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any First Defiance securities. These standards generally apply to our executive officers and are set forth in the American Recovery and Reinvestment Act of 2009 (“ARRA”) and an interim final rule promulgated by the U.S. Treasury under 31 CFR Part 30 on June 15, 2009 and amended on December 7, 2009 (collectively, the “Interim Final Rule”). The executive compensation and corporate governance standards under ARRA and the Interim Final Rule remain in effect during the period in which any obligation arising under the CPP is outstanding, excluding any period during which the U.S. Treasury holds only the warrant to purchase Common Stock (the “CPP Covered Period”).

PROPOSAL 1

Election of Directors

Composition of the Board

The full

In 2013, our Board consistsconsisted of 11 directors. In 2010, theThe 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, Dwain I. Metzger, and Samuel S. Strausbaugh areis “independent” under the rules of The NasdaqNASDAQ Stock Market LLC (“Nasdaq”NASDAQ”).

The Board is divided into three classes, with two of the classes having four members and the other having three members. The directors in each class serveserves a three-year term. The terms of each class expire at successive annual meetings so that theour shareholders elect one class of directors at each annual meeting.

The current composition of the Board is:

The election of four

We will elect three directors will take place at the Annual Meeting. Ms. Hubbard, Ms. Mitzel Mr. Rohrs and Mr. VoigtRohrs are standing for re-election. If elected, each of the four director nomineesnominee will serve on the Board until theour annual meeting of shareholders in 2014,2017, and until their successors are duly elected and qualified in accordance with the Company’s Code of Regulations.qualified. If any of the fourthree nominees should become unable or unwilling to acceptstand 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 of the named proxies. Management hasBoard. We have no reason to believe that any of the four nominees for election named below will be unable or unwilling to serve.

3Thomas A. Voight will not stand for re-election to the Board this year. As a result, after 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.

Nominees Forfor Election as Directors With Terms Expiring at the 2014this Annual Meeting:

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Continuing Directors With Terms Expiring at our 2015 Annual Meeting:

1995

Vice President and General Manager of Bryan Publishing Company, Bryan, OH since 1980. Mr. Voigt offers the Board of Directors a detailed knowledge of the business climate of the community through his work publishing two daily newspapers in the area. He is able keep the Board of Directors well-informed about changing conditions in the region.

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Continuing Directors With Terms Expiring at our 2016 Annual Meeting:

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Board Leadership Structure

Since his appointment as President and CEO in 1999, William J. Small has also served as Chairman of the Board of Directors. The Board of Directors believes that Mr. Small is best situated to serve as Chairman of the Board based upon his significant leadership position with First Defiance and his in-depth familiarity with the Company’s business and industry. In addition, the Board of Directors believes thatUpon Mr. Small’s combined roles as Chairman and CEOretirement in 2013, he retained the position him to effectively identify First Defiance’s strategic priorities and lead Board discussions on the execution of Company strategy. While each of First Defiance’s independent directors brings unique experience, oversight and expertise from outside the Company and its industry, Mr. Small’s company-specific experience and expertise allow him to effectively direct Board discussions and focus Board decision-making on those items most important to the Company’s overall success. The Board of Directors believes that the combined role of Chairman and CEO helps promote First Defiance’s overall strategic developmentDonald P. Hileman became our President and facilitatesCEO. This marked the efficient flow of information between managementfirst 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 the Board.his indepth familiarity with our hiring and operations.

While the Board of Directors believes that having a combined Chairman and CEO is essential to First Defiance’s overall strategic development, the

The Board is also aware that one of its responsibilities is to oversee Companyour management and make performance, risk and compensation related decisions regarding management. In order to appropriately balance the Board’s focus on strategic development with its management oversight responsibilities, the Board of Directors 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 First Defiance’sour non-management directors, maintaining frequent contact both with Mr. Small to advise him on the progress of Board committee meetings, and with individual non-management directors concerning recent developments affecting the Company.us. Through the role of an active, engaged Lead Independent Director, it is the opinion of the Board of Directorsbelieves that its leadership structure is appropriately balanced between promoting First Defiance’sour strategic development with the Board’s management oversight function. The Board of Directors 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 manage those matters that may present significant risks to First Defiance.us. The Board intends to maintain the Lead Director position until such time as Mr. Small would qualify as an independent director or an Independent Chairman as appointed.

Board Committees

8

Board Committees

The Board of Directors has sixfive standing committees: the Audit Committee, Corporate Governance Committee, Compensation Committee, Strategic Planning Committee, Executive Committee and Succession PlanningRisk Committee. MembersThe current members of theour individual standing committees are named below:

TheAudit Committee is responsible for: (i) the appointment of First Defiance’sour 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 First Federal’sour Compliance Officer; (v) review of the effectiveness of First Defiance’sour system of internal control, including review of the process used by management to evaluate the effectiveness of the system of internal control; and (vi) oversight of theour accounting and financial reporting practices of First Defiance.practices. The Audit Committee has adopted a written charter setting forth these responsibilities, a copy of which is posted on the Company’sour website athttp://www.fdef.com. under this link “Governance Documents.”The Board has determined that it has two “audit committee financial experts” serving on its Audit Committee. John L. Bookmyer and Samuel S. Strausbaugh each have been determined to have the attributes listed in the definition of “audit committee financial expert” set forth in the Instruction to Item 407(d)(5)(i)(ii) of Regulation S-K and in the NasdaqNASDAQ listing requirements. All of the Audit Committee members are considered “independent” for purposes of the NasdaqNASDAQ listing requirements, and meet the NasdaqNASDAQ standards for financial sophistication. The Audit Committee met seven times in 2010.2013.

TheCorporate Governance Committee was established by the Board of Directors 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 First Defiance and itsour shareholders. Specific duties of the Committee include administering First Defiance’sour 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 has adopted a written charter setting forth theits responsibilities, of the committee, a copy of which is posted on the Company’sour website athttp://www.fdef.com. under the link “Governance Documents.” The Corporate Governance Committee met oncetwo times in 2010.2013.

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

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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. While 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 membership of the Board.Board’s membership. The Committee retains the right to modify these minimum qualifications from time to time.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 First Defianceus 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 nominations for 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 First Defiance’sour business; and (5) overall experience in business, education, and other factors relevant to First Defiance’sour business.

Shareholders of First Defiance

Our shareholders may also make nominations to the Corporate Governance Committee, provided that notice of such nomination is given in writing to theour Secretary of First Defiance 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 which 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 20112014 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 First Defiance’sour 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.www.fdef.com under the link “Governance Documents.” The Committee also makes recommendations to the full Board regarding Boarddirector compensation. All of Directors’ compensation.the Compensation Committee members are considered “independent” for purposes of NASDAQ listing requirements. The Compensation Committee met four times in 2010.

The executive compensation standards under ARRA and the Interim Final Rule require that, during the CPP Covered Period, First Defiance establish and maintain a compensation committee consisting solely of independent directors for the purpose of reviewing First Defiance’s employee compensation plans. The Compensation Committee is a “compensation committee” for purposes of ARRA and the Interim Final Rule. ARRA and the Interim Final Rule also require that the Compensation Committee meet at least every six months and take the following actions:

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The Compensation Committee is required to both disclose the results, and certify completion, of the reviews described above in the Compensation Committee Report. The disclosure and certifications in the form required by the Interim Final Rule issued by the U.S. Treasury are included in the section captioned “Compensation Committee Report”.

TheExecutive Committee generally has the power and authority to act on behalf of the Board of Directors between scheduled Board meetings unless specific Board action is required or unless otherwise restricted by First Defiance’sour Articles of Incorporation or Code of Regulations, or its Board of Directors.the Board. As Chairman of the Board, Mr. Small serves as Chairman of the Executive Committee and Messrs. Rohrs and Boomer 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 met three timesdid not meet during 2010.2013.

TheSuccession PlanningRisk Committee directswas 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 processwritten charter setting forth these responsibilities, a copy of systematically and deliberately preparing for future changes of leadership in key positions withinwhich is posted on the Company.Company’s website athttp://www.fdef.com under this link “Governance Documents.” The process may identify potential replacements and provide strategies for developing and/or hiring individuals to meet future needs. The Succession PlanningRisk Committee met onceseven times in 2010.2013.

Compensation Committee Interlocks and Insider Participation

Mr. Bookmyer, Mr. Boomer, Ms. Hubbard, Mr. Strausbaugh and Mr. Voigt served on the Compensation Committee during 2010.2013. There were no Compensation Committee interlocks or insider (employee) participation during 2010.2013.

Board and Board Committee Meetings

Regular

Our Board holds regular meetings of thequarterly. First Federal’s Board of Directors of First Defiance are held quarterly and of First Federal are heldmeets monthly. Special meetings of the Boards are held from time to time as needed. There were fivefour meetings of the Board of Directors of First Defiance and thirteentwelve meetings of the Board of Directors of First Federal held during 2010. No director2013. All of our directors attended fewer thanat 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 2010.2013.

Neither the Board nor the Corporate Governance Committee has implemented a formal policy regarding director attendance at the Annual Meeting. Typically, the Board holds its annual organizational meeting directly following the Annual Meeting, which results in most directors attending the Annual Meeting. In 2010,2013, all eleven11 then incumbent directors attended the Annual Meeting.annual meeting.

Non-management directors met twice in two executive sessionssession in 2010. Mr. Boomer, Lead Independent Director, presided over those meetings.

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Director Compensation

The table below provides information concerning theour director compensation of directors for the fiscal year ended December 31, 2010.2013. Employee directors are not paid for Board service. Each non-employee director received an annual retainer of $21,000 in 20102013 with the exception of Mr. Boomer, the Lead Independent Director, who received a retainer of $24,500.$26,000. Committee chairs receive an additional annual retainer as follows: (1) Audit Committee — $3,000;– $5,000; (2) Compensation Committee — $2,000;– $3,000; and (3) Corporate Governance Committee and Strategic Planning Committee — $1,000.– $2,000. In addition, each non-employee director received $400$750 for each Boardboard meeting attended for either First Defiance or First Federal, but no fee is received for the annual organizational meeting of either entity.Federal. Mr. Boomer and Mr. Strausbaugh are also directors of First Insurance and Investments,Group of the Midwest, Inc., and they receive $400$500 for each First Insurance Boardsuch meeting attended. Non-employee directors also receive compensation for each committee meeting attended as follows: (1) Audit Committee —– $500; (2) Compensation Committee — $400;– $500; (3) Executive or First Federal Executive Loan Committee meetings —– $200; and (4) other First Defiance and First Federal Board committees — $300.– $500.

Directors

Our directors may defer their retainer and/or meeting fees payable to them under the First Defiance Deferred Compensation Plan. The return on the amounts deferred is dependent on the investment elections made by the director. The directors’ choices for election include a number of mutual funds and a First Defiance stock account.an account of our Common Stock. Returns under the plan are calculated to mirror these elections. Because these earnings are denominated in First Defiance stockour Common Stock or the mutual fund equivalents, such earnings are not considered to be preferential or above market and are not reported in the table below. Also, directors do not receiveno director received perquisites or personal benefits that havewith an aggregate value that exceedsexceeding $10,000.

20102013 Director Compensation

Communication with Directors

The Board of Directors has adopted a process by which shareholders may communicate with the directors. Any shareholder wishing to do so may write to the Board of Directors at the Company’sour principal business address, 601 Clinton St., Defiance, OHOhio 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 of Directors.

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Board’s Role in Strategic Planning

The

Our Board of Directors has the legal responsibility for overseeing theour affairs of the Company and, thus, an obligation to keep informed about the Company’sour 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 the Company.us. Acting as a full Board and through the Board’sits standing committees, (Audit Committee, Corporate Governance Committee, Compensation Committee, Strategic Planning Committee and Executive Committee), the Board is fully involved in the Company’sour 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 Boarddirectors regarding the assumptions, priorities and strategies that will form the basis for management’s operating plan and strategy.strategy for the coming year. At subsequent Board meetings, the Board continues to review the Company’sour progress against itsthe strategic plan and to exercise oversight and decision-making authority regarding strategic areas of importance.importance and revise the strategic plan as necessary. The role the Board plays is inextricably linked to the development and review of the Company’sour strategic plan. Through these procedures, the Board, consistent with good corporate governance practices, encourages theour long-term success of the Company by exercising sound and independent business judgment on the strategic issues that are important to the Company’sour business.

Board’s Role in Risk Oversight

The Board’s function of overseeing risk is handled primarily by the AuditRisk Committee. The Chief Risk Officer works with management as well as internal and external auditors to determine and evaluate significant risks the Companythat we may be taking and communicates those findings directly to the Committee. The Committee is focused on identifying, quantifying, and minimizing the Company’sour risks. The Committee believes that by involving both management and auditors in this important process, it is best able to perform its function. We also have a standing Officer Risk Management Committee that meets monthly to provide structure and input into our Risk Management Process. The minutes and findings of this Committee are presented to the Risk Committee.

EXECUTIVE OFFICERS

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EXECUTIVE OFFICERS

The Board elects executive officers annually following the Annual Meeting of Shareholders to serve until the meeting of the Board following the next annual meeting. The following table sets forth the name of each current executive officer, other than Mr. SmallMessrs. Rohrs and Mr. Rohrs,Hileman, whose information is set forth above, and the principal position and offices he or she holds with First Defiance or First Federal.

COMPENSATION DISCUSSION AND ANALYSIS

The following Compensation Discussion and Analysis describes the material elements of compensation for the First Defianceof our executive officers identified in the Summary Compensation Table (“Named Executive Officers”).

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Compensation Philosophy and Objectives

The Board of Directors believes the most effective executive compensation program is one that rewards the achievement of specific annual and long-term and strategic goals whichthat are established in conjunction with strategic planning initiatives and the long-term objective of maximizing shareholder value. Consistent with that philosophy, the Company’sour executive compensation packages include both cash and stock-based compensation that rewardsreward performance as measured against predetermined goals. The Compensation Committee (the “Committee”) evaluates our executive compensation to ensure that it is sufficiently competitive to enable the Companyus 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’s executive compensation program in 2010 musthad to comply with the limitations imposed by the CPP,U.S. Treasury’s Capital Purchase Program (“CPP”), commonly called TARP, which limited the Compensation Committee’s actions by prohibiting the payment or accrual of any bonus, retention award or incentive compensation to any ofaffected First Defiance’s five most highly compensated employees, including Messrs. Small and Rohrs, except in limited circumstances. Further, the CPP provides additional restrictions on First Defiance by: (i) prohibiting the payment of golden parachute payments to select highly-paid employees upon a departure from First Defiance or due to a change in control of First Defiance, except for services performed or benefits accrued; (ii) requiring the recovery (“clawback”) of any bonus, retention award or incentiveexecutive compensation paid to a select group of highly-paid employees if the payment was based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria; (iii) prohibiting any compensation plan that would encourage the manipulation of First Defiance’s reported earnings to enhance the compensation of any of the employees ofprogram by imposing numerous limitations. On June 19, 2012, the Company orrepaid all of its subsidiaries; (iv) prohibiting compensation plans that encourage Senior Executive Officers, which is defined in ARRA and includesobligations for the Named Executive Officers, to take unnecessary and excessive risks that threaten the value of First Defiance; (v) eliminating any “tax gross-ups” to any Senior Executive Officer or a select group of highly-paid employees; (vi) requiring the limitation of any compensation plan that unnecessarily exposes First Defiance to risk; (vii) requiring that First Defiance disclose tofinancial 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 Office of Thrift Supervisiontime we were participating in the amount, nature and justification for offeringCPP.

Advisory Vote on Executive Compensation

We were required by the CPP to any of our five most highly-compensated employees any perquisites whose total value exceeds $25,000; (viii) requiring that First Defiance disclose to the U.S. Treasury and the Office of Thrift Supervision whether First Defiance, the Board of Directors or the Compensation Committee engaged a compensation consultant and the services performed by that compensation consultant and any of its affiliates; and (ix) requiring that First Defiance disclose to the U.S. Treasury the identity of a select group of highly-paid employees, identified by name and title and ranked in descending order of annual compensation.

ARRA and the Interim Final Rule also required that the Board of Directors adopt a company-wide policy regarding “excessive or luxury expenditures” and post this policy on First Defiance’s website which was completed in September 2009. First Defiance must also include in our proxy statements for annual meetings of shareholders a non-binding “say on pay” shareholder vote on executive compensation.

First Defiance’s Named Executive Officers and other employees who are subject to the This advisory vote on executive compensation limitationsis now required by SEC rules. At the 2013 annual meeting, our shareholders approved holding annual votes on our executive compensation. At that same meeting, our shareholders approved our executive compensation with 97.9% of the CPP have entered into letter agreements. These agreements amend the compensation and benefit plans in which these individuals participate to comply with the limitations imposed by the CPP.

15The 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 recommendation into account when reviewing executive compensation for 2013.

Roles of the Committee and Chief Executive Officer in Compensation Decisions

The Committee makes all compensation decisions for the Chief Executive Officerour CEO and approves all compensation for the other Named Executive Officers utilizing recommendations made by the Chief Executive Officer.our CEO.

2010

2013 Executive Compensation Components

For the fiscal year ended December 31, 2010,2013, the principal components of compensation for our Named Executive Officers were:

In prior years,the latter part of 2012, the Compensation Committee has engaged third partiesPay Governance, an independentexecutive compensation consulting firm, to assist in analyzingperform an analysis of compensation for our CEO and CFO, and the CEO 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 and total direct compensation (sum of cash compensation and long-term incentives) from the following sources:

Based on an average of the Named Executive Officers in comparison to a peer group. In 2010,results developed from each of the Compensation Committeethree sources for each of the pay elements analysis, the analysis indicated:

Based on the recommendation of Pay Governance, the committee determined that due to general economic conditions and uncertainty regarding how the Company would perform during the year, it would not make any significant changesuse the following peer group for the basis of compensation comparison as well as the group to use in the compensation of the Named Executive Officerslong-term incentive plan’s relative performance measures. The peer group companies for 2010.2013 are:

Base Salary

First Defiance provides

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.

The 2013 base 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, Mr. Hileman was appointed the Company’s Chief Executive Officer with a base salary of $365,000.

Base salaries for Named Executive Officers other than Mr. Small and Mr. Hileman are determined based upon recommendations made by the Chief Executive Officer.our CEO. The Chief Executive OfficerCEO generally compares the base salary levels of the other Named Executive Officers with the median levels of public companies of similar asset size and geographic location to First Defiance. However, for 2010,us.

For 2013, Mr. Small recommended that salaries should be frozensalary increases for the other Named Executive Officers ranging from 2% to reflect5%. After evaluating a number of factors, including the fact thatpeer group analysis performed by Pay Governance, the Company’s performance was uncertain based on the economic stress in the marketplace. The Compensation Committee approveddecided to approve all of Mr. Small’s recommendation.recommendations for this year.

Based on this recommendation, the Committee determined that it would also keep Mr. Small’s base salary at the same level as it was in 2009.

Performance-Based Incentive Compensation

The Board believes that a significant amount of executive officer compensation should be performance based. In recent years, employeeswe have had an opportunitycreated opportunities for employees to earn short-term and long-term incentive compensation in the form of both cash bonusesand equity awards based on the level of achievement of performance targets that are established each year by the Committee. Stock options have historically beenIn general, the only formCommittee established 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, the Compensation Committee established incentive awards under the 2013 Incentive 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, based on the Company’s 2013 performance, and long-term incentive compensation used byaward, based on the Company. In 2008,Company’s performance from 2013 to 2015. Both the Company adopted a newshort-term award and the long-term incentive plan to provide for long-term compensation inaward can be earned at between 0% and 150% of the formspecified “target”, depending on the level of both cash and equity awards.attainment of the performance objectives.

2013 Short-Term Incentive Compensation.The 20102013 target short-term incentive compensation component and actual bonus componentpayout for each of the Named Executive Officers is set forth below.

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The 20102013 First Defiance performance targets for the short-term incentive compensation award, the relative weighting of each target and the related payout percentages of the bonus potential are described below:

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 amount, the payout percentage is prorated. In 2010,2013, the Company exceeded the thresholdThreshold level of performance in two of the sixboth categories. The actual Non-Performing Asset percentageEPS level was 2.78%, better than the threshold of 2.99%. The$2.19, resulting in a payout for this metric was 9.23%of 42.0% of the target bonus.award. The second metric that triggeredactual efficiency ratio was 64.81%, resulting in a calculated payout was Non-Interest Expense. Actual Non-Interest expense was 3.09% compared with the threshold of 3.12%. The payout for this metric was 5.75%of 25.06% of the target bonus.award. The combinedaggregate short-term incentive award payout total was 14.98%67.06% of the overall target bonusaward amount. As a result, the Named Executive Officers were entitled to bonusesawards under the short-term incentive plan, which were paid in cash in March 2011. However, because Mr. Small and Mr. Rohrs were among First Defiance’s five most highly compensated employees, they were prohibited from receiving a cash bonus. The Compensation Committee determined that they should still be rewarded for their performance. As a result, the Committee determined that in lieu of cash they would have received if First Defiance was not a CPP participant, they should receive the bonus in the form of restricted stock awards, as permitted under ARRA, under the 2010 Equity Incentive Plan (the “2010 Equity Plan”) that was approved by shareholders at last year’s annual meeting.

Employees who are prohibited by the Interim Final Rule from receiving a bonus are permitted to receive restricted stock or restricted stock units on the following terms: (i) the restricted stock and/or restricted stock units may not become transferable or payable earlier than in 25% increments as a corresponding percentage of TARP assistance is repaid; (ii) restricted stock and/or restricted stock units must be forfeited if the employee does not continue performing substantial services for at least two years after the grant date (other than due to the employee’s earlier death or disability or the earlier occurrence of a change in control); (iii) the amount or value of restricted stock and/or restricted stock units (determined based on the fair market value of the underlying common shares on the grant date) granted in any year may not exceed 1/3 of the employee’s annual compensation for such year.

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Upon Mr. Small’s recommendation, the Compensation Committee also approved a one-time cash bonus to Mr. Rose. Mr. Small believed, and the Committee agreed, that Mr. Rose’s leadership during the successful core conversion of the Company in November 2010 should be rewarded with a bonus.

2013 Long-Term Incentive Compensation.The Committee established a long-term incentive compensation arrangement that wouldcomponent under the 2013 Incentive Plan to reward senior executives for increasing the value of the Company through sustained future growth and profitability. Awards are paid in equity issued under our 2010 Equity Incentive Plan. Under this 2013 long-term incentive compensation arrangement, we entered into an award agreement with each of the executive officers, pursuant to which, each officer has been awarded an amount of restricted stock units equal to 100% the Maximum payout. The arrangement consistsmaximum number of equityshares granted under the plan is calculatd by taking the maximum incentive payout dollar value divided by the share price that was based on the 20 day average closing share price as of December 31, 2012. If the officer’s employment terminates for any reason (except for certain circumstances as described in the 2013 Long-Term Agreement that have special vesting schedules for death, disability, retirement and change in control ) prior to the end of the applicable performance period, the officer shall forfeit all of the RSUs subject to the target award for that and any subsequent performance period. The 2013-2015 long-term incentive compensation target award for each of the Named Executive Officers is set forth below.

The 2013 long-term incentive plan awards have different payout percentages and components than the 2012 long-term incentive plan awards, but utilize the same peer group established by the Compensation Committee. The applicable performance criteria and weighting for the 2013-2015 performance period are as described below: