 4.	~~(Removed and Reserved)~~Mine Safety Disclosures		7569

Item 5.	Other Information		7569

Item 6.	Exhibits		7569

	Signatures		7771


	Three Months Ended March 31,
	2012			2011
	*(In thousands)*
Net income	$	4,153		$	2,660

Other comprehensive income:
Unrealized gains/losses on securities:
Unrealized holding gains (losses) on securities arising during the period		(49	)		1,207
Reclassification adjustment for (gains) losses realized in income		(43	)		(49	)
Other-than-temporary impairment losses on securities realized in income		—			2

Net unrealized gains (losses)		(92	)		1,160

Income tax effect		32			(407	)

Other comprehensive income (loss)		(60	)		753

Comprehensive income	$	4,093		$	3,413


	Nine Months Ended September 30,
	2011			2010
Operating Activities
Net income	$	11,471		$	5,841
Items not requiring (providing) cash
Provision for loan losses		8,335			17,525
Depreciation		2,581			2,543
Amortization of mortgage servicing rights, net of impairment recoveries		1,934			2,411
Amortization of core deposit and other intangible assets		1,051			1,139
Net amortization of premiums and discounts on loans and deposits		742			819
Amortization of premiums and discounts on securities		(311	)		348
Change in deferred taxes		383			(2,845	)
Proceeds from the sale of loans held for sale		168,163			229,192
Originations of loans held for sale		(167,746	)		(236,939	)
Gain from sale of loans		(4,305	)		(5,359	)
OTTI losses on investment securities		2			331
Gain from sale or call of securities		(49	)		(6	)
Loss on sale or write-down of real estate and other assets held for sale		779			2,653
Stock option expense		109			131
Income from bank owned life insurance		(703	)		(649	)
Loss/write-downs of premises and equipment		66			1
Gain on life insurance		—			(268	)
Changes in:
Accrued interest receivable		(280	)		(397	)
Other assets		907			(151	)
Other liabilities		5,044			887

Net cash provided by operating activities		28,173			17,207

Investing Activities
Proceeds from maturities of held-to-maturity securities		103			1,002
Proceeds from maturities, calls and pay-downs of available-for-sale securities		28,453			31,528
Proceeds from sale of real estate and other assets held for sale		7,380			8,311
Proceeds from the sale of available-for-sale securities		1,982			28
Proceeds from sale of non-mortgage loans		5,520			6,653
Purchases of available-for-sale securities		(87,825	)		(47,501	)
Proceeds from bank owned life insurance		—			728
Proceeds from sale of office properties and equipment		12			0
Proceeds from Federal Home Loan Bank stock redemption		357			0
Purchases of portfolio mortgage loans		(10,696	)		—
Purchases of premises and equipment, net		(1,571	)		(1,223	)
Net cash paid for Payak-Dubbs Insurance Agency, Inc.		(3,914	)		—
Net cash paid for group benefits line of business		—			(1,500	)
Net decrease in loans receivable		55,671			38,717

Net cash provided by (used in) investing activities		(4,528	)		34,985

Financing Activities
Increase in deposits and advance payments by borrowers		14,542			10,317
Repayment of Federal Home Loan Bank advances		(35,033	)		(30,031	)
Decrease in securities sold under repurchase agreements		(770	)		(6,475	)
Net change in secured borrowings		—			2,928


	Preferred Stock		Common Stock		Common Stock Warrant		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
Balance at January 1, 2011	$	36,463	$	127	$	878	$	(72,628	)	$	140,845		$	(342	)	$	134,988		$	240,331
Comprehensive income:
Net income		—		—		—		—			—			—			11,471			11,471
Change in net unrealized gains and losses on available-for-sale securities, net of income taxes of $2,435		—		—		—		—			—			4,521			—			4,521

Total comprehensive income																				15,992
Stock options exercised		—		—		—		14			—			—			(3	)		11
Stock option expense		—		—		—		—			109			—			—			109
Capital stock issuance – 1,600,800		—		—		—		25,156			(5,297	)		—			—			19,859
Stock Activity under Incentive Compensation Plans		—		—		—		98			106			—			—			204
Preferred Stock Dividends		—		—		—		—			—			—			(1,388	)		(1,388	)
Accretion on preferred shares		131		—		—		—			—			—			(131	)		—

Balance at September 30, 2011	$	36,594	$	127	$	878	$	(47,360	)	$	135,763		$	4,179		$	144,937		$	275,118


Balance at January 1, 2010	$	36,293	$	127	$	878	$	(72,631	)	$	140,677		$	(158	)	$	128,900		$	234,086
Comprehensive income:
Net income		—		—		—		—			—			—			5,841			5,841
Change in net unrealized gains and losses on available-for-sale securities, net of income taxes of $871		—		—		—		—			—			2,356			—			2,356

Total comprehensive income																				8,197
Stock option expense		—		—		—		—			131			—			—			131
Stock options exercised								3									—			3
Preferred stock dividends		—		—		—		—			—			—			(1,388	)		(1,388	)
Accretion on preferred shares		125		—		—		—			—			—			(125	)		—

Balance at September 30, 2010	$	36,418	$	127	$	878	$	(72,628	)	$	140,808		$	2,198		$	133,228		$	241,029


Net cash received from common stock issuance		19,859			—
Proceeds from exercise of stock options		11			3
Proceeds from restricted stock units		183			—
Proceeds from treasury stock purchase		21			—
Cash dividends paid on preferred stock		(1,388	)		(1,388	)

Net cash provided by (used in) financing activities		(2,575	)		(24,646	)

Increase (decrease) in cash and cash equivalents		21,070			27,546
Cash and cash equivalents at beginning of period		169,164			121,116

Cash and cash equivalents at end of period	$	190,234		$	148,662


Supplemental cash flow information:
Interest paid	$	13,644		$	20,425

Income taxes paid	$	3,200		$	4,650

Transfers from loans to real estate and other assets held for sale	$	4,373		$	10,086

Transfers from loans held for sale to loans	$	7,596		$	—

Securities traded but not yet settled	$	2,673		$	—


	Unrealized gains (losses) on available for sale securities		Postretirement Benefit			Accumulated other comprehensive income (loss), net
	*(In thousands)*
Balance at December 31, 2010	$	32	$	(374	)	$	(342	)
Other comprehensive income, net		4,521		—			4,521

Balance at September 30, 2011	$	4,553	$	(374	)	$	4,179


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, January 1, 2010	$	1,589
Total gains or losses (realized/unrealized)
Included in earnings		(214	)
Included in other comprehensive income (presented gross of taxes)		66
Amortization		16
Sales		(25	)
Transfers in and/or out of Level 3		—

Ending balance, September 30, 2010	$	1,432


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In Thousands)
Beginning balance, July 1, 2010	$	1,516
Total gains or losses (realized/unrealized)
Included in earnings		(73	)
Included in other comprehensive income (presented gross of taxes)		(21	)
Amortization		10
Transfers in and/or out of Level 3		—

Ending balance, September 30, 2010	$	1,432


			Fair Value Measurements at March 31, 2012
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	249,882	$	249,882	$	249,882	$	—	$	—
Investment securities		243,608		243,618		114		242,127		1,377
Federal Home Loan Bank Stock		20,655		N/A		N/A		N/A		N/A
Loans, net, including loans held for sale		1,456,323		1,475,938		—		11,201		1,464,737
Accrued interest receivable		6,243		6,243		—		1,357		4,886

Financial Liabilities:
Deposits	$	1,671,370	$	1,678,142	$	265,716	$	1,412,426	$	—
Advances from Federal Home Loan Bank		81,830		85,020		—		85,820		—
Securities sold under repurchase agreements		54,609		54,609		—		54,609		—
Subordinated debentures		36,083		38,576		—		—		38,576


	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding, January 1, 2011		415,000		$	19.17
Forfeited or cancelled		(94,150	)		15.37
Exercised		(850	)		12.59
Granted		—			—

Options outstanding September 30, 2011		320,000		$	20.30		5.16	$	227,272

Vested or expected to vest at September 30, 2011		320,000		$	20.30		5.16	$	227,272

Exercisable at September 30, 2011		240,240		$	22.21		4.54	$	85,000


Stock options	Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding, January 1, 2012		317,800	$	20.35
Forfeited or cancelled		—		—
Exercised		150		9.22
Granted		—		—

Options outstanding, March 31, 2012		317,650	$	20.35		4.69	$	477

Vested or expected to vest at March 31, 2012		317,650	$	20.35		4.69	$	477

Exercisable at March 31, 2012		238,690	$	22.31		4.08	$	180


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Beginning balance	$	476	$	401	$	474	$	2,521
Additions for amounts related to credit loss for which an OTTI was not previously recognized		—		—		—		76
Reductions for amounts realized for securities sold during the period		—		—		—		(2,261	)
Reductions for amounts related to securities for which the Company intends to sell or that it will be more than likely than not that the Company will be required to sell prior to recovery of amortized cost basis		—		—		—		—
Reductions for increase in cash flows expected to be collected that are recognized over the remaining life of the security		—		—		—		—
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized		—		73		2		138

Ending balance	$	476	$	474	$	476	$	474


	Three Months Ended
	March 31,
	2012		2011
Beginning balance, January 1	$	3,251	$	3,249
Additions for amounts related to credit loss for which an OTTI was not previously recognized		—		—
Reductions for amounts realized for securities sold during the period		—		—
Reductions for amounts related to securities for which the Company intends to sell or that it will be more likely than not that the Company will be required to sell prior to recovery of amortized cost basis		—		—
Reductions for increase in cash flows expected to be collected that are Recognized over the remaining life of the security		—		—
Increases to the amount related to the credit loss for which Other-than-temporary was previously recognized		—		2

Ending balance, March 31	$	3,251	$	3,251


	September 30, 2011			December 31, 2010
Real Estate:
Secured by 1-4 family residential	$	189,669		$	205,938
Secured by multi-family residential		126,672			120,534
Secured by non-residential real estate		639,787			646,478
Construction		35,203			30,340

		991,331			1,003,290
Other Loans:
Commercial		339,128			369,959
Home equity and improvement		124,956			133,593
Consumer Finance		19,701			22,848

		483,785			526,400

Total loans		1,475,116			1,529,690
Deduct:
Undisbursed loan funds		(13,709	)		(9,267	)
Net deferred loan origination fees and costs		(893	)		(920	)
Allowance for loan loss		(38,110	)		(41,080	)

Totals	$	1,422,404		$	1,478,423


	For the Three Months Ended September 30, 2011						As of September 30, 2011
	Net Charge-offs			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
		*(in thousands)*						*(in thousands)*
Residential	$	609			11.04	%	$	4,017		8.32	%

Construction		—			0.00	%		60		0.12	%
Commercial real estate		2,437			44.17	%		35,268		73.02	%
Commercial		2,191			39.71	%		8,478		17.56	%
Consumer		25			0.46	%		20		0.04	%
Home equity and improvement		255			4.62	%		454		0.94	%

Total	$	5,517			100.00	%	$	48,297		100.00	%


	For the Three Months Ended September 30, 2010						As of September 30, 2010
	Net Charge-offs			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
		*(in thousands)*						*(in thousands)*
Residential	$	1,128			41.70	%	$	6,589		17.63	%

Construction		—			0.00	%		169		0.45	%
Commercial real estate		680			25.14	%		23,421		62.66	%
Commercial		759			28.06	%		6,955		18.61	%
Consumer		(4	)		(0.15	%)		34		0.09	%
Home equity and improvement		142			5.25	%		209		0.56	%

Total	$	2,705			100.00	%	$	37,377		100.00	%


December 31, 2010 Economic Value of Equity
Change in Rates	$ Amount		$ Change			% Change
	*(Dollars in Thousands)*
+400 bp		264,330		(13,549	)		(4.88	%)
+ 300 bp		269,417		(8,462	)		(3.05	%)
+ 200 bp		272,867		(5,012	)		(1.80	%)
+ 100 bp		276,234		(1,645	)		(0.59	%)
0 bp		277,879		—			—


	First Defiance Financial Corp. (Registrant)

Date:~~November 8, 2011~~May 10, 2012	By:	/s/ William J. Small
		William J. Small
		Chairman, President and Chief Executive Officer

Date:~~November 8, 2011~~May 10, 2012	By:	/s/ Donald P. Hileman
		Donald P. Hileman
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)