UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

Filed by the Registrantx

Filed by a Party other than the Registrant¨

Check the appropriate box:

FIRST DEFIANCE FINANCIAL CORP.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

to be held on

April 22, 2014

and

PROXY STATEMENT

601 Clinton Street

Defiance, Ohio 43512

(419) 782-5015

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON APRIL 22, 2014

to be held on

May 9, 2017

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (“Annual Meeting”) of First Defiance Financial Corp. (“First Defiance”) will be held, on Tuesday, April 22, 2014 at 2:00 p.m., Eastern Time. This year’s Annual Meeting will be a virtual meeting of shareholders. You will be able to participate in the meeting, vote and submit questions during the meeting via live webcast by visitinghttp://www.virtualshareholdermeeting.com/fdef. A secure control number that will allow you to attend the meeting electronically can be found on the enclosed proxy card. The meeting is being held for the following purposes, all of which are more completely set forth in the accompanying Proxy Statement:

The Board of Directors has fixed March 3, 2014 as the voting record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. Only those shareholders of record as of the close of business on that date will be entitled to vote at the Annual Meeting or at any such adjournment.

March 17, 2014

Defiance, Ohio

PROXY STATEMENT

PRELIMINARY COPY - SUBJECT TO COMPLETION

PROXY STATEMENT

601 Clinton Street

Defiance, Ohio 43512

2014

2017 ANNUAL MEETING OF SHAREHOLDERS

April 22, 2014May 9, 2017

GENERAL

This proxy statement is being furnished to holders of common stock, $0.01 par value per share (“Common Stock”),shareholders of First Defiance Financial Corp. (“First Defiance” orDefiance,” “FDEF,” the “Company,” “we,” “us,” “our”). Our Board of Directors (the “Board”) is soliciting proxies to be used at our 20142017 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Tuesday, April 22, 2014May 9, 2017 at 2:1:00 p.m., Eastern Time, and at any adjournment thereof, for the purposes set forth in the Notice of Annual Meeting of Shareholders. The Annual Meeting will be an entirely virtual meeting. That means you can attend the 20142017 Annual Meeting online, vote your shares electronically and submit questions during the meeting,Annual Meeting, by visitingwww.virtualshareholdermeeting.com/fdef201www.virtualshareholdermeeting.com/7fdef. Be sure to have your 12-Digit Control Number to enter the meeting. ThisAnnual Meeting. We began mailing and electronically distributing, as applicable, this proxy statement is first being mailed to ourthe shareholders of First Defiance on or about March 21, 2014.29, 2017.

Our policy is to send a single annual report and proxy statementNotice of Internet Availability of Proxy Materials to multiple shareholders of record that share the same address, unless we receive instructions to the contrary. However, each shareholder of record receiveswill continue to receive a separate proxy card. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you wish to receive a separate copyNotice of this year’s annual report or proxy statement,Internet Availability of Proxy Materials, you may request it by writing to us at the above address. If you wish to discontinue householding entirely, you maycontact Registrar and Transfer Company by telephoneBroadridge Financial Solutions, Inc. at 1-800-368-5948, by e-mail1-800-542-1061 or in writing at info@rtco.com, or by written instructions sent to Registrar and Transfer Company, 10 Commerce Drive, Cranford,Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New Jersey 07016-3572.York 11717.  If you receive multiple copies of the annual report and proxy statement,Notice of Internet Availability of Proxy Materials, you may request householding by contacting Registrar and TransferBroadridge Financial Solutions as noted above.above. If your shares are held in street name through a bank, broker or other holder of record, you may request householding by contacting that bank, broker or other holder of record.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON APRIL 22, 2014MAY 9, 2017

The Proxy Statement for the 20142017 Annual Meeting of Shareholders and the 20132016 Annual Report to Shareholders, which includes the Form 10-K for the year ended December 31, 2013,2016, are both available atwww.proxyvote.comwww.proxyvote.com using your 12-Digit Control Number.Number and may also be obtained upon written request to First Defiance Financial Corp., Danielle R. Figley, Secretary, 601 Clinton Street, Defiance, Ohio 43512.

ATTENDING THE ANNUAL MEETING

We will be hosting the Annual Meeting live via the Internet. A summary of the information you need to attend the Annual Meeting online is provided below:

PROXIES

Your proxy, if properly submitted and not revoked prior to its use, will be voted in accordance with the instructions you give.Properly submitted proxies that do not contain voting instructions and that are not “broker non-votes” will be voted (1) FOR the director nominees described herein, (2) FOR the approval of our executive compensation, (3) FOR the amendment to the Company’s Articles of Incorporation to declassify the Board, (4) FOR the ratification of the appointment of Crowe Horwath LLP as our independent registered public accounting firm for 2014,2017, and (4)(5) in accordance with the best judgment of the persons appointed as proxies upon the transaction of such other business as may properly come before the meeting.Annual Meeting. You may revoke your proxy at any time before it is exercised by (i) filing written notice of revocation to be received prior to voting at the Annual Meeting with our Secretary, Danielle R. Figley, at 601 Clinton Street, Defiance, Ohio 43512 that is received prior to voting at the Annual Meeting;43512; (ii) submitting a valid proxy bearing a later date that is received prior to voting at the Annual Meeting; or (iii) attending the Annual Meeting online and giving notice of revocation to the Secretary. Attending the Annual Meeting online will not, by itself, revoke a previously given proxy. Proxies solicited hereby mayThe proxies we are soliciting will only be exercised only at the Annual Meeting and any adjournment thereof and will not be used for any other meeting.

VOTING RIGHTS

Only our shareholders of record at the close of business on March 3, 201413, 2017 (the “Voting Record Date”) are entitled to notice of, and to vote at, the Annual Meeting. On the Voting Record Date, there were 9,646,049___________ common shares of our Common Stock issued and outstanding. We have no other class of equity securities outstanding that are entitled to vote at the Annual Meeting.

The presence, either in person or by proxy, of at least a majority of our outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted in determining the presence of a quorum.

REQUIRED VOTE

You are entitled to cast one vote for each share owned. Directors will be elected by a plurality of the votes cast. Our Articles of Incorporation do not permit shareholders to cumulate votes in the election of directors. Abstentions and broker non-votes will not affect the plurality vote required for the election of directors. The proposal to amend the Company’s Articles of Incorporation to declassify the Board must be approved by 75% of the votes entitled to be cast at the Annual Meeting. Abstentions and broker non-votes will be counted as votes “AGAINST” this proposal.

The proposals to approve our executive compensation and to ratify the appointment of Crowe Horwath require that the number of votes cast in favor of each proposal exceed the number of votes cast against it. Abstentions and broker non-votes will not be counted as votes cast and, therefore, will not affect either of these proposals. Similarly, broker non-votes will not affect the proposal regarding executive compensation.

The proposal

Because the proposals to approve our executive compensation isand ratify the selection of auditors are advisory, so itthey will not be binding upon the Board. However, the Compensation Committee will take into account the outcome of the executive compensation vote when considering future executive compensation arrangements. The proposal to ratifyFurther, if the selection of auditors is not binding upon the Board. However, if the selection is not ratified by the shareholders, the Audit Committee may re-consider its selection of Crowe Horwath as our independent registered public accounting firm for the fiscal year ending December 31, 2014.2017.

The election of directors, and the non-binding advisory vote on executive compensation, and the proposal to declassify the Board are not “discretionary” items. If your shares are held in “street name,”you must provide instructions to your brokerage firm in order to cast a vote on these proposals. The ratification of the selection of Crowe Horwath is considered a “discretionary” item, so your brokerage firm may vote in its discretion on your behalf if you do not furnish voting instructions.

PROPOSAL 1

Election of Directors

Composition of the Board

In 2013, ourCurrently, the Board consistedconsists of 11 directors. The Board has determined that each of John L. Bookmyer, Stephen L. Boomer, Peter A. Diehl, Jean A. Hubbard,Barbara A. Mitzel, Thomas A. Voigt, Douglas A. Burgei,12 directors and Samuel S. Strausbaugh is “independent” under the rules of The NASDAQ Stock Market LLC (“NASDAQ”).

The Board is divided into three classes, andwith each class servesserving a three-year term. We currently have a vacancy in the class of directors whose terms expire at the Annual Meeting. We intend to hold this vacancy open while we consider whether another director should be added to the Board.

The terms of each class expire at successive annual meetings so that our shareholdersshareholders elect one class of directors at each annual meeting. However, if Proposal 3 is approved, all directors standing for election in future years will be elected for one year, rather than three years. If Proposal 3 is not approved, all directors standing for election in future years will continue to be elected for three year terms. Under either scenario, all directors will complete their existing terms, subject to their earlier resignation or removal from office. For additional information regarding the proposal to declassify the Board, see “Proposal 3 - Declassification of the Board of Directors.”

The current composition of the Board is:

Mr. Beach, the most recent member of the Board, was appointed by a unanimous vote of the First Defiance directors, effective as of February 24, 2017, in accordance with the Agreement and Plan of Merger, dated August 23, 2016, as amended, between First Defiance and Commercial Bancshares, Inc. (the “Merger Agreement”). Pursuant to the Merger Agreement, the Board approved an expansion of the Board from 11 to 12 members and elected Mr. Beach to fill the vacancy created by this expansion. Subsequently, Mr. Beach was also appointed as a director ofFirst Federal Bank of the Midwest, First Defiance’s wholly-owned subsidiary (“First Federal”).

We will elect three directors at the Annual Meeting. Ms. Hubbard, Ms. Mitzel and Mr. RohrsNiehaus are standing for re-election.election. If elected, each director nominee will serve on the Board until our annual meeting of shareholders in 2017,2020, and until their successors are duly elected and qualified. If any of the three nominees should become unable or unwilling to stand for election at the Annual Meeting, the persons named on the proxy card as proxies may vote for other person(s) selected by the Board. We have no reason to believe that any of the nominees for election named below will be unable or unwilling to serve. Each nominee has consented to act as a director if elected.

The Board has determined that each of John L. Bookmyer, Stephen L. Boomer, Douglas A. Burgei, Jean A. Hubbard,Barbara A. Mitzel, Charles D. Niehaus, Thomas A. Voight will not stand for re-electionReineke and Samuel S. Strausbaugh is “independent” under the rules of The NASDAQ Stock Market LLC (“NASDAQ”). In assessing the independence of directors and the director nominee, the Board considered the business relationships between First Defiance and its directors or their affiliated businesses, other than ordinary banking relationships. Where business relationships other than ordinary banking relationships existed, the Board determined that none of the relationships between First Defiance and their affiliated businesses impaired the directors’ or director nominee’s independence because the amounts involved were immaterial to the directors or to those businesses when compared to their annual income or gross revenues. Although Robert E. Beach is “independent” under the rules of NASDAQ, the Board this year. As a result, afterhas determined Mr. Beach not to be “independent” for his appointed term due to his prior position as President and CEO of Commercial Bancshares, Inc., which was acquired by the Annual Meeting we will have a vacancy in the class of directors whose terms will expire at the 2017 annual meeting. We intend to hold this vacancy open while we consider whether another director should be added to the Board.Company on February 24, 2017.

Nominees for Election at this Annual Meeting:

Continuing Directors With Terms Expiring at our 20152018 Annual Meeting:

Continuing Directors With Terms Expiring at our 2016 Annual Meeting:

Continuing Directors With Terms Expiring at our 2019 Annual Meeting:

Board Leadership Structure

Since his appointment as President and CEO in 1999, William J. Small has served as Chairman of the Board of Directors. Upon Mr. Small’s retirement in 2013, he retained the position of Chairman and Donald P. Hileman became our President and CEO. This marked the first time in over a decade that these positions had been split. The Board decided it was time to divide these roles because, by doing so, they could continue to benefit from Mr. Small’s experience in a leadership role, and his indepthin-depth familiarity with our hiring and operations.

The Board is aware that one of its responsibilities is to oversee our management and make performance, risk and compensation relatedcompensation-related decisions regarding management. In order to appropriately balance the Board’s focus on strategic development with its management oversight responsibilities, the Board created the position of Lead Independent Director, with Stephen L. Boomer currently serving in that role. As Lead Independent Director, Mr. Boomer is a permanent member of the Board’s Executive Committee and presides over executive sessions of the Board, which are attended only by non-management directors. In addition, Mr. Boomer is an active liaison between management and our non-management directors and with individual non-management directors concerning recent developments affecting us. Through the role of an active, engaged Lead Independent Director, the Board believes that its leadership structure is appropriately balanced between promoting our strategic development with the Board’s management oversight function. The Board also believes that its leadership structure has created an environment of open, efficient communication between the Board and management, enabling the Board to maintain an active, informed role in risk management by being able to monitor and manageoversee those matters that may present significant risks to us. The Board intends to maintain the Lead Independent Director position until such time as Mr. Small would qualify as an independent director or an Independent Chairman asis appointed.

Board Committees

The Board has five standing committees: the Audit, Committee, Corporate Governance, Committee, Compensation, Committee, Executive Committee and Risk Committee.Risk. The current members of our individual standing committees are named below:

# - Chairperson

** - Lead Independent Director

TheAudit Committee is responsible for: (i) the appointment of our independent registered public accounting firm; (ii) review of the external audit plan and the results of the auditing engagement; (iii) review of the internal audit plan and results of the internal audits; (iv) review of reports issued by our Compliance Officer; (v) review of the effectiveness of our system of internal control, including review of thethe process used by management to evaluate the effectiveness of the system of internal control; and (vi) oversight of our accounting and financial reporting practices. The Audit Committee has adopted a written charter setting forth these responsibilities, a copy of which is posted on our website athttp://www.fdef.com under thisthe link “Governance Documents.”The Board has determined that John L. Bookmyer and Samuel S. Strausbaugh each have the attributes listed in the definition of “audit committee financial expert” set forth in Item 407(d)(5)(ii) of Regulation S-K and in the NASDAQ listing requirements. All of the Audit Committee members are considered “independent” for purposes of NASDAQ listing requirements and meet the NASDAQ standards for financial sophistication. The Audit Committee met sevenfive times in 2013.2016.

TheCorporate Governance Committee was established by the Board to ensure that the Board is appropriately constituted and conducts its affairs in a manner that will best serve the Company’s interests and those of our shareholders. Specific duties of the Committee include administering our conflict of interest policy/code of ethics, monitoring the Board’s continuing education and self-assessment process, nominating directors to the Board, and conducting an annual assessment of the Board as a whole, including an assessment of Board composition and committee assignments. The Corporate Governance Committee develops with management the materials discussed and presented at the board strategic planning meeting. The Corporate Governance Committee maintains a robust process for succession planning for the CEO as well as for other executive-level positions. The Governance Committee maintains both an emergency plan and a long-range succession plan. The plans are reviewed at least annually by the Governance Committee. The Corporate Governance Committee has adopted a written charter setting forth its responsibilities, a copy of which is posted on our website athttp://www.fdef.com under the link “Governance Documents.” The Corporate Governance Committee met twofour times in 2013.2016.

The Board does not have a separate nominating committee, as those functions are performed by the Corporate Governance Committee and the Board as a whole. The Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, having business experience, and exhibiting high moral character. WhileAlthough the Committee does not have a formal diversity policy in place, the Committee does seek to promote a diverse set of viewpoints and business experience in the Board’s membership. The Committee retains the right to modify these minimum qualifications from time to time as circumstances dictate. The Committee has a general process for choosing nominees, which process considers both incumbent directors and new candidates. In evaluating an incumbent director whose term of office is set to expire, the Committee reviews such director’s overall service to us during his or her term, including attendance at meetings, participation and quality of performance. If the Committee chooses to evaluate new director candidates, the Committee uses its network of contacts to compile a list of potential candidates. Then, the Committee determines whether such candidates are independent, which determination is based upon applicable securities laws. Finally, the Committee meets to discuss and consider all candidates’ qualifications and then chooses the candidates. The Corporate Governance Committee considers the following criteria in proposing director nominees to the full Board: (1) independence; (2) high personal and professional ethics and integrity; (3) ability to devote sufficient time to fulfilling duties as a director; (4) impact on diversity of the Board, including skills and other factors relevant to our business; and (5) overall experience in business, education, and other factors relevant to our business.

Our shareholders may also make nominations for candidates for director to the Corporate Governance Committee, provided that notice of such nomination is given in writing to our Secretary not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders. The notice must set forth the name, age, business address and residence address (if available) of the nominee and the number of shares of Common Stock whichthat are beneficially owned by the nominee. Also, the shareholder making the nomination must promptly provide any other information reasonably requested by the Corporate Governance Committee. The Committee does not alter the manner in which it evaluates candidates, including the minimum criteria set forth above, when evaluating a candidate who was recommended by a shareholder. No director nominations were received from shareholders for the 20142017 election of directors.

As of January 1, 2013, the Strategic Planning Committee was rolled into the Corporate Governance Committee along with its specific duties and responsibilities.

TheCompensation Committee is responsible for overseeing our compensation programs, including base salaries, long-term incentive compensation, equity-based compensation, and perquisites and benefit plans. The Committee also administers the process for evaluation of the Chairman and Chief Executive Officer and recommends to the Board the compensation for directors (including committee member and committee chair’s fees, equity-based awards and other similar items as appropriate). Further description of the Committee’s responsibilities is set forth under the “Compensation Discussion and Analysis” below. The Compensation Committee has adopted a written charter setting forth its responsibilities, a copy of which is posted athttp://www.fdef.com under the link “Governance Documents.” The Committee also makes recommendations to the full Board regarding director compensation. All of the Compensation Committee members are considered “independent” for purposes of NASDAQ listing requirements. The Compensation Committee met four times in 2013.2016.

TheExecutive Committee generally has the power and authority to act on behalf of the Board between scheduled meetings unless specific Board action is required or unless otherwise restricted by our Articles of Incorporation or Code of Regulations, or the Board. As Chairman of the Board, Mr. Small serves as Chairman of the Executive CommitteeCommittee. He, Mr. Boomer and Messrs. Rohrs and BoomerMr. Hileman serve as permanent members. The remaining directors with the exception of Ms. Mitzel, serve on the Committee on a rotating basis during the year. The Executive Committee did not meetmet one time during 2013.2016.

TheRisk Committeewas established by the Board to assist the Board of Directors in fulfilling its oversight responsibilities with regard to the risk appetite of the Company and the risk management and compliance framework and the governance structure that support it. The Risk Committee has adopted a written charter setting forth these responsibilities, a copy of which is posted on the Company’s website athttp://www.fdef.com under thisthe link “Governance Documents.” The Risk Committee met sevenfour times in 2013.during 2016.

Compensation Committee Interlocks and Insider Participation

Mr. Bookmyer, Mr. Boomer, Ms. Hubbard Mr. Strausbaugh and Mr. VoigtStrausbaugh served on the Compensation Committee during 2013.2016. There were no Compensation Committee interlocks or insider (employee) participation during 2013.2016.

Board and Board Committee Meetings

Our Board holds regular meetings quarterly.each quarter. First Federal’s Board of Directors meets monthly.twice each quarter. Special meetings of the Boards are held from time to time as needed. There were fourfive meetings of the Board of Directors of First Defiance and twelveeight meetings of the Board of Directors of First Federal held during 2013. 2016.All of our directors attended at least 75% of the total number of meetings of the Board of Directors of First Defiance or First Federal, as applicable, and meetings held by all committees of the Board on which the director served during 2013.2016.

Neither the Board nor the Corporate Governance Committee has implemented a formal policy regarding director attendance at the Annual Meeting.our annual shareholder meetings. In 2013,2016, all 11ten of our then incumbent directors attended the annual meeting.

Non-management directors met twicetwo times in executive session in 2013.2016.

Director Compensation

The table below provides information concerning our director compensation for the fiscal year ended December 31, 2013.2016. Employee directors are not paid for Board service. The non-employee Chairman received a retainer of $54,000 and the Lead Independent Director received a retainer of $34,000. Each non-employee director received an annual retainer of $21,000$29,000 in 2013 with the exception of Mr. Boomer, the Lead Independent Director, who received a retainer of $26,000.2016. Committee chairs receivereceived an additional annual retainer as follows: (1) Audit Committee – $5,000; (2) Compensation Committee – $3,000;$5,000; (3) Risk Committee – $5,000; and (3)(4) Corporate Governance Committee and Strategic Planning Committee – $2,000. In addition, each non-employee director received $750 for each board meeting attended for either First Defiance or First Federal. Mr. Boomer, Mr. Small and Mr. Strausbaugh are also directors of First Insurance Group of the Midwest, Inc., and they receivereceived $500 for each suchFirst Insurance board meeting attended. Non-employee directors also receivereceived compensation for each committee meeting attended as follows: (1) Audit Committee – $500; (2) Compensation Committee – $500; (3) Executive or First Federal Executive Loan Committee meetings – $200; and (4) other First Defiance and First Federal Board committees – $500.

Our directors may defer their retainer and/or meeting fees payable to them under the First Defiance Deferred Compensation Plan. The returnreturns on the amounts deferred isare dependent on the investment elections made by the director. The directors’ choices include a number of mutual funds and an account of our Common Stock.common shares. Returns under the plan are calculated to mirror these elections. Because these earnings are denominated in our Common Stockshares or mutual fund equivalents, such earnings are not considered to be preferential or above market and are not reported in the table below. Also, no director received perquisites or personal benefits with an aggregate value exceeding $10,000.

 2013

The Board has set ownership guidelines for the Board and executive management. The guideline for each Board member is ownership of 10,000 shares of First Defiance. The Company allows for the payment of directors fees to be handled by either cash or stock at the election of the individual director.

2016 Director Compensation

Communication with Directors

The Board has adopted a process by which shareholders may communicate with the directors. Any shareholder wishing to do so may write to the Board at our principal business address, 601 Clinton St., Defiance, Ohio 43512. Any shareholder communication so addressed will be delivered unopened to the director or a member of the group of directors to whom it is addressed, or to the Chairman if addressed to the Board.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines as a framework to assist the Board in exercising its responsibilities. These Guidelines address expectations of the Board in performing its duties and reflect its ongoing efforts to enhance its effectiveness and corporate governance. These Guidelines will be periodically reviewed and modified as deemed appropriate by the Board. The Guidelines can be found on the Company’s website athttp://www.fdef.com under the link “Governance Documents.”

Board’s Role in Strategic Planning

Our Board has the legal responsibility for overseeing our affairs and, thus, an obligation to keep informed about our business and strategies. This involvement enables the Board to provide guidance to management in formulating and developing plans and to exercise independently its decision-making authority on matters of importance to us. Acting as a full Board and through its standing committees, the Board is fully involved in our strategic planning process.

Each year, typically in September, senior management and the Board hold an extended meeting to focus on corporate strategy. This session involves presentations from management and input from the directors regarding the assumptions, priorities and strategies that will form the basis for management’s operating plan and strategy for the coming year. At subsequent meetings, the Board continues to review our progress against the strategic plan and to exercise oversight and decision-making authority regarding strategic areas of importance and revise the strategic plan as necessary. The role the Board plays is inextricably linked to the development and review of our strategic plan. Through these procedures, the Board, consistent with good corporate governance practices, encourages our long-term success by exercising sound and independent business judgment on the strategic issues that are important to our business.

Board’s Role in Risk Oversight

The Board’s function of overseeing risk is handled primarily by the Risk Committee. The Chief Risk Officer works with management as well as internal and external auditors to determine and evaluate significant risks that we may be taking and communicates those findings directly to the Committee. The Committee is focused on identifying, quantifying, and minimizing our risks. The Committee believes that by involving both management and auditors in this important process, it is best able to perform its function. WeFirst Federal also havehas a standing Officer Risk Management Committee, Compliance Committee, Information Technology Steering Committee and Asset Review Committee that meets monthlyregularly to provide structure and input into our Risk Management Process. The minutes and findings of this Committeethese committees are presented to the Risk Committee.

EXECUTIVE OFFICERS

The following table sets forth the name of each current executive officer, other than Messrs. Rohrs andMr. Hileman, whose information is set forth above, and the principal position and offices he or she holds with First Defiance or First Federal. Each such executive officer has consented to act in the office set forth below.

COMPENSATION DISCUSSION AND ANALYSIS

The following Compensation Discussion and Analysis describes the material elements of compensation of our executive officers identified in the Summary Compensation Table (“Named Executive Officers”). Our goal is to become a high performing community bank, meeting or exceeding the 75^th percentile of our peers in key financial measures. In 2016, we reported our fourth consecutive year of record diluted earnings per common share, with 2016 results up 13.1% over the prior year. This performance included growth in loans and deposits of 7.7% and 7.9%, respectively; a higher return on average assets at 1.20%; an improved efficiency ratio to 62.20%; and an 11.8% reduction in non-performing assets.

Compensation Philosophy and Objectives

The Board believes the most effective executive compensation program is one that rewards the achievement of specific annual, and long-term and strategic goals that are established in conjunction with strategic planning initiatives and the long-term objective of maximizing shareholder value. Consistent with that philosophy, our executive compensation packages include both cash and stock-based compensation that reward performance as measured against predetermined goals. The Compensation Committee (the “Committee”) evaluates our executive compensation to ensure that it is sufficiently competitive to enable us to attract and retain qualified employees in key positions. Total compensation commensurate with the median compensation paid to similarly situated executives of peer companies is generally what the Committee considers competitive.

Until 2013, First Defiance’sThe Board encourages ownership of FDEF shares by its executive management, which is why a significant part of the Named Executive Officer’s compensation program had to comply withpackage is paid in equity. As a result, the limitations imposed by the U.S. Treasury’s Capital Purchase Program (“CPP”), commonly called TARP, which affected First Defiance’s executive compensation program by imposing numerous limitations. On June 19, 2012, the Company repaid all of its obligationsCommittee has established share ownership guidelines for the financial assistance received from the U.S. Treasury under the CPP, and so there were no CPP limitations on our compensation program in 2013. Nontheless, we and our executive officers are still subject to certain remaining restrictions for executive compensation earned or awarded during the time we were participating in the CPP.executives as follows:

Advisory Vote on Executive Compensation

We were required by the CPP to include in our proxy statements for annual meetings of shareholders a non-binding “say on pay” shareholder vote on executive compensation. This advisory vote on executive compensation is now required by SEC rules. At the 2013 annual meeting, our shareholders approved holding annual votes on our executive compensation. In addition, the Board receives investor feedback through the Company’s participation at investor conferences periodically throughout the year. In 2016, executive management met with investors at the KBW Community Bank Investor Conference in New York, New York; the Raymond James U.S. Bank Conference in Chicago, Illinois; and the FIG Partners Bank CEO Forum in Atlanta, Georgia. At that sameour 2016 annual meeting, our shareholders approved our executive compensation with 97.9%99.0% of the votes cast.

cast, indicating that shareholders are strongly supportive of our executive compensation program. The resolution to approve First Defiance’s executive compensation is advisory, so it is not binding upon the Board of Directors. However, the Compensation Committee took the shareholder recommendationvote into account when reviewing executive compensation for 2013.2016 and will continue to monitor shareholder approval levels going forward.

Roles of the Committee and Chief Executive Officer in Compensation Decisions

The Committee makes all compensation decisions for ourthe Company’s executive officers. The CEO and approvesmakes compensation recommendations to the Committee for all compensation for the other Named Executive Officers utilizing recommendations made by our CEO.except himself.

20132016 Executive Compensation Components

For the fiscal year ended December 31, 2013,2016, the principal components of compensation for our Named Executive Officers were:

In the latter part of 2012,2014, the Compensation Committee engaged Pay Governance, an independentexecutive compensation consulting firm, to perform an analysis of compensation for our directors, CEO, CFO, Chief Risk Officer and CFO, and the CEOCommunity Banking President/Chief Lending Officer of First Federal. In conducting this analysis, Pay Governance independently developed competitive data for base salaries, short-term incentives, total cash compensation (sum of salary and bonus), long-term incentives, equity compensation and total direct compensation (sum of cash compensation and long-term incentives) from: (1) proxies and SEC filings of select peer banks ranging in asset size from $1 billion to $5 billion,with a median asset size of $1.9 billion compared to $2.2 billion for First Defiance, (2) surveys of other banks and (3) the following sources:

Based on an averageconsulting experience of the results developed from each of the three sources for each of the pay elements analysis, the analysis indicated:

Pay Governance.

Based onFor 2015, the Committee, at the recommendation of Pay Governance, the committee determined that it wouldto use the followinga new peer group to evaluate the appropriateness of the compensation package for each of First Defiance and First Federal’s officers, including the basis of compensation comparison as well as the groupNamed Executive Officers, and to use inevaluate the long-term incentive plan’s relative performance measures. TheFor 2016, the Committee determined to continue to use the same peer group companies for 2013 are:as 2015. That peer group is:

Base Salary

We provide our Named Executive Officers and other employees with a base salary to compensate them for services rendered during the fiscal year. The base salary for each of the Named Executive Officers is generally determined at the beginning of the year.

In 2015, the Committee reviewed the 2014 analysis and recommendations of Pay Governance regarding the pay practices of companies similar to First Defiance in order to determine an appropriate salary for Mr. Small, our CEO in 2013, was set at $402,000 effective March 1, 2013. This represented a 10% increase from 2012. Upon the retirement of Mr. Small on December 31, 2013,Hileman. When Mr. Hileman was appointedpromoted to CEO, at the Company’s Chief Executive Officertime, Pay Governance recommended a three-year transition period to increase Mr. Hileman’s compensation to the market median salary level and the Committee agreed with athis recommendation. Pay Governance’s 2014 evaluation continued to support the three-year transition of the CEO’s base salary to peer median levels. In 2016, the Committee considered that evaluation, the CEO’s performance review, and the 2015 performance of $365,000.the Company in deciding to increase Mr. Hileman’s salary from $400,000 to $430,000 for 2016.

Base salaries for Named Executive Officers other than Mr. Small and Mr. Hilemanthe CEO are determined based upon recommendations made by ourthe CEO. TheIn making a recommendation for 2016 salaries, the CEO generally comparescompared the base salary levels of the other Named Executive Officers with data from the ABA Compensation & Benefits Survey, the OBL Bank Compensation and Benefits Survey and internal pay grades, and consulted with Pay Governance regarding the median levels of public companiesthe peer group above. As a result of similar asset size and geographic location to us.

For 2013, Mr. SmallHileman’s review of this benchmarking compensation data, for 2016, Mr. Hileman recommended salary increases for the other Named Executive Officers ranging from 2%3% to 5%.4% for Mr. Thompson, Mr. Reisner, Mr. Allen and Mr. Mulford. After evaluating a number of factors, including performance evaluations, the peer group analysis performed by Pay Governance, the Compensation Committee decided to approve all of Mr. Small’s recommendations for this year.Hileman’s recommendations.

Performance-Based Incentive Compensation

The Board believes that a significant amount of executive officer compensation should be performance based. In recent years,Under the Incentive Compensation Plan, we have created opportunities for employees to earn short-term and long-term incentive compensation in the form of both cash and equity awards based on the level of achievement of performance targets that are established each year by the Committee. The Board believes the incentive plans align with shareholder interests, enable attracting and retaining executive talent, balance risk with rewards and support the long-term performance goals of the Company. In general, the Committee establishedestablishes threshold, target and maximum bonus payout goals. If the threshold performance level is not achieved, the payout percentage for that component of the bonus calculation is zero. If the performance level for a component is between the threshold and target or between the target and the maximum performance goal, the payout percentage is prorated.

In March 2013,2015, the Compensation Committee, with consultation from Pay Governance, established incentive targets and granted awards for 2016 under the 2013 Incentive Compensation Plan to permit employees who are selected as participants to earn a specified “target” percentage of their base salary, which is split equally between a short-term award paid in cash and based on the Company’s 20132016 performance, and a long-term award paid in equity and based on the Company’s performance from 20132016 to 2015.2018. Both the short-term award and the long-term award can be earned at between 0% and 150% of the specified “target”,“target,” depending on the level of attainment of the performance objectives.

2016 Short-Term Executive Incentive Compensation

The Company maintains a short-term incentive compensation plan for key officers, including the Named Executive Officers. Under this plan, cash incentive awards can be earned through the achievement of specified annual performance goals. The goals for each Named Executive Officer are established in conjunction with the Board’s and management’s expectations for the year and weighted for each officer based on the officer’s role within the Company.

2013 Short-Term Incentive Compensation.

For 2016, the performance goals for the short-term incentive compensation award for the Named Executive Officers included several common goals: Earnings Per Share, Efficiency Ratio, Non-Performing Assets/Total Assets, and Deposit Growth. The 2013Board believes that Earnings Per Share measures the Company’s profitability consistent with shareholder interests, Efficiency accentuates controlling expenses, Non-Performing Assets/Total Assets emphasizes the importance of managing credit risk and Deposit Growth reflects the organic expansion of our business.

The related payout percentages of the bonus potential for the common goals are described below: