As filed with the Securities and Exchange Commission on October 31, 2016

18, 2019

RegistrationNo. 333-214154

333-234144

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



Amendment No.

AMENDMENT NO. 1
to

TO THE

FORMS-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933



FIRST DEFIANCE FINANCIAL CORP.

(Exact name of registrant as specified in its charter)charter)



OHIO 6035 34-1803915

(State or other jurisdiction
of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

601 Clinton Street

Defiance, Ohio 43512

(419)782-5015

(Address, including ZIP Code, and telephone number, including area code, of registrant’s principal executive offices)offices)



Donald P. Hileman

President and Chief Executive Officer

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

(419)782-5015

(Address, including ZIP Code, and telephone number, including area code, of agent for service)service)



Copies to:

Gary M. Small

President and Chief

Executive Officer

United Community

Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503

(330)742-0500

 

Kimberly J. Schaefer Esq.

Vorys, Sater, Seymour

and Pease LLP

301 E. Fourth Street

Suite 3500

Cincinnati, Ohio 45202

(513) 723-4000723-4068

 

Robert E. BeachM. Fleetwood

Barack Ferrazzano
President and Chief Executive
Officer
Commercial Bancshares, Inc.
118 S. Sandusky Avenue
Upper Sandusky, Ohio 43351
(414) 294-5781Kirschbaum &

Nagelberg LLP

200 W. Madison Street,

Suite 3900

Chicago, Illinois 60606

(312)984-3100

 Thomas

Edward D. Herlihy

Brandon C. Blank, Esq.
Shumaker, Loop Price

Wachtell, Lipton, Rosen

& Kendrick, LLP
1000 JacksonKatz

51 West 52nd Street
Toledo, Ohio 43604
(419) 321-1394

New York, New York

10019

(212)403-1000



Approximate date of commencement of proposed sale of the securities to the public:As soon as practicable after this Registration Statement has become effective and all other conditions to the consummation of the transactions have been satisfied or waived.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.o  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

CALCULATION OF REGISTRATION FEE

    
Title of each class of securities to be registered Amount to be registered(1) Proposed maximum offering price per unit Proposed maximum aggregate offering price(2) Amount of registration fee
Common shares, $0.01 par value per share  1,187,630 shares   N/A  $50,603,507.50  $5,864.95(3) 

(1)Based upon the maximum number of shares of common stock that the Registrant may be required to issue in the transaction, calculated as the product of (i) 1,257,230 (the aggregate number of shares of Commercial Bancshares common stock that may be outstanding when the transaction is consummated), (ii) 0.80 (the maximum percentage of outstanding Commercial Bancshares common stock that may be exchanged for the Registrant’s common stock), and (iii) an exchange ratio of 1.1808 shares of the Registrant’s common stock for each share of Commercial Bancshares common stock.

Large accelerated filer

☐

Accelerated filer

☒

(2)Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933 and computed pursuant to Rule 457(f)(1) thereunder on the basis of the market value of Commercial Bancshares’ common stock to be exchanged in the transaction, computed, in accordance with Rule 457(f), as the product of (i) $50.45 (the average of the bid and asked price on October 13, 2016, a date within five business days prior to the date of filing this registration statement) and (ii) 1,257,230 (the aggregate number of shares of Commercial Bancshares common stock that may be outstanding when the transaction is consummated), less $12,823,746 (the amount of cash estimated to be paid by the Registrant to shareholders of Commercial Bancshares).

Non-accelerated filer

☐

Smaller reporting company

☐

(3)The filing fee was previously paid when this Form S-4 was filed on October 18, 2016.

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange ActRule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange ActRule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

The Registrant hereby amends this Registration Statement on such date(s) as may be necessary to delay its effective date until the Registrant files a further amendment specifically stating that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement becomes effective on such date as the Commission, acting pursuant to Section 8(a) of the Securities Act of 1933, may determine.

 

TABLE OF CONTENTS

Information contained in this proxy statement/prospectusherein is not complete and may be changed. A registration statement relating to the shares of First Defiance Financial Corp. common stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be issued prior to the time the registration statement becomes effective. This proxy statement/prospectusdocument is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
DATED OCTOBER   , 2016, PROSPECTUS—SUBJECT TO COMPLETION

COMPLETION—OCTOBER 18, 2019

Proxy Statement Prospectus
FIRST DEFIANCE FINANCIAL CORP.
PROSPECTUS
LOGO COMMERCIAL BANCSHARES, INC.
PROXY STATEMENT
For the issuance of up to 1,187,630 shares of First
Defiance Financial Corp. common stock		For the special meeting of shareholders to be held on
        , 2016 at   :     .m. local time

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On August 23, 2016,September 9, 2019, First Defiance Financial Corp., an Ohio corporation (“First Defiance”) and Commercial Bancshares, Inc. (“Commercial Bancshares”), entered into an Agreement and Plan of Merger, as amended from time to time (the “Merger Agreement”“merger agreement”), with United Community Financial Corp., an Ohio corporation (“United Community”). The merger agreement provides that, provides forupon the merger of Commercial Bancsharesterms and subject to the conditions set forth therein, United Community will merge with and into First Defiance (the “merger”), with First Defiance surviving the merger. Immediately following the merger, United Community’s wholly owned bank subsidiary, Home Savings Bank (“Home Savings”), will merge (the “bank merger”) with and into First Defiance’s wholly owned bank subsidiary, First Federal Bank of the Midwest (“First Federal”). First Federal will be the surviving entity in the bank merger and, immediately prior to the bank merger, will be converted into an Ohio state-chartered bank. Consummation of the merger is subject to certain conditions, including, but not limited to, obtaining the requisite vote of the Commercial Bancshares’First Defiance and United Community shareholders and the approval of the merger by various regulatory agencies. Commercial Bancshares is sending you this document to ask you to vote on the adoption of the Merger Agreement. This proxy statement/prospectus, dated           , 2016, and the form of proxy are first being mailed to Commercial Bancshares shareholders on or about           , 2016.

If we complete the merger, each Commercial Bancshares shareholderoutstanding share of United Community common stock (except for certain specified shares of United Community common stock held by United Community or First Defiance) will be entitledautomatically converted into the right to receive in exchange for each Commercial Bancshares share owned (a) 1.18080.3715 shares of First Defiance common stock or (b) $51.00 in cash, unless such shareholder exercises dissenters’ rights in each case,(which we refer to as the “exchange ratio”), subject to the electionpayment of cash instead of fractional shares of First Defiance common stock. Although the number of shares of First Defiance common stock that each United Community shareholder will receive is fixed, the market value of the merger consideration will fluctuate with the market price of First Defiance common stock and allocation procedureswill not be known at the time First Defiance and United Community shareholders vote on the merger. Based on the closing price of First Defiance’s common stock on The NASDAQ Stock Market LLC, or NASDAQ, on September 6, 2019, the last trading day before public announcement of the merger, of $26.32, the exchange ratio represented approximately $9.78 in value for each share of United Community common stock. Based on First Defiance’s closing price on [                ], 2019, the latest practicable trading day before the date of this joint proxy statement/prospectus, of $[                ], the exchange ratio represented approximately $[                ] in value for each share of United Community common stock. Based on the exchange ratio and the number of shares of United Community common stock outstanding and reserved for issuance under various equity plans as of [                ], 2019, the maximum number of shares of First Defiance common stock issuable in the merger is [                ]. We urge you to obtain current market quotations for First Defiance (trading symbol “FDEF”) and United Community (trading symbol “UCFC”).

First Defiance and United Community will each hold a special meeting of their shareholders in connection with the merger. First Defiance and United Community shareholders will be asked to vote to adopt the merger agreement and approve related matters, as described in the Merger Agreement. See “The Merger — Conversionattached joint proxy statement/prospectus. Adoption of Shares; Exchange of Certificates; Elections as to Form of Consideration” below for more information.

We cannot complete the merger unlessagreement requires the affirmative vote of the holders of at least      sharestwo-thirds of Commercial Bancshares common stock, which is a majority of the issued and outstanding shares of Commercial BancsharesFirst Defiance common stock on the record date,           , 2016, approve the Merger Agreement. The Commercial Bancshares board of directors has scheduled a special meeting for Commercial Bancshares shareholders to vote on the Merger Agreement, and the transactions contemplated thereby, including the merger. At the special meeting, Commercial Bancshares shareholders will also be asked to approve the adjournmentaffirmative vote of the special meeting, if necessary, to solicit additional proxies in favorholders of at leasttwo-thirds of the Merger Agreement and to approve, on a non-binding advisory basis, the compensation to be paid to Commercial Bancshares’ named executive officers that is based on or otherwise relates to the merger, discussed under the section titled “The Merger — Interestsoutstanding shares of Commercial Bancshares Directors and Executive Officers in the Merger” beginning on page 45. Whether or not you plan to attend Commercial Bancshares’ special meeting, please take the time to vote by completing and returning the enclosed proxy card or vote using the Internet or telephone, instructions for which are included on the proxy card. United Community common stock.

The special meeting of Commercial BancsharesFirst Defiance shareholders will be held on , 2016[                ] at :00  .m.[                ] local time at , Ohio.the First Federal Operations Center located at 25600 Elliott Road, Defiance, Ohio 43512.

SharesThe special meeting of First Defiance common stock are listedUnited Community shareholders will be held on The NASDAQ Global Select Market under[                ] at [                ] local time at the symbol “FDEF.” On August 22, 2016, the trading day immediately preceding the public announcement of the merger, and           , 2016, the last practicable trading date before we printed this proxy statement/prospectus, the closing prices for First Defiance common stock were $44.57 and $     per share, respectively.Ford Family Recital Hall, DeYor Performing Arts Center, 260 West Federal Street, Youngstown, Ohio 44503.

This document, including the material incorporated by reference into this document, contains important information about Commercial Bancshares,United Community, First Defiance, the merger and the conditions that must be satisfied before the merger can occur.

First Defiance’s board of directors unanimously recommends that First Defiance shareholders vote “FOR” the adoption of the merger agreement and “FOR” the other matters to be considered at the First Defiance special meeting.

United Community’s board of directors unanimously recommends that United Community shareholders vote “FOR” the adoption of the merger agreement and “FOR” the other matters to be considered at the United Community special meeting.

The attached joint proxy statement/prospectus describes the special meeting of First Defiance, the special meeting of United Community, the merger, the documents related to the merger, proposals to be voted upon at the special meetings of each of First Defiance and United Community, and other related matters.We urge you to review this entire document, including the section titled ““Risk Factors”Factors” beginning on page627, carefully. You may also obtain information about First Defiance and Commercial BancsharesUnited Community from documents that each has filed with the Securities and Exchange Commission.Commission that are incorporated by reference into this joint proxy statement/prospectus.

LOGO

LOGO

Donald P. Hileman

President and Chief Executive Officer

First Defiance Financial Corp.

Gary M. Small

President and Chief Executive Officer

United Community Financial Corp.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. The securities we are offering through this document are not savings or deposit accounts or other obligations of any bank ornon-bank subsidiary of either of our companies, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, or any other governmental agency.

TABLE OF CONTENTS

WHERE YOU CAN FIND MORE INFORMATION

The date of this joint proxy statement/prospectus is[], 2019, and it is first being mailed or otherwise delivered to the shareholders of First Defiance and Commercial Bancshares file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. These filings are available to the public over the Internet at the Securities and Exchange Commission’s website atwww.sec.gov. You may also read and copy any document First DefianceUnited Community on or Commercial Bancshares files with the Securities and Exchange Commission at its public reference room located at 100 F Street, N.E.about[], Room 1580, Washington, D.C. 20549. Copies of these documents can also be obtained at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 or by calling 1-800-SEC-0330 for additional information on the operation of the public reference facilities.2019.

First Defiance’s reports can also be found on First Defiance’s website atwww.fdef.com, and Commercial Bancshares’ reports can also be found on Commercial Bancshares’ website atwww.csbanking.com. By making this reference to First Defiance’s and Commercial Bancshares’ websites, First Defiance and Commercial Bancshares do not intend to incorporate into this report any information contained in those websites. The websites should not be considered as part of this document.

LOGO

First Defiance has filed with the Securities and Exchange Commission a Registration Statement on Form S-4 under the Securities Act for the shares of First Financial Corp.

601 Clinton Street

Defiance, common stock to be issued in the merger. This proxy statement/prospectus is a part of the Registration Statement on Form S-4. The rules and regulations of the Securities and Exchange Commission permit us to omit from this document information, exhibits and undertakings that are contained in the Registration Statement on Form S-4.Ohio 43512-3272

This document incorporates important business and financial information about First Defiance from documents that First Defiance has filed with the Securities and Exchange Commission but have not included in or delivered with this document. For further information, see “Incorporation of Certain Documents by Reference” beginning on page 117.(419)782-5015

These documents (except for exhibits to the documents, unless the exhibits are specifically incorporated in this document by reference) are available without charge to you upon written or oral request to either First Defiance’s or Commercial Bancshares’ principal executive office, as applicable. The address and telephone number of each principal executive office is listed below:NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

First Defiance Financial Corp.
601 Clinton Street
Defiance, Ohio 43512
Attention: Donald P. Hileman
(419) 782-5015		Commercial Bancshares, Inc.
118 S. Sandusky Avenue
Upper Sandusky, Ohio 43351
Attention: Robert E. Beach
(419) 294-2350

Please request documents before           [    ], 2016 to receive them before the Commercial Bancshares special meeting. You may also obtain copies of the documents from the Securities and Exchange Commission through its website atwww.sec.gov.2019

You should rely only on the information contained or incorporated by reference in this proxy statement/prospectus. We have not authorized anyone to provide you with information that is different. You should assume that the information contained or incorporated by reference in this proxy statement/prospectus is accurate only as of the date of this proxy statement/prospectus or the date of the document incorporated by reference, as applicable. We are not making an offer of these securities in any jurisdiction where the offer is not permitted.

TABLE OF CONTENTS

COMMERCIAL BANCSHARES, INC.
118 South Sandusky Avenue
Upper Sandusky, Ohio 43351
(419) 294-5781

Notice of Special Meeting of Shareholders
          , 2016

To Our Shareholders:

Notice is hereby given that a special meeting of shareholders of Commercial Bancshares, Inc.First Defiance Financial Corp., an Ohio corporation (“Commercial Bancshares”First Defiance”), will be held at on           the First Federal Operations Center located at 25600 Elliott Road, Defiance, Ohio 43512 on[], 20162019, at :     .m.[] local time fortimefor the purpose of considering and voting upon the following matters:

1.

To approveadopt the Agreement and Plan of Merger, dated as of August 23, 2016,September 9, 2019, as amended from time to time (the “Merger Agreement”“merger agreement”), by and between First Defiance and United Community Financial Corp. (“First Defiance”United Community”) and Commercial Bancshares;(the “First Defiance merger proposal”);

2.

To approve the Amended and Restated Articles of Incorporation of First Defiance (the “First Defiance articles of incorporation proposal”);

3.

To approve the Amended and Restated Code of Regulations of First Defiance (the “First Defiance code of regulations proposal”);

4.

To approve, on anon-binding, advisory basis, the compensation to be paid to Commercial Bancshares’First Defiance’s named executive officers that is based on or otherwise relates to the merger, discussed under the section titled “The Merger — Merger—Interests of Commercial BancsharesFirst Defiance Directors and Executive Officers in the Merger” beginning on page 4593 (the “Merger-Related Named Executive Officer Compensation Proposal”“First Defiance compensation proposal”); and

3.5.

To approve the adjournment of the First Defiance special meeting, if necessary or appropriate, to allow for additionalpermit further solicitation of shareholder votes to obtain the required vote to approve the Merger Agreement.proxies (the “First Defiance adjournment proposal”).

The Commercial BancsharesFirst Defiance board of directors has established           established[], 2016,2019, as the record date for the special meeting. Only record holders of shares of Commercial BancsharesFirst Defiance common stock as of the close of business on that date will be entitled to receive notice of and to vote at the special meeting. Approval of the First Defiance merger proposal requires the affirmative vote of holders of at leasttwo-thirds of the outstanding shares of common stock of First Defiance. Approval of the First Defiance articles of incorporation proposal and the First Defiance code of regulations proposal, each require the affirmative vote of holders of at least a majority of the outstanding shares of common stock of First Defiance. The First Defiance compensation proposal and the First Defiance adjournment proposal will be approved if at least a majority of the votes cast at the First Defiance special meeting are voted in favor of each of the proposals.

Your attention is directed to the joint proxy statement/prospectus accompanying this Notice for a more complete description of the matters to be acted upon at the special meeting. A proxy card is also enclosed for the special meeting.

Whether or not you expect to attend the special meeting in person, please vote your shares to assure the presence of a quorum by (1) signing, dating and returning the enclosed proxy card promptly, (2) visitvisiting the website shown on your proxy card and voting via the Internet, or (3) voting via the toll-free number on your proxy card. A postage-paid envelope has been enclosed for your convenience. You may revoke your proxy at any time prior to the proxy being voted at the special meeting by delivering a signed revocation to Commercial BancsharesFirst Defiance at any time prior to the special meeting, by submitting a later-dated proxy card, or by attending the special meeting and voting in person.

The Commercial Bancshares

First Defiance’s board of directors has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of First Defiance and its shareholders, and unanimously recommends that youFirst Defiance shareholders vote FOR“FOR” the approvalFirst Defiance merger proposal, “FOR” the First Defiance articles of incorporation proposal, “FOR” the First Defiance code of regulations proposal, “FOR” the First Defiance compensation proposal and “FOR” the First Defiance adjournment proposal.

Your vote is very important. We cannot complete the merger unless First Defiance’s shareholders adopt the merger agreement and approve the First Defiance amended and restated code of regulations.

By Order of the Board of Directors

LOGO

Defiance, Ohio

Donald P. Hileman

[], 2019

President and Chief Executive Officer

First Defiance Financial Corp.

LOGO

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503

(330)742-0500

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

[], 2019

To Our Shareholders:

Notice is hereby given that a special meeting of shareholders of United Community Financial Corp., an Ohio corporation (“United Community”), will be held at the Ford Family Recital Hall, DeYor Performing Arts Center, 260 West Federal Street, Youngstown, Ohio 44503 on [                ], 2019, at [                ] local time for the purpose of considering and voting upon the following matters:

1.

To adopt the Agreement and Plan of Merger, dated as of September 9, 2019, as amended from time to time (the “merger agreement”), by and between First Defiance Financial Corp. (“First Defiance”) and United Community (the “United Community merger proposal”);

2.

To approve, on anon-binding, advisory basis, the compensation to be paid to United Community’s named executive officers that is based on or otherwise relates to the merger, discussed under the section titled “The Merger—Interests of United Community Directors and Executive Officers in the Merger” beginning on page 99 (the “United Community compensation proposal”); and

3.

To approve the adjournment of the United Community special meeting, if necessary or appropriate, to permit further solicitation of proxies (the “United Community adjournment proposal”).

The United Community board of directors has established[], 2019, as the record date for the United Community special meeting. Only record holders of shares of United Community common stock as of the Merger Agreement,close of business on that date will be entitled to receive notice of and to vote at the Merger-Related Named Executive Officer Compensation Proposal,United Community special meeting. Approval of the United Community merger proposal requires the affirmative vote of holders of at leasttwo-thirds of the outstanding shares of common stock of United Community. The United Community compensation proposal and the United Community adjournment proposal will be approved if at least a majority of the Special Meeting, if necessary.votes cast at the United Community special meeting are voted in favor of each proposal.

By OrderYour attention is directed to the joint proxy statement/prospectus accompanying this Notice for a more complete description of the Boardmatters to be acted upon at the special meeting. A proxy card is also enclosed for the special meeting.

Whether or not you expect to attend the special meeting, please vote your shares to assure the presence of Directors

a quorum by (1) signing, dating and returning the enclosed proxy card promptly, (2) visiting the website shown on your proxy card and voting via the Internet, or (3) voting via the toll-free number on your proxy card. A postage-paid envelope has been enclosed for your convenience. You may revoke your proxy at any time prior to the proxy being voted at the special meeting by delivering a signed revocation to United Community at any time prior to the special meeting, by submitting a later-dated proxy card, or by attending the special meeting and voting in person.

Upper Sandusky, Ohio
United Community’s board of directors has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of United Community and its shareholders, and unanimously recommends that United Community shareholders vote “FOR” the United Community merger proposal, “FOR” the United Community compensation proposal, and “FOR” the United Community adjournment proposal.

Your vote is very important. We cannot complete the merger unless United Community’s shareholders adopt the merger agreement.

By Order of the Board of Directors

LOGO

Youngstown, Ohio

Gary M. Small

[], 2019

President and Chief Executive Officer

United Community Financial Corp.

REFERENCES TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about First Defiance and United Community from documents filed with the Securities and Exchange Commission (“SEC”) that are not included in or delivered with this joint proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by First Defiance and/or United Community at no cost from the SEC’s website at http://www.sec.gov. First Defiance has filed a registration statement on FormS-4 of which this joint proxy statement/prospectus forms a part. As permitted by SEC rules, this joint proxy statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may obtain a free copy of the registration statement, including any amendments, schedules and exhibits at the addresses set forth below. Statements contained in this joint proxy statement/prospectus as to the contents of any contract or other documents referred to in this joint proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. You may also request copies of these documents, including documents incorporated by reference into this joint proxy statement/prospectus, at no cost by contacting the appropriate company at the following address or telephone number:

First Defiance Financial Corp.
Attention: Corporate Secretary
601 Clinton Street
Defiance, Ohio 43512-3272
(419)782-5015		United Community Financial Corp.
Attention: Corporate Secretary
275 West Federal Street
Youngstown, Ohio 44503
(330)742-0500

You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five business days before the date of your special meeting. This means that First Defiance shareholders requesting documents must do so by [                ], in order to receive them before the First Defiance special meeting, and United Community shareholders requesting documents must do so by [                ], in order to receive them before the United Community special meeting.

You should rely only on the information contained in, or incorporated by reference into, this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated[], 20162019, and you should assume that the information in this joint proxy statement/prospectus is accurate only as of such date. You should assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of the date of such information. Neither the mailing of this joint proxy statement/prospectus to First Defiance shareholders or United Community shareholders, nor the issuance by First Defiance of shares of First Defiance common stock in connection with the merger, will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this joint proxy statement/prospectus regarding First Defiance has been provided by First Defiance and information contained in this joint proxy statement/prospectus regarding United Community has been provided by United Community.

See “Where You Can Find More Information” beginning on page 145 for more details.

TABLE OF CONTENTS

TABLE OF CONTENTS

Questions and Answers

   iv1 

Summary

   111 
Risk Factors6
Forward-Looking Statements11
Market Price and Dividend Information12

Selected Historical Financial Information of First Defiance

   1323 

Selected Historical Financial Information of Commercial BancsharesUnited Community

   1425 

Unaudited Historical and Pro Forma Per Share DataRisk Factors

   1527 

The Special Meeting of Commercial Bancshares ShareholdersForward-Looking Statements

   1635 

The First Defiance Special Meeting

37

Time, Date and Place of Meeting

   1637 

Matters to be Considered

   1637 

Shares Outstanding and Entitled to Vote; Record Date

   1637 

Votes Required

   1637 

Effect of Abstentions and BrokerNon-Votes

   1738 

Shares Held by Officers and Directors

   1738 

How to Vote Your Shares; Solicitation of Proxies

   1738 

Commercial Bancshares’First Defiance’s Proposals

   1940 

Merger ProposalThe United Community Special Meeting

   1948 

Non-Binding Advisory Vote on Merger-Related Named Executive Officer CompensationTime, Date and Place of Meeting

   1948 

Adjournment ProposalMatters to be Considered

   1948 

Commercial BancsharesShares Outstanding and Entitled to Vote; Record Date

48

Votes Required

48

Effect of Abstentions and BrokerNon-Votes

49

Shares Held by Officers and Directors

49

How to Vote Your Shares; Solicitation of Proxies

49

United Community’s Proposals

51

United Community Annual Meeting Shareholder Proposals

   2153 

Dissenters’ RightsThe Merger

   2254 
Rights of Dissenting Commercial Bancshares Shareholders22
Parties to the Merger Agreement23
First Defiance23
Commercial Bancshares23
The Merger24
Terms of the Merger24
Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration28

Background of the Merger

   2954 

Commercial Bancshares’First Defiance’s Reason’s for the Merger; Board Recommendation

62

Opinion of First Defiance’s Financial Advisor

65

United Community’s Reasons for the Merger; Board Recommendation

   3277 

Opinion of Commercial Bancshares’United Community’s Financial Advisor

   3379 

Certain Unaudited Prospective Financial Information

90

Management and Board of Directors of First Defiance After the Merger

   4593 

Interests of Commercial BancsharesFirst Defiance Directors and Executive Officers in the Merger

   4593 

Merger-RelatedMerger-related Compensation for Commercial Bancshares’First Defiance’s Named Executive Officers

   4797 

Interests of United Community Directors and Executive Officers in the Merger

99

Merger-related Compensation for United Community’s Named Executive Officers

102

Regulatory Approvals Required for the Merger

   48104 

Accounting Treatment

   49105 

Public Trading Markets

   50106 

Resale of First Defiance Common StockThe Merger Agreement

   50

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The Merger Agreement51107 

Explanatory Note Regarding the Merger Agreement

   51107 

EffectsStructure of the Merger

   51107 

Merger Consideration

108

Fractional Shares

108

Governing Documents; Directors and Officers; Governance Matters; Headquarters

108

Treatment of United Community Equity-Based Awards

109

Closing and Effective Time of the Merger

   52110 

Representations and WarrantiesConversion of Shares; Exchange of Certificates

   52110 

Covenants and AgreementsLetter of Transmittal

   53110 

Conditions to the MergerDividends and Distributions

   59111 

Representations and Warranties

111

Covenants and Agreements

113

Shareholder Meetings and Recommendation of First Defiance’s and United Community’s Boards of Directors

118

Agreement Not to Solicit Other Offers

119

Conditions to Complete the Merger

120

Termination of the Merger Agreement

   60120 

Effect of Termination

   61122 

Termination Fee

   61122 

Amendments, ExtensionsExpenses and WaiversFees

   62123 

FeesAmendment, Waiver, and ExpensesExtension of the Merger Agreement

   62123 

Governing Law; JurisdictionVoting Agreement

   62123 

Material U.S. Federal Income Tax Consequences of the Merger

   63125 

U.S. Tax Consequences to First Defiance and Commercial BancsharesUnaudited Pro Forma Condensed Combined Financial Statements

   64128 
U.S. Federal Income Tax Consequences to U.S. Holders of Commercial Bancshares Common Stock Based Upon Merger Consideration Received65
Cash in Lieu of Fractional Shares66
Possible Dividend Treatment66
Backup Withholding and Reporting Requirements66

Comparison of Rights of First Defiance Shareholders and Commercial BancsharesUnited Community Shareholders

   67138 

GeneralLegal Matters

   67144 

Comparison of Shareholders’ RightsExperts

   67144 

Where You Can Find More Information with Respect to Commercial Bancshares

   74
Description of Commercial Bancshares’ Business74
Properties76
Legal Proceedings76
Quantitative and Qualitative Disclosures on Market Risk76
Changes in or Disagreements with Accountants on Accounting and Financial Disclosure77
Supplementary Financial Information77
Market Price for and Dividends on Commercial Bancshares Common Stock and Related Shareholder Matters78
Market Information; Dividends78
Security Ownership of Certain Beneficial Owners and Management78
Commercial Bancshares’ Management’s Discussion and Analysis of Financial Condition and Results of Operations80
Introduction80
Overview80
Critical Accounting Policies81
Comparison of Financial Condition at June 30, 2016 and December 31, 201583145 

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Comparison of Results of Operations for the Three Months and Six Months Ended
June 30, 2016		90
Comparison of Financial Condition December 31, 2015 and December 31, 201497
Comparison of Results of Operations for the Three Years Ended December 31, 2015110
Legal Matters117
Experts117
Incorporation of Certain Documents by Reference117
Index to Commercial Bancshares Financial Information118

Annex A

Agreement and Plan of Merger, dated August 23, 2016,September 9, 2019, by and between First Defiance Financial Corp. and Commercial Bancshares, Inc., as amended.
United Community Financial Corp.

Annex B

Opinion of Keefe, Bruyette & Woods, Inc.

Annex C

Section 1701.85Opinion of the Ohio Revised Code.
Sandler O’Neill & Partners, L.P.

Annex D

First Defiance Amended and Restated Articles of Incorporation

Annex E

First Defiance Amended and Restated Code of Regulations

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QUESTIONS AND ANSWERS

The following questions and answers summary highlights certain questions that you may have about the merger and the Commercial BancsharesFirst Defiance or the United Community special meetingmeetings and provides brief answers to those questions. We urge you to read carefully the remainder of this joint proxy statement/prospectus, including all financial statements and annexes, because the information in this section does not provide all the information that may be important to you with respect to the merger and the matters to be voted upon at the Commercial BancsharesFirst Defiance or the United Community special meeting.meetings. Additional important information is also contained in certain documents that have been incorporated by reference to this joint proxy statement/prospectus. Please see “Incorporation of Certain Documents by ReferenceWhere You Can Find More Information” beginning on page 117.145.

Q:

What is the merger?

A:Commercial Bancshares

First Defiance and First DefianceUnited Community have entered into an Agreement and Plan of Merger, dated as of August 23, 2016,September 9, 2019, as such agreement may be amended from time to time (the “Merger Agreement”“merger agreement”). Under the Merger Agreement, Commercial Bancsharesmerger agreement, United Community will merge with and into First Defiance, with First Defiance continuing as the surviving company (the “merger”). Immediately following completion of the merger, Commercial Bancshares’United Community’s wholly owned subsidiary, The CommercialHome Savings Bank (“Commercial Bank”Home Savings”) will merge with and into First Federal Bank of the Midwest (“First Federal”), a wholly owned subsidiary of First Defiance, with First Federal continuing as the surviving bank (the “bank merger”). A copy of the Merger Agreementmerger agreement is attached to this document asAnnex A.

The merger cannot be completed unless, among other conditions, including regulatory approval, both First Defiance and United Community shareholders approve their respective proposals to adopt the Commercial Bancsharesmerger agreement and the First Defiance shareholders approve the proposal to adopt the Merger Agreement.First Defiance amended and restated code of regulations.

Q:

Why am I receiving this document?joint proxy statement/prospectus?

A:Commercial Bancshares is sending

We are delivering this document to itsyou because it is a joint proxy statement/prospectus being used by both the First Defiance and United Community boards of directors to solicit proxies of their respective shareholders to help them decide how to vote their sharesin connection with approval of Commercial Bancshares common stock with respect to the merger and other related proposals to be considered at the special meeting. To vote upon adoption of the Merger Agreement and other related proposals, Commercial Bancshares has called a special meeting of its shareholders. Information about the special meeting, the merger and the other business to be considered by shareholders at the special meeting is contained in this document.matters.

In order to approve the merger and related matters, First Defiance has called a special meeting of its shareholders. This document is both aserves as the proxy statement for the First Defiance special meeting and describes the proposals to be presented at the First Defiance special meeting.

United Community has also called a special meeting of Commercial Bancsharesits shareholders to approve the merger and a prospectus of First Defiance. The Commercial Bancshares board of directors is using thisrelated matters. This document serves as athe proxy statement for the United Community special meeting and describes the proposals to solicit proxies from its shareholders with respect tobe presented at the United Community special meeting. This

Finally, this document is also being used by First Defiance as a prospectus that is being delivered to offer,United Community shareholders because, in connection with the merger, First Defiance is offering 0.3715 shares of its common stock in partial exchange for outstanding(the “exchange ratio”) per share of United Community common stock to United Community shareholders, subject to the payment of cash instead of fractional shares of Commercial BancsharesFirst Defiance common stock.

In order to completeThis joint proxy statement/prospectus contains important information about the merger shareholders of Commercial Bancshares must voteand the other proposals being voted on at the First Defiance and United Community special meetings and important information to approve the Merger Agreement (which sets forth the terms of the merger).consider in connection with an investment in First Defiance common stock. You should read it carefully and in its entirety. The enclosed proxy card and voting materials allow you to votehave your shares of common stock voted by proxy without actually attending the specialyour meeting. Your vote is important and we encourage you to submit your proxy as soon as possible.

Q:

What are First Defiance shareholders being asking to vote on at the First Defiance special meeting?

A:

First Defiance is soliciting proxies from its shareholders with respect to the following proposals:

•

A proposal to adopt the merger agreement, a copy of which is attached to this document asAnnex A (the “First Defiance merger proposal”);

•

A proposal to amend and restate First Defiance’s Articles of Incorporation, effective upon the consummation of the merger, as discussed under the heading “First Defiance Articles of Incorporation Proposal—Approval of the First Defiance amended and restated articles of incorporation” beginning on page 40 (the “First Defiance articles of incorporation proposal”)

•

A proposal to amend and restate First Defiance’s Code of Regulations, effective upon the consummation of the merger, as discussed under the heading “First Defiance Code of Regulations Proposal—Approval of the First Defiance amended and restated code of regulations” beginning on page 41 (the “First Defiance code of regulations proposal”);

•

A proposal to approve, on an advisory(non-binding) basis, the compensation that certain executive officers of First Defiance may receive in connection with the merger pursuant to existing agreements or other arrangements with First Defiance, discussed under the heading “The Merger—Interests of First Defiance Directors and Executive Officers in the Merger” beginning on page 93 (the “First Defiance compensation proposal”); and

A proposal to adjourn the First Defiance special meeting, if necessary or appropriate, to permit further solicitation of proxies (the “First Defiance adjournment proposal”).

Q:

What are United Community shareholders being asking to vote on at the United Community special meeting?

A:

United Community is soliciting proxies from its shareholders with respect to the following proposals:

•

A proposal to adopt the merger agreement, a copy of which is attached to this document asAnnex A (the “United Community merger proposal”);

•

A proposal to approve, on an advisory(non-binding) basis, the compensation that certain executive officers of United Community may receive in connection with the merger pursuant to existing agreements or other arrangements with United Community, discussed under the heading “The Merger—Interests of United Community Directors and Executive Officers in the Merger” beginning on page 99 (the “United Community compensation proposal”); and

A proposal to adjourn the United Community special meeting, if necessary or appropriate, to permit further solicitation of proxies (the “United Community adjournment proposal”).

Q:

What will Commercial BancsharesFirst Defiance shareholders receive in the merger?

A:

If the merger is completed, First Defiance shareholders will not receive any merger consideration and will continue to hold the shares of First Defiance common stock that they currently hold. Following the merger, shares of First Defiance common stock will continue to be traded on The NASDAQ Global Select Stock Market (“NASDAQ”) under the symbol “FDEF.”

Q:

What will United Community shareholders receive in the merger?

A:

If the merger is completed, each share of Commercial BancsharesUnited Community common stock outstanding immediately prior to the effective time of the merger, except for shares owned by dissenting shareholders or certain shares owned by Commercial BancsharesFirst Defiance or First Defiance,United Community, will be converted into the right to receive (without interest) either (i) 1.18080.3715 shares of First Defiance common stock, or (ii) $51.00 in cash, subject to the payment of cash instead of fractional shares. You will have the opportunity to elect the form of consideration to be received for your shares, subject to certain adjustment and allocation procedures set forth in the Merger Agreement, which procedures are intended to ensure that 80% of the outstanding shares of Commercial Bancshares common stock will be converted into a right to receive shares of First Defiance common stock (which we sometimes refer to as a “stock election”) and 20% of the outstanding shares of Commercial Bancshares will be converted into a right to receive cash (which we sometimes refer to as a “cash election”). As a result, if the aggregate number of shares with respect to which a valid cash or stock election has been made exceeds these limits, Commercial Bancshares shareholders who elected the form of consideration that has been oversubscribed will receive a mixture of

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both cash and stock consideration in accordance with the proration procedures set forth in the Merger Agreement. The allocation of the mix of consideration payable to Commercial Bancshares shareholders in the merger will not be known until First Defiance tallies the results of the cash and stock elections made by Commercial Bancshares shareholders, which may not occur until shortly after the closing of the merger.stock. See “The Merger—Merger — Terms of the MergerConsideration” beginning on page 24.108.

Q:How do I elect to receive First Defiance common stock or cash for my Commercial Bancshares common stock?
A:Each Commercial Bancshares shareholder of record will receive an election form and transmittal materials from the exchange agent, Broadridge Corporate Issuer Solutions, Inc. You should complete the election form and transmittal materials and return them to the exchange agent, along with your Commercial Bancshares stock certificate or evidence of book-entry shares for which the election is made, according to the instructions included with the election form. The election deadline will be 5:00 p.m., Eastern Time, on           , 2016 (the “election deadline”). A copy of the election form will be mailed under separate cover shortly after the date of this proxy statement/prospectus.

If you own shares of Commercial Bancshares common stock in “street name” through a bank, broker or other nominee and you wish to make an election, you should seek instructions from the bank, broker or other nominee holding your shares concerning how to make an election. If you do not send in the election form with the transmittal materials and your stock certificate(s) or evidence of book-entry shares by the election deadline, you will be treated as though you had not made an election.

Q:Can I change my election?
A:You may change your election at any time prior to the election deadline by submitting to the exchange agent written notice of revocation accompanied by a revised election form. Unless a properly completed and signed election form submitted by a revoking shareholder is actually received by the exchange agent at or prior to the election time, such shareholder, having revoked a prior election, will be deemed to have made no election with respect to his or her shares of Commercial Bancshares common stock. Commercial Bancshares shareholders will not be entitled to revoke or change their elections following the election deadline. If you instructed a bank, broker or other financial institution to submit an election for your shares, you must follow their directions for changing those instructions.
Q:What happens if I do not make a valid election to receive cash or First Defiance common stock?
A:If the exchange agent does not receive a properly completed election form with respect to your Commercial Bancshares common stock prior to the election deadline specified in the election form, your shares of Commercial Bancshares common stock will be considered “non-election shares” and will be converted into the right to receive the stock consideration or the cash consideration according to the allocation procedures specified in the Merger Agreement. In the event that you revoke a prior election form and the exchange agent does not receive a properly completed revised election form with respect to your Commercial Bancshares shares prior to the election deadline, your shares of Commercial Bancshares common stock will also be deemed to be “non-election shares.” Generally, in the event one form of consideration (cash or shares of First Defiance common stock) is undersubscribed in the merger, non-election shares will be allocated to that form of consideration before shares of Commercial Bancshares common stock electing the oversubscribed form of consideration will be switched to it pursuant to the proration and adjustment procedures. Accordingly, while electing one form of consideration will not guarantee that you receive such form for all of your shares of Commercial Bancshares common stock, in the event proration is necessary, shares for which a proper election has been made will have a priority over non-election shares.
Q:How will the merger affect holders of options to purchase Commercial Bancshares common stock?United Community equity awards?

A:If

The United Community equity awards granted under the merger is completed, each option to purchase Commercial Bancshares commonUnited Community 2015 Long Term Incentive Compensation Plan, the United Community 2007 Long Term Incentive Compensation Plan or the United Community 1999 Long Term Incentive Compensation Plan (collectively, the “United Community stock outstanding and unexercised immediately prior to the effective time of the merger that is exercisable orplans”) will be exercisableaffected as a result of the merger will be terminated immediately prior to the effective time and willfollows:

Options: If the merger is completed, each option granted by United Community to purchase shares of United Community common stock under a United Community stock plan or otherwise, whether vested or unvested (“United Community option”), that is outstanding and unexercised immediately prior to the completion of the merger will fully vest and be converted into a fully vested option (a “First Defiance option”) to purchase (a) the number of whole shares of First Defiance common stock (rounded down to the nearest whole share) that is equal to (i) the number of shares of United Community common stock subject to such United Community option immediately prior to the completion of the merger multiplied by (ii) 0.3715, (b) at an exercise price per share of First Defiance common stock (rounded up to the nearest whole cent) equal to (i) the exercise price for each share of United Community common stock subject to such United Community option immediately prior to the completion of the merger divided by (ii) 0.3715, subject to the terms and conditions of the United Community stock plan, if any, pursuant to which such United Community option was granted and/or any associated award agreement.

v

Restricted Stock: If the merger is completed, each award of shares of United Community common stock subject to vesting, repurchase or other lapse restriction granted under a United Community stock plan or otherwise, whether vested or unvested (a “United Community restricted stock award”) that is outstanding immediately prior to completion of the merger will fully vest and be cancelled and converted automatically into the right to receive 0.3715 shares of First Defiance common stock, subject to the payment of cash instead of fractional shares of First Defiance common stock, in respect of each share of United Community common stock underlying such United Community restricted stock award.

TABLE OF CONTENTSPerformance Share Units: If the merger is completed, each performance-vesting restricted stock unit granted under a United Community stock plan or otherwise, whether vested or unvested, that is outstanding immediately prior to the completion of the merger (“United Community PSU award”) will fully vest (with any performance-based vesting condition applicable to such United Community PSU award to be measured consistent with the terms of the applicable award agreement applicable upon a change in control for such United Community PSU award, as determined by the United Community board of directors or its compensation committee prior to the completion of the merger) and will be cancelled and converted automatically into the right to receive 0.3715 shares of First Defiance common stock in respect of each share of United Community common stock underlying such United Community PSU award; provided that the United Community board of directors or its compensation committee will exclude any costs or expenses related to the merger, if any, from the performance metrics applicable to the United Community PSU awards when determining actual United Community performance through the date of the completion of the merger.

entitle the holder of such stock option to receive cash equal to the excess, if any, of $51.00 over the exercise price of such Commercial Bancshares stock option.
Q:

What are the material U.S. federal income tax consequences of the merger to Commercial BancsharesUnited Community shareholders?

A:

The obligation of Commercial Bancshares and First Defiance to complete the merger is conditioned upon the receipt of legal opinions from their respective counselintended to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the(which we refer to as the “Code”)., and it is a condition to the respective obligations of First Defiance and United Community to complete the merger that each of First Defiance and United Community receives a legal opinion to that effect. Accordingly, holders of United Community common stock are not expected to recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of United Community common stock for shares of First Defiance common stock in the merger, except with respect to any cash received instead of fractional shares of First Defiance common stock.

Provided that

For further information, please refer to “Material U.S. Federal Income Tax Consequences of the merger qualifies as a “reorganization” for United StatesMerger.” The U.S. federal income tax purposes,consequences described above may not apply to all holders of United Community common stock. The tax consequences to a holder of United Community common stock will depend on his or her individual situation. Accordingly, we strongly urge holders of United Community common stock to consult their tax advisors for a full understanding of the specificparticular tax consequences of the merger to a Commercial Bancshares shareholder will depend upon the form of consideration such Commercial Bancshares shareholder receives in the merger. A Commercial Bancshares shareholder who exchanges their common stock solely for First Defiance common stock should not recognize a gain or loss except with respect to cash received in lieu of a fractional First Defiance share. A Commercial Bancshares shareholder who exchanges their common stock solely for cash should recognize a gain or loss on the exchange. A Commercial Bancshares shareholder who exchanges their common stock for a combination of First Defiance common stock and cash may recognize a gain, but not any loss, on the exchange. The actual U.S. federal income tax consequences to Commercial Bancshares shareholders of electing to receive cash, First Defiance common stock or a combination of cash and stock will not be ascertainable at the time Commercial Bancshares shareholders make their election because it will not be known at that time how, or to what extent, the allocation and proration procedures will apply.them.

For a more detailed discussion of the material U.S. federal income tax consequences of the transaction, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 63.125.

The tax consequences of the merger to any particular shareholder will depend on that shareholder’s particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the merger.

Q:

When will the merger be completed?

A:Commercial Bancshares

United Community and First Defiance are working to complete the merger as soon as practicable. If the shareholders of Commercial Bancshares adopt the Merger Agreement, the parties currently expect that the merger will be completed in the first quarter of 2017. Neither Commercial BancsharesUnited Community nor First Defiance can predict, however, the actual date on which the merger will be completed (or whether it will be completed) because it is subjectFirst Defiance and United Community must obtain the approval of First Defiance shareholders and United Community shareholders to factors beyond each company’s control, including whether or whenadopt the requiredmerger agreement at their respective special meetings, and also must obtain necessary regulatory approvals will be received.in addition to satisfying other closing conditions. Such factorsconditions have been described more thoroughly in “The Merger Agreement — Agreement—Conditions to Complete the Merger” beginning on page 59.120.

Q:

What happens if the merger is not completed?

A:

If the merger is not completed, Commercial BancsharesUnited Community shareholders will not receive any consideration for their shares of Commercial BancsharesUnited Community common stock in connection with the merger. Instead, Commercial BancsharesUnited Community will remain an independent, public company.company and United Community common stock will continue to be listed and traded on NASDAQ. In addition, if the Merger Agreementmerger agreement is terminated in certain circumstances, Commercial BancsharesUnited Community or First Defiance may be required to pay a termination fee. See “The Merger Agreement — Agreement—Termination Fee” for a complete discussion of the circumstances under which a termination fee will be required to be paid.

Q:What are Commercial Bancshares shareholders being asking to vote on at the special meeting?
A:Commercial Bancshares is soliciting proxies from its shareholders with respect to the following proposals:
•A proposal to adopt the Merger Agreement, a copy of which is attached to this document asAnnex A (the “merger proposal”);

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•A proposal to approve, on an advisory (non-binding) basis, the compensation that certain executive officers of Commercial Bancshares may receive in connection with the merger pursuant to existing agreements or other arrangements with Commercial Bancshares, discussed under the heading “The Merger — Interests of Commercial Bancshares Directors and Executive Officers in the Merger” beginning on page 45 (the “Merger-Related Named Executive Officer Compensation Proposal”); and
A proposal to adjourn the special meeting, if necessary or appropriate, to permit further solicitation of proxies in favor of the merger proposal (the “Adjournment Proposal”).
Q:When and where isare the Commercial Bancshares special meeting?meetings?

A:

The First Defiance special meeting will be held at on            2016,the First Federal Operations Center located at :  .  . Eastern Time.25600 Elliott Road, Defiance, Ohio 43512 on[], at [] local time.

The United Community special meeting will be held at the Ford Family Recital Hall, DeYor Performing Arts Center, 260 West Federal Street, Youngstown, Ohio 44503 on[], at [] local time.

Q:

Who can vote at the Commercial BancsharesFirst Defiance special meeting?

A:

Only holders of record of Commercial BancsharesFirst Defiance common stock at the close of business on           on[], 2016,2019, the record date for the Commercial BancsharesFirst Defiance special meeting, (the “record date”), will be entitled to vote. At the close of business on[], 2019, there were [                ] shares of First Defiance common stock issued and outstanding and entitled to vote, and shares of First Defiance common stock were held of record by approximately [                ] shareholders. Each share of First Defiance common stock entitles the holder to one vote on all matters properly presented at the First Defiance special meeting.

Q:

Who can vote at the United Community special meeting?

A:

Only holders of record of United Community common stock at the close of business on[], 2019, the record date for the United Community special meeting, will be entitled to vote. At the close of business

on[], 2019, there were [                ] shares of United Community common stock issued and outstanding and entitled to vote, and shares of United Community common stock were held of record by approximately [                ] shareholders. Each share of United Community common stock entitles the holder to one vote on all matters properly presented at the United Community special meeting.

Q:

What constitutes a quorum for the First Defiance special meeting?

A:

A majority of the issued and outstanding shares of Commercial BancsharesFirst Defiance common stock represented in person or by proxy at the special meeting will constitute a quorum for the purpose of considering and acting upon each of the proposals. Abstentions, and broker non-votes, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum.quorum; however, brokernon-votes will not be included.

Q:

What constitutes a quorum for the United Community special meeting?

A:

A majority of the issued and outstanding shares of United Community common stock represented in person or by proxy at the special meeting will constitute a quorum for the purpose of considering and acting upon each of the proposals. Abstentions, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum; however, brokernon-votes will not be included.

Q:

What vote is required to approve each proposal at the First Defiance special meeting?

A:

The First Defiance merger proposal:

•

Standard: Approval of the First Defiance merger proposal requires the affirmative vote of the holders of leasttwo-thirds of the issued and outstanding shares of First Defiance common stock. Approval of this proposal is a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the First Defiance special meeting or fail to instruct your bank or broker how to vote with respect to the First Defiance merger proposal, it will have the same effect as voting “AGAINST” the First Defiance merger proposal.

First Defiance articles of incorporation proposal:

•

Standard: Approval of the First Defiance articles of incorporation proposal requires the affirmative vote of the holders of at least a majority of the issued and outstanding shares of Commercial BancsharesFirst Defiance common stock. Approval of this proposal is not a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you fail to vote, mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the First Defiance special meeting or fail to instruct your bank or broker how to vote with respect to the First Defiance articles of incorporation proposal, it will have the same effect as a vote “AGAINST” the First Defiance articles of incorporation proposal.

The First Defiance code of regulations proposal:

•

Standard: Approval of the First Defiance code of regulations proposal requires the affirmative vote of the holders of at least a majority of the issued and outstanding shares of First Defiance common stock. Approval of this proposal is a condition to the closing of the merger. In addition, even if this proposal is approved by First Defiance shareholders, the First Defiance code of regulations will not be amended and restated unless the merger is consummated.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the First Defiance special meeting or fail to instruct your bank or broker how to vote with respect to the First Defiance code of regulations proposal, it will have the same effect as a vote “AGAINST” the First Defiance code of regulations proposal.

The First Defiance compensation proposal:

•

Standard: Approval of the First Defiance compensation proposal requires the affirmative vote of the holders of shares of First Defiance common stock representing at least a majority of votes cast at the First Defiance special meeting. Approval of this proposal is not a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the First Defiance special meeting or fail to instruct your bank or broker how to vote with respect to the First Defiance compensation proposal, it will have no effect on the proposal.

The First Defiance adjournment proposal:

•

Standard: Approval of the First Defiance adjournment proposal requires the affirmative vote of the holders of shares of First Defiance common stock representing at least a majority of votes cast at the First Defiance special meeting. Approval of this proposal is not a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the First Defiance special meeting or fail to instruct your bank or broker how to vote with respect to the First Defiance adjournment proposal, it will have no effect on the proposal.

Q:

What vote is required to approve each proposal at the United Community special meeting?

A:

The United Community merger proposal:

•

Standard: Approval of the United Community merger proposal requires the affirmative vote of the holders of at leasttwo-thirds of the issued and outstanding shares of United Community common stock. Approval of this proposal is a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the United Community special meeting or fail to instruct your bank or broker how to vote with respect to the United Community merger proposal, it will have the same effect as voting “AGAINST” the United Community merger proposal.

The Merger-Related Named Executive Officer Compensation ProposalUnited Community compensation proposal:

•

Standard: Approval of the Merger-Related Named Executive Officer Compensation ProposalUnited Community compensation proposal requires the affirmative vote of the holders of shares of United Community common stock representing at least a majority of shares of Commercial Bancshares common stock present or represented by proxyvotes cast at the United Community special meeting. Approval of this proposal is not a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, it will have the same effect as a vote “AGAINST” the Merger-Related Named Executive Officer Compensation Proposal. If you fail to submit a proxy card or vote in person at the United Community special meeting or fail to instruct your brokerbank or other nomineebroker how to vote with respect to the Merger-Related Named Executive Officer Compensation Proposal,United Community compensation proposal, it will have no effect on suchthe proposal.

The Adjournment ProposalUnited Community adjournment proposal:

•

Standard: Approval of the Adjournment ProposalUnited Community adjournment proposal requires the affirmative vote of the holders of shares of United Community common stock representing at least a majority of shares of Commercial Bancshares common stock present or represented by proxyvotes cast at the United Community special meeting. Approval of this proposal is not a condition to the closing of the merger.

•

Effect of abstentions and brokernon-votes: If you mark “ABSTAIN” on your proxy card, it will have the same effect as a vote “AGAINST” the proposal. If you fail to submit a proxy card or vote in person at the United Community special meeting or fail to instruct your brokerbank or other nomineebroker how to vote with respect to the Adjournment Proposal,United Community adjournment proposal, it will have no effect on the proposal.

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Q:

Why is my vote important?

A:

If you do not vote, it will be more difficult for Commercial BancsharesFirst Defiance or United Community to obtain the necessary quorum to hold its special meeting. In addition, failing to submit a proxy or vote in person, or failing to instruct your bank or broker how to vote will have the same effect as a vote “AGAINST” approval of the First Defiance merger proposal. Your abstention will also haveproposal, the same effect with respect toFirst Defiance articles of incorporation proposal, the Merger-Related Named Executive Officer Compensation ProposalFirst Defiance code of regulations proposal and the Adjournment ProposalUnited Community merger proposal, as a vote “AGAINST” such proposals.applicable.

Q:

What will happen if Commercial BancsharesFirst Defiance shareholders do not approve the Merger-Related Named Executive Officer Compensation Proposal?First Defiance articles of incorporation proposal?

A:

The approval of the First Defiance articles of incorporation proposal is not required in order to complete the merger and is not a condition to either party’s obligation to complete the merger under the merger agreement. Accordingly, if the First Defiance shareholders do not approve the First Defiance articles of incorporation proposal, it will have no impact on whether the merger is completed.

Q:

What will happen if First Defiance shareholders do not approve the First Defiance code of regulations proposal?

A:

The approval of the First Defiance code of regulations proposal is a condition to each party’s obligation to complete the merger under the merger agreement. Accordingly, if the First Defiance shareholders do not approve the First Defiance code of regulations proposal, it will prevent the completion of the merger unless such condition is validly waived by each party.

Q:

What will happen if United Community shareholders do not approve the United Community compensation proposal or First Defiance shareholders do not approve the First Defiance compensation proposal?

A:

The SEC, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, adopted rules that require Commercial BancsharesUnited Community and First Defiance to seek an advisory(non-binding) vote from their respective shareholders with respect to certain payments that will or may be made to Commercial Bancshares’United Community’s named executive officers and First Defiance’s named executive officers, respectively, in connection with the merger. The vote on the Merger-Related Named Executive Officer Compensation Proposal isUnited Community compensation proposal and the First Defiance compensation proposal are each a vote separate and apart from the vote to approve the merger proposal. You may vote for the Merger-Related Named Executive Officer Compensation ProposalUnited Community compensation proposal or the First Defiance compensation proposal, as appropriate, and against the merger proposal, or vice versa. Because the vote on the Merger-Related Named Executive Officer Compensation Proposalcompensation proposal on specified compensation is advisory only, it will not be binding on Commercial BancsharesUnited Community or First Defiance and will have no impact on whether the merger is completed or on whether any contractually obligated payments are made to Commercial Bancshares’the named executive officers.officers of United Community or First Defiance.

Q:

What do I need to do now?

A:

After you have carefully read this joint proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares as soon as possible so that your shares will be represented at Commercial Bancshares’and voted the First Defiance special meeting.meeting and/or the United Community special meeting, as applicable. If you are a shareholder of both First Defiance and United Community, you will need to vote your First Defiance and United Community shares separately and to submit a separate proxy card to each company. Please follow the instructions set forth on the proxy card included with this joint proxy statement/prospectus to vote your shares or, if your shares are held in the name of your broker, bank, or other nominee, please follow the instructions provided by such record holder to ensure that your shares are voted as desired.

Q:

How do I vote?vote my First Defiance shares of common stock?

A:

If you are a Commercial BancsharesFirst Defiance shareholder as of           of[], 2016,2019, the record date, you may submit your proxy before the Commercial Bancshares’First Defiance’s special meeting in one of the following ways: complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; visit the website shown on your proxy card to vote via the Internet; or use the toll-free number shown on your proxy card.

You may also cast your vote in person by attending the Commercial Bancshares special meeting. However, even if you currently plan to attend the special meeting, we recommend that you vote by proxy before the special meeting so that your vote will be counted if you later decide not to attend. However, if you attend the special meeting and vote your shares by ballot, your vote at the special meeting will revoke any vote you submitted previously by proxy.

If your shares are held in “street name,” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from their broker, bank or other nominee.

Q:

How do I vote my United Community shares of common stock?

A:

If you are a United Community shareholder as of[], 2019, the record date, you may submit your proxy before United Community’s special meeting in one of the following ways: complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; visit the website shown on your proxy card to vote via the Internet; or use the toll-free number shown on your proxy card.

If your shares are held in “street name,” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from their broker, bank or other nominee.

Q:

Can I change my vote?

A:

First Defiance Shareholders: Yes. If you are a holder of record of Commercial BancsharesFirst Defiance common stock, you may change your vote or revoke your proxy at any time before it is voted at the First Defiance special meeting by (i) signing and returning a later dated proxy card, (ii) delivering a signed revocation to Commercial BancsharesFirst Defiance at the below listed address at any time before the special meeting or (iii) attending the Commercial BancsharesFirst Defiance special meeting and voting your shares in person.giving notice of revocation to the Corporate Secretary. Attendance at the special meeting by itself will not automatically revoke your proxy.

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A signed revocation or later-dated proxy received by Commercial BancsharesFirst Defiance after the vote will not affect the vote. If you wish to revoke your vote through a signed revocation, such notice must be sent so that notice is received before the vote is taken at the special meeting and should be addressed as follows:

Commercial Bancshares, Inc.
First Defiance Financial Corp.

Attention: David J. Browne, Corporate Secretary
118 South Sandusky Avenue
Upper Sandusky,

601 Clinton Street

Defiance, Ohio 4335143512

(419)782-5015

United Community Shareholders:Yes. If you are a holder of record of United Community common stock, you may change your vote or revoke your proxy at any time before it is voted at the United Community special meeting by (i) signing and returning a later dated proxy card, (ii) delivering a signed revocation to United Community at the below listed address at any time before the special meeting or (iii) attending the United Community special meeting and giving notice of revocation to the Corporate Secretary. Attendance at the special meeting by itself will not automatically revoke your proxy.

A signed revocation or later-dated proxy received by United Community after the vote will not affect the vote. If you wish to revoke your vote through a signed revocation, such notice must be sent so that notice is received before the vote is taken at the special meeting and should be addressed as follows:

United Community Financial Corp.

Attention: Jude J. Nohra, Corporate Secretary

275 West Federal Street

Youngstown, Ohio 44503

(330)742-0500

If you have instructed a broker or other nominee to vote your shares, you must follow directions received from your broker or other nominee in order to change those instructions.

Q:

Will First Defiance be required to submit the First Defiance merger proposal to its shareholders even if the First Defiance board of directors has withdrawn, modified or qualified its recommendation?

A:

Yes. Unless the merger agreement is terminated before the First Defiance special meeting, First Defiance is required to submit the merger proposal to its shareholders even if the First Defiance board of directors has withdrawn or modified its recommendation.

Q:

Will United Community be required to submit the United Community merger proposal to its shareholders even if the United Community board of directors has withdrawn, modified or qualified its recommendation?

A:

Yes. Unless the merger agreement is terminated before the United Community special meeting, United Community is required to submit the merger proposal to its shareholders even if the United Community board of directors has withdrawn or modified its recommendation.

Q:

Are Commercial BancsharesUnited Community shareholders entitled to dissenters’ rights?

A:Yes. If you are a Commercial Bancshares shareholder as of the record date for the special meeting, and you do not vote your shares in favor of the merger proposal and you do not return an unmarked proxy card, you will have the right under

No. Under Section 1701.851701.84 of the Ohio General Corporation Law (“OGCL”), the holders of United Community common stock will not be entitled to demanddissenters’ rights in connection with the fair cash value for yourmerger if (1) shares of Commercial BancsharesUnited Community common stock. The right to make this demand is knownstock are listed on a national securities exchange as “dissenters’ rights.” To exercise your dissenters’ rights, you must deliver to Commercial Bancshares a written demand for payment of the fair cash value of your shares of common stock beforeday immediately preceding the date on which the vote on the United Community merger proposal is taken at the United Community special meeting. The demand for payment must include your address,meeting and (2) the number and class of Commercial Bancshares common shares owned by you, and the amount you claimconsideration to be received by the fairshareholders consists of shares or shares and cash valuein lieu of yourfractional shares that, immediately following the effective time of Commercial Bancsharesa merger are listed on a national securities exchange and for which no proceedings are pending to delist the shares from the national securities exchange as of the effective time of the merger. Accordingly, the holders of United Community common stock and should be mailed to: Commercial Bancshares, Inc., Attention: David J. Browne, Corporate Secretary, 118 South Sandusky Avenue, Upper Sandusky, Ohio 43351.are not entitled to any dissenters’ rights in connection with the merger.

Commercial Bancshares shareholders who wish to exercise their dissenters’ rights must: (i) either vote against the merger proposal or not return the proxy card, and (ii) deliver written demand for payment prior to the shareholder vote at the Commercial Bancshares special meeting. For additional information regarding dissenters’ rights, see “Dissenters’ Rights” beginning on page 22 and the complete text of the applicable sections of the OGCL attached to this proxy statement/prospectus asAnnex C.

Q:

Should the Commercial BancsharesUnited Community shareholders send in their stock certificates now?

A:

No. Please do not send in your Commercial BancsharesUnited Community stock certificates with your proxy card. The exchange agent will send you separate instructions for exchanging Commercial BancsharesUnited Community stock certificationscertificates or shares in book entrybook-entry form for merger consideration. See “The Merger Agreement —  Agreement—Conversion of Shares; Exchange of Certificates; Elections as to Form of ConsiderationCertificates” beginning on page 28.110.

Q:

What should I do if I receive more than one set of voting materials?

A:

First Defiance and United Community shareholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold my shares of Commercial BancsharesFirst Defiance and/or United Community common stock in book-entry form?

A:more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you holdare a holder of record of First Defiance common stock or United Community common stock and your shares are registered in more than one name, you will receive more than one proxy card. In addition, if you are a holder of Commercial Bancsharesboth First Defiance common stock in book entry form,and United Community common stock, you will send, upon receiptreceive one or more separate proxy cards or voting instruction cards for each company. Please complete, sign, date, and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus to ensure that you vote every share of instructions from the exchange agent, evidence of your shares of Commercial BancsharesFirst Defiance common stock and/or United Community common stock that are held in book entry form along with your election form.you own.

Q:

Whom should I contact if I have any questions about the proxy materials, voting, or the special meeting?

A:

First Defiance Shareholders:If you have any questions about the proxy materials or if you need assistance submitting your proxy or voting your shares or need additional copies of this document or the enclosed proxy card, you should contact Commercial BancsharesFirst Defiance at ourthe toll-free number (888) 294-2271.on your proxy card.

For driving directions to       ,United Community Shareholders:If you have any questions about the locationproxy materials or if you need assistance submitting your proxy or voting your shares or need additional copies of this document or the special meeting, pleaseenclosed proxy card, you should contact Commercial BancsharesUnited Community at the abovetoll-free number write to us at 118 South Sandusky Avenue, Upper Sandusky, Ohio 43351, or visit our website atwww.csbanking.comand click on “Menu” and then “Investor Relations” to find directions to the special meeting.your proxy card.

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SUMMARY

This summary highlights selected information from this joint proxy statement/prospectus. It does not contain all of the information that may be important to you. To fully understand the merger, you should read this entire document and its appendices carefully and the other documents to which we refer.refer before you decide how to vote. In addition, we incorporate by reference important business and financial information about First Defiance and United Community into this joint proxy statement/prospectus. See “Where Can You Find More Information” on page 145.

The parties

Parties

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512-3272

(419)782-5015

First Defiance Financial Corp. (“First Defiance”) is a unitary thrift holding company that conducts business through its three wholly ownedwholly-owned subsidiaries, First Federal Bank of the Midwest (“First Federal”), First Insurance Group of the Midwest, Inc., (“First Insurance”) and First Defiance Risk Management Inc. (“First Defiance Risk Management”). At June 30, 2019, First Defiance had assets of $2.4$3.28 billion and shareholders’ equity of $286.6 million at June 30, 2016.$407.2 million.

First Federal is a federally chartered savings bank, operating 3444 full-service branches and numerous ATM locations in northwest Ohio, southeast Michigan and northeast Indiana and a loan production office in Columbus, Ohio.Ann Arbor, Michigan. First Federal’s traditional banking activities include originating and servicing residential, non-residential real estate, commercial, home improvement and home equity and consumer loans and providingFederal provides a broad range of depository,financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services.services through its extensive branch network. First Insurance Groupis an insurance agency that conducts business throughout First Federal’s markets. First Insurance offers property and casualty insurance, life insurance and group health insurance. First Defiance Risk Management is a full-servicewholly owned insurance agencycompany subsidiary of First Defiance to insure First Defiance and its subsidiaries against certain risks unique to the operations of First Defiance and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. First Defiance Risk Management pools resources with six offices throughout northwestseveral other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 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.44503

Commercial Bancshares, Inc.
118 South Sandusky Avenue
Upper Sandusky, Ohio 43351
(419) 294-5781(330)742-0500

Commercial BancsharesUnited Community Financial Corp. (“United Community”) is a financial holding company that conducts business through its wholly owned subsidiaries, the CommercialHome Savings Bank (“Home Savings”), HSB Insurance, LLC, HSB Capital, LLC and Commercial Financial andHSB Insurance, Agency, LTD (“Commercial Financial”).Inc. At June 30, 2016, Commercial Bancshares2019, United Community had assets of $342 million$2.87 billion and shareholders’ equity of $38.216$317.6 million.

The principalHome Savings is an Ohio state-chartered bank that conducts its business from its main office located in Youngstown, Ohio and 33 retail banking offices (32 in Ohio and one in Pennsylvania). Home Savings also has residential mortgage loan centers servicing Ohio, West Virginia, western Pennsylvania, northern Kentucky, and eastern Indiana. HSB Capital, LLC provides mezzanine funding for customers of Commercial Bancsharesthe Home Savings, and are expected to be repaid from the cash flow from operations of the business. HSB Insurance, LLC is to operate the Commercial Bank, which is its principal asset. Commercial Bank functions as an independent community, state-chartered bank. Commercial Bank provides customary retaila wholly-



owned insurance subsidiary of United Community that offers a variety of insurance products for business and commercial banking services to itsresidential customers, including acceptance of deposits for demand, savingsauto, homeowners, life-health, commercial, surety bonds and time accounts, individual retirement accounts and servicing of such accounts; commercial, consumer and real estate lending, including installment loans, and safe deposit and night depository facilities. Commercial Bankaviation. HSB Insurance, Inc. is a nonmembercaptive insurance company that is a wholly-owned subsidiary of United Community. HSB Insurance, Inc. insures against certain risks that are unique to the Federal Reserve System, is insuredoperations of United Community and its subsidiaries and for which insurance may not be currently available or economically feasible; by the Federal Deposit Insurance Corporation (“FDIC”) and is regulated by the Ohio Divisionpooling resources with several other insurance company subsidiaries of the Financial Institutions and the FDIC. Commercial Bank grants residential, installment and commercial loansfinancial institutions to customers located primarily in the Ohio countiesspread a limited amount of Wyandot, Marion and Hancock and the surrounding area.risk among themselves.

The merger (page 24)

The Merger Agreement(page 54)

First Defiance and United Community are proposing a strategic merger. The merger agreement provides for the merger of Commercial BancsharesUnited Community into First Defiance (the “merger”), with First Defiance surviving the merger and the subsequent merger of the Commercial BankHome Savings into First Federal.Federal (the “bank merger”), with First Federal surviving the bank merger. The mergers cannot be completed unless at least [                ] shares of Commercial BancsharesFirst Defiance common stock, which is a majoritytwo-thirds of the issued and outstanding Commercial BancsharesFirst Defiance common stock on       on[], 2016,2019, and at least [                ] shares of United Community common stock, which istwo-thirds of the issued and outstanding United Community common stock on[], 2019, approve the merger. The Merger Agreementmerger agreement is attached to this document asAnnex A and is incorporated in this joint proxy statement/prospectus by reference. We encourage you to read the Merger Agreementmerger agreement carefully, as it is the legal document that governs the merger.


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What you will receive inIn the mergerMerger, United Community Shareholders Will Receive First Defiance Common Stock (page 24)

108)

If the merger is completed, each Commercial BancsharesUnited Community shareholder who has not properly exercised dissenters’ rights will receive in exchange for each Commercial BancsharesUnited Community common share owned as of immediately prior to the effective datetime of the merger either:

1.18080.3715 shares of First Defiance common stock; or
$51.00 in cash, subject to the election and allocation procedures described in the Merger Agreement.

We cannot insure what mixstock. First Defiance will not issue any fractional shares of cash and First Defiance common stock you will receive in the merger. If you receive First Defiance common stock as merger consideration, the implied valueUnited Community shareholders who would otherwise be entitled to a fraction of the merger consideration that you will receive for each share of Commercial Bancshares common stock will depend on the price pera share of First Defiance common stock atupon the time youcompletion of the merger will be entitled to receive an amount in cash (without interest) rounded to the sharesnearest whole cent, determined by multiplying the ten(10)-day volume weighted average stock price of First Defiance common stock. Therefore, if you receivea share of First Defiance common stock as merger consideration,of the implied valuethird trading day prior to the closing of the merger consideration may be different than its estimated value based onby the current pricefractional share of First Defiance common stock orto which such former holder would otherwise be entitled.

As a result of the priceforegoing, based on the number of shares of First Defiance and United Community common stock outstanding as of[], 2019, on a fully diluted basis, approximately 52.5% and 47.5% of First Defiance common stock atwill be held by First Defiance shareholders and former United Community shareholders, respectively, immediately following the timeeffectiveness of the Commercial Bancshares special meeting.merger.

Based on the closing price of First Defiance common stock on the NASDAQ Global Select Market (“NASDAQ”), on August 22, 2016,September 6, 2019, the last trading day before the announcement of the merger, of $44.57,$26.32 a share of Commercial BancsharesUnited Community common stock entitled to receive 1.18080.3715 of a share of First Defiance common stock would receive stock consideration valued at approximately $52.63.$9.78. Based on the closing price of First Defiance common stock on the NASDAQ on       on[], 2016,2019, the latest practicable date before the printing of this document, a share of Commercial BancsharesUnited Community entitled to 1.18080.3715 of a share of First Defiance common stock would receive stock consideration valued at approximately $    .$[                ].

Special meetingMeeting of Commercial Bancshares shareholdersFirst Defiance Shareholders (page 16)

37)

The Commercial  BancsharesFirst Defiance special meeting of shareholders will take place the First Federal Operations Center located at on         25600 Elliott Road, Defiance, Ohio 43512 on[], 20162019, at     :00     .m. If you owned shares.m local time. Holders of Commercial Bancshares



First Defiance common stock on         on[], 2016, you2019, are entitled to vote at the special meeting. At the First Defiance special meeting, First Defiance shareholders will be asked to:

adopt the merger agreement (the “First Defiance merger proposal”);

approve the amendment and restatement of First Defiance’s articles of incorporation to be effective upon the consummation of the merger (the “First Defiance articles of incorporation proposal”)

approve the amendment and restatement of First Defiance’s code of regulations to be effective upon the consummation of the merger (the “First Defiance code of regulations proposal”);

approve, on an advisory(non-binding) basis, the compensation that certain executive officers of First Defiance may receive in connection with the merger pursuant to existing agreements or other arrangements with First Defiance (the “First Defiance compensation proposal”); and

approve the adjournment of the First Defiance special meeting, if necessary or appropriate, to permit further solicitation of proxies (the “First Defiance adjournment proposal”).

The holders of at least [                ] shares of Commercial BancsharesFirst Defiance common stock, which is a majoritytwo-thirds of the issued and outstanding Commercial BancsharesFirst Defiance common stock as of the record date, must vote to approve the Merger Agreement.First Defiance merger proposal. The holders of at least [                ] shares of First Defiance common stock, which is a majority of the issued and outstanding First Defiance common stock as of the record date, must vote to approve the First Defiance articles of incorporation proposal and the First Defiance code of regulations proposal. The holders of shares of First Defiance common stock representing at least a majority of votes cast at the First Defiance special meeting must vote to approve the First Defiance compensation proposal and the First Defiance adjournment proposal.

As of the record date, directors and executive officers of Commercial BancsharesFirst Defiance and their affiliates collectively owned approximately %[                ]% of the outstanding Commercial BancsharesFirst Defiance common stock. All of the directors of Commercial BancsharesFirst Defiance entered into voting agreements with First Defiance pursuant to which they agreed to vote all of their shares of Commercial BancsharesFirst Defiance common stock in favor of the approvalFirst Defiance merger proposal, the First Defiance articles of incorporation proposal, the First Defiance code of regulations proposal and the First Defiance adjournment proposal.

Special Meeting of United Community Shareholders (page 48)

The United Community special meeting of shareholders will take place at the Ford Family Recital Hall, DeYor Performing Arts Center, 260 West Federal Street, Youngstown, Ohio 44503 on[], 2019, at [] local time. Holders of United Community common stock on[], 2019, are entitled to vote at the special meeting. At the United Community special meeting, United Community shareholders will be asked to:

adopt the merger agreement (the “United Community merger proposal”);

approve, on an advisory(non-binding) basis, the compensation that certain executive officers of United Community may receive in connection with the merger pursuant to existing agreements or other arrangements with United Community (the “United Community compensation proposal”); and

approve the adjournment of the Merger Agreement.United Community special meeting, if necessary or appropriate, to permit further solicitation of proxies (the “United Community adjournment proposal”).

Commercial Bancshares’ reasons

The holders of at least [                ] shares of United Community common stock, which istwo-thirds of the issued and outstanding United Community common stock as of the record date, must vote to approve the United Community merger proposal. The holders of shares of United Community common stock representing at least a majority of votes cast at the United Community special meeting must vote to approve the United Community compensation proposal and the United Community adjournment proposal.



As of the record date, directors and executive officers of United Community and their affiliates collectively owned approximately [                ]% of the outstanding United Community common stock. All of the directors of United Community entered into voting agreements pursuant to which they agreed to vote all of their shares of United Community common stock in favor of the United Community merger proposal and the United Community adjournment proposal.

First Defiance’s Reasons for the merger; board recommendationMerger; Board Recommendation (page 32)62)

The Commercial BancsharesFirst Defiance’s board of directors believes that the terms of the Merger Agreementmerger agreement are fair and in the best interests of Commercial BancsharesFirst Defiance and its shareholders. In reaching this decision, the board of directors considered several factors. For the factors considered by First Defiance’s board of directors in reaching its decision to approve the merger agreement, see “First Defiance’s Reasons for the Merger; Board Recommendation” beginning on page 62.The Commercial BancsharesFirst Defiance board of directors unanimously recommends that you vote FOR the approvaladoption of the Merger Agreement.merger agreement.

United Community’s Reasons for the Merger; Board Recommendation (page 77)

The United Community board of directors believes that the terms of the merger agreement are fair and in the best interests of United Community and its shareholders. In reaching this decision, the board of directors considered several factors. For the factors considered by United Community’s board of directors in reaching its decision to approve the merger agreement, see “United Community’s Reasons for the Merger; Board Recommendation” beginning on page 77.The United Community board of directors unanimously recommends that you vote FOR the adoption of the merger agreement.

Opinion of Commercial Bancshares’ financial advisorFirst Defiance’s Financial Advisor (page 33)

65 and Annex B)

In connection with its evaluation of the merger, the Commercial Bancshares board of directors received the opinion of Commercial Bancshares’First Defiance’s financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”), delivered a written opinion, dated August 23, 2016,September 7, 2019, to the effect that,First Defiance board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to First Defiance of the merger consideration was fair, from a financial point of view, toexchange ratio in the holders of Commercial Bancshares common stock.proposed merger. The full text of theKBW’s opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached asAnnex B to this document. Commercial Bancshares’ shareholders are encouraged to read the opinion carefully and in its entirety.joint proxy statement/prospectus.The opinion was for the information of, and was directed to, the CommercialFirst Defiance board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of Commercial BancsharesFirst Defiance to engage in the merger or


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enter into the merger agreement or constitute a recommendation to the Commercial BancsharesFirst Defiance board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Commercial BancsharesFirst Defiance common stock or any stockholder of any other entity as to how to vote in connection with the merger or any other matter.

For further information, see “The Merger—Opinion of First Defiance’s Financial Advisor” beginning on page 65.

Opinion of United Community’s Financial Advisor (page 79 and Annex C)

In connection with its evaluation of the merger, the United Community board of directors received the opinion of United Community’s financial advisor, Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”), dated September 8, 2019, to the effect that, as of the date of the opinion, the exchange ratio was fair, from a financial point of view, to the holders of United Community common stock. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review



undertaken by Sandler O’Neill in preparing the opinion, is attached asAnnex C to this document. United Community’s shareholders are encouraged to read the opinion carefully and in its entirety.The opinion was for the information of, and was directed to, the United Community board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of United Community to engage in the merger or enter into the merger agreement or constitute a recommendation to the United Community board of directors in connection with the merger, and it does not constitute a recommendation to any holder of United Community common stock as to how to vote in connection with the merger or any other matter (including, with respectmatter.

For further information, see “The Merger—Opinion of United Community’s Financial Advisor” beginning on page 79.

Treatment of United Community Equity Awards (page 99)

The United Community equity awards granted under the United Community 2015 Long Term Incentive Compensation Plan, the United Community 2007 Long Term Incentive Compensation Plan or the United Community 1999 Long Term Incentive Compensation Plan (collectively, the “United Community stock plans”) will be affected as follows:

Options: If the merger is completed, each option granted by United Community to holderspurchase shares of Commercial BancsharesUnited Community common stock what election any such shareholder should make with respectunder a United Community Stock Plan or otherwise, whether vested or unvested (“United Community option”), that is outstanding and unexercised immediately prior to the cash consideration, the stock consideration or any combination thereof).

How to cast your vote (page 17)

It is very important that you cast your vote as soon as possible so that your shares of Commercial Bancshares common stock may be represented at the Commercial Bancshares special meeting. There are three ways in which you can cast your vote: complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; visit the website shown on your proxy card to vote via the Internet; or use the toll-free number shown on your proxy card. If you properly sign and return a proxy card but do not include instructions on how to vote your shares, they will be voted FOR approval of the Merger Agreement and FOR the Adjournment Proposal.

If your shares are held by your broker or other nominee in street name, your broker does not have authority to vote your shares unless you provide your broker instructions on how you want to vote. Your broker should send you a form to give instructions on voting or you may request such a form from your broker.

If you do not provide your broker with voting instructions, your shares will not be voted at the special meeting. Failure to vote Commercial Bancshares shares will have the same effect as voting against approval of the Merger Agreement.

Dissenters’ rights (page 22)

If the Merger Agreement is approved by Commercial Bancshares shareholders, those shareholders who do not vote in favorcompletion of the merger proposalwill fully vest and who properly demand paymentbe converted into a fully vested option (a “First Defiance option”) to purchase (a) the number of fair cash valuewhole shares of theirFirst Defiance common stock (rounded down to the nearest whole share) that is equal to (i) the number of shares are entitled to certain dissenters’ rights pursuant to Sections 1701.84(A) and 1701.85 of the Ohio General Corporation Law (“OGCL”). Section 1701.85 generally provides that Commercial Bancshares shareholders will not be entitledUnited Community common stock subject to such rights without strict compliance withUnited Community option immediately prior to the procedures set forth in Section 1701.85, and failure to take any one of the required steps may result in the termination or waiver of such rights.

Specifically, any holder of Commercial Bancshares common stock on         , 2016, the record date for the special meeting, whose shares are not voted in favor of the adoptioncompletion of the merger proposal may be entitled to be paid the “fair cash value”multiplied by (ii) 0.3715, (b) at an exercise price per share of such shares ofFirst Defiance common stock after(rounded up to the effective timenearest whole cent) equal to (i) the exercise price for each share of the merger. To be entitledUnited Community common stock subject to such payment, a shareholder must deliverUnited Community option immediately prior to Commercial Bancshares a written demand for payment of the fair cash value of the shares held by such shareholder before the vote on the merger proposal is taken, the shareholder must not vote in favorcompletion of the merger proposal,divided by (ii) 0.3715, subject to the terms and the shareholder must otherwise comply with Section 1701.85conditions of the OGCL. A shareholder’s failureUnited Community stock plan, if any, pursuant to vote againstwhich such United Community option was granted and/or any associated award agreement.

Restricted Stock: If the merger proposal will not constituteis completed, each award of shares of United Community common stock subject to vesting, repurchase or other lapse restriction granted under a waiver of such shareholder’s dissenters’ rights, as long as such shareholder does not vote in favorUnited Community stock plan or otherwise, whether vested or unvested (a “United Community restricted stock award”) that is outstanding immediately prior to completion of the merger proposal. Any written demand must specifywill fully vest and be cancelled and converted automatically into the shareholder’s name and address, the number and class of shares held by him, her or it on the record date, and the amount claimed as the “fair cash value” of suchright to receive 0.3715 shares of First Defiance common stock.stock in respect of each share of United Community common stock underlying such United Community restricted stock award.

SeePerformance Share Units: If the text of Section 1701.85merger is completed, each performance-vesting restricted stock unit granted under a United Community stock plan or otherwise, whether vested or unvested, that is outstanding immediately prior to the completion of the OGCL attached asAnnex Cmerger (“United Community PSU award”) will fully vest (with any performance-based vesting condition applicable to this proxy statement/prospectus for specific information on the proceduressuch United Community PSU award to be followedmeasured consistent with the terms of the applicable award agreement applicable upon a change in exercising dissenters’ rights. Commercial Bancshares shareholders who wish to seek appraisalcontrol for such United Community PSU award, as determined by the United Community board of their shares are encouraged to seek the advice of legal counsel with respectdirectors or its compensation committee prior to the exercisecompletion of dissenters’ rights, duethe merger) and will be cancelled and converted automatically into the right to receive 0.3715 shares of First Defiance common stock in respect of each share of United Community common stock underlying such United Community PSU award; provided, that the United Community board of directors or its compensation committee will exclude any costs or expenses related to the complexitymerger, if any, from the performance metrics applicable to the United Community PSU awards when determining actual United Community performance through the date of the appraisal process. For more information, see “Dissenters’ Rights.”completion of the merger.



Regulatory approval requiredApprovals Required (page 48)104)

The merger must be approved by the Federal Reserve Board of Governors (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”) and the OfficeOhio Division of the Comptroller of the CurrencyFinancial Institutions (“OCC”ODFI”). First Defiance will fileand United Community have filed applications and notifications to obtain necessary regulatory approval from the Federal Reserve and OCC.approvals. Although neither First Defiance nor United Community is not aware


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of any reason why the Federal Reserve, the FDIC or OCCthe ODFI would not grant such approvals, First Defiance and Commercial BancsharesUnited Community cannot be certain when or if they will be obtained. For more information, see “The Merger—Regulatory Approvals Required for the Merger” beginning on page 48.104.

Material U.S. federal income tax consequencesFederal Income Tax Consequences of the Merger (page 125)

The merger (page 63)

First Defiance and Commercial Bancshares intend that the merger will be treatedis intended to qualify as a reorganization“reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the obligationrespective obligations of First Defiance and United Community to complete the merger that each of First Defiance and Commercial Bancshares to complete the merger that itUnited Community receives a legal opinion to that effect. If the merger is treated as a reorganization,Accordingly, holders of United Community common stock are not expected to recognize any gain or loss for U.S. federal income tax purposes (i) no gain or loss will be recognized byon the exchange of shares of United Community common stock for shares of First Defiance or Commercial Bancshares as a result of the merger, (ii) Commercial Bancshares shareholders will recognize gain (but not loss) in an amount not to exceed any cash received in exchange for Commercial Bancshares common stock in the merger, (other thanexcept with respect to any cash received in lieuinstead of a fractional shares of First Defiance common share, as discussed below under the section entitledstock. For further information, please refer to “Material U.S. Federal Income Tax Consequences of the Merger — Cash in Lieu.” The U.S. federal income tax consequences described above may not apply to all holders of Fractional Shares” beginning on page 66) and (iii) Commercial Bancshares shareholders who exercise dissenters’ rights and receive solely cash in exchange for First DefianceUnited Community common stock. The tax consequences to a holder of United Community common stock in the merger will generally, recognize gaindepend on his or loss equalher individual situation. Accordingly, we strongly urge holders of United Community common stock to the difference between the amount of cash received and their tax basis in their shares.

All Commercial Bancshares shareholders should read carefully the description under the section captioned “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 63 of this proxy statement/prospectus and should consult their own tax advisors concerning these matters.

All Commercial Bancshares shareholders should consult their tax advisors as tofor a full understanding of the specificparticular tax consequences of the merger to them, includingthem.

First Defiance’s Officers and Directors Have Financial Interests in the applicability and effect of the alternative minimum tax and any state, local, foreign or other tax laws.

Merger that Differ from Your Interests of Commercial Bancshares(page 93)

First Defiance shareholders should be aware that First Defiance’s directors and executive officers in the merger (page 45)

Some of Commercial Bancshares directors and officers may have interests in the merger that are different from, or in addition to, the interests of Commercial BancsharesFirst Defiance shareholders generally. These include:

payments thatinterests include, among others, continued service as a director for certain First Defiance directors, continued employment for certain executive officers will receive under existing employment agreements;
of First Defiance, and rights to ongoing indemnification and insurance coverage by the accelerationsurviving corporation for acts or omissions occurring prior to the merger.

The First Defiance board of stock optionsdirectors was aware of and restricted stockconsidered those interests, among other matters, in reaching its decisions to approve the merger agreement and vesting under certain benefit plans;

provisionsthe transactions contemplated thereby and to recommend the adoption of the merger agreement to First Defiance shareholders. See the section entitled “The Merger—Interests of First Defiance’s Directors and Executive Officers in the Merger Agreement relating to indemnification” beginning on page 93 of directorsthis joint proxy statement/prospectus for a more detailed description of these interests.

Interests of First Defiance’s Directors and officers and insurance for directors and officersExecutive Officers in the Merger (page 93)

In considering the recommendation of Commercial Bancshares for events occurring before the merger; and

the appointment of one Commercial Bancshares director to the First Defiance board of directors.

Commercial Bancsharesdirectors with respect to the merger, First Defiance shareholders should be aware that First Defiance’s directors and executive officers have certain interests in the merger, including financial interests, that may be different from, or in addition to, the interests of First Defiance shareholders generally. The First Defiance board of directors was aware of these interests and tookconsidered them, among other matters, in making its recommendation that First Defiance shareholders vote to approve the First Defiance merger proposal.

These interests include, among others:

Pursuant to the merger agreement, seven of the 13 members of the board of directors of First Defiance and First Federal immediately following the closing of the merger will be designated by First Defiance



to remain on the board of directors, including Donald P. Hileman, the current President and Chief Executive Officer of First Defiance and First Federal, and John L. Bookmyer, the current Chairman of First Defiance, who will remain Chairman;

Pursuant to the merger agreement, First Defiance may deem the merger a “change in control” and accelerate vesting of equity-based awards held by members of the board of directors and its employees, in the event that such awards would not otherwise vest under the terms of applicable agreements and plans, in order to align the treatment of such awards with those held by United Community employees and directors;

Mr. Hileman will remain Chief Executive Officer for a period of approximately one year following the effective time, and subsequently will become Executive Chairman of First Defiance and First Federal, pursuant to the terms of an employment agreement he entered into accountwith First Defiance and First Federal in approvingconnection with the merger.merger, which provides for certain payments in connection with the effective time and a qualifying termination of employment thereafter;

Paul D. Nungester, Jr., Executive Vice President and Chief Financial Officer of First Defiance and First Federal, John R. Reisner, Executive Vice President, Chief Risk Officer and Legal Counsel of First Defiance and First Federal, Dennis E. Rose, Jr., Executive Vice President and Director of Strategy Management, and Gregory R. Allen, Executive Vice President and Fort Wayne Market Area Executive, are each party to agreements with First Defiance that provide for severance benefits upon a qualifying termination of employment;

Timothy K. Harris, Executive Vice President and Chief Credit Officer, is eligible for severance benefits under the First Defiance severance plan; and

First Defiance’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.

For a more complete description of these interests, see the section entitled “The Merger—Interests of First Defiance Directors and Executive Officers in the Merger” and “The Merger—Merger-related Compensation for First Defiance’s Named Executive Officers” beginning on pages 93 and 97, respectively.

Interests of United Community’s and Directors and Executive Officers in the Merger (page 99)

In considering the recommendation of the United Community board of directors with respect to the merger, United Community shareholders should be aware that United Community’s directors and executive officers have certain interests in the merger, including financial interests, that may be different from, or in addition to, the interests of United Community shareholders generally. The United Community board of directors was aware of these interests and considered them, among other matters, in making its recommendation that United Community shareholders vote to approve the merger proposal.

These interests include, among others:

at the effective time, each option to purchase shares of United Community common stock will fully vest and convert into an option of equivalent value, with appropriate adjustments to reflect the application of the exchange ratio, to purchase shares of First Defiance common stock, and each United Community restricted stock award and United Community PSU award will fully vest and convert into the right to receive the merger consideration in respect of each share of United Community common stock subject to each award;

Pursuant to the merger agreement, six of the 13 members of the board of directors of First Defiance and First Federal immediately following the closing of the merger will be designated by United Community, including Richard J. Schiraldi, the current Chairman of United Community, who will become Vice Chairman of First Defiance and First Federal;



Gary M. Small, President and Chief Executive Officer of United Community and Home Savings, will become President of First Defiance and First Federal at the effective time and subsequently will become Chief Executive Officer of First Defiance and First Federal, pursuant to the terms of an employment agreement he entered into with First Defiance and First Federal, which agreement provides for certain payments in connection with the effective time or a qualifying termination of employment thereafter;

Timothy W. Esson, Chief Financial Officer of United Community and Executive Vice President and Chief Financial Officer of Home Savings, Zahid Afzal, Executive Vice President and Chief Operating Officer of Home Savings, Matthew T. Garrity, Executive Vice President, Commercial Lending and Credit Administration of Home Savings, and Jude J. Nohra, General Counsel and Secretary of United Community and Executive Vice President, Corporate Governance, General Counsel and Secretary, Home Savings, are each party to change in control agreements with United Community that provide for severance benefits upon a qualifying termination of employment; and

United Community’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.

For a more complete description of these interests, see the section entitled “The Merger—Interests of United Community Directors and Executive Officers in the Merger” and “The Merger—Merger-related Compensation for United Community’s Named Executive Officers” beginning on pages 99 and 102, respectively.

Agreement Not to Solicit Other Offers (page 119)

First Defiance and United Community have agreed that they will not, and will cause their subsidiaries and use their reasonable best efforts to cause their officers, directors, agents, advisors, and representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage, or knowingly facilitate inquiries or proposals with respect to any acquisition proposal, (ii) engage or participate in any negotiations with any person concerning any acquisition proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to, any acquisition proposal except to notify a person that has made or, to the knowledge of First Defiance or United Community, as applicable, is making any inquiries with respect to, or is considering making, an acquisition proposal, of the existence of First Defiance’s or United Community’s obligations with respect to such acquisition proposals under the merger agreement. However, in the event that prior to the adoption of the merger agreement by First Defiance’s or United Community’s shareholders, as applicable, either First Defiance or United Community receives an unsolicited bona fide written acquisition proposal (the “receiving party”), such receiving party may, and may permit its subsidiaries and its subsidiaries’ officers, directors, agents, advisors, and representatives to, furnish or cause to be furnished nonpublic information or data and participate in negotiations or discussions to the extent that its board of directors concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors) that failure to take such actions would be reasonably likely to result in a violation of its fiduciary duties under applicable law, provided that, prior to providing any such nonpublic information, such receiving party enters into a confidentiality agreement with such third-party on terms no less favorable to it than the confidentiality agreement between First Defiance and United Community, and which confidentiality agreement does not provide such person with any exclusive right to negotiate with such receiving party. The receiving party will promptly (within 24 hours) advise the other party following receipt of any acquisition proposal or any inquiry which could reasonably be expected to lead to an acquisition proposal, and the substance thereof (including the terms and conditions of and the identity of the person making such inquiry or acquisition proposal and a copy thereof if in writing and any related documentation or correspondence), and will keep the other party apprised of any related developments, discussions, and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or acquisition proposal.



Conditions to Complete the Merger (page 120)

First Defiance’s and United Community’s respective obligations to complete the merger are subject to the satisfaction or waiver of the following conditions:

the accuracy of the representations and warranties of the other party contained in the merger agreement as of the date on which the merger agreement was entered into and as of the closing date, subject to the materiality standards provided in the merger agreement (and the receipt by each party of an officer’s certificate from the other party to such effect);

the performance by the other party in all material respects of all of the covenants and obligations required to be performed by it under the merger agreement at or prior to the closing date (and the receipt by each party of an officer’s certificate from the other party to such effect);

the adoption of the merger agreement by First Defiance’s shareholders and by United Community’s shareholders;

the approval of the First Defiance code of regulations proposal by First Defiance’s shareholders;

the receipt of necessary regulatory approvals contemplated by the merger agreement and the expiration of all statutory waiting periods in respect thereof, without the imposition of any condition or restriction that would reasonably be expected to have a material adverse effect on the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger;

the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part with respect to the First Defiance common stock to be issued upon the consummation of the merger, and the absence of any stop order (or proceedings for that purpose initiated or threatened and not withdrawn);

the authorization for listing on NASDAQ, subject to official notice of issuance, of the First Defiance common stock to be issued upon the consummation of the merger;

the absence of any change in the financial condition, assets or business of the other party or its subsidiaries from the date of the merger agreement until the closing date that has had or would reasonably be expected to have a material adverse effect on the other party;

the absence of any order, injunction, or decree by any court or regulatory authority of competent jurisdiction or other legal restraint or prohibition preventing the completion of the merger or the other transactions contemplated by the merger agreement, and the absence of any statute, rule, regulation, order, injunction, or decree enacted, entered, promulgated, or enforced by any regulatory authority which prohibits or makes illegal consummation of the merger, the bank merger or the other transactions contemplated by the merger agreement; and

receipt by such party of an opinion of legal counsel to the effect that on the basis of facts, representations, and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Neither United Community nor First Defiance can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this joint proxy statement/prospectus, neither United Community nor First Defiance has reason to believe that any of these conditions will not be satisfied. See “The Merger Agreement—Conditions to Complete the Merger” beginning on page 120.



Termination and amendmentAmendment of the Merger Agreement (pages 60120 and 62)123)

First Defiance and Commercial BancsharesUnited Community may agree to terminate the Merger Agreementmerger agreement and abandon the merger at any time before the effective time of the merger:

by the mutual written consent of First Defiance and Commercial Bancshares;United Community, each evidenced by appropriate written board resolutions;

by either First Defiance or Commercial BancsharesUnited Community, if the other party has breached or failed to perform any of its representations, warranties, covenants or agreements set forth in the merger agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the completion of the merger would otherwise occur would result in the failure of any of the conditions to the terminating party’s obligation to close set forth in the merger agreement and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation, provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement;

by either First Defiance or United Community, if any required regulatory approval has been denied and such denial has become final and nonappealable; provided that the right to terminate the merger agreement for such denial is not available to a party whose failure (or the failure of any of its affiliates) to fulfill any of its obligations (excluding representations and warranties) under the merger agreement has been the cause of or resulted in the occurrence of such denial;

by either First Defiance or United Community, if any court of competent jurisdiction or other regulatory authority issues a judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting the merger and such judgment, order, injunction, rule, decree or other action has become final and nonappealable; provided, however, that the right to terminate the merger agreement for such judgment, order, injunction, rule or decree or other action is not available to a party whose failure (or the failure of any of its affiliates) to fulfill any of its obligations (excluding representations and warranties) under the merger agreement has been the cause of or resulted in the occurrence of any such judgment, order, injunction, rule or decree or other action;

by either party if the merger is not completed on or before June 30, 2017;September 9, 2020, provided that the terminating party’s failure to fulfill any of its obligations (excluding warranties and representations) under the merger agreement shall not have been the cause of or resulted in the failure of the effective time of the merger to occur on or before such date;

by eitherFirst Defiance, prior to such time as the United Community merger proposal is approved, if (i) United Community’s board of directors has (A) failed to recommend in the joint proxy statement/prospectus that the shareholders of United Community adopt the merger agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to First Defiance, or Commercial Bancshares ifpublicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer has been publicly disclosed within ten (10) business days after the commencement of such tender or exchange offer, in any event occurssuch case whether or not permitted by the terms of the merger agreement or (B) recommended or endorsed a proposal to acquire United Community or failed to issue a press release reaffirming its recommendation that would prevent the satisfactionshareholders of certain conditions described in the Merger Agreement;

by First Defiance ifadopt the Commercial Bancsharesmerger within ten (10) Business Days after a proposal to acquire United Community is publicly announced or (ii) United Community or its board of directors does not recommendhas breached in any material respect its obligations to thenon-solicitation of acquisition proposals, calling a meeting of its shareholders, or recommending that its shareholders adopt the merger agreement; or

by United Community, prior to such time as the First Defiance merger proposal and the First Defiance code of regulations proposal are approved, if (i) First Defiance’s board of directors has (A) failed to



recommend in the joint proxy statement/prospectus that the shareholders of First Defiance adopt the merger agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to United Community, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer has been publicly disclosed within ten (10) business days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms of the merger agreement or (B) recommended or endorsed a proposal to acquire First Defiance or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after a proposal to acquire First Defiance is publicly announced or (ii) First Defiance or its board of directors has breached in any material respect its obligations to thenon-solicitation of acquisition proposals, calling a meeting of its shareholders, or recommending that its shareholders adopt the merger agreement and approve the First Defiance articles of incorporation proposal and the First Defiance code of regulations proposal;

If the merger agreement is terminated under certain circumstances, including circumstances involving alternative acquisition proposals and changes in the recommendation of United Community’s or First Defiance’s respective boards, United Community or First Defiance may be required to pay a termination fee to the other equal to $18,400,000.

For more information, see “The Merger Agreement—Termination of the Merger Agreement” beginning on page 120.

Risk Factors (page 27)

You should consider all the information contained in or incorporated by reference into this joint proxy statement/prospectus in deciding how to vote for the Merger Proposal; or

by First Defiance if the Commercial Bancshares’ total shareholders’ equity (as definedproposals presented in the Merger Agreement) is less than $36.2 millionjoint proxy statement/prospectus. In particular, you should consider the factors described under “Risk Factors” beginning on the last day of the month priorpage 27.

Litigation Relating to the closing ofMerger (page 106)

Certain litigation is pending in connection with the merger;


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Under certain circumstances, if Commercial Bancshares enters into or closes an acquisition proposal with a company other than First Defiance within 12 months aftermerger. For more information, see “The Merger—Litigation Relating to the Merger Agreement is terminated, Commercial Bancshares must pay First Defiance a termination fee of $2,400,000.,” beginning on page 106.

We may amend the Merger Agreement in writing at any time before or after the Commercial Bancshares shareholders approve the Merger Agreement. If the Commercial Bancshares shareholders have already approved the Merger Agreement, however, we will not amend it without shareholder approval if the amendment would have a material adverse effect on the Commercial Bancshares shareholders.

Comparative stock prices (page 15)

Stock Prices and Dividends

The following table sets forth the closing sales prices per share of First Defiance and Commercial BancsharesUnited Community common stock on the last full trading day prior to the announcement of the merger and on the last practicable trading day prior to printing this joint proxy statement/prospectus. The table also presents the equivalent price per share of Commercial Bancshares,United Community, giving effect to the merger as of such dates.

   
 First
Defiance		 Commercial
Bancshares		 Commercial
Bancshares
equivalent per
share price
August 22, 2016 $44.57  $34.50  $52.63 
        , 2016 $      $      $     


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RISK FACTORS

In deciding how to vote on the Merger Agreement, you should consider carefully all of the information contained in this document, especially the following factors.

Because the Market Price of First Defiance Common Stock Will Fluctuate Before and After the Merger, Commercial Bancshares Shareholders Cannot Be Sure of the Implied Value of the Merger Consideration They Will Receive.

On August 22, 2016, the day before the merger was announced, the closing price of a share of First Defiance common stock was $44.57. On          , 2016, the most recent practicable date before the mailing of this proxy statement/prospectus, the closing price was $    . Based on these closing prices and the 1.1808 exchange ratio, the implied value of the merger consideration consisting of First Defiance common stock was $52.63 on August 22, 2016 and $     on          , 2016. The price of First Defiance common stock may increase or decrease before and after completion of the merger. Upon completion of the merger, each share of Commercial Bancshares common stock will be converted into merger consideration consisting of shares of First Defiance common stock or $51.00 in cash (without interest) pursuant to the terms of the Merger Agreement. If a Commercial Bancshares shareholder receives First Defiance common stock as merger consideration, the implied value of the merger consideration that such shareholder will receive for each share of Commercial Bancshares common stock will depend on the price per share of First Defiance common stock at the time the shares are received. The closing price of First Defiance common stock on the date that the merger is completed may vary from the closing price of First Defiance common stock on the date First Defiance and Commercial Bancshares announced the merger, on the date that this document is being mailed to Commercial Bancshares shareholders, and on the date of the special meeting of Commercial Bancshares shareholders. Any change in the market price of First Defiance common stock prior to completion of the merger will affect the implied value of the merger consideration that Commercial Bancshares shareholders will receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in First Defiance’s and Commercial Bancshares’ respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of First Defiance and Commercial Bancshares.

The exchange ratio of 1.1808 is fixed and will not be adjusted based on changes in the price of shares of First Defiance common stock or Commercial Bancshares common stock prior to the closing.

Commercial Bancshares Shareholders May Receive a Form of Consideration Different From What They Elect.

Although each Commercial Bancshares shareholder may elect to receive all cash or all First Defiance common stock in the merger, or cash for certain shares of Commercial Bancshares common stock and First Defiance common stock for other shares, 80% of the Commercial Bancshares common stock outstanding at the completion of the merger will be converted into First Defiance common stock, with the remainder converted into cash. Therefore, if Commercial Bancshares shareholders elect more cash or stock than is available under the Merger Agreement, elections for the over-subscribed form of merger consideration may be prorated. As a result, if either the aggregate cash or stock elections exceed the maximum available, and you choose the consideration election that exceeds the maximum available, some or all of your consideration may be in a form that you did not choose.

Commercial Bancshares Shareholders Who Make Elections May Be Unable to Sell Their Shares in the Market Pending the Merger.

Commercial Bancshares shareholders may elect to receive cash, stock or mixed consideration in the merger by completing an election form that will be sent under separate cover and is not being provided with this document. Elections will require that shareholders making the election turn in their Commercial Bancshares stock certificates. This means that during the time between when the election is made and the date the merger is completed, Commercial Bancshares shareholders will be unable to sell their Commercial Bancshares common stock. If the merger is unexpectedly delayed, this period could extend for a significant period of time. Commercial Bancshares shareholders can shorten the period during which they cannot sell


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their shares by delivering their election shortly before the election deadline. However, elections received after the election deadline will not be accepted or honored.

Commercial Bancshares Shareholders Will Have a Reduced Ownership and Voting Interest After the Merger.

Commercial Bancshares shareholders currently have the right to vote in the election of the board of directors of Commercial Bancshares and on other matters affecting Commercial Bancshares. Upon the completion of the merger, each Commercial Bancshares shareholder who receives shares of First Defiance common stock will become a shareholder of First Defiance with a percentage ownership of First Defiance that is smaller than the shareholder’s percentage ownership of Commercial Bancshares. It is currently expected that the former shareholders of Commercial Bancshares as a group will receive shares in the merger constituting approximately     % of the outstanding shares of First Defiance common stock immediately after the merger. Because of this, Commercial Bancshares shareholders will have less influence on the management and policies of First Defiance than they now have on the management and policies of Commercial Bancshares.

The Market Price for First Defiance Common Stock May Be Affected by Factors Different from Those that Historically Have Affected Commercial Bancshares.

Upon completion of the merger, certain holders of Commercial Bancshares common stock will become holders of First Defiance common stock. First Defiance’s businesses differ from those of Commercial Bancshares, and accordingly the results of operations of First Defiance will be affected by some factors that are different from those currently affecting the results of operations of Commercial Bancshares. For a discussion of the businesses of First Defiance and Commercial Bancshares and of some important factors to consider in connection with those businesses, see the documents incorporated by reference in this proxy statement/prospectus and referred to under “Incorporation of Certain Documents by Reference” on page 117 and “Where You Can Find More Information” on page 1.

First Defiance May Fail to Realize the Anticipated Benefits of the Merger.

The success of the merger will depend on, among other things, First Defiance’s ability to combine the businesses of First Defiance and Commercial Bancshares in a manner that permits growth opportunities and cost efficiencies, and does not materially disrupt the existing customer relationships of Commercial Bancshares nor result in decreased revenues due to any loss of customers. If First Defiance is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

First Defiance and Commercial Bancshares have operated and, until the completion of the merger, will continue to operate, independently. Certain employees of Commercial Bancshares may not be employed after the merger. In addition, employees of Commercial Bancshares that First Defiance wishes to retain may elect to terminate their employment as a result of the merger, which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of First Defiance’s or Commercial Bancshares ongoing businesses or cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of First Defiance or Commercial Bancshares to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger.

Regulatory Approvals May Not Be Received, May Take Longer than Expected or May Impose Conditions that Are Not Presently Anticipated or Cannot Be Met.

Before the transactions contemplated in the Merger Agreement, including the merger and the bank merger, may be completed, various approvals must be obtained from the bank regulatory and other governmental authorities. These governmental entities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on First Defiance following the merger. The regulatory approvals may not be received at any time, may not be received in a timely fashion, and may contain conditions on the completion of the merger. In addition, First Defiance may elect not to complete the merger if any regulatory entity imposes any conditions, restrictions or requirements


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on First Defiance that its board of directors reasonably determines would have a material adverse effect on First Defiance and its subsidiaries, taken as a whole, giving effect to the merger or if there are any conditions, restrictions or requirements that are not customary and usual for approvals of this type and which the First Defiance board of directors reasonably determines would be unduly burdensome.

The Combined Company Expects to Incur Substantial Expenses Related to the Merger.

The combined company expects to incur substantial expenses in connection with completing the merger and combining the business, operations, networks, systems, technologies, policies and procedures of the two companies. Although First Defiance and Commercial Bancshares have assumed that a certain level of transaction and combination expenses will be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the transaction and combination expenses associated with the merger could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the combination of the businesses following the completion of the merger. As a result of these expenses, both First Defiance and Commercial Bancshares could take charges against their earnings before and after the completion of the merger. Such charges taken in connection with the merger could be significant, although the aggregate amount and timing of such charges are uncertain at present.

The Merger Agreement May Be Terminated in Accordance with Its Terms and the Merger May Not Be Completed.

The Merger Agreement is subject to a number of conditions that must be fulfilled in order to complete the merger. Those conditions include: approval of the Merger Agreement by Commercial Bancshares shareholders, receipt of requisite regulatory approvals, absence of orders prohibiting completion of the merger, effectiveness of the registration statement of which this document is a part, approval of the shares of First Defiance common stock to be issued to Commercial Bancshares shareholders for listing on the NASDAQ, the continued accuracy of the representations and warranties by both parties and the performance by both parties of their covenants and agreements, and the receipt by both parties of legal opinions from their respective tax counsels. These conditions to the closing of the merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is not completed by June 30, 2017, either First Defiance or Commercial Bancshares may choose not to proceed with the merger, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after shareholder approval. In addition, First Defiance may elect to terminate the Merger Agreement in certain other circumstances. Please refer to “The Merger Agreement — Termination of the Merger Agreement; Termination Fee” (page 61) for a description of these circumstances.

Termination of the Merger Agreement Could Negatively Impact Commercial Bancshares.

If the Merger Agreement is terminated and Commercial Bancshares’ board of directors seeks another merger or business combination, Commercial Bancshares shareholders cannot be certain that Commercial Bancshares will be able to find a party willing to offer equivalent or more attractive consideration than the consideration First Defiance has agreed to provide in the merger. If the Merger Agreement is terminated under certain circumstances, Commercial Bancshares may be required to pay a termination fee of $2.4 million to First Defiance. Please refer to “The Merger Agreement — Termination of the Merger Agreement; Termination Fee” (page 61).

Commercial Bancshares Will Be Subject to Business Uncertainties and Contractual Restrictions While the Merger Is Pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Commercial Bancshares and consequently on First Defiance. These uncertainties may impair Commercial Bancshares’ ability to attract, retain, and motivate key personnel until the merger is completed, and could cause customers and others that deal with Commercial Bancshares to seek to change existing business relationships with Commercial Bancshares. Retention of certain employees may be challenging during the


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pendency of the merger, as certain employees may experience uncertainty about their future roles. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, First Defiance’s business following the merger could be negatively impacted. In addition, the Merger Agreement restricts Commercial Bancshares from making certain acquisitions and taking other specified actions until the merger occurs without the consent of First Defiance. These restrictions may prevent Commercial Bancshares from pursuing attractive business opportunities that may arise prior to the completion of the merger. See “The Merger Agreement — Covenants and Agreements” beginning on page 53 for a description of the restrictive covenants applicable to Commercial Bancshares.

Commercial Bancshares Directors and Officers May Have Interests in the Merger Different From the Interests of Commercial Bancshares Shareholders.

When considering the recommendation of Commercial Bancshares’ board of directors, you should be aware that the executive officers and directors of Commercial Bancshares have interests in the acquisition that are somewhat different from your interests. For example, certain executive officers of Commercial Bancshares will receive severance benefits if terminated following a change in control, directors and officers of Commercial Bancshares will be indemnified by First Defiance for certain events occurring before the merger, and unvested stock options will vest upon the closing of the merger. These arrangements may create potential conflicts of interest. These and certain other additional interests of Commercial Bancshares’ directors and executive officers may cause some of these persons to view the proposed transaction differently than you view it, as a shareholder.

These interests are described in more detail in the section of this document entitled “The Merger —  Interests of Commercial Bancshares Directors and Executive Officers in the Merger” beginning on page 45.

Shares of First Defiance Common Stock to Be Received by Commercial Bancshares Shareholders as a Result of the Merger Will Have Rights Different from the Shares of Commercial Bancshares Common Stock.

Upon completion of the merger, the rights of former Commercial Bancshares shareholders who become First Defiance shareholders will be governed by the articles of incorporation and code of regulations of First Defiance. The rights associated with Commercial Bancshares common stock are different from the rights associated with First Defiance common stock. See “Comparison of Rights of First Defiance Shareholders and Commercial Bancshares Shareholders” beginning on page 67 for a discussion of the different rights associated with First Defiance common stock.

The Merger Agreement Contains Provisions that May Discourage Other Companies from Trying to Acquire Commercial Bancshares for Greater Merger Consideration.

The Merger Agreement contains provisions that may discourage a third party from submitting a business combination proposal to Commercial Bancshares that might result in greater value to Commercial Bancshares’ shareholders than the merger. These provisions include a general prohibition on Commercial Bancshares from soliciting, or, subject to certain exceptions, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions. In addition, Commercial Bancshares may be required to pay First Defiance a termination fee of $2.4 million in certain circumstances involving acquisition proposals for competing transactions. For further information, please see the section entitled “The Merger Agreement — Termination of the Merger Agreement; Termination Fee” beginning on page 60.

The Opinion of Commercial Bancshares’ Financial Advisor Received by the Commercial Bancshares Board of Directors prior to Execution of the Merger Agreement Will Not Reflect Changes in Circumstances Between the Signing of the Merger Agreement and the Completion of the Merger.

The opinion of Commercial Bancshares’ financial advisor received by Commercial Bancshares’ board of directors was delivered on and dated August 23, 2016. Changes in the operations and prospects of Commercial Bancshares or First Defiance, general market and economic conditions and other factors that may be beyond the control of Commercial Bancshares or First Defiance, may significantly alter the value of Commercial Bancshares or the prices of the shares of First Defiance common stock or Commercial


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Bancshares common stock by the time the merger is completed. The opinion does not speak as of the time the merger will be completed or as of any date other than the date of such opinion. Because Commercial Bancshares does not currently anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed. Commercial Bancshares’ board of directors’ recommendation that Commercial Bancshares shareholders vote “FOR” adoption of the Merger Agreement, however, is made as of the date of this document. For a description of the opinion that the Commercial Bancshares board received from Commercial Bancshares’ financial advisor, please refer to “The Merger — Opinion of Commercial Bancshares’ Financial Advisor” beginning on page 33.


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FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. Forward-looking statements include the information concerning future results of operations, cost savings and synergies of First Defiance and Commercial Bancshares after the merger and those statements proceeded by, followed by or that otherwise include the terms “should,” “believe,” “expect,” “anticipate,” “intend,” “may,” “will,” “continue,” “estimate” and other expressions that indicate future events and trends. Although First Defiance and Commercial Bancshares believe, in making such statements, that their expectations are based on reasonable assumptions, these statements may be influenced by risks and uncertainties which could cause actual results and trends to be substantially different from historical results or those anticipated, depending on a variety of factors. These risks and uncertainties include, without limitation:

expected cost savings from the merger may not be fully realized or realized within the expected time frame;
revenues following the merger may be lower than expected or deposit withdrawals, operating costs or customer loss and business disruption following the merger may be greater than expected;
competition among depository and other financial services companies may increase significantly;
costs or difficulties related to the integration of First Defiance and Commercial Bancshares may be greater than expected;
general economic or business conditions, such as interest rates, may be less favorable than expected;
adverse changes may occur in the securities market; and
legislation or changes in regulatory requirements may adversely affect the businesses in which First Defiance is engaged.

You should understand that these factors, in addition to those discussed elsewhere in this document and in documents that have been incorporated by reference, could affect the future results of First Defiance and Commercial Bancshares, and could cause those results to be substantially different from those expressed in any forward-looking statements. First Defiance and Commercial Bancshares do not undertake any obligation to update any forward-looking statement to reflect events or circumstances arising after the date of this document.


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MARKET PRICE AND DIVIDEND INFORMATION

First Defiance common stock is listed on the NASDAQ Global Select Market under the symbol “FDEF”. Commercial Bancshares common stock is quoted in the inter-dealer quotation or “over-the-counter” market under the symbol “CMOH”. Commercial Bancshares’ stock trades principally on the OTCQX, which is operated by OTC Markets Group, Inc. The following table lists the high and low sales prices per share for First Defiance common stock and the high and low bid prices per share for Commercial Bancshares common stock and the cash dividends declared by each company for the periods indicated.

      
 First Defiance common stock Commercial Bancshares common stock
   High Low Dividends High Low Dividends
Quarter ended:
                              
June 30, 2016 $41.21  $37.53  $0.22  $35.00  $29.25  $0.25 
March 31, 2016  40.98   34.80   0.22   30.90   29.15   0.25 
December 31, 2015  42.46   35.01   0.20   32.00   28.25   0.25 
September 30, 2015  39.95   35.03   0.20   30.00   26.57   0.25 
June 30, 2015  38.21   32.42   0.20   27.50   26.26   0.19 
March 31, 2015  34.64   29.05   0.175   28.55   27.30   0.19 
December 31, 2014  35.70   26.95   0.175   29.00   26.75   0.19 
September 30, 2014  29.00   26.99   0.15   29.00   24.25   0.19 
June 30, 2014  29.00   26.50   0.15   24.59   23.75   0.165 
March 31, 2014  28.23   24.24   0.15   25.38   22.30   0.165 

You should obtain current market quotations for shares of First Defiance common stock, as the market price of the First Defiance common stock will fluctuate between the date of this document and the date on which the merger is completed, and thereafter. You can get these quotations from a newspaper, on the Internet, or by calling your broker. The above information regarding bid prices for Commercial Bancshares common stock may not reflect the prices at which the stock would trade in an active market. This information does not reflect retail mark-up, markdown or commissions, and does not necessarily represent actual transactions.

Following the merger, the declaration of dividends will be at the discretion of First Defiance’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of First Defiance, applicable state law and government regulations and other factors deemed relevant by First Defiance’s board of directors.

On August 22, 2016, the trading day immediately preceding the public announcement of the merger, and on         , 2016, the last practicable trading day before the printing of this document, the closing prices per share of First Defiance common stock as reported on NASDAQ were $44.57 and $    , respectively, and the closing prices per share of Commercial Bancshares common stock as reported on the OTCQX were $34.50 and $     per share, respectively.


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SELECTED FINANCIAL INFORMATION OF FIRST DEFIANCE

The tables below contain information regarding the financial condition and earnings of First Defiance for the five years ended December 31, 2015, and the six months ended June 30, 2016 and 2015. This information is based on information contained in First Defiance’s quarterly report on Form 10-Q and annual reports on Form 10-K filed with the Securities and Exchange Commission. This information is only a summary. You should read it in conjunction with the historical financial statements (and related notes) contained or incorporated by reference in First Defiance’s annual reports on Form 10-K and quarterly reports on Form 10-Q and other information filed by First Defiance with the Securities and Exchange Commission. See “Incorporation of Certain Documents by Reference”on page 117.

First Defiance consolidated statement of financial condition data:

       
 At June 30 At December 31,
   2016 2015 2015 2014 2013 2012 2011
   (Unaudited) (In thousands)
Total assets $2,409,599  $2,196,510  $2,297,676  $2,178,952  $2,137,148  $2,046,948  $2,068,190 
Loans held-to maturity, net  1,835,455   1,680,332   1,776,835   1,622,020   1,555,498   1,498,546   1,453,822 
Loans held-for-sale  13,142   9,793   5,523   4,535   9,120   22,064   13,841 
Allowance for loan losses  25,948   25,384   25,382   24,766   24,950   26,711   33,254 
Non-performing assets  17,502   22,108   17,582   30,311   33,706   36,375   42,956 
Securities available-for-sale  227,974   237,012   236,435   239,321   198,170   194,101   232,919 
Securities held-to maturity  198   257   243   313   387   508   661 
Mortgage servicing rights  9,136   9,128   9,248   9,012   9,106   7,833   8,690 
Deposits and borrowers’ escrow balances  1,922,155   1,765,882   1,838,811   1,763,122   1,737,311   1,668,945   1,597,643 
FHLB advances  84,425   41,050   59,902   21,544   22,520   12,796   81,841 
Stockholders’ equity  286,616   276,028   280,197   279,505   272,147   258,128   278,127 

First Defiance consolidated operating results:

       
 Six months ended
June 30,		 Year ended
December 31,
   2016 2015 2015 2014 2013 2012 2011
   (Unaudited) (In thousands, except per share data)
Interest income $42,610  $39,794  $80,836  $76,248  $74,781  $80,943  $87,067 
Interest expense  4,026   3,239   6,781   6,559   7,170   11,937   17,186 
Net interest income  38,584   36,555   74,055   69,689   67,611   69,006   69,881 
Provision for loan losses  417   120   136   1,117   1,824   10,924   12,434 
Non-interest income  17,211   16,091   31,803   31,641   30,778   34,374   27,516 
Acquisition related charges  —   —   —   —   —   —   — 
Other non-interest expense  34,621   33,694   67,889   66,758   65,052   65,780   62,764 
Income before income taxes  20,757   18,832   37,833   33,455   31,513   26,676   22,199 
Income taxes  6,324   5,668   11,410   9,163   9,278   8,012   6,665 
Net income  14,433   13,164   26,423   24,292   22,235   18,664   15,534 
Basic earnings per share  1.61   1.42   2.87   2.55   2.28   1.86   1.44 
Diluted earnings per share  1.59   1.39   2.82   2.44   2.19   1.81   1.42 

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SELECTED FINANCIAL INFORMATION OF COMMERCIAL BANCSHARES

The tables below contain information regarding the financial condition and earnings of Commercial Bancshares for the five years ended December 31, 2015, and the six months ended June 30, 2016 and 2015. You should read the below selected financial information in conjunction with the historical consolidated financial statements (and related notes) of Commercial Bancshares contained elsewhere in this document. This information is only a summary and is based on information contained in Commercial Bancshares’ quarterly report on Form 10-Q and annual reports on Form 10-K filed with the Securities and Exchange Commission. To review the reports of Commercial Bancshares that have been filed with the Securities and Exchange Commission, see “Where You Can Find More Information” on page 1.

Commercial Bancshares consolidated statement of financial condition data:

       
 At June 30 At December 31,
   2016 2015 2015 2014 2013 2012 2011
   (Unaudited) (In thousands)
Total assets $342,014  $326,382  $341,090  $336,529  $317,998  $301,564  $287,779 
Loans held-to maturity, net  294,019   273,900   293,072   275,025   265,625   243,303   231,094 
Loans held-for-sale  —   —   —   —   —   —   — 
Allowance for loan losses  3,853   4,096   3,861   4,126   4,343   4,041   3,779 
Non-performing assets  666   2,168   914   3,316   3,063   7,297   1,899 
Securities available-for-sale  8,426   11,719   8,711   11,027   13,941   14,773   24,852 
Securities held-to maturity  666   740   666   —   —   —   — 
Mortgage servicing rights  —   —   —   —   —   —   — 
Deposits and borrowers’ escrow balances  300,936   287,697   296,626   298,771   281,308   268,439   259,128 
FHLB advances  1,514   1,633   6,574   1,692   1,808   1,922   — 
Stockholders’ equity  38,216   35,496   36,136   34,226   31,588   29,388   26,999 

Commercial Bancshares consolidated operating results:

       
 Six months ended
June 30,		 Year ended
December 31,
   2016 2015 2015 2014 2013 2012 2011
   (Unaudited) (In thousands, except per share data)
Interest income $7,503  $7,236  $14,556  $14,481  $14,045  $14,252  $15,041 
Interest expense  443   445   874   882   1,176   1,493   2,112 
Net interest income  7,060   6,791   13,682   13,599   12,869   12,759   12,929 
Provision for loan losses  17   53   188   309   531   798   989 
Non-interest income  1,651   972   2,029   2,131   2,163   2,297   2,211 
Acquisition related charges  —   —   —   —   —   —   — 
Other non-interest expense  5,207   5,409   10,646   10,694   10,175   10,143   10,343 
Income before income taxes  3,487   2,301   4,877   4,727   4,326   4,115   3,808 
Income taxes  893   707   1,452   1,431   1,271   1,177   1,029 
Net income  2,594   1,594   3,425   3,296   3,055   2,938   2,779 
Basic earnings per share  2.19   1.33   2.86   2.78   2.60   2.52   2.40 
Diluted earnings per share  2.15   1.31   2.80   2.73   2.57   2.49   2.38 

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UNAUDITED HISTORICAL AND PRO FORMA PER SHARE DATA

The following table shows First Defiance’s and Commercial Bancshares’ diluted income, dividends and book value per share of common stock, after giving effect to the merger (which we refer to as “pro forma” information). In presenting the comparative pro forma information for the time periods shown, we assumed that the merger has been completed on the dates or at the beginning of the periods indicated.

The information listed as “per equivalent Commercial BancsharesUnited Community share” was obtained by multiplying the pro forma amounts by the exchange ratio of 1.1808.0.3715. We present this information to reflect the fact that Commercial BancsharesUnited Community shareholders will receive shares of First Defiance and cashcommon stock for each share of Commercial BancsharesUnited Community common stock exchanged in the merger. First Defiance anticipates that the combined company will derive financial benefits from the merger that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of First Defiance following the merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of First Defiance would have been had our companies been combined during these periods.

The information in the following table is based on, and should be read together with, the historical financial information that we have presented in or incorporated by reference into this document.

   First
Defiance
Historical		   United
Community
Historical		   Pro Forma
Combined(1)(2)		   Per equivalent
United
Community
Share		 

Book value per share:

        

At June 30, 2019

  $20.64   $6.61   $23.15   $8.60 

Cash dividends declared per share:

        

Six months ended June 30, 2019

  $0.38   $0.14   $0.38   $0.14 

Year ended December 31, 2018

  $0.64   $0.26   $0.64   $0.24 

Diluted net income per share:

        

Six months ended June 30, 2019

  $1.19   $0.39   $1.12   $0.42 

Year ended December 31, 2018

  $2.26   $0.74   $2.14   $0.80 

    
 First
Defiance
(historical)		 Commercial
Bancshares
(historical)		 Pro forma(1)(2) Per equivalent
Commercial
Bancshares
share
Book value per share:
                    
At June 30, 2016 $31.95  $31.90  $32.89  $38.83 
Cash dividends declared per share:
                    
Six months ended June 30, 2016 $0.44  $0.50  $0.44  $0.52 
Year ended December 31, 2015 $0.775  $0.88  $0.775  $0.92 
Diluted net income per share:
                    
Six months ended June 30, 2016 $1.59  $2.15  $1.65  $1.95 
Year ended December 31, 2015 $2.82  $2.80  $2.79  $3.30 

(1)

Pro forma dividends per share represent First Defiance’s historical dividends per share.

(2)

The pro forma book value per share of First Defiance is based on the pro forma common shareholders’ equity for First Defiance and Commercial Bancsharesthe combined entities divided by total pro forma common shares of the combined entities.

Comparison of Shareholders’ Rights (page 138)

The rights of United Community shareholders will change as a result of the merger due to differences in First Defiance’s and United Community’s articles of incorporation and codes of regulations. Rights of United Community shareholders are currently governed by United Community’s articles of incorporation and code of regulations and Ohio law. Upon the completion of the merger, United Community shareholders immediately prior to the effective time will become shareholders of First Defiance, as the continuing company in the merger, and the rights of United Community shareholders will thereafter be governed by First Defiance’s articles of incorporation and code of regulations, each as in effect as of such time, and Ohio law. The differences in shareholder rights are explained more fully in “Comparison of Rights of First Defiance Shareholders and United Community Shareholders” beginning on page 138.

Accounting Treatment of the Merger (page 105)

First Defiance and United Community each prepare their respective financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The merger will be accounted for using the acquisition method of accounting, and First Defiance will be treated as the accounting acquirer.



TABLESELECTED HISTORICAL FINANCIAL INFORMATION OF CONTENTSFIRST DEFIANCE

The tables below contain information regarding the financial condition and earnings of First Defiance for the periods presented. The selected historical financial data as of and for the six months ended June 30, 2019 and 2018 have been derived from First Defiance’s unaudited interim consolidated financial statements, which are incorporated by reference into this joint proxy statement/prospectus. The unaudited consolidated financial statements include all adjustments, consisting only of normal recurring items, which First Defiance’s management considers necessary for a fair presentation of its financial position and results of operations for these periods. The financial condition and results of operations as of and for the six months ended June 30, 2019 do not purport to be indicative of the financial condition or results of operations to be expected as of or for the year ended December 31, 2019. The unaudited consolidated financial statements as of June 30, 2019 and for thesix-month periods ended June 30, 2019 and 2018, together with the notes thereto, are included in First Defiance’s Quarterly Report on Form10-Q for the quarter ended June 30, 2019, which is incorporated by reference into this joint proxy statement/prospectus. The selected historical financial data as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 has been derived from First Defiance’s audited consolidated financial statements, and First Defiance’s audited consolidated financial statements as of December 31, 2018 and 2017 and for each of the years in the three-year period ended December 31, 2018 have been incorporated by reference into this joint proxy statement/prospectus. This information is only a summary. You should read it in conjunction with the historical financial statements (and related notes), as well as the information contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained or incorporated by reference in First Defiance’s annual reports on Form10-K and quarterly reports on Form10-Q and other information filed by First Defiance with the SEC. See “Where You Can Find More Information”beginning on page 145.

First Defiance Financial Corp.

Consolidated Statement of Financial Data

(Dollars in thousands, except per share data)

  At June 30,  At December 31, 
  2019  2018  2018  2017  2016  2015  2014 
  (Unaudited)                

Financial Condition:

       

Total assets

 $3,277,552  $3,039,574  $3,181,722  $2,993,403  $2,477,597  $2,297,676  $2,178,952 

Investment securities

  296,600   286,957   294,602   261,298   251,176   236,678   239,634 

Loansheld-to-maturity, net

  2,595,285   2,358,023   2,511,708   2,322,030   1,914,603   1,776,835   1,622,020 

Allowance for loan loss

  28,934   27,321   28,331   26,683   25,884   25,382   24,766 

Non-performing assets

  15,334   20,135   20,221   32,247   14,803   17,582   30,311 

Mortgage servicing rights

  9,855   9,948   10,119   9,808   9,595   9,248   9,012 

Deposits and borrowers’ escrow balances

  2,684,187   2,494,335   2,624,534   2,440,581   1,984,278   1,838,811   1,763,122 

FHLB advances

  105,178   85,722   85,189   84,279   103,943   59,902   21,544 

Stockholders’ equity

  407,216   386,920   399,589   373,286   293,018   280,197   279,505 


First Defiance Financial Corp.

Consolidated Statement of Financial Data

(Dollars in thousands, except per share data)

   Six Months Ended
June 30,		  Year Ended December 31, 
   2019  2018  2018  2017  2016  2015  2014 
   (Unaudited)                

Operations:

        

Interest income

  $69,160  $59,204  $124,717  $108,102  $87,383  $80,836  $76,248 

Interest expense

   11,901   6,970   16,462   11,431   8,440   6,781   6,559 

Net interest income

   57,259   52,234   108,255   96,671   78,943   74,055   69,689 

Provision for loan losses

   494   (672)   1,176   2,949   283   136   1,117 

Non-interest income

   21,299   20,917   39,208   40,081   34,030   31,803   31,641 

Non-interest expense

   49,101   45,916   89,412   85,351   71,093   67,889   66,758 

Income before income taxes

   28,963   27,907   56,875   48,452   41,597   37,833   33,455 

Income taxes

   5,282   5,061   10,626   16,184   12,754   11,410   9,163 

Net income

  $23,681  $22,846  $46,249  $32,268  $28,843  $26,423  $24,292 

Basic earnings per share

  $1.19  $1.12  $2.27  $1.62  $1.61  $1.44  $1.28 

Diluted earnings per share

  $1.19  $1.12  $2.26  $1.61  $1.60  $1.41  $1.22 
   At or for the Six
Months Ended
June 30,		  At or for the Year ended December 31, 
   2019  2018  2018  2017  2016  2015  2014 

Other ratios:

        

Return on average assets

   1.49%   1.54%   1.52%   1.13%   1.20%   1.19%   1.12% 

Return on average equity

   12.03%   12.20%   12.03%   9.19%   10.10%   9.52%   8.78% 

Interest rate spread

   3.76%   3.79%   3.79%   3.74%   3.61%   3.71%   3.57% 

Net interest margin

   4.03%   3.95%   3.98%   3.88%   3.74%   3.81%   3.68% 

Ratio of operating expenses to average total assets

   3.09%   3.09%   2.93%   2.99%   2.97%   3.05%   3.09% 


SELECTED HISTORICAL FINANCIAL INFORMATION OF UNITED COMMUNITY

The tables below contain information regarding the financial condition and earnings of United Community for the periods presented. The selected historical financial data as of and for the six months ended June 30, 2019 and 2018 have been derived from United Community’s unaudited interim consolidated financial statements, which are incorporated by reference into this joint proxy statement/prospectus. The unaudited consolidated financial statements include all adjustments, consisting only of normal recurring items, which United Community’s management considers necessary for a fair presentation of its financial position and results of operations for these periods. The financial condition and results of operations as of and for the six months ended June 30, 2019 do not purport to be indicative of the financial condition or results of operations to be expected as of or for the year ended December 31, 2019. The unaudited consolidated financial statements as of June 30, 2019 and for thesix-month periods ended June 30, 2019 and 2018, together with the notes thereto, are included in United Community’s Quarterly Report on Form10-Q for the quarter ended June 30, 2019, which is incorporated by reference into this joint proxy statement/prospectus. The selected historical financial data as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 has been derived from United Community’s audited consolidated financial statements, and United Community’s audited consolidated financial statements as of December 31, 2018 and 2017 and for each of the years in the three-year period ended December 31, 2018 have been incorporated by reference into this joint proxy statement/prospectus. This information is only a summary. You should read it in conjunction with the historical financial statements (and related notes), as well as the information contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained or incorporated by reference in United Community’s annual reports on Form10-K and quarterly reports on Form10-Q and other information filed by United Community with the SEC. See“Where You Can Find More Information”beginning on page 145.

United Community Financial Corp.

Consolidated Statement of Financial Data

(In thousands)

  At June 30,  At December 31, 
  2019  2018  2018  2017  2016  2015  2014 
  (Unaudited)                

Financial Condition:

       

Total assets

 $2,869,116  $2,770,558  $2,811,357  $2,649,905  $2,191,345  $1,987,989  $1,833,550 

Cash and cash equivalents

  54,562   66,977   60,985   46,880   45,887   35,910   32,980 

Securities trading

  705   —     364   —     —     —     —   

Securitiesavailable-for-sale

  319,009   247,630   241,643   270,561   343,284   357,670   499,790 

Securitiesheld-to-maturity

  —     81,294   77,491   82,911   97,519   110,699   —   

Loansheld-for-sale

  97,477   107,701   91,472   83,752   62,758   35,801   20,730 

Loansheld-to-maturity, net

  2,229,326   2,099,781   2,176,842   1,999,877   1,503,577   1,316,192   1,148,093 

Federal home loan bank stock, at cost

  14,059   19,324   19,144   19,324   18,068   18,068   18,068 

Cash surrender value of life insurance

  65,002   63,354   64,220   62,488   55,861   54,366   46,401 

Customer deposits

  2,071,104   1,946,125   1,922,265   1,800,263   1,438,475   1,435,743   1,347,836 

Brokered deposits

  188,075   189,220   290,955   156,476   76,516   —     —   

Borrowed funds

  233,146   297,118   243,224   356,733   391,268   279,510   216,752 

Stockholders’ equity

  317,554   301,484   309,334   294,265   249,806   244,245   240,135 



United Community Financial Corp.

Consolidated Statement of Financial Data

(Dollars in thousands, except per share data)

   Six Months Ended
June 30,		  Year ended December 31, 
   2019  2018  2018  2017  2016  2015  2014 
   (Unaudited)                

Operations:

        

Interest income

  $59,200  $52,711  $110,572  $93,510  $70,729  $65,635  $63,244 

Interest expense

   14,971   9,883   22,627   13,157   8,428   9,113   11,825 

Net interest income

   44,229   42,828   87,945   80,353   62,301   56,522   51,419 

Provision for loan losses

   10   269   699   4,253   5,387   2,135   (1,271) 

Non-interest income

   12,744   11,671   23,402   25,239   22,076   19,717   13,741 

Non-interest expense

   33,650   32,130   65,079   68,259   52,019   49,929   55,960 

Income before income taxes

   23,313   22,100   45,569   33,080   26,971   24,175   10,471 

Income taxes

   4,171   4,003   8,391   11,295   8,143   7,893   (39,735) 

Net income

  $19,142  $18,097  $37,178  $21,785  $18,828  $16,282  $50,206 

Basic earnings per share

  $0.39  $0.36  $0.75  $0.44  $0.40  $0.34  $1.00 

Diluted earnings per share

  $0.39  $0.36  $0.74  $0.44  $0.40  $0.34  $1.00 
   At or for the Six
Months Ended
June 30,		  At or for the Year Ended December 31, 
   2019  2018  2018  2017  2016  2015  2014 

Other ratios:

        

Return on average assets

   1.35%   1.34%   1.35%   0.85%   0.91%   0.85%   2.82% 

Return on average equity

   12.11%   12.00%   12.10%   7.63%   7.58%   6.65%   23.30% 

Interest rate spread

   3.04%   3.19%   3.19%   3.27%   3.13%   3.06%   2.93% 

Net interest margin

   3.35%   3.41%   3.43%   3.41%   3.24%   3.18%   3.10% 

Ratio of operating expenses to average total assets

   2.37%   2.38%   2.33%   2.66%   2.50%   2.61%   3.14% 


RISK FACTORS

In addition to general investment risks and the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed under the section “Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote for the proposals presented in this joint proxy statement/prospectus. You should also consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. Please see “Where You Can Find More Information.”

Risks Related to the Merger and First Defiance’s Business Upon Completion of the Merger

Because the market price of First Defiance common stock will fluctuate, United Community shareholders cannot be certain of the market value of the merger consideration they will receive.

Upon completion of the merger, each outstanding share of United Community common stock, except for shares of United Community common stock owned by United Community as treasury stock or owned directly or indirectly First Defiance (other than shares held in a fiduciary capacity or in connection with debts previously contracted), will be converted into 0.3715 shares of First Defiance common stock, subject to the payment of cash instead of fractional shares of First Defiance common stock. The merger consideration that United Community shareholders will receive is a fixed number of shares of First Defiance common stock; it is not a number of shares with a particular fixed market value. The market value of the merger consideration will vary from the closing price of First Defiance common stock on the date First Defiance and United Community announced the merger agreement, on the date that this joint proxy statement/prospectus is mailed to First Defiance and United Community shareholders, on the date of the special meetings of First Defiance and United Community shareholders, and on the date the merger is completed. Any change in the market price of First Defiance common stock prior to the completion of the merger will affect the market value of the merger consideration that United Community shareholders will receive upon completion of the merger, and there will be no adjustment to the merger consideration for changes in the market price of either shares of First Defiance common stock or shares of United Community common stock.

The market price of First Defiance’s common stock could be subject to significant fluctuations due to changes in sentiment in the market regarding First Defiance’s operations or business prospects, including market sentiment regarding First Defiance’s entry into the merger agreement. These risks may be affected by:

operating results that vary from the expectations of First Defiance’s management or of securities analysts and investors;

developments in First Defiance’s business or in the financial services sector generally;

regulatory or legislative changes affecting First Defiance’s industry generally or its business and operations;

operating and securities price performance of companies that investors consider to be comparable to First Defiance;

changes in estimates or recommendations by securities analysts or rating agencies;

announcements of strategic developments, acquisitions, dispositions, financings, and other material events by First Defiance or its competitors; and

changes in global financial markets and economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit, or asset valuations or volatility.

Many of these factors are outside the control of First Defiance and United Community. Therefore, at the time of the United Community special meeting and the time of the First Defiance special meeting, neither United Community shareholders nor First Defiance shareholders will know the precise market value of the merger consideration to be received by United Community shareholders at the effective time of the merger. You should obtain current market quotations for both First Defiance common stock and United Community common stock.

The market price of First Defiance common stock after the merger may be affected by factors different from those currently affecting the market prices of United Community common stock or First Defiance common stock.

Upon completion of the merger, holders of United Community common stock will become holders of First Defiance common stock. First Defiance’s business differs in certain respects from that of United Community, and, accordingly, the results of operations and of the combined company and the market price of First Defiance common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations and market prices of common stock of each of First Defiance and United Community. For a discussion of the businesses of First Defiance and United Community and of some important factors to consider in connection with those businesses, see the documents incorporated by reference into this joint proxy statement/prospectus and referred to under “Where You Can Find More Information.”

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger and the bank merger may be completed, First Defiance and United Community must obtain all necessary approvals from the Federal Reserve, the FDIC and the ODFI. Other approvals, waivers, or consents from regulators may also be required. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under “The Merger—Regulatory Approvals Required for the Merger.” An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay the receipt of one or more of the required regulatory approvals. The Federal Reserve has stated that if supervisory issues arise during processing of an application for approval of a merger transaction, a banking organization will be expected to withdraw its application pending resolution of such supervisory concerns. Accordingly, if there is an adverse development in either party’s regulatory standing, First Defiance may be required to withdraw its application for approval of the proposed merger and, if possible, resubmit such application after the applicable supervisory concerns have been resolved.

The terms and conditions of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There is no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there is no assurance that any such conditions, limitations, obligations or restrictions will not result in the delay or abandonment of the merger. See “The Merger—Regulatory Approvals Required for the Merger.” Each party’s obligation to complete the merger is conditioned on the receipt of the required regulatory approvals and the expiration of all statutory waiting periods in respect thereof, without the imposition of any condition or restriction that would reasonably be expected to have a material adverse effect on the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger. See “The Merger Agreement—Conditions to Complete the Merger.”

The success of the merger and integration of First Defiance and United Community will depend on a number of uncertain factors.

The success of the merger will depend on a number of factors, including, without limitation:

First Defiance’s ability to integrate the branches acquired from Home Savings in the merger (the “acquired branches”) into First Federal’s current operations;

First Defiance’s ability to limit the outflow of deposits held by its new customers in the acquired branches and to successfully retain and manage interest-earning assets (i.e., loans) acquired in the merger;

First Defiance’s ability to control the incrementalnon-interest expense from the acquired branches in a manner that enables it to maintain a favorable overall efficiency ratio;

First Defiance’s ability to retain and attract the appropriate personnel to staff the acquired branches; and

First Defiance’s ability to earn acceptable levels of interest andnon-interest income, including fee income, from the acquired branches.

Integrating the acquired branches will be an operation of substantial size and expense and may be affected by general market and economic conditions or government actions affecting the financial industry generally. Integration efforts will also likely divert First Defiance’s management’s attention and resources. No assurance can be given that First Defiance will be able to integrate the acquired branches successfully, and the integration process could result in the loss of key employees, the disruption of ongoing business, or inconsistencies in standards, controls, procedures, and policies that adversely affect First Defiance’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. First Defiance may also encounter unexpected difficulties or costs during the integration that could adversely affect its earnings and financial condition, perhaps materially. Additionally, no assurance can be given that the operation of the acquired branches will not adversely affect First Defiance’s existing profitability, that First Defiance will be able to achieve results in the future similar to those achieved by its existing banking business, or that First Defiance will be able to manage any growth resulting from the merger effectively.

Combining First Defiance and United Community may be more difficult, costly, or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

First Defiance and United Community have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on First Defiance’s ability to successfully combine and integrate the businesses of First Defiance and United Community in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses, or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees, or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect First Defiance’s ability to successfully conduct its business, which could have an adverse effect on First Defiance’s financial results and the value of its common stock. If First Defiance experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause First Defiance and/or United Community to lose customers or cause customers to remove their accounts from First Defiance and/or United Community and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of United Community and First Defiance during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.

The combined company may be unable to retain First Defiance and/or United Community personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees of First Defiance and United Community. It is possible that these employees may

decide not to remain with First Defiance or United Community, as applicable, while the merger is pending or with the combined company after the merger is consummated. If key employees terminate their employment, or if an insufficient number of employees is retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating United Community and First Defiance to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, First Defiance and United Community may not be able to locate suitable replacements for any key employees who leave either company, or to offer employment to potential replacements on reasonable terms.

The unaudited pro forma condensed combined financial statements included in this document are preliminary and the actual financial condition and results of operations of First Defiance after the merger may differ materially, and the projected financial information of First Defiance and United Community included in this joint proxy statement/prospectus is inherently subject to uncertainties.

The unaudited pro forma condensed combined financial statements in this document are presented for illustrative purposes only and are not necessarily indicative of what First Defiance’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The preparation of the pro forma financial information is based upon available information and certain assumptions and estimates that First Defiance and United Community currently believe are reasonable. The unaudited pro forma condensed combined financial statements reflect adjustments, which are based upon preliminary estimates, to record the United Community identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of United Community as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document. For more information, please see “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 128.

While the projected financial information of First Defiance and United Community (the “management projections”) included in this joint proxy statement/prospectus is presented with numerical specificity, the management projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond First Defiance management’s and United Community management’s control. Further, given that the management projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year beyond their preparation. Important factors that may affect actual results and may result in such projections not being achieved include: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, the inability to complete the merger, or the failure to satisfy other conditions to completion of the merger, including that a regulatory authority may prohibit, delay or refuse to grant a required regulatory approval for the completion of the merger, and risks and uncertainties pertaining to First Defiance’s business and United Community’s business, including the risks and uncertainties detailed in their respective public periodic filings with the SEC. In addition, the ability to achieve the management projections may depend on, in part, whether or not the strategic goals, objectives and targets are reached over the applicable period. The assumptions upon which the management projections were based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which First Defiance and United Community operate, and the risks and uncertainties described in “Forward-Looking Statements”, all of which are difficult or impossible to predict accurately and many of which are beyond First Defiance’s and United Community’s control. The management projections also reflect assumptions by First Defiance and United Community management that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for the First Defiance and United Community businesses, changes in general business or economic conditions, or any other transaction

or event that has occurred or that may occur and that was not anticipated when such projections were prepared. Accordingly, there can be no assurance that the management projections will be realized, and actual results may differ, and may differ materially, from those shown. For more information see “The Merger—Projected Financial Information.”

Certain of First Defiance’s and United Community’s directors and executive officers may have interests in the merger that may differ from the interests of First Defiance’s shareholders and United Community’s shareholders.

First Defiance’s shareholders and United Community’s shareholders should be aware that some of First Defiance’s and United Community’s directors and executive officers may have interests in the merger and have arrangements that are different from, or in addition to, those of First Defiance’s shareholders and United Community’s shareholders generally. The First Defiance and United Community boards of directors were aware of these interests and considered these interests, among other matters, when making their decisions to approve the merger agreement, and in recommending that shareholders vote in favor of adopting the merger agreement. For a more complete description of these interests, please see “The Merger—Interests of First Defiance’s Directors and Executive Officers in the Merger” and “The Merger—Interests of United Community’s Directors and Executive Officers in the Merger.”

Termination of the merger agreement could negatively impact United Community or First Defiance.

If the merger agreement is terminated, there may be various consequences. For example, United Community’s or First Defiance’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger or the merger agreement is terminated, the market price of United Community’s or First Defiance’s common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, United Community or First Defiance may be required to pay a termination fee of $18.4 million.

United Community and First Defiance will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on United Community or First Defiance. These uncertainties may impair United Community’s or First Defiance’s ability to attract, retain, and motivate key personnel until the merger is completed, and could cause customers and others that deal with United Community or First Defiance to seek to change existing business relationships with United Community or First Defiance. Retention of certain employees by United Community or First Defiance may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with the combined company. If key employees depart because of issues relating to the uncertainty and difficulty of integration, or a desire not to remain with United Community or First Defiance, United Community’s business or First Defiance’s business could be harmed. In addition, subject to certain exceptions, each of First Defiance and United Community has agreed to operate its business in the ordinary course prior to closing. See “The Merger Agreement—Covenants and Agreements” for a description of the restrictive covenants applicable to United Community and First Defiance.

If the merger is not completed, First Defiance and United Community will have incurred substantial expenses without realizing the expected benefits of the merger.

Each of First Defiance and United Community has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing, and mailing this joint proxy statement/prospectus, and all filing

and other fees paid to the SEC in connection with the merger. If the merger is not completed, First Defiance and United Community would have to recognize these expenses without realizing the expected benefits of the merger.

The merger agreement limits the ability of First Defiance and United Community ability to pursue acquisition proposals and requires First Defiance and United Community to pay a termination fee to the other party of $18.4 million if the merger agreement is terminated under limited circumstances, including circumstances relating to acquisition proposals. See “The Merger Agreement—Termination Fee.” This termination fee may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of First Defiance or United Community from considering or proposing such an acquisition. Additionally, certain provisions of the First Defiance and United Community governing documents may deter potential acquirers.

The fairness opinions of First Defiance’s and United Community’s financial advisors delivered to the parties’ respective boards of directors prior to signing the merger agreement do not reflect any changes in circumstances that may have occurred since the date of such opinions.

The fairness opinion of KBW was rendered to the First Defiance’s board of directors on September 7, 2019, and the fairness opinion of Sandler O’Neill was rendered to the United Community board of directors on September 8, 2019. Changes in the operations and prospects of First Defiance or United Community, general market and economic conditions and other factors which may be beyond the control of First Defiance and United Community may have altered the value of First Defiance or United Community or the market prices of the shares of First Defiance common stock or United Community common stock as of the date of this joint proxy statement/prospectus, or may alter such values and market prices by the time the merger is completed. The respective opinions from KBW and Sandler O’Neill do not speak as of any date other than the respective dates of such opinions. See “The Merger—Opinion of First Defiance’s Financial Advisor” and “The Merger—Opinion of United Community’s Financial Advisor.”

The shares of First Defiance common stock to be received by United Community shareholders as a result of the merger will have different rights from the shares of United Community common stock.

Upon completion of the merger, United Community shareholders will become First Defiance shareholders and their rights as shareholders will be governed by the First Defiance articles of incorporation and code of regulations, each as in effect following the completion of the merger. The rights associated with United Community common stock are different from the rights associated with First Defiance common stock. Please see “Comparison of Rights of First Defiance Shareholders and United Community Shareholders” beginning on page 138 for a discussion of the different rights associated with First Defiance common stock and United Community common stock.

Holders of United Community and First Defiance common stock will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over management.

Holders of United Community and First Defiance common stock currently have the right to vote in the election of the board of directors and on other matters affecting United Community and First Defiance, respectively. Upon completion of the merger, each United Community shareholder who receives shares of First Defiance common stock will become a shareholder of the combined company, with a percentage ownership of the combined company that is smaller than the shareholder’s percentage ownership of United Community. Based on the number of shares outstanding on September 9, 2019 and the shares expected to be issued in the merger, the former shareholders of United Community as a group will receive shares in the merger constituting approximately 47.5% of the outstanding shares of First Defiance common stock immediately after the merger, and current shareholders of First Defiance as a group will own approximately 52.5% of the outstanding shares of First Defiance common stock immediately after the merger. Because of this, United Community shareholders

may have less influence on the management and policies of the combined company than they now have on the management and policies of United Community, and current First Defiance shareholders may have less influence on the management and policies of the combined company than they now have on the management and policies of First Defiance.

United Community shareholders will not have dissenters’ rights in the merger.

Dissenters’ rights (also known as appraisal rights) are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. Under the Ohio Revised Code, a shareholder may not dissent from a merger when the shares for which the shareholder would otherwise be entitled to relief are listed on a national securities exchange and the consideration to be received by the shareholder are the shares of the surviving corporation, or cash in lieu of fractional shares, and such surviving corporation shares are listed on a national securities exchange.

Because United Community common stock is listed on NASDAQ and United Community shareholders will receive shares of First Defiance common stock as merger consideration, which are also currently listed on NASDAQ and are expected to continue to be so listed at the effective date of the merger, the United Community shareholders will not be entitled to any dissenters’ rights in connection with the merger.

Lawsuits filed against United Community and First Defiance, and their respective directors, may prevent the merger from becoming effective or from becoming effective within the expected timeframe or result in the payment of damages.

Transactions like the merger are frequently the subject of litigation or other legal proceedings, including actions alleging that the board of directors of either United Community or First Defiance breached their respective fiduciary duties to their shareholders by entering into the merger agreement, by failing to obtain a greater value in the transaction for their shareholders or otherwise. For information about current litigation that is pending against United Community and its directors in connection with the merger, see “The Merger—Litigation Relating to the Merger.” Both United Community and First Defiance believe that such pending litigation is without merit, but the ultimate resolution of the lawsuit cannot be predicted with certainty. Additional litigation or other proceedings may also be brought against either United Community or First Defiance or against the board of directors of either company, and there is no assurance that such parties would be successful in defending against such litigation or proceedings. An adverse outcome in pending or possible future litigation or proceedings, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on the business, results of operation or financial position of United Community, First Defiance or the combined company, including through the possible diversion of either company’s resources or distraction of key personnel.

Further, one of the conditions to the completion of the merger is the absence of any order, injunction, or decree by any court or regulatory authority of competent jurisdiction or other legal restraint or prohibition preventing the completion of the merger or the other transactions contemplated by the merger agreement. If any plaintiff were successful in obtaining an injunction prohibiting United Community or First Defiance from completing the merger on the agreed upon terms, then such injunction may prevent the merger from becoming effective or from becoming effective within the expected timeframe and could result in significant costs to United Community and/or First Defiance, including any cost associated with the indemnification of directors and officers. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect the combined company’s business, financial condition, results of operations and cash flow.

Risks Related to First Defiance’s Business

You should read and consider risk factors specific to First Defiance’s business that will also affect the combined company after the merger. These risks are described in the sections entitled “Risk Factors” in First

Defiance’s Annual Report on Form10-K for the fiscal year ended December 31, 2018, and in other documents incorporated by reference into this joint proxy statement/prospectus. Please see the section entitled “Where You Can Find More Information” beginning on page 145 of this joint proxy statement/prospectus for the location of information incorporated by reference into this joint proxy statement/prospectus.

Risks Related to United Community’s Business

You should read and consider risk factors specific to United Community’s business that will also affect the combined company after the merger. These risks are described in the sections entitled “Risk Factors” in United Community’s Annual Report on Form10-K for the fiscal year ended December 31, 2018, and in other documents incorporated by reference into this joint proxy statement/prospectus. Please see the section entitled “Where You Can Find More Information” beginning on page 145 of this joint proxy statement/prospectus for the location of information incorporated by reference into this joint proxy statement/prospectus.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this communication which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, certain plans, expectations, goals, projections and benefits relating to the merger transaction between First Defiance and United Community, which are subject to numerous assumptions, risks and uncertainties. Words such as “may,” “believe,” “expect,” “anticipate,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology, as well as similar expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Please refer to each of First Defiance’s and United Community’s Annual Report on Form10-K for the year ended December 31, 2018, as well as their other filings with the SEC, for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.

Forward-looking statements are not historical facts but instead express only management’s beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of the management’s control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements. In addition to factors disclosed in reports filed by First Defiance and United Community with the SEC, risks and uncertainties for First Defiance, United Community and the combined company include, but are not limited to:

the possibility that any of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period;

the risk that integration of United Community’s operations with those of First Defiance will be materially delayed or will be more costly or difficult than expected;

the parties’ inability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger;

the inability to complete the merger due to the failure of First Defiance’s or United Community’s shareholders to adopt the merger agreement;

the failure to satisfy other conditions to completion of the merger, including receipt of required regulatory and other approvals;

the taking of governmental action (including the passage of legislation) to block the merger or otherwise adversely affecting First Defiance and United Community;

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

the failure of the proposed merger to close for any other reason;

the effect of restrictions placed on First Defiance’s, United Community’s or their respective subsidiaries’ business activities and the limitations put on First Defiance’s and United Community’s ability to pursue alternatives to the merger pursuant to the merger agreement;

First Defiance’s and United Community’s directors and executive officers having interests in the merger that are different from, or in addition to, the interests of First Defiance shareholders and United Community shareholders generally;

diversion of management’s attention from ongoing business operations and opportunities due to the merger; the challenges of integrating and retaining key employees;

the effect of the announcement of the merger on First Defiance’s, United Community’s or the combined company’s respective customer and employee relationships and operating results;

the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

the possibility of actual results of operations, cash flows and financial position after the merger materially differing from the unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus;

dilution caused by First Defiance’s issuance of additional shares of First Defiance common stock in connection with the merger;

changes in legislation, regulation, policies or administrative practices, whether by judicial, governmental or legislative action and other changes pertaining to banking, securities, taxation and financial accounting and reporting, environmental protection and insurance, and the ability to comply with such changes in a timely manner;

changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of the Treasury and the Federal Reserve;

changes in interest rates, which may affect First Defiance’s and United Community’s net income, prepayment penalty income, mortgage banking income and other future cash flows, or the market value of First Defiance’s and United Community’s assets, including its investment securities;

changes in accounting principles, policies, practices or guidelines;

changes in First Defiance’s credit ratings or in First Defiance’s ability to access the capital markets; and

general competitive, economic, political and market conditions and fluctuations.

All forward-looking statements included in this filing are made as of the date hereof and are based on information available at the time of the filing. You should understand that these factors, in addition to those discussed elsewhere in this document and in documents that have been incorporated by reference, could affect the future results of First Defiance and United Community, and could cause those results to be substantially different from those expressed in any forward-looking statements. Except as required by law, First Defiance and United Community do not undertake any obligation to update any forward-looking statement to reflect events or circumstances arising after the date of this document.

THE FIRST DEFIANCE SPECIAL MEETING OF COMMERCIAL BANCSHARES SHAREHOLDERS

Time, Date and Place of Meeting

This joint proxy statement/prospectus is being sent to you in connection with the solicitation of proxies by the Commercial BancsharesFirst Defiance board of directors for use at the special meeting of shareholders of Commercial BancsharesFirst Defiance to be held at the First Federal Operations Center located at 25600 Elliott Road, Defiance, Ohio 43512 on [                ], 2019 at     :00     .m., on         , 2016, at         , Ohio. local time.

Matters to be Considered

At the special meeting, shareholders will be asked to consider and vote upon the following proposals:

To approve the Merger Agreement;First Defiance merger proposal;

To approve the First Defiance articles of incorporation proposal;

To approve the First Defiance code of regulations proposal;

To approve, on anon-binding, advisory basis, the Merger-Related Named Executive Officer Compensation Proposal;First Defiance compensation proposal;

To approve the Adjournment Proposal;First Defiance adjournment proposal; and

To transact such other business as may properly come before the First Defiance special meeting or any adjournment or postponement of the First Defiance special meeting.

The Commercial BancsharesFirst Defiance board of directors is not aware, at this time, of any additional matters that may be presented for action at the special meeting of shareholders, other than those proposals set forth above. If any other matters are properly brought before the First Defiance special meeting for consideration, however, shares of First Defiance common stock represented by properly executed proxies will be voted in the discretion of the persons named in the proxy card in accordance with their best judgment.

Shares Outstanding and Entitled to Vote; Record Date

Only shareholders of record on [                ], 2019, will be entitled to notice of and to vote at the special meeting of First Defiance shareholders. At the close of business on [                ], 2019, there were [                ] shares of First Defiance common stock issued and outstanding and entitled to vote, and shares of First Defiance common stock were held of record by approximately [                ] shareholders. Each share of First Defiance common stock entitles the holder to one vote on all matters properly presented at the First Defiance special meeting.

Votes Required

The following votes are required to approve each of the proposals to be considered at the special meeting:

Item

Vote Required

Approval of the merger proposal

Approval by at leasttwo-thirds of the issued and outstanding shares of First Defiance common stock

Approval of the First Defiance articles of incorporation proposal

Approval by at least a majority of the issued and outstanding shares of First Defiance common stock

Approval of the First Defiance code of regulations proposal

Approval by at least a majority of the issued and outstanding shares of First Defiance common stock

Approval of the First Defiance compensation proposal

Approval by shares of First Defiance common stock representing at least a majority of the votes cast at the First Defiance special meeting

First Defiance adjournment proposal

Approval by shares of First Defiance common stock representing at least a majority of the votes cast at the First Defiance special meeting

A quorum, consisting of the holders of a majority of the outstanding shares of First Defiance common stock, must be present in person or by proxy at the special meeting of First Defiance shareholders before any action can be taken. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

Effect of Abstentions and BrokerNon-Votes

Any “brokernon-votes” submitted by brokers or nominees in connection with the special meeting will not be counted for purposes of determining the number of votes cast on a proposal and will not be treated as present for quorum purposes. “Brokernon-votes” are shares held by brokers or nominees as to whom voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and for which the broker or nominee does not have discretionary voting power under the applicable NASDAQ and New York Stock Exchange (“NYSE”) rules. Under these rules, it is expected that all proposals to be voted on at the First Defiance special meeting are matters on which brokerage firms may not vote in their discretion on behalf of their clients. Because the First Defiance merger proposal is required to be approved by the affirmative vote of at leasttwo-thirds of the outstanding shares of First Defiance common stock, abstentions and brokernon-votes will have the same effect as a vote against the First Defiance merger proposal. And for the same reason, the failure of a First Defiance shareholder to vote by proxy or in person at the First Defiance special meeting will have the effect of a vote against the First Defiance merger proposal. Abstentions, brokernon-votes and any failure to vote by proxy or in person at the First Defiance special meeting will also have the effect of a vote against approval of the First Defiance articles of incorporation proposal and the First Defiance code of regulations proposal. Abstentions, brokernon-votes and any failure to vote by proxy or in person at the First Defiance special meeting will have no effect on the First Defiance compensation proposal or the First Defiance adjournment proposal.

Shares Held by Officers and Directors

As of [                ], 2019, the directors and executive officers of First Defiance and the affiliates of such directors and executive officers had sole or shared voting power with respect to [                ] shares of First Defiance common stock, or approximately [                ]%of the outstanding shares of First Defiance common stock.The directors of First Defiance have agreed to vote their shares of First Defiance common stock for the First Defiance merger proposal, the First Defiance articles of incorporation proposal, the First Defiance code of regulations proposal, the First Defiance compensation proposal and the First Defiance adjournment proposal.

How to Vote Your Shares; Solicitation of Proxies

A proxy card for use at the special meeting accompanies each copy of this joint proxy statement/prospectus mailed to First Defiance shareholders. This proxy is solicited by the First Defiance board of directors. Whether or not you plan to attend the special meeting in person, the First Defiance board of directors urges you to complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; visit the website shown on your proxy card to vote via the Internet; or use the toll-free number shown on your proxy card. If you have executed a proxy, you may revoke it at any time before a vote is taken at the special meeting by:

filing written notice of revocation to be received prior to voting at the special meeting with our Secretary, at 601 Clinton Street, Defiance, Ohio 43512;

submitting a valid proxy bearing a later date that is received prior to voting at the special meeting; or

attending the special meeting in person and giving notice of revocation to First Defiance’s Secretary.

Your attendance at the special meeting will not, by itself, revoke your proxy.

If your shares are held in “street name,” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from their broker, bank or other nominee.

The costs incurred in connection with the solicitation of proxies for the First Defiance special meeting will be borne by First Defiance. Proxies will be solicited by mail and may also be solicited, for no additional compensation, by officers, directors or employees of First Defiance. First Defiance will also pay the standard charges and expenses of brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries, who are record holders of shares of First Defiance common stock not beneficially owned by them, for forwarding the proxy materials to, and obtaining proxies from, the beneficial owners of shares of First Defiance common stock entitled to vote at the special meeting of First Defiance shareholders. First Defiance has also made arrangements with Alliance Advisors, LLC (“Alliance”) to assist it in soliciting proxies and has agreed to pay Allianceapproximately $7,500 (for general proxy solicitation services), plus data processing and calling fees and reimbursement ofout-of-pocket expenses.

FIRST DEFIANCE’S PROPOSALS

First Defiance Merger Proposal—Adoption of the merger agreement

At the First Defiance special meeting, the First Defiance shareholders will be asked to adopt the merger agreement. Holders of First Defiance common stock should read this joint proxy statement/prospectus in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus asAnnex A.

After careful consideration, the First Defiance board of directors approved the merger agreement, including the merger and the transactions contemplated by the merger agreement, and determined the merger agreement and the merger to be advisable and in the best interests of First Defiance and its shareholders.

The First Defiance board of directors recommends that First Defiance shareholders vote “FOR” the First Defiance merger proposal.

First Defiance Articles of Incorporation Proposal—Approval of the First Defiance amended and restated articles of incorporation

At the First Defiance special meeting, First Defiance shareholders will be asked to approve First Defiance’s amended and restated articles of incorporation to become effective upon consummation of the merger. The amended and restated articles of incorporation restate into one document prior amendments approved by First Defiance and its shareholders and that are currently in effect, including certain clarifying changes, and include the following two substantive amendments: (1) an increase in the number of authorized shares of First Defiance common stock from 50,000,000 to 75,000,000 and (2) granting the board of directors of First Defiance the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors, subject to any exceptions provided in First Defiance’s code of regulations or the OGCL. The proposed amendment and restatement does not change the authorized number of shares of First Defiance preferred stock. A copy of the proposed amended and restated First Defiance articles of incorporation is attached to this joint proxy statement/prospectus asAnnex D. The two amendments to the articles are discussed in further detail below. Approval of this proposal is not a condition to the closing of the merger.

Increase of Authorized Common Stock

As of the close of business on the record date, [                ], First Defiance had no shares of First Defiance preferred stock issued and outstanding, [                ] shares of First Defiance common stock issued and outstanding, and approximately [                ] shares of First Defiance common stock reserved for future issuance under various equity plans of First Defiance. Based on the number of shares of United Community common stock outstanding as of the record date, if the merger is completed, First Defiance will be required to issue approximately [                ] shares of First Defiance common stock to the United Community shareholders.

First Defiance currently has a sufficient number of authorized and unissued shares of First Defiance common stock available to complete the merger. However, the First Defiance board of directors believes it is desirable to increase the authorized shares of First Defiance common stock to provide greater flexibility in the capital structure of the combined company following the merger. The increased number of authorized shares of common stock will provide First Defiance the ability to react quickly to strategic opportunities and to utilize such shares for potential stock offerings, stock splits and dividends, acquisitions, employee benefit plans and other corporate purposes that might be proposed in the future. There are no present plans or commitments for the issuance of any of the additional shares that would be authorized upon approval of the amended and restated articles of incorporation, other than the issuance of shares in connection with the merger and shares to be issued pursuant to First Defiance’s existing equity plans. The additional shares of First Defiance common stock will not be entitled to preemptive rights nor will existing shareholders have any preemptive right to acquire any of those shares when issued.

Amendment of the Code of Regulations by the Board of Directors

This amendment to the First Defiance articles of incorporation, and the corresponding change to the First Defiance code of regulations (discussed under “The First Defiance Proposals—First Defiance Code of Regulations Proposal—Approval of the First Defiance amended and restated code of regulations—Amendment of the Code of Regulations by the Board of Directors” below), grants the First Defiance board of directors the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors, subject to any exceptions provided in the code of regulations or the OGCL.

In 2006, Section 1701.11(A)(1)(d) of the OGCL was amended to grant directors, in addition to the shareholders, the ability to amend the code of regulations of Ohio corporations if the articles or code of regulations directly grant such ability to the directors, and so long as: (1) the OGCL does not expressly reserve the ability to amend the affected provision of the code of regulations to shareholders, and (2) the proposed amendment to the code of regulations does not divest shareholders of the power or limit shareholders’ power to adopt, amend, or repeal the code of regulations. The First Defiance board of directors believes it is in the best interests of its shareholders to approve this proposed change in the amended and restated articles of incorporation so that the First Defiance board of directors has the flexibility granted under the OGCL to make changes to the code of regulations that reflect prevailing governance standards without having to wait for a shareholder meeting. With such authority, the First Defiance board of directors may amend provisions in the code of regulations relating to important but primarily administrative or procedural issues, such as allowing the use of electronic proxies, fixing the date and location of meetings, or requirements relating to notice of nominations or shareholder proposals. However, directors may not amend the code of regulations in a manner that restricts shareholders’ authority to adopt, amend, or repeal regulations, or amend any provisions of regulations that address certain matters, including, but not limited to, the following, which are reserved to shareholders:

Specify the minimum percentage of shares required to call a shareholders’ meeting;

Establish the length of time required for notice of a shareholders’ meeting;

Provide voting rights with respect to shares not yet fully paid;

Establish quorum requirements for shareholder or director meetings;

Specify the vote required for an action of the directors;

Prohibit taking shareholder or director actions without a meeting;

Define director terms of office or classification of directors;

Establish greater than a majority vote of shareholders to remove directors without cause;

Delegate authority to board committees to adopt, amend, or repeal regulations; or

Eliminate the requirement that a control share acquisition of an issuing public corporation be approved by the acquired corporation’s shareholders.

After careful consideration, the First Defiance board of directors adopted, subject to approval by the First Defiance shareholders, the amended and restated articles of incorporation of First Defiance to (1) increase the number of authorized shares of First Defiance common stock from 50,000,000 to 75,000,000 and (2) grant the board of directors of First Defiance the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors.

The First Defiance board of directors recommends that First Defiance shareholders vote “FOR” the First Defiance articles of incorporation proposal.

First Defiance Code of Regulations Proposal—Approval of the First Defiance amended and restated code of regulations

At the First Defiance special meeting, First Defiance shareholders will be asked to approve a proposal to amend and restate First Defiance’s code of regulations to become effective upon consummation of the merger to:

(1) grant the board of directors of First Defiance the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors, (2) provide a new Article X relating to the governance of the First Defiance board of directors, including its general powers, the number and classification of members of the board of directors, meetings, special meetings, quorum for meetings, manner of acting, action without a meeting, resignation, vacancies, presumption of assent of members and compensation of members of the board of directors, (3) provide a new Article XI relating to committees of the board of directors, (4) provide a new Article XII relating to certain governance matters, including interpretation of Article XII, the location of First Federal’s main office, officers of First Defiance and First Federal, amendments to Article I or Article XII of the proposed amended and restated code of regulations of First Defiance, designation of members of the board of directors of First Defiance and First Federal, and committees of the board of directors of First Defiance and (5) provide certain clarifying changes. A copy of the proposed First Defiance amended and restated code of regulations is attached to this joint proxy statement/prospectus asAnnex E. Approval of the First Defiance code of regulations proposal is a condition to the closing of the merger. If First Defiance shareholders do not approve the First Defiance code of regulations proposal, the merger cannot be consummated unless the parties validly waive this condition to closing. Further, if this proposal is approved by First Defiance shareholders but the First Defiance merger proposal is not approved by First Defiance shareholders or the merger is not consummated, the code of regulations will not be amended and restated as described herein.

Amendment of the Code of Regulations by the Board of Directors

The amended and restated code of regulations amends Article IX of the First Defiance code of regulations to grant the board of directors of First Defiance the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors, subject to any exceptions provided in the code of regulations and the OGCL. The reasons for this change are discussed above under “The First Defiance Proposals—First Defiance Articles of Incorporation Proposal—Approval of the First Defiance amended and restated articles of incorporation—Amendment of the Code of Regulations by the Board of Directors.”

New Articles X and XI

The First Defiance board of directors has always conducted its governance matters in accordance with the bylaws of the board of directors, a document that was adopted by the board in connection with the formation of First Defiance (the “board bylaws”). However, the First Defiance board believes it is in the best interests of its shareholders to consolidate the board bylaws into the code of regulations so that all of its governance provisions are contained in a single document. As a result, the amended and restated code of regulations contains two entirely new articles, Article X and Article XI, that are substantially similar to provisions that are currently contained in the board bylaws. The addition of Articles X and XI to the First Defiance code of regulations will not change how the First Defiance board of directors currently operates, but will merely move these governance provisions from the board bylaws into the code of regulations. If the First Defiance code of regulations proposal is approved, the board bylaws would be terminated.

Proposed new Article X contains the following provisions:

grants general powers to the First Defiance board of directors to direct the business and affairs of First Defiance;

provides that the number of members of the First Defiance board of directors may be increased or decreased by resolution of the First Defiance board of directors within the range set forth in First Defiance’s articles of incorporation and that the First Defiance board of directors shall be divided into classes in accordance with the provisions of First Defiance’s articles of incorporation.

governs regular annual meetings and special meetings of the First Defiance board of directors, including manner of participation, notice of and location of such meetings, quorum requirements, manner of acting and presumption of assent to actions taken at a meeting;

allows the First Defiance board of directors to act without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the members of the First Defiance board of directors;

provides for the manner of resigning from the First Defiance board of directors and filling vacancies; and

grants the First Defiance board of directors the ability to establish compensation for directors for their service as such and/or compensation for actual attendance at committee meetings.

Proposed new Article XI relates to committees of the First Defiance board of directors. Among other things, Article XI allows the First Defiance board of directors, by resolution passed by a majority of the authorized number of directors, to designate one or more committees for the conduct of the business of First Defiance, and may prescribe the duties, constitution and procedures of such committees. Each committee must have at least three members of the First Defiance board of directors. In addition, the First Defiance board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Under Article XI, the First Defiance board of directors, by the affirmative vote of a majority of the number of directors fixed by Article I, Section 2 of the proposed amended and restated code of regulations, may change the members of, fill vacancies in, and discharge any committee of the First Defiance board of directors. Article XI states that any member of a committee may resign at any time by giving notice, and the resignation will be effective upon receipt of such notice or at any later time specified.

New Article XII

Unlike Articles X and XI, Article XII is a new provision. Article XII provides for the governance of First Defiance following the merger and ensures the combination of the boards and management teams of First Defiance and United Community to lead the resulting company. Among other things, Article XII contains the following sections:

•

Interpretation.The provisions of Article XII will control over any inconsistency with the rest of the amended and restated code of regulations.

•

Office of First Federal. The location of the main office of First Federal will be in Youngstown, Ohio following the closing of the merger.

•

Officers of First Defiance and First Federal: Certain individuals will be elected as officers of First Defiance and First Federal for specific terms pursuant to the terms of the merger agreement. Beginning at the effective time of the merger and ending on a date that is two years after the earlier of (i) a date during the period beginning January 1, 2021 and ending June 30, 2021, as determined by the First Defiance board of directors, or (ii) the date Donald Hileman ceases for any reason to serve as Chief Executive Officer of First Defiance (such date reflected by (i) or (ii), the “succession date”), a vote ofthree-fourths of the authorized number of First Defiance directors is required to: (a) remove any of such individuals from, or fail to appoint orre-elect such individuals to, such officer positions, (b) modify any of such individuals’ respective duties, authority or reporting relationships, (c) amend or terminate any employment agreements entered into by First Defiance with such individuals, or (d) appoint a replacement for any of such individuals that cease to serve in such officer positions. See “The Merger—Management and Board of Directors of First Defiance After the Merger” above for further information regarding the directors and officers of First Defiance following consummation of the merger.

•

Amendments to the Code of Regulations. Prior to the second anniversary of the succession date, any repeal, alteration, amendment or rescindment of Article I or Article XII of the proposed amended and restated code of regulations by the board of directors of First Defiance will require (and any such repeal, alteration, amendment or rescindment may be proposed or recommended by the First Defiance board of directors for adoption by the shareholders of First Defiance only by) the affirmative vote of

three-fourths of the authorized number of directors. In addition, prior to the second anniversary of the succession date, First Defiance may not exercise its authority, in its capacity as sole shareholder of First Federal, to (and First Defiance shall cause First Federal not to) modify, amend or repeal any of the provisions of the organizational documents of First Federal implementing the provisions of Article XII of the proposed amended and restated code of regulations, or implement or adopt any provisions of the organizational documents of First Federal inconsistent with the foregoing, in each case, without the affirmative vote of three-fourths of the authorized number of directors of First Defiance.

•

Board of Directors of First Defiance:

Pursuant to the merger agreement, at the effective time of the merger, the board of directors of First Defiance, as the surviving corporation, will consist of the following 13 directors: (i) Mr. Hileman, John Bookmyer and five other persons who served as directors of First Defiance or First Federal immediately prior to the effective time of the merger and are designated by First Defiance (each, a “First Defiance related director,” which term includes any directors who are subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a First Defiance related director, as applicable, in accordance with Article XII, Section 6 of the proposed amended and restated code of regulations); and (ii) Gary Small, Richard Schiraldi, and four other persons who served as directors of United Community or Home Savings immediately prior to the effective time of the merger and are designated by United Community (each, a “United Community related director,” which term includes any directors who are subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a United Community related director in accordance with Article XII, Section 6 of the proposed amended and restated code of regulations).

The directors will continue to be divided into three classes. Immediately following the effective time of the merger, the Class I directors of First Defiance will consist of two First Defiance related directors and two United Community related directors, each of whom will be appointed for a term expiring at the 2022 annual meeting of shareholders. Thereafter, the Class I directors will be elected to three-year terms. Upon the expiration of their initial term, the initial Class I directors will bere-nominated by the First Defiance board of directors, provided that such nomination is reasonably agreeable to the governance and nominating committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2025 annual meeting of shareholders.

Immediately following the effective time of the merger, the Class II directors of First Defiance will consist of two First Defiance related directors and two United Community related directors, each of whom will be appointed for a term expiring at the 2021 annual meeting of shareholders. Thereafter, the Class II directors will be elected to three-year terms. Upon the expiration of their initial term, the initial Class II directors will bere-nominated by the First Defiance board of directors, provided that such nomination is reasonably agreeable to the governance and nominating committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2024 annual meeting of shareholders.

Immediately following the effective time of the merger, the Class III directors of First Defiance will consist of three First Defiance related directors and two United Community related directors, each of whom will be appointed for a term expiring at the 2020 annual meeting of shareholders. Thereafter, the Class III directors will be elected to three-year terms. Upon the expiration of their initial term, the initial Class III directors will bere-nominated by the First Defiance board of directors, provided that such nomination is reasonably agreeable to the governance and nominating committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2023 annual meeting of shareholders.

If, prior to the second anniversary of the succession date, any of the initial Class I, II or III directors ceases to serve as a director for any reason or does not stand for reelection, the resultant

vacancy will be filled by the First Defiance board of directors with an individual selected by the United Community related directors (if such director was a United Community related director) or the First Defiance related directors (if such director was a First Defiance related director) in good faith in a manner intended to preserve the principles of representation in the proposed amended and restated code of regulations, provided that such individual is reasonably agreeable to the governance and nominating committee in accordance with the good faith execution of its duties, which such individual. Any such replacement director will have the same rights to renomination as the rest of his or her class of directors.

In addition, Mr. Bookmyer will serve as chairman of the First Defiance board of directors for a term beginning at the effective time of the merger and until the succession date, Mr. Hileman will serve as executive chairman of the First Defiance board of directors for a term beginning at the succession date and until the date on which his successor is duly elected and qualified or until his death or until he resigns or is removed in accordance with the proposed amended and restated code of regulations and Mr. Schiraldi will serve as vice chairman of the First Defiance board of directors for a term beginning at the effective time of the merger through the succession date and until the date on which his successor is duly elected and qualified or until his death or until he resigns or is removed in accordance with the proposed amended and restated code of regulations. The removal of Mr. Bookmyer, Mr. Hileman or Mr. Schiraldi, or the failure to appoint orre-elect any of them as chairman, executive chairman and vice chairman, respectively, will require the affirmative vote of three-fourths of the authorized number of directors until the second anniversary of the succession date. Until the second anniversary of the succession date, upon the death, resignation, removal, disqualification or other cessation of service by Mr. Bookmyer, Mr. Hileman or Mr. Schiraldi serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to the terms of the proposed amended and restated code of regulations), First Defiance will not appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors.

•

Board of Directors of First Federal:

At the effective time of the merger, First Defiance will cause the board of directors of First Federal, as the surviving bank, to consist of the following thirteen directors: (i) Mr. Hileman, Mr. Bookmyer, and five other persons who served as directors of First Defiance or First Federal immediately prior to the effective time of the merger (each, a “First Federal related bank director,” which term includes any directors who were subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a First Federal related bank director in accordance with Article XII, Section 7 of the proposed amended and restated code of regulations); and (ii) Mr. Small, Mr. Schiraldi, and four other persons who served as directors of United Community or Home Savings immediately prior to the effective time of the merger (each, a “United Community related bank director,” which term includes any directors who were subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a United Community related bank director in accordance with Article XII, Section 7 of the proposed amended and restated code of regulations). If, prior to the second anniversary of the succession date, any of the directors of First Federal ceases to serve as a director or does not stand for reelection, the resultant vacancy will be filled by the board of directors of First Federal with an individual selected by the United Community related bank directors (if such director was a United Community related bank director) or the First Federal related bank directors (if such director was a First Federal related bank director), in each case, in good faith in a manner intended to preserve the principles of representation in the proposed amended and restated code of regulations. Prior to the second anniversary of the succession date, the affirmative vote of three-fourths of the authorized number of directors of First Defiance will be required for the board of directors of First Federal to (a) fail tore-elect any of the United Community related bank directors or First Federal related bank directors or (b) increase or decrease the number of directors of the board of directors of First Federal.

In addition, First Defiance will cause First Federal to appoint Mr. Bookmyer as chairman of the board of directors of First Federal for a term beginning at the effective time of the merger and until the succession date, Mr. Hileman as executive chairman of the board of directors of First Federal for a term beginning at the succession date and until the date on which his successor is duly elected and qualified or until his death or until he resigns or is removed in accordance with the proposed amended and restated code of regulations and Mr. Schiraldi as vice chairman of the board of directors of First Federal for a term beginning at the effective time of the merger and through the succession date and until the date on which his successor is duly elected and qualified or until his death or until he resigns or is removed in accordance with the proposed amended and restated code of regulations. The removal of Mr. Bookmyer, Mr. Hileman or Mr. Schiraldi, or the failure to appoint orre-elect any of them as chairman, executive chairman and vice chairman, respectively, will require the affirmative vote of three-fourths of the authorized number of directors of First Defiance until the second anniversary of the succession date. Until the second anniversary of the succession date, upon the death, resignation, removal, disqualification or other cessation of service by Mr. Bookmyer, Mr. Hileman or Mr. Schiraldi serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to the terms of the proposed amended and restated code of regulations), First Defiance will cause First Federal not to appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors of First Defiance.

•

Committees of the Board of Directors of First Defiance. At the effective time of the merger, First Defiance will have an audit committee, a governance and nominating committee, a compensation committee and a risk committee. The chairman of each of the audit committee and the risk committee shall be a First Defiance related director. The Chairman of each of the governance and nominating committee and the compensation committee will be a United Community related director.

The First Defiance board of directors recommends that First Defiance shareholders vote “FOR” the First Defiance code of regulations proposal.

First Defiance Compensation Proposal—Approval of First Defiance compensation of named executive officers

Section 14A of the Exchange Act and Rule14a-21(c) under the Exchange Act require that First Defiance seek a nonbinding advisory vote from its shareholders to approve the compensation of the named executive officers of First Defiance that is based upon or otherwise related to the merger as disclosed under the heading “The Merger—Interests of First Defiance Directors and Executive Officers in the Merger” beginning on page 93. As required by these provisions, First Defiance is asking its shareholders to vote on the adoption of the following resolution:

“RESOLVED, that the compensation that may be paid or become payable to First Defiance’s named executive officers in connection with the merger and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of RegulationS-K in ‘The Merger—Interests of First Defiance Directors and Executive Officers in the Merger,’ are hereby APPROVED.”

The vote with respect to this proposal is an advisory vote and will not be binding on First Defiance, United Community, or the surviving corporation. Therefore, regardless of whether First Defiance shareholders approve this proposal, if the merger agreement is approved by the shareholders and the merger is completed, the compensation will be paid to such named executive officers to the extent payable in accordance with the terms of such compensation contracts and arrangements. Approval of this proposal is not a condition to the closing of the merger.

The First Defiance board of directors recommends that First Defiance shareholders vote “FOR” the First Defiance compensation proposal.

First Defiance Adjournment Proposal—Adjournment of the First Defiance special meeting

If, at the special meeting of First Defiance shareholders, the number of shares of First Defiance common stock present or represented and voting in favor of the First Defiance merger proposal or the First Defiance code of regulations proposal is insufficient to adopt the First Defiance merger proposal or the First Defiance code of regulations proposal, respectively, First Defiance intends to ask its shareholders to vote to adjourn the special meeting to another time or place, if necessary or appropriate, to permit further solicitation of proxies. In this event, First Defiance will request that the shareholders vote on the First Defiance adjournment proposal and not the First Defiance merger proposal or the First Defiance code of regulations proposal.

First Defiance is asking its shareholders to authorize the holder of any proxy solicited by the First Defiance board of directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the First Defiance special meeting to another time and place, if necessary or appropriate, for the purpose of soliciting additional proxies. If First Defiance requests a vote on the First Defiance adjournment proposal and the First Defiance shareholders approve this proposal, First Defiance could adjourn the special meeting and use this additional time to solicit proxies from its shareholders, including those shareholders who have previously voted.

The First Defiance board of directors recommends that First Defiance shareholders vote “FOR” the First Defiance adjournment proposal.

THE UNITED COMMUNITY SPECIAL MEETING

Time, Date and Place of Meeting

This joint proxy statement/prospectus is being sent to you in connection with the solicitation of proxies by the United Community board of directors for use at the special meeting of shareholders of United Community to be held at the Ford Family Recital Hall, DeYor Performing Arts Center, 260 West Federal Street, Youngstown, Ohio 44503 on [                ], 2019 at     :00     .m. local time.

Matters to be Considered

At the special meeting, shareholders will be asked to consider and vote upon the following proposals:

To approve the United Community merger proposal;

To approve, on anon-binding, advisory basis, the United Community compensation proposal;

To approve the United Community adjournment proposal; and

To transact such other business as may properly come before the United Community special meeting or any adjournment or postponement of the United Community special meeting.

The United Community board of directors is not aware, at this time, of any additional matters that may be presented for action at the special meeting of shareholders, other than those proposals set forth above. If any other matters are properly brought before the special meeting for consideration, however, shares of Commercial BancsharesUnited Community common stock represented by properly executed proxies will be voted in the discretion of the persons named in the proxy card in accordance with their best judgment.

Shares Outstanding and Entitled to Vote; Record Date

Only shareholders of record on , 2016,[                ], 2019, will be entitled to notice of and to vote at the special meeting of Commercial BancsharesUnited Community shareholders. At the close of business on the record date,         , 2016,[                ], 2019, there were [                ] shares of Commercial BancsharesUnited Community common stock issued and outstanding and entitled to vote. Shares of Commercial BancsharesUnited Community common stock were held of record by approximately [                ] shareholders. Each share of Commercial BancsharesUnited Community common stock entitles the holder to one vote on all matters properly presented at the special meeting.

Votes Required

The following votes are required to approve each of the proposals to be considered at the special meeting:

Item

  

Vote Required

Item

United Community merger proposal

  Vote Required
Approval of the Merger Agreement

Approval by a majorityat leasttwo-thirds of the issued and outstanding shares of Commercial BancsharesUnited Community common stock

Merger-Related Named Executive Officer Compensation Proposal

United Community compensation proposal

  

Approval by shares of United Community common stock representing at least a majority of shares of Commercial Bancshares common stock represented in person or by proxythe votes cast at the United Community special meeting

Adjournment Proposal

United Community adjournment proposal

  

Approval by shares of United Community common stock representing at least a majority of shares of Commercial Bancshares common stock represented in person or by proxythe votes cast at the United Community special meeting

A quorum, consisting of the holders of a majority of the outstanding shares of Commercial BancsharesUnited Community common stock, must be present in person or by proxy at the special meeting of Commercial BancsharesUnited Community shareholders before any action can be taken. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.


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Effect of Abstentions and BrokerNon-Votes

Any “brokernon-votes” submitted by brokers or nominees in connection with the special meeting will not be counted for purposes of determining the number of votes cast on a proposal butand will not be treated as present for quorum purposes. “Brokernon-votes” are shares held by brokers or nominees as to whom voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and for which the broker or nominee does not have discretionary voting power under the applicable NasdaqNASDAQ and NYSE rules. Under these rules, approval ofit is expected that all proposals to be voted on at the Merger Agreement is not an itemUnited Community special meeting are matters on which brokerage firms may not vote in their discretion on behalf of their clients. Because thisthe United Community merger proposal is required to be approved by the affirmative vote of the majorityat leasttwo-thirds of the outstanding shares of Commercial BancsharesUnited Community common stock, abstentions and “broker non-votes”brokernon-votes will have the same effect as a vote against the United Community merger proposal. And for the same reason, the failure of a Commercial BancsharesUnited Community shareholder to vote by proxy or in person at the special meeting will have the effect of a vote against approval of the Merger Agreement.

With respect to the Merger-Related Named Executive Officer Compensation proposalUnited Community merger proposal. Abstentions, brokernon-votes and the Adjournment Proposal,any failure to vote by proxy or in person at the United Community special and “broker non-votes” will not be counted in the voting results andmeeting will have no effect on the outcome of those proposals. However, abstentions submitted by a Commercial Bancshares shareholder will haveUnited Community compensation proposal or the effect of a vote against approval of the Merger-Related Named Executive Officer Compensation proposal and the Adjournment Proposal.United Community adjournment proposal.

Shares Held by Officers and Directors

As of , 2016,[                ], 2019, the directors and executive officers of Commercial Bancshares and Commercial BankUnited Community and the affiliates of such directors and executive officers had sole or shared voting power with respect to [                ] shares of Commercial BancsharesUnited Community common stock, or approximately %[                ]% of the outstanding shares of Commercial BancsharesUnited Community common stock. Thestock.The directors of Commercial BancsharesUnited Community have agreed to vote their shares of Commercial BancsharesUnited Community common stock for the approval of the Merger Agreement.United Community merger proposal and the United Community adjournment proposal.

How to Vote Your Shares; Solicitation of Proxies

A proxy card for use at the special meeting accompanies each copy of this joint proxy statement/prospectus mailed to Commercial BancsharesUnited Community shareholders. This proxy is solicited by the Commercial BancsharesUnited Community board of directors. Whether or not you plan to attend the special meeting in person, the Commercial BancsharesUnited Community board of directors urges you to complete, sign, date and return the enclosed proxy card orin the enclosed postage-paid envelope; visit the website shown on your proxy card to vote via Internetthe Internet; or telephone by followinguse the instructionstoll-free number shown on your proxy card. If you have executed a proxy, you may revoke it at any time before a vote is taken at the special meeting by:

filing a written notice of revocation with DavidJude J. Browne,Nohra, Corporate Secretary of the Company, at 118 South Sandusky Avenue, Upper Sandusky,275 West Federal Street, Youngstown, Ohio 43351;44503;

executing and returningdelivering a later-datedlater dated proxy received by Commercial Bancsharesto United Community at the above address prior to a vote being taken at the special meeting; or

attending the special meeting in person and giving notice of revocation or simply voting in person.to United Community’s Secretary.

Your attendance at the special meeting will not, by itself, revoke your proxy.

If you are a Commercial BancsharesUnited Community shareholder whose shares are not registered in your own name, you will need additional documentation from your record holder in order to vote your shares in person at the special meeting. If you hold your Commercial BancsharesUnited Community shares through a broker, bank or other nominee (i.e., in “street name”) and you want to vote your shares in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.


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Commercial Bancshares and First Defiance will each pay half of all expenses incurred in connection with printing and mailing this proxy statement/prospectus, the accompanying proxy and any other related materials. Commercial Bancshares will pay all otherThe costs incurred in connection with the solicitation of proxies on behalf offor the Commercial Bancshares board of directors.United Community special meeting will be borne by United Community. Proxies will be solicited by mail and may also be solicited, for no additional compensation, by officers, directors or employees of Commercial Bancshares. Commercial BancsharesUnited Community. United Community will also pay the standard charges and expenses of brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries, who are record holders of shares of Commercial BancsharesUnited Community common stock not beneficially owned by them, for forwarding the proxy materials to, and obtaining proxies from, the beneficial owners of shares of Commercial BancsharesUnited Community common stock entitled to vote at the special meeting of Commercial BancsharesUnited Community shareholders. Commercial BancsharesUnited Community has also made arrangements with Laurel Hill Advisory Group, LLCAlliance to assist it in soliciting proxies and has agreed to has agreed to pay Laurel Hill approximately $5,500Allianceapproximately $7,500 (for general proxy solicitation services), plus reasonable expenses, notdata processing and calling fees and reimbursement ofout-of-pocket expenses.

UNITED COMMUNITY’S PROPOSALS

United Community Merger Proposal—Adoption of the merger agreement

At the United Community special meeting, the United Community shareholders will be asked to exceed $3,000,adopt the merger agreement. Holders of United Community common stock should read this joint proxy statement/prospectus in its entirety, including the annexes, for these services.


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COMMERCIAL BANCSHARES’ PROPOSALS

Merger Proposal

Commercial Bancsharesmore detailed information concerning the merger agreement and the merger. A copy of the merger agreement is askingattached to this joint proxy statement/prospectus asAnnex A.

After careful consideration, the United Community board of directors approved the merger agreement, including the merger and the transactions contemplated by the merger agreement, and determined the merger agreement and the merger to be advisable and in the best interests of United Community and its shareholders.

The United Community board of directors recommends that the United Community shareholders vote “FOR” the United Community merger proposal.

United Community Compensation Proposal—Approval of United Community compensation of named executive officers

Section 14A of the Exchange Act andRule 14a-21(c) under the Exchange Act require that United Community seek a nonbinding advisory vote from its shareholders to approve the merger proposal, a matter discussed in detail throughout this document. Holders of Commercial Bancshares common stock should read through this document in its entirety, including any exhibits, and carefully consider the Merger Agreement and the merger. For such purpose, your attention is directed to the Merger Agreement, a copy of which is attached to this document asAnnex A.

Vote Required and Commercial Bancshares Board Recommendation

Approval of the merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of Commercial Bancshares common stock.

The Commercial Bancshares board of directors recommends a vote “FOR” the merger proposal.

Non-Binding Advisory Vote on Merger-Related Named Executive Officer Compensation

As required by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) of the Securities Exchange Act of 1934, as amended, Commercial Bancshares is seeking non-binding, advisory shareholder approval of the compensation of the named executive officers of Commercial BancsharesUnited Community that is based upon or otherwise related to the merger as disclosed under the heading “The Merger — Merger—Interests of Commercial BancsharesUnited Community Directors and Executive Officers in the Merger” beginning on page 45. This proposal provides you as a shareholder of Commercial Bancshares99. As required by these provisions, United Community is asking its shareholders to vote on the opportunity to express your view on any merger-related compensation of Commercial Bancshares’ named executive officers by approving or not approving adoption of the following resolution:

“RESOLVED, that the compensation that may be paid or become payable to Commercial Bancshares’United Community’s named executive officers in connection with the merger and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of RegulationS-K in ‘The Merger — Merger—Interests of Commercial BancsharesUnited Community Directors and Executive Officers in the Merger,’ are hereby APPROVED.”

Because the merger is not conditioned uponThe vote with respect to this proposal and youris an advisory vote is advisory, itand will not be binding on Commercial BancsharesUnited Community, First Defiance, or First Defiance. If the parties completesurviving corporation. Therefore, regardless of whether United Community shareholders approve this proposal, if the merger agreement is approved by the merger-relatedshareholders and the merger is completed, the compensation disclosed under “The Merger — Interests of Commercial Bancshares Directors and Executive Officers in the Merger” will be paid to Commercial Bancshares’such named executive officers to the extent payable in accordance with the terms of such compensation agreementscontracts and other arrangements even if the Commercial Bancshares’ shareholders do not approve the merger-related compensation on an advisory basis.

Vote Required and Commercial Bancshares Board Recommendation

arrangements. Approval of this proposal is not a condition to the Merger-Related Named Executive Officer Compensation Proposal requiresclosing of the affirmative vote of a majority of shares of Commercial Bancshares common stock represented, either in person or by proxy, at the special meeting.merger.

The Commercial BancsharesUnited Community board of directors recommends athat the United Community shareholders vote “FOR” the Merger-Related Named Executive Officer Compensation Proposal.United Community compensation proposal.

United Community Adjournment Proposal

Proposal—Adjournment of the United Community special meeting

If, at the special meeting of Commercial BancsharesUnited Community shareholders, the number of shares of Commercial BancsharesUnited Community common stock present or represented and voting in favor of the United Community merger proposal is insufficient to approveadopt the United Community merger proposal, Commercial BancsharesUnited Community intends to ask its shareholders to vote to adjourn the special meeting to another time or place, if necessary or appropriate, to allow for thepermit further solicitation of additional proxies to approve the merger proposal.proxies. In this event, Commercial BancsharesUnited Community will request that the shareholders vote on the Adjournment ProposalUnited Community adjournment proposal and not the United Community merger proposal.

Accordingly, Commercial BancsharesUnited Community is asking that its shareholders to authorize the holder of any proxy solicited by the Commercial BancsharesUnited Community board of directors to vote in favor of granting discretionary authority to the proxy holders, and each

of them individually, to adjourn the Commercial BancsharesUnited Community special meeting to


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another time and place, if necessary or appropriate, for the purpose of soliciting additional proxies. If Commercial BancsharesUnited Community requests a vote on the Adjournment ProposalUnited Community adjournment proposal and the Commercial BancsharesUnited Community shareholders approve this proposal, Commercial BancsharesUnited Community could adjourn the special meeting and use this additional time to solicit proxies from its shareholders, including those shareholders who have previously voted.

Vote Required and Commercial Bancshares Board Recommendation

Approval of the Adjournment Proposal requires the affirmative vote of a majority of shares of Commercial Bancshares common stock represented, either in person or by proxy, at the special meeting

The Commercial BancsharesUnited Community board of directors recommends athat the United Community shareholders vote “FOR” the Adjournment Proposal.United Community adjournment proposal.


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COMMERCIAL BANCSHARESUNITED COMMUNITY ANNUAL MEETING SHAREHOLDER PROPOSALS

Commercial BancsharesUnited Community held its 20162019 annual meeting of shareholders on May 19, 2016.2, 2019. If the merger is completed, Commercial BancsharesUnited Community will be merged into First Defiance and thus will no longer have public shareholders. However, if the merger is not completed or if Commercial BancsharesUnited Community is required to do so under applicable law, Commercial BancsharesUnited Community will hold a 20172020 annual meeting of shareholders. Any shareholder nominations or proposals appropriate for shareholder action at Commercial Bancshares’ 2017United Community’s 2020 annual meeting must be submitted to Commercial BancsharesUnited Community as set forth below.

For proposals to be considered for inclusion in the proxy statement for the 20172020 annual meeting, they must be received by Commercial BancsharesUnited Community no later than December 8, 2016.November 23, 2019. Such proposals must be directed to Commercial Bancshares, Inc.United Community Financial Corp., Attention: DavidJude J. Browne,Nohra, Corporate Secretary, 118 S. Sandusky Avenue, Upper Sandusky,275 West Federal Street, Youngstown, Ohio 43351.44503. Any Commercial BancsharesUnited Community shareholder who intends to propose any other matter to be acted upon at the 20172020 annual meeting must inform Commercial BancsharesUnited Community no later than February 21, 2017.6, 2020. The proxy cards delivered in connection with the 20172020 annual meeting would confer discretionary voting authority, to be exercised in the judgment of the Commercial Bancshares’United Community’s board of directors, with respect to any shareholder proposal received after February 21, 2017. Commercial Bancshares6, 2020. United Community also would have authority to discretionarily vote proxies with respect to shareholder proposals received after December 8, 2016November 23, 2019, but prior to February 21, 2017,6, 2020, unless the proposing Commercial BancsharesUnited Community shareholder takes the necessary steps outlined in Rule14a-4(c)(2) under the Securities Exchange Act of 1934 to ensure the proper delivery of proxy materials related to the proposal.proposal .

In order to make a director nomination at the Commercial Bancshares 2017United Community 2020 annual meeting, a Commercial BancsharesUnited Community shareholder would need to notify Commercial BancsharesUnited Community no fewerlater than 45 nor more than 90 days in advancethe 60th day before the first anniversary of the meeting.2019 annual meeting of United Community shareholders. In addition, the notice must meet all other requirements contained in the Commercial Bancshares’United Community’s code of regulations, a copy of which is available without charge upon written request directed to Commercial Bancshares, Inc.United Community Financial Corp., Attention: DavidJude J. Browne,Nohra, Corporate Secretary, 118 S. Sandusky Avenue, Upper Sandusky,275 West Federal Street, Youngstown, Ohio 43351.44503.


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DISSENTERS’ RIGHTS

THE MERGER

Rights of Dissenting Commercial Bancshares Shareholders

Shareholders of Commercial Bancshares are entitled to certain dissenters’ rights pursuant to Sections 1701.84(A) and 1701.85Background of the OGCL. Section 1701.85 sets forthMerger

On a regular basis, each of First Defiance’s and United Community’s board of directors and senior management have separately reviewed and discussed their respective business strategies, performance and prospects, including strategic opportunities and challenges, and have considered various strategic options potentially available to each respective organization, all with the goal of enhancing value for their respective shareholders and delivering the best possible services to their respective customers and communities. The strategic discussions have focused on, among other things, the business and regulatory environment facing financial institutions generally and each organization, in particular, as well as conditions and trends in the banking industry.

These reviews have included periodic discussions by each company’s board of directors with respect to potential transactions of various types that would further their respective strategic objectives and the potential benefits and risks of any such transactions. In addition, senior management of each organization has, from time to time, engaged in discussions with representatives of other financial institutions.

In recognition of the comparable business strategies of United Community and First Defiance, in early 2017, Gary Small, President and Chief Executive Officer of United Community, contacted Donald Hileman, President and Chief Executive Officer of First Defiance, to assess his interest in engaging in an evaluation of a potential strategic business combination between United Community and First Defiance. Mr. Small and Mr. Hileman, together with select senior management of each company, conducted informal exploratory discussions from time to time over several months in 2017 to assess whether United Community and First Defiance could best achieve their strategic objectives through a potential transaction. This evaluation included entry into a mutualnon-disclosure agreement and exchange of select preliminary diligence information as well as discussions regarding potential terms of anall-stock business combination, including potential governance arrangements. Sandler O’Neill acted as United Community’s financial advisor, and KBW acted as First Defiance’s financial advisor, to assist in the parties’ respective evaluation of a potential transaction. During this time, each of Mr. Small and Mr. Hileman regularly updated their respective boards of directors on the status of the exploratory discussions. The companies ultimately determined in September 2017 to independently pursue their respective strategic objectives and ceased discussions regarding a potential transaction.

Throughout 2018, the First Defiance board of directors continued to evaluate its business strategies, including possible acquisitions, mergers and other opportunistic strategic transactions. First Defiance’s management team met several times in 2018 with representatives of KBW to discuss the general banking environment and several possible strategic transactions, none of which First Defiance actively pursued. First Defiance management regularly updated the First Defiance board of directors regarding those discussions, possible strategic opportunities and the succession plans of Mr. Hileman and other executive officers. In the later part of 2018, the board determined to take a dual approach to planning and authorized the engagement of an executive search firm for the purpose of finding candidates for the President of First Federal, First Defiance’s bank subsidiary, and a new President was appointed in March 2019. The First Defiance board of directors continued its ongoing strategic planning process that looked at all viable strategic options. The board instructed management to continue to evaluate both acquisition opportunities and mergers with similarly sized companies. Management also continued to have informal conversations with potential upstream partners.

The United Community board of directors continued its regular strategic planning process and reviews during and following the discussions with First Defiance, including the evaluation of possible potential transactions that would further its strategic objectives. As part of this strategic planning process, United Community’s board of directors asked Sandler O’Neill to make a presentation to the United Community board of directors at its regularly scheduled board meeting held in January 2019. Sandler O’Neill’s presentation covered a

review of the current environment for the banking industry, United Community’s stand-alone valuation metrics, potential acquisition targets of United Community, potential partners for a strategic merger and potential acquirers of United Community. Sandler O’Neill discussed with the board certain procedures byof the factors and trends impacting the banking industry and United Community’s business which shares must strictly complymade continually improving profitability a challenge, including, among others, cost and type of deposit funding, the interest rate environment and flat yield curve, the effects of scale, technology and increased competition and the regulatory environment. The board discussed that while it felt confident in the continued execution of its strategy for generating organic growth, in order to be entitledbetter informed regarding the availability of other alternatives that could enhance long-term shareholder value, it wanted Sandler O’Neill to such dissenters’ rights. Failure to take any oneprepare a more detailed evaluation of the required stepspotential acquirers of United Community that Sandler O’Neill had identified with a focus on evaluating whether there were any potential acquirers who had the ability to deliver consideration to United Community shareholders that would be financially compelling and who may resulthave interest in engaging in a transaction.

At the February 2019 meeting of the United Community board of directors, representatives of Sandler O’Neill presented Sandler O’Neill’s analysis of potential acquirers. Sandler O’Neill explained to the board its view that the number of potential acquirers of banks generally was limited in the termination or waivercurrent market and that it had identified a select number of institutions who were most likely to meet the criteria established by the United Community board, although it was not certain whether any of the institutions would have an interest in engaging in a transaction in the near-term. Sandler O’Neill reviewed its evaluation of each of the potential partners with the board. Following the discussion, the board asked Mr. Small to informally reach out to representatives of four institutions identified by Sandler O’Neill to assess their level of interest in engaging in discussions to evaluate a potential transaction so that the board could determine the viability and attractiveness of these strategic alternatives.

Over the next few weeks, Mr. Small engaged in discussions with representatives of the four financial institutions identified by the board. During this time, Mr. Small also had discussions with a fifth financial institution who reached out to him.

Mr. Small provided updates to the United Community board on the results of his outreach during meetings held in April 2019. Mr. Small reported that of the four financial institutions selected by the board for outreach, one was not interested in a potential transaction and three had expressed some level of interest in engaging in discussions in the future but that due to other strategic priorities would not be prepared to engage in a transaction in the near-term. Mr. Small also informed the board of his meeting with the fifth financial institution, but expressed concern regarding the attractiveness of that institution’s stock as deal consideration. The board determined that Mr. Small should not make any further outreach at that time and should continue to focus on executing the company’s strategy for organic growth.

At the end of the first quarter of 2019, due to the slower pace of acquisition opportunities and the pricing environment, the First Defiance board determined that the company and its management team should focus on more significant merger opportunities with similarly sized institutions, including United Community. The board discussed that while it felt confident in the continued execution of its strategy for generating organic growth, in order to be better informed regarding the availability of other alternatives from a financial perspective that could enhance long-term shareholder value, it requested more information as to potential partners. In April 2019, Mr. Hileman provided updates to the First Defiance board on the results of his outreach in the first quarter of 2019. At that time, the board instructed Mr. Hileman to continue his discussions with other potential partners, including United Community.

In late April 2019, Mr. Small received a call from Mr. Hileman inviting him to an informal meeting to discuss their organizations generally as well as the current economic environment and the general financial institutions industry. Mr. Small informed the board of Mr. Hileman’s call at its May 2, 2019 board meeting.

On May 8, 2019, Mr. Hileman and Mr. Small met at a neutral facility. They discussed general industry matters as well as trends impacting each of United Community and First Defiance. Mr. Hileman then expressed interest in reengaging in discussions regarding a potential strategic business combination between United Community and First Defiance and his belief that the two organizations would be better as a combined organization. Mr. Hileman stated his view that the complementary nature of the two institutions created an opportunity to leverage the strengths of both institutions to create a premier franchise headquartered in Ohio with the benefits of scale, a more diversified balance sheet, complementary geographies and the best of each institution’s technology and talent.

After the meeting, Mr. Hileman updated the board chairman on his discussion with Mr. Small. It was agreed to have Mr. Hileman continue his outreach with Mr. Small to evaluate a possible strategic transaction with United Community. Mr. Hileman had numerous conversations with KBW over the next month, including regarding the financial aspects of a possible combination. Mr. Hileman also continued conversations with Mr. Small as to high level discussions related to operating models and possible cost saves and one time costs.

At a meeting of the United Community board of directors on May 23, 2019, Mr. Small updated the board on the outreach from Mr. Hileman as well as his view on the potential strategic and financial benefits of such rights. Specifically, any shareholder who is a record holdertransaction. The board expressed its support for Mr. Small to continue these discussions to assess the viability of sharesa strategic merger with First Defiance and the potential terms of Commercial Bancsharessuch a transaction.

Over the next few weeks, Mr. Small and Mr. Hileman engaged in exploratory discussions with respect to a potential transaction that built upon their prior discussions and preliminary diligence from two years earlier. Their discussions were focused on identifying and refining the potential strategic and financial benefits and risks associated with a transaction and on developing a high-level framework of the economic and governance terms of a transaction, including board and management split between representatives of each company, headquarters, surviving entity name and other matters. The key components of a potential transaction framework that they developed during these discussions consisted of anall-stock strategic business combination with a fixed exchange ratio that would be priced based on each company’s relative contribution to the pro forma surviving company (based on various financial metrics) with a board split based on pro rata ownership of each company’s shareholders of the surviving entity and each company having key leadership roles, with a management succession plan whereby Mr. Small would succeed Mr. Hileman as Chief Executive Officer following an initial integration period and Mr. Hileman would at that time become Executive Chairman. Mr. Hileman and Mr. Small discussed their view that this approach to shared governance and management best positioned the combined company to leverage the strengths of each institution going forward and would help to mitigate integration related risks. During this time, Mr. Small and Mr. Hileman also involved members of senior management as well as representatives of Sandler O’Neill and KBW.

In early June 2019, based on the discussions and information that was exchanged between the representatives of United Community and First Defiance, Mr. Hileman and Mr. Small reached a preliminary understanding, subject to diligence and further discussion with each company’s board of directors, that if the parties were to combine, that United Community’s shareholders would own approximately 47% of the pro forma surviving company, which corresponded to an exchange ratio of approximately 0.3636 based upon the parties’ relative common stock prices at the time.

On June 11, 2019, Mr. Small and Mr. Hileman, together with Richard Schiraldi, the Chairman of the United Community board, and John Bookmyer, the Chairman of the First Defiance board, met and discussed the strategic benefits and risks associated with a transaction between United Community and First Defiance. They discussed the complementary natures of the culture and franchises of each company and the transaction framework that had been developed by Mr. Small and Mr. Hileman, with a focus on governance matters. They agreed that a successful combination of the two franchises had the potential to create a premier franchise with stronger financial results and an attractive Midwestern footprint that could leverage the complementary nature of each company’s balance sheet, business lines, management teams, culture and community-based approach. They

also discussed that they believed a meeting in the next few weeks with Mr. Small, Mr. Hileman and additional directors of United Community and First Defiance would be beneficial to each institution’s consideration of a potential transaction.

On July 1, 2019, during a regularly scheduled call with the United Community directors held for Mr. Small to provide an update on the recordsecond quarter, Mr. Small and Mr. Schiraldi also updated United Community’s board on the status of the discussions with First Defiance and the proposed next steps. The board endorsed continuing with the discussions and having a meeting with Mr. Small, Mr. Hileman and additional directors of United Community and First Defiance as a next step.

First Defiance prepared a presentation outlining the transaction rationale as well as preliminary board structure and succession overview of Mr. Hileman and Mr. Small to be used for discussion.

On July 15, 2019, Mr. Small and Mr. Hileman met with select directors of each of United Community and First Defiance, including Mr. Schiraldi and Mr. Bookmyer, and presented their respective views on the potential strategic and financial benefits of a transaction as well as the transaction framework they had been discussing. The outcome of this meeting was that United Community and First Defiance agreed to have anin-depth discussion of a potential transaction at their respective upcoming July board meetings and each determine whether to move to the next phase of the process involving detailed diligence and negotiation of transaction documents.

At First Defiance’s regularly scheduled board meeting held on July 22, 2019, a key agenda item was the discussion and consideration of entering into a formal process with United Community with regard to a possible strategic transaction. Representatives of KBW and Barack Ferrazzano Kirschbaum & Nagelberg LLP (“Barack Ferrazzano”), First Defiance’s outside legal counsel, were also present for the meeting. Mr. Hileman updated the board on the meeting that was held on July 15, 2019 with representatives from both United Community’s board and First Defiance’s board as well as the ongoing discussions that he had been having with Mr. Small. Mr. Hileman also summarized the discussions between the two organizations that took place in 2017 to allow the new directors of First Defiance to have a more fulsome understanding of the past relationship between the two organizations. Mr. Hileman also outlined for the board the preliminary transaction terms that would be further developed during the formal process based upon conducting thorough due diligence. Mr. Hileman highlighted that the approximate pro forma ownership in the surviving entity of First Defiance’s existing shareholders was targeted to be approximately 53%. He also discussed the general governance framework for the transaction, including the possible board size, the number of First Defiance representatives on the board, the possible management team of the pro forma surviving company and the location of the headquarters for the surviving holding company and surviving bank, among other things. Barack Ferrazzano led a discussion regarding the fiduciary duties of the directors in considering significant corporate actions, including a possible strategic transaction with United Community. Representatives of KBW also discussed with the board the general economic environment for financial institutions, at that time, and provided observations of the then current market for mergers and acquisitions among financial services companies. KBW also reviewed financial aspects of a possible transaction with United Community, as well as financial information relating to First Defiance remaining as an independent organization. The First Defiance board discussed the possible benefits and risks of a strategic combination with United Community to its shareholders and other key constituencies and compared a potential transaction with United Community to other possible strategic alternatives, including a possible acquisition of a much smaller financial institution that management and the board had considered pursuing before the opportunity with United Community developed. The board also discussed some of the possible benefits and challenges that First Defiance could face if it continued as an independent organization, including, maintaining its loan growth, succession planning of key management and officers and other environmental challenges to First Defiance’s strategic plan. After a lengthy discussion, the board concluded that First Defiance should continue its discussions with United Community and begin a more formal process that should include detailed diligence and the negotiation of transaction documents. Additionally, the board established a special transaction committee of the board to oversee management in its execution of the diligence and negotiation

process and to facilitate the overall process and communication between management and the board. The directors appointed to the special transaction committee were: Mr. Bookmyer, Mr. Hileman, Charles Neihaus and Sam Strausbaugh. Additionally, the board determined that Jean Hubbard would also be available to serve on the committee and be present at meetings if other members were unable to attend.

On July 23, 2019, United Community’s board of directors held a regularly scheduled meeting. The meeting was also attended by representatives of Sandler O’Neill and Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”), United Community’s outside legal counsel. Mr. Small began by reviewing with the board the interest expressed by First Defiance in a potential strategic merger and the transaction framework that had been developed. Among other things, he highlighted that United Community shareholders would receiveall-stock consideration and that under the ownership split being discussed United Community shareholders would own approximately 47% of the pro forma surviving company, which equated to an exchange ratio of 0.3636 and an implied premium to United Community’s trading price on July 22, 2019 of approximately 6.5%. Mr. Small also described the meetings and discussions that had taken place between the management teams and directors to date and who doesexplained that the preliminary discussions between the two companies in 2017 regarding a potential strategic combination had helped lay the groundwork for the current discussions. Representatives of Sandler O’Neill made a presentation to the board that included an overview of the current bank operating environment and general consolidation trends as well as a preliminary financial analysis regarding a potential transaction with First Defiance. Sandler O’Neill and the directors discussed the difficult operating environment facing banks, particularly in light of net interest margin compression being experienced by financial institutions generally, a challenging interest rate environment, increased competition with respect to core funding and significant costs associated with technology investment and regulatory compliance. In addition to a review of United Community’s stand-alone valuation, Sandler O’Neill also presented a review of other potential strategic alternatives to the proposed transaction with First Defiance. Sandler O’Neill also reviewed the evaluation and outreach that had been conducted by United Community earlier in the year and noted that there had not votebeen any new developments on that front. The United Community board then discussed the potential benefits and risks of a strategic combination with First Defiance to its shareholders and other key constituencies and compared the potential transaction with First Defiance to its other potential strategic alternatives, including continuing to focus on organic growth as an independent company. The board concluded that United Community should continue its discussions with First Defiance and begin a more formal process that should include detailed diligence and the negotiation of transaction documents.

Over the next two weeks, United Community and First Defiance commenced their respective due diligence on each other, which included access to virtual data rooms and telephonic and in favorperson meetings between the management teams of the two companies and their respective advisors and representatives. During this time, Mr. Small and Mr. Hileman continued their discussions with respect to the terms of the potential transaction, including integration matters and more detail around certain of the governance provisions.

Additionally, First Defiance instructed Barack Ferrazzano to begin drafting a definitive merger agreement for the proposed transaction. Mr. Hileman and other key officers reviewed preliminary drafts of the merger proposal or whose shares are not otherwise voted in favoragreement and on August 13, 2019, Barack Ferrazzano sent a draft of the merger proposal may be entitledagreement to be paidWachtell Lipton. The merger agreement reflected anall-stock transaction but did not include an exchange ratio, which was still subject to negotiation and finalization based upon market conditions.

On August 15, 2019, the “fair cash value”executive committee of the United Community board convened a meeting to receive a status report on the potential transaction. Senior management and representatives from Sandler O’Neill and Wachtell Lipton also participated. Mr. Small provided an update on the satisfactory results of the due diligence process to date as well as the progress of discussions on governance issues. Sandler O’Neill provided a market update presentation, focusing on the Federal Reserve’s interest rate cut on July 31, 2019, the flattening of, and at times inversion of the, yield curve, the volatility in the equity and bond markets since the prior meeting

and the impact of these developments on the businesses, trading prices and prospects of United Community and First Defiance. Sandler O’Neill also discussed with the United Community board that since the last United Community board meeting, First Defiance common stock had traded down relative to United Community common stock and the impact of such sharesmovements on the implied transaction value based on the 0.3636 exchange ratio that the parties had been discussing, which would, based on then current stock prices of Commercial Bancsharesthe two organizations, result in a small implied discount to United Community’s then current common stock aftertrading price. The executive committee expressed its support for United Community to continue its due diligence and negotiations and instructed management and Sandler O’Neill to continue to monitor and update the board on market events and the impact on the implied transaction value.

Following the meeting of the executive committee, the parties continued their due diligence reviews and Mr. Small and United Community’s financial advisors communicated to First Defiance that they viewed the exchange ratio as an item that would require further discussion. Wachtell Lipton also sent a revised draft of the merger agreement to Barack Ferrazzano and the two law firms exchanged term sheets for the employment agreements for Mr. Small and Mr. Hileman that would be entered into with First Defiance contemporaneously with the execution of the merger agreement and would become effective timeas of the closing of the merger. To be entitled to such payment, a shareholder (i) must deliver to Commercial Bancshares a written demand for paymentOver the next couple of the fair cash value of the shares held by such shareholder before the vote on the merger proposal is taken, (ii) must not vote in favorweeks, Wachtell Lipton and Barack Ferrazzano further exchanged drafts of the merger proposal,agreement and (iii) must otherwise complyother transaction documents to be entered into in connection with Section 1701.85. A shareholder’s failure to vote againstthe execution of the merger proposal will not constitute a waiveragreement, including voting agreements with directors of United Community and First Defiance as well as the employment agreements between First Defiance and each of Mr. Small and Mr. Hileman, and engaged in telephonic negotiations of the terms of such shareholder’s dissenters’ rights. Any written demand must specifyagreements. In each of the shareholder’s namedrafts of the merger agreement the exchange ratio was left blank. Also, during this time, the parties worked to complete their respective due diligence reviews.

On August 26, 2019, the compensation committee of the United Community board met to discuss and address,provide feedback on Mr. Small’s proposed employment agreement. Representatives of Wachtell Lipton also participated.

On August 28, 2019, the numberUnited Community board of directors held a regularly scheduled meeting and classengaged in a detailed discussion of shares held by such shareholderthe proposed transaction with First Defiance. Members of United Community’s management team and representatives from Sandler O’Neill and Wachtell Lipton were also in attendance. At the meeting, Mr. Small updated the United Community board of directors on the Commercial Bancshares recordstatus of the proposed transaction. The senior management team provided a report to the board on the results of the due diligence conducted on First Defiance to date and the amount claimedanticipated benefits and risks associated with the proposed merger, and its conclusion that the diligence supported the strategic rationale for the proposed transaction. Sandler O’Neill provided a market update to the full board, including a review of the matters discussed with the executive committee at its August 15 meeting, and an updated financial analysis of the proposed transaction. Representatives of Wachtell Lipton advised the board of directors on its fiduciary duties and discussed the terms of the draft transaction agreements, including the merger agreement, voting agreements and employment agreements, which were substantially complete other than the exchange ratio. The United Community board discussed the results of diligence, the strategic benefits and risks of the proposed transaction, as well as the “fair cash value”challenging operating environment for banks and the discussion of such shares of Commercial Bancshares common stock. See the text of Section 1701.85strategic alternatives from prior meetings of the OGCL attachedboard and its belief that the strategic rationale for a merger with First Defiance remained compelling. The board also engaged in a discussion regarding the recent relative underperformance of First Defiance’s common stock asAnnex C compared to this proxy statement/prospectus for specific information onUnited Community’s common stock, which at that time had resulted in an implied transaction value that was at a slight discount to United Community’s then current trading price. The United Community board directed United Community and its advisors to continue to finalize the procedurestransaction documents and to be followed in exercising dissenters’ rights.

If Commercial Bancshares so requests, dissenting shareholders must submit their share certificates to Commercial Bancshares within 15 days of such request, for endorsement on such certificates by Commercial Bancsharesinform First Defiance that a demand for appraisal has been made. Failure to comply with such request will terminate the dissenting shareholders’ rights. Such certificates will be promptly returnedit would require an increase to the dissenting shareholders by Commercial Bancshares. If Commercial Bancshares0.3636 exchange ratio that had been discussed between the parties if the implied discount continued to exist as the parties moved toward executing the merger agreement. The board also scheduled a meeting for September 5, 2019 to receive a market update and any dissenting shareholder cannot agree upondetermine a specific proposal with respect to the “fair cash value” of Commercial Bancshares’ common shares, either may, within three months after service of demand by the shareholder, file a petition in the Court of Common Pleas of Wyandot County, Ohio, for a determination of the “fair cash value” of such dissenting shareholder’s shares of Commercial Bancshares common stock. The fair cash value of a share of Commercial Bancshares common stock to which a dissenting shareholder is entitled to under Section 1701.85 willexchange ratio that would then be determined as of the daynegotiated with First Defiance prior to the votetargeted announcement date of the Commercial Bancshares shareholdersSeptember 9, 2019.

Following this meeting, Mr. Small and United Community’s financial and legal advisors communicated to First Defiance and their advisors United Community’s position on the merger proposal. Ifexchange ratio.

On August 29, 2019, the sharesboard of Commercial Bancshares common stock are listed on a national securities exchange, such asFirst Defiance met to discuss the NASDAQ, immediately before the effective timecurrent status of the merger agreement, the fairproposals regarding the exchange ratio and the proposed employment agreements with Mr. Hileman and Mr. Small. Representatives of Barack Ferrazzano were present at the meeting. Following the meeting, Barack Ferrazzano had several conversations with Wachtell Lipton regarding the proposed merger agreement.

On August 29, 2019, the compensation committee of First Defiance met to discuss the proposed employment agreements with Mr. Hileman and Mr. Small. Representatives of Barack Ferrazzano were present at the meeting. Following the meeting, Barack Ferrazzano had several conversations with Wachtell Lipton regarding the proposed employment agreements.

On September 5, 2019, the compensation committee of the First Defiance’s board met to review and approve the terms of the employment agreements with Mr. Hileman and Mr. Small. Representatives of Barack Ferrazzano were present at the meeting and, following the meeting, communicated the terms of the employment agreements that were acceptable to First Defiance to Wachtell Lipton, which such terms are set forth in the agreements executed by the parties on September 9, 2019.

On September 5, 2019, the compensation committee of the United Community board also met to review the substantially final terms of the employment agreements of Mr. Small and Mr. Hileman that Barack Ferrazzano had sent to Wachtell Lipton. Representatives from Wachtell Lipton were present at the meeting.

Immediately following United Community’s compensation committee meeting on September 5, 2019, the United Community board of directors held a special meeting for a status update on the proposed transaction, with the primary purpose of the meeting being to formulate a proposal with respect to the exchange ratio. Representatives of senior management, Sandler O’Neill and Wachtell Lipton also participated. Representatives of Sandler O’Neill presented a market update and an updated financial analysis with respect to the proposed transaction, including analyses at different exchange ratios as well as the impact that a special cash dividend would have. Representatives of Wachtell Lipton presented an update on the status of the transaction documents and the members of the compensation committee updated the full board on their discussions with respect to the employment agreements. Following discussion, the United Community board instructed management and Sandler O’Neill to propose an increased exchange ratio of 0.3715, which would increase the pro forma ownership in the surviving entity of United Community shareholders from 47% to 47.5%, as well as a special cash dividend payable to United Community shareholders prior to closing, if necessary, to address any remaining discount implied by the transaction value will beas compared to the closing sale price of shares of Commercial BancsharesUnited Community’s common stock as of the closesigning of tradingthe merger.

Following the board meeting, representatives of Sandler O’Neill conveyed the proposal on the day beforeexchange ratio and special dividend to representatives of KBW. The KBW representatives indicated that they would review the voteproposal with First Defiance.

On September 6, 2019, First Defiance’s special committee met with KBW representatives to discuss United Community’s latest proposal on the exchange ratio. KBW provided a market update to the committee and reviewed the potential impact of the Commercial Bancshares shareholders. Investment banker opinions to company boards of directors regarding the fairness from aproposed exchange ratio on financial point of viewaspects of the consideration payable in a transaction such as the merger are not opinions regarding, and do not address, “fair cash value” under Section 1701.85.

If a Commercial Bancshares shareholder exercises such shareholder’s dissenters’ rights under Section 1701.85, all other rights with respectproposed transaction. The committee determined to such shareholder’s shares of Commercial Bancshares common stock will be suspended until Commercial Bancshares purchases the shares, or the right to receive the fair cash value is otherwise terminated. Such rights will be reinstated should the right to receive the fair cash value be terminated other than by the purchase of the shares.

The foregoing description of the procedures to be followed in exercising dissenters’ rights available to holders of shares of Commercial Bancshares common stock pursuant to Section 1701.85 of the OGCL may not be complete and is qualified in its entirety by referencerecommend to the full textboard that it approve the proposed transaction with the proposed exchange ratio of Section 1701.85 attached asAnnex C to this proxy statement/prospectus.


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PARTIES TO THE MERGER AGREEMENT

First Defiance

First Defiance Financial is a unitary thrift holding company that conducts business through its three wholly owned subsidiaries, First Federal, First Insurance Group of the Midwest, Inc., and First Defiance Risk Management Inc. First Defiance had assets of $2.4 billion and shareholders’ equity of $286.6 million at June 30, 2016.0.3715.

First Federal is a federally chartered savings bank, operating 34 full-service branches and numerous ATM locations in northwest Ohio, southeast Michigan and northeast Indiana and a loan production office in Columbus, Ohio. First Federal’s traditional banking activities include originating and servicing residential, non-residential real estate, commercial, home improvement and home equity and consumer loans and providing a broad range of depository, trust and wealth management services. First Insurance Group is a full-service insurance agency with six offices throughout northwest Ohio, 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.

Commercial Bancshares

Commercial Bancshares is a financial holding company that conducts business through its wholly owned subsidiaries, Commercial Bank and Commercial Financial. At June 30, 2016, Commercial Bancshares had assets of $342 million and Shareholders’ equity of $38.2 million.

The principal business of Commercial Bancshares is to operate the Bank, which is a wholly-owned subsidiary, and its principal asset. Commercial Bank functions as an independent community, state-chartered bank. Commercial Bank provides customary retail and commercial banking services to its customers, including acceptance of deposits for demand, savings and time accounts, individual retirement accounts and servicing of such accounts; commercial, consumer and real estate lending, including installment loans, and safe deposit and night depository facilities. Commercial Bank is a nonmember of the Federal Reserve System, is insured by the FDIC and is regulated by the Ohio Division of the Financial Institutions and the FDIC. Commercial Bank grants residential, installment and commercial loans to customers located primarily in the Ohio counties of Wyandot, Marion and Hancock and the surrounding area.


TABLE OF CONTENTS

THE MERGER

Terms of the Merger

Transaction Structure

First Defiance’s and Commercial Bancshares’ boards of directors have unanimously approved the Merger Agreement. The Merger Agreement provides for the acquisition of Commercial Bancshares by First Defiance through the merger of Commercial Bancshares with and into First Defiance, with First Defiance continuing as the surviving corporation. ImmediatelyOn September 6, 2019, following the merger, Commercial Bank will merge with and into First Federal with First Federal being the surviving bank.

Merger Consideration

The Merger Agreement provides that Commercial Bancshares shareholders will have the right, with respect to each of their shares of Commercial Bancshares common stock, to elect to receive, without interest, either (i) 1.1808 shares of First Defiance common stock, or (ii) $51.00 in cash subject to the payment of cash instead of fractional shares and subject to certain election and allocation procedures described below, if necessary, to ensure that 20% of the outstanding shares of Commercial Bancshares are exchanged for cash and 80% of the outstanding shares of Commercial Bancshares are exchanged for shares of First Defiance. Commercial Bancshares shareholders who make no election to receive cash or shares of First Defiance common stock in the merger, whose elections are not received by the exchange agent by the election deadline, or whose forms of election are improperly completed and/or are not signed, will be deemed not to have made an election. Commercial Bancshares shareholders who do not make an election may be paid in cash, First Defiance common stock or a mix of cash and First Defiance common stock depending on, and after giving effect to, the proration and adjustment procedures described below, and the number of valid cash elections and stock elections that have been made by other Commercial Bancshares shareholders.

First Defiance will not issue fractional shares to Commercial Bancshares shareholders. Instead, Commercial Bancshares common shareholders will receive for each fractional share an amount in cash (rounded to the nearest cent) determined by multiplying (i) the fraction of a share (after taking into account all shares of Commercial Bancshares common stock held by such shareholder at the effective time of the merger) of First Defiance common stock the Commercial Bancshares shareholder would otherwise have been entitled to receive under the Merger Agreement by (ii) $51.00.

When making an election, Commercial Bancshares shareholders may specify different elections with respect to different shares of Commercial Bancshares common stock held by them (for example, a Commercial Bancshares shareholder with 100 shares of Commercial Bancshares common stock could make a cash election with respect to 50 shares and a stock election with respect to the other 50 shares, subject to the adjustment, election and allocation procedures described below).

As described in more detail below, the allocation procedures in the Merger Agreement are intended to provide for an aggregate 80% stock and 20% cash allocation among all outstanding Commercial Bancshares shares. The allocation of the mix of consideration payable to Commercial Bancshares shareholders in the merger will not be known until First Defiance tallies the results of the cash and stock elections made by Commercial Bancshares shareholders, which will not occur until shortly after the closing of the merger.

No guarantee can be mademarket, in accordance with First Defiance’s directives, representatives of KBW communicated to Sandler O’Neill that Commercial Bancshares shareholders will receiveFirst Defiance, pending final board approval, was in agreement with the amountsproposed exchange ratio of cash0.3715, which represented an implied premium to United Community’s closing price on September 6, 2019 of $0.17 or stock they elect. As1.7%, but as a result, of the allocation procedures and other limitations outlined in this proxy statement/prospectus and in the Merger Agreement, Commercial Bancshares shareholders may receive First Defiance common stock or cash in amountshad

determined that vary from the amounts they elect to receive.special dividend proposal was moot. Sandler O’Neill and United Community agreed that, pending board approval on both sides, the special dividend proposal would be moot.

If you are a Commercial Bancshares shareholderFollowing these discussions, Wachtell Lipton and you receive First Defiance common stock as merger consideration for all or a portion of your shares of Commercial Bancshares common stock,Barack Ferrazzano finalized the implied value of the merger consideration that you will receive will depend on the market price of First Defiance common stock when you receive the shares of First Defiance common stock.


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Election Procedures; Surrender of Stock Certificates

A form of election and transmittal materials will be mailed under separate cover to Commercial Bancshares shareholders who hold shares of Commercial Bancshares common stock in registered form. Each form of election will allow the holder to make cash or stock elections or no elections. We refer to the shares with respect to which a valid cash election is made as “cash election shares,” the shares with respect to which a valid stock consideration election is made as “stock election shares,” and the shares with respect to which no election is made as “non-election shares.”

To make an effective election, a Commercial Bancshares shareholder must submit a properly completed form of election and transmittal materials along with stock certificates or evidence of book-entry shares for which an election is made to the exchange agent by the election deadline, which is 5:00 p.m., Eastern Time, on     . An election is properly made only if the exchange agent actually receives a properly completed and signed form of election by the election deadline. A form of election will be deemed to be properly completed only if accompanied by one or more stock certificates (or a customary guarantee of delivery of such certificates) or evidence of book-entry shares representing all shares of Commercial Bancshares common stock covered by such form of election, together with duly executed transmittal materials included with the form of election.

Generally, an election may be revoked or changed, but only by written notice received by the exchange agent prior to the election deadline accompanied by a revised form of election. If an election is revoked and unless a subsequent properly completed form of election is actually received by the exchange agent at or prior to the election deadline, the holder having revoked the election will be deemed to have made no election with respect to his or her shares of Commercial Bancshares common stock, such shares will be treated as non-election shares. If the Merger Agreement is terminated, and any certificates have been transmitted to the exchange agent, the exchange agent will return those certificates to the shareholder who submitted those certificates.

Commercial Bancshares shareholders will not be entitled to revoke or change their elections following the election deadline. As a result, Commercial Bancshares shareholders who have made elections will be unable to revoke their elections or sell their shares of Commercial Bancshares common stock during the interval between the election deadline and the date of completion of the merger.

If you own shares of Commercial Bancshares in “street name” through a broker or other financial institution, you should receive or seek instructions from the institution holding your shares concerning how to make your election. Any instructions must be given to your broker or other financial institution sufficientlytransaction agreements in advance of each company’s respective board meetings to consider the election deadline for record holders in order to allow your broker or other financial institution to causeproposed transaction.

On September 7, 2019, the record holder of your shares to make an election as described above.

If a Commercial Bancshares shareholder either (i) does not submit a properly completed form of election on or before the election deadline or (ii) revokes its form of election prior to the election deadline (without later submitting a properly completed form of election prior to the election deadline), the shares of Commercial Bancshares common stock held by such shareholder shall be designated as non-election shares and will be converted into the right to receive the stock consideration or the cash consideration according to the allocation procedures specified in the Merger Agreement and summarized below. In addition, if it is reasonably determined by the exchange agent that any purported cash election or stock election was not properly made, the purported election will be deemed to be of no force or effect and the holder making the purported election will be deemed not to have made an election for these purposes, unless a proper election is subsequently made on a timely basis.Commercial Bancshares shareholders are urged to carefully read and follow the instructions for completion of the form of election and to submit the form along with the stock certificate(s) or evidence of book-entry shares in advance of the election deadline. These instructions and the form of election will be sent to you separately from this proxy statement/prospectus.


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Allocation Procedures

The aggregate amount of cash and First Defiance common stock that will be paid is subjectboard held a meeting to the allocation procedures described in detail below. Under the allocation procedures, if the number of shares of Commercial Bancshares common stock for which a cash election is made is higher than 20% of the outstanding shares of Commercial Bancshares common stock, a pro rata portion of those shares may be converted into the right to receive First Defiance common stock in order to provide for an aggregate 80% stock and 20% cash allocation among all outstanding Commercial Bancshares shares. If the number of shares of Commercial Bancshares common stock for which a stock election is made is higher than 80% of the outstanding shares of Commercial Bancshares common stock, a pro rata portion of those shares will be converted into the right to receive the cash consideration, in order to provide for an aggregate 80% stock and 20% cash allocation among all outstanding Commercial Bancshares shares. As a result of these allocations procedures, if you elect to receive only cash consideration or only stock consideration, you may receive a mix of cash consideration and stock consideration.

Stock Consideration Allocation.  If the aggregate number of stock election shares, which we refer to as the “stock election number,” exceeds the stock conversion number (as defined below), then all cash election shares and all non-election shares of each holder thereof will be converted into the right to receive the cash consideration, and stock election shares of each holder will be converted into the right to receive the stock consideration but only in an amount equal to that number of stock election shares equal to the product obtained by multiplying (x) the number of stock election shares held by such holder by (y) a fraction, the numerator or which is the stock conversion number and the denominator of which is the stock election number, with the remaining number of such holder’s stock election shares being converted into the right to receive cash consideration.

The “stock conversion number” is equal to the product obtained by multiplying (x) the number of shares of Commercial Bancshares common stock outstanding immediately prior to the effective time of the merger by (y) 0.80.

Cash Consideration Allocation.  If the stock election number is less than the stock conversion number (the amount by which the stock conversion number exceeds the stock election number being referred to in this proxy statement/prospectus as the “shortfall number”), then all stock election shares shall be converted into the right to receive the stock consideration, and the non-election shares and cash election shares will be treated in the following manner:

If the shortfall number is less than or equal to the number of non-election shares, then all cash election shares will be converted into the right to receive the cash consideration, and the non-election shares of each holder thereof will be converted into the right to receive the stock consideration in respect of that number of non-election shares equal to the product obtained by multiplying (A) the number of non-election shares held by such holder by (B) a fraction, the numerator of which is the shortfall number and the denominator of which is the total number of non-election shares, with the remaining number of such holder’s non-election shares being converted into the right to receive the cash consideration; or
If the shortfall number exceeds the number of non-election shares, then all non-election shares will be converted into the right to receive the stock consideration, and the cash election shares of each holder thereof will be converted into the right to receive the stock consideration in respect of that number of cash election shares equal to the product obtained by multiplying (A) the number of cash election shares held by such holder by (B) a fraction, the numerator of which is the amount by which (x) the shortfall number exceeds (y) the total number of non-election shares and the denominator of which is the total number of cash election shares, with the remaining number of such holder’s cash election shares being converted into the right to receive the cash consideration.

Illustrative Examples of Allocation Procedures.  For illustrative purposes only, the following examples describe the application of the allocation provisions of the Merger Agreement in the case of an oversubscription of cash election shares and in the case of an oversubscription of stock election shares. Solely for the purposes of these examples, it is assumed that there are 1,200,000 shares of common stock of


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Commercial Bancshares outstanding, and the stock conversion number is 960,000. It is also assumed that there are no shares with respect to which dissenters’ rights have been properly exercised and perfected under Ohio law.

Example 1 (Oversubscription of Stock Election Shares)

Assume that valid stock elections are received with respect to 1,080,000 shares (approximately 90% of the outstanding shares) of Commercial Bancshares common stock; valid cash elections are received with respect to 120,000 shares (approximately 10% of the outstanding shares) of Commercial Bancshares common stock; and no elections are received with respect to 1,000 shares (less than 0.001% of the outstanding shares). The allocation provisions would generally apply as follows:

•Cash election shares.  All 120,000 cash election shares are converted into the right to receive the cash consideration.
•Non-election shares.  All 1,000 non-election shares are converted into the right to receive the cash consideration.
•Stock election shares.  Of the 1,080,000 stock election shares, 960,000 stock election shares are converted into the right to receive the stock consideration. The remaining 120,000 stock election shares are converted into the right to receive the cash consideration. Since the stock election shares are oversubscribed, this means that the Commercial Bancshares shareholders who make a stock election receive a mix of cash and stock merger consideration.

This can be further illustrated as follows:

•Shareholder Aholds 1,000 shares of Commercial Bancshares common stock and makes a valid stock election with respect to all 1,000 shares. 888.8889 of such shares (1,000 x (960,000/1,080,000)) are converted into the right to receive the stock consideration, and the remaining 111.1111 of such shares are converted into the right to receive the cash consideration. Shareholder A would receive:
º1,049 shares of First Defiance common stock (888.8889 x 1.1808) and cash instead of a fractional [0.6] share of First Defiance common stock; and
º$5,666.67 in cash (111.1111 x $51.00).
•Shareholder Bholds 1,000 shares of Commercial Bancshares common stock and makes a valid cash election with respect to all 1,000 shares. Shareholder B would receive $51,000 in cash (1,000 x $51.00).
•Shareholder Cholds 1,000 shares of Commercial Bancshares common stock and makes a valid cash election with respect to 500 shares and a valid stock election with respect to 500 shares. All 500 cash election shares are converted into the right to receive the cash consideration. Of the 500 stock election shares, 444.4444 shares (500 x (960,000/1,080,000)) are converted into the right to receive the stock consideration, and the remaining 55.5556 stock election shares are converted into the right to receive the cash consideration. Shareholder C would receive:
º524 shares of First Defiance common stock (444.4444 x 1.1808) and cash instead of a fractional [0.7999] share of First Defiance common stock; and
º$28,333.34 in cash ((500 + 55.5556) x $51.00).

Example 2 (Oversubscription of Cash Election Shares)

Assume that valid cash elections are received with respect to 576,000 shares (approximately 48% of the outstanding shares) of Commercial Bancshares common stock; valid stock elections are received with respect to 456,000 shares (approximately 38% of the outstanding shares); and no elections are received with respect to 168,000 shares (approximately 14% of the outstanding shares). This means that the shortfall number is 504,000 (960,000-456,000), and the allocation provisions would generally apply as follows:

•Stock election shares.  All 456,000 stock election shares are converted into the right to receive the stock consideration.

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•Non-election shares.  Because the shortfall number (504,000) exceeds the number of non-election shares (168,000), all 168,000 non-election shares are converted into the right to receive the stock consideration.
•Cash election shares.  Of the 576,000 cash election shares, 336,000 cash election shares are converted into the right to receive the stock consideration. The remaining 240,000 cash election shares are converted into the right to receive the cash consideration. Since the cash election shares are oversubscribed, this means that the Commercial Bancshares shareholders who make a cash election receive a mix of cash and stock merger consideration.

This can be further illustrated as follows:

•Shareholder A holds 1,000 shares of Commercial Bancshares common stock and makes a valid stock election with respect to all 1,000 shares. Shareholder A would receive 1,180 shares of First Defiance common stock (1,000 x 1.1808) and cash instead of a fractional 0.8 share of First Defiance common stock.
•Shareholder B holds 1,000 shares of Commercial Bancshares common stock and makes a valid cash election with respect to all 1,000 shares. 583.3333 of such shares (1,000 x (336,000/576,000)) would be converted into the right to receive the stock consideration, and the remaining 416.6667 of such shares would be converted into the right to receive the cash consideration. Shareholder B would receive:
º688 shares of First Defiance common stock (583.3333 x 1.1808) and cash instead of a fractional 0.80 share of First Defiance common stock; and
º$21,250.00 in cash (416.6667 x $51.00).
•Shareholder C holds 1,000 shares of Commercial Bancshares common stock and makes a valid cash election with respect to 500 shares and a valid stock election with respect to 500 shares. All 500 stock election shares are converted into the right to receive the stock consideration. Of the 500 cash election shares, 291.6667 shares (500 x (336,000/576,000)) would be converted into the right to receive the stock consideration, and the remaining 208.3333 of such cash election shares would be converted into the right to receive the cash consideration. Shareholder C would receive:
º934 shares of First Defiance common stock ((500 + 291.6667) x 1.1808) and cash instead of a fractional 0.832 share of First Defiance common stock; and
º$10,625 in cash (208.3333 x $51.00).

Conversion of Shares; Exchange of Certificates; Elections as to Form of Consideration

The conversion of Commercial Bancshares common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. As soon as reasonably practicable on or within not more than five business days after the effective time of the merger, the exchange agent will exchange shares of Commercial Bancshares common stock for merger consideration to be received in the merger pursuant toconsider the terms of the Merger Agreement.

Letters of Transmittal

As soon as reasonably practicable after the completion of the merger, the exchange agent will send a letter of transmittal to only those persons who were Commercial Bancshares shareholders at the effective time of the merger and who have not previously submitted a form of election and properly surrendered shares of Commercial Bancshares common stock to the exchange agent. This mailing will contain instructions on how to surrender shares of Commercial Bancshares common stock (if these shares have not already been surrendered) in exchange for the merger consideration the holder is entitled to receive under the Merger Agreement. If a certificate for Commercial Bancshares common stock has been lost, stolen or destroyed, the exchange agent will issue the consideration properly payable under the Merger Agreement upon receipt of appropriate evidence as to that loss, theft or destruction, appropriate evidence as to the ownership of that certificate by the claimant, and appropriate and customary indemnification.


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Dividends and Distributions

Until Commercial Bancshares common stock certificates are surrendered for exchange, any dividends or other distributions with a record date after the effective time with respect to First Defiance common stock into which shares of Commercial Bancshares common stock may have been converted will accrue but will not be paid. First Defiance will pay to former Commercial Bancshares shareholders any unpaid dividends or other distributions, without interest, only after they have duly surrendered their Commercial Bancshares stock certificates or evidence of book entry shares. After the effective time of the merger, there will be no transfers on the stock transfer books of Commercial Bancshares of any shares of Commercial Bancshares common stock. If certificates representing shares of Commercial Bancshares common stock or book-entry shares are presented for transfer after the completion of the merger, they will be cancelled and exchanged for the merger consideration into which the shares of Commercial Bancshares common stock represented by that certificate or evidence of book entry have been converted.

Dissenting Shares

Shares held by Commercial Bancshares shareholders who have perfected and not lost their dissenters’ rights in accordance with the procedures and requirements of Ohio law will not be converted into the right to receive either the cash consideration or stock consideration, and will instead be entitled only to the rights granted by Ohio law. If any such Commercial Bancshares shareholder withdraws or loses his or her dissenters’ rights under Ohio law at or prior to the effective time of the merger, the shares of Commercial Bancshares common stock held by such shareholder will be converted into the right to receive the stock consideration or cash consideration, or a combination of stock consideration and cash consideration, as determined by First Defiance in its sole discretion. See the section entitled “Dissenters’ Rights.”

Treatment of Commercial Bancshares Stock Options

In accordance with the Merger Agreement, at the effective time of the merger, each option to purchase shares of Commercial Bancshares common stock (each, a “Commercial Bancshares stock option”) outstanding and unexercised immediately prior to the effective time of the merger that is exercisable, or will become exercisable as a result of the merger, will be terminated immediately prior to the effective time of the merger and entitled to receive cash equal to the excess, if any, of $51.00 over the exercise price of such Commercial Bancshares stock option.

Background of the Merger

As part of Commercial Bancshares’ ongoing strategic planning process, the Commercial Bancshares board of directors regularly discussed issues impacting the future success of Commercial Bancshares. Among the issues discussed were the ability of Commercial Bancshares to compete against much larger banking institutions with greater financial resources and legal lending limits, the ability to grow or even maintain the earnings Commercial Bancshares had experienced based upon a strong net interest margin in a low interest rate environment, management succession in all functional areas of Commercial Bancshares, including on the Commercial Bancshares board of directors, and the cost of complying with current and increasing banking and securities regulations. The directors also discussed the general limited liquidity in Commercial Bancshares’ common stock as a company with stock traded over the counter, even though a public reporting company, and the importance of this factor to its aging shareholder base.

Over the last several years, Commercial Bancshares had been approached from time to time by a number of financial institutions that inquired as to Commercial Bancshares’ interest in combining organizations including a general discussion between Robert Beach, Commercial Bancshares CEO, and Donald Hileman, the CEO and President of First Defiance, in November 2015. None of those approaches resulted in specific definitive proposals and Commercial Bancshares continued to operate and grow as an independent bank.

Early in 2016, the board started to revisit the issue of seeking an affiliation with a larger institution. At the Commercial Bancshares board of directors’ meeting on February 11, 2016, Thomas C. Blank, a partner in the law firm of Shumaker, Loop & Kendrick, LLP (“Shumaker”), discussed with the board various factors to consider in connection with a potential transaction and the process for initiating such a transaction, including retaining an investment banking firm.


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On March 15, 2016 representatives from KBW and another investment banking firm met with members of the Commercial Bancshares board of directors so that the board could evaluate their qualifications to be retained as Commercial Bancshares’ financial advisor. At the conclusion of that meeting, the Commercial Bancshares board discussed the qualifications of each investment banking firm, deliberated and decided it preferred to retain KBW as financial advisor to assist Commercial Bancshares in evaluating its strategic options and authorized and directed Mr. Beach to negotiate an acceptable engagement letter to retain KBW. After negotiation of the engagement letter, KBW was subsequently engaged.

At the next regularly scheduled meeting of the Commercial Bancshares board of directors on April 14, 2016, KBW discussed with the board the community banking environment in Ohio, potential transaction partners and preliminary aspects of a potential transaction and outlined how KBW would assist with the process. Also as a part of that meeting, the board of directors authorized the formation of a committee (the “Committee”) consisting of Directors, Kinnett, Dillon, Sisler and Mr. Beach to assist with considering a potential transaction in a convenient and expeditious manner.

For the remainder of the month of April 2016, select members of the management of Commercial Bancshares and KBW worked to prepare a Confidential Information Memorandum (“CIM”) for distribution to interested potential acquirors of Commercial Bancshares. The Committee and KBW worked to identify a list of potential merger partners, nine of which were contacted at the Committee’s direction, including First Defiance. Of the nine such institutions, eight expressed an interest in considering a transaction, including First Defiance, and each of them executed a confidentiality agreement in order to receive the CIM. Commercial Bancshares, with the assistance of KBW, established an electronic data room containing information about Commercial Bancshares for the interested parties to review in regard to making an offer. The CIM contained instructions for submitting an offer for Commercial Bancshares and was distributed to the interested parties on or about May 5, 2016. Initial expressions of interest were required to be submitted by May 25, 2016. By that date, four expressions of interest had been received, each of which contained information on pricing, the form of consideration, timing, and an indication of the proposed structure of a combined organization. First Defiance did not submit an expression of interest by May 25th.

On May 26, 2016, the Company’s board of directors met to review the four expressions of interest. A representative of KBW reviewed with the board copies of each of the four expressions of interest, as well as information about each of the institutions that expressed interest. Of the four expressions of interest, one (“P1”) offered a significantly higher price than the other three, one was too low relative to the others to be accepted and two were almost identical in value. Subsequent to the board meeting, at the direction of the board, representatives of KBW contacted both of these two companies and asked each of them to submit revised proposals to attempt to differentiate their proposal from the other proposal. While both such parties submitted revised proposals on May 31st, one of the two parties (“P2”) submitted a revised proposal significantly in excess of the other (“P3”).

At the Company’s invitation, because they had submitted the two highest proposals, P1 and P2 commenced due diligence on Commercial Bancshares using the electronic data room and additional resources. Representatives of both P1 and P2 also had discussions with Mr. Beach and other officers of Commercial Bancshares. On June 13, 2016, P1 made a decision to withdraw from considering a transaction with Commercial Bancshares, noting a difference of opinion in regard to how Commercial Bancshares treated a particular group of loans. P2 expressed a similar viewpoint on June 30th and withdrew its initial proposal, but discussions continued after that date between the parties and their respective financial advisors about the ability to restructure the potential transaction.

On July 1st, Mr. Beach contacted the President of P3 to see if P3 still would have an interest in a transaction. P3 expressed an interest in reengaging in consideration of a transaction and commenced due diligence. On July 15, 2016 Mr. Hileman contacted KBW to inquire if Commercial Bancshares was still evaluating bids and suggested that First Defiance may still be interested. In the meantime, P3 submitted a revised bid for Commercial Bancshares on July 22nd, which offer was lower than the proposal submitted by P3 on May 25th.


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First Defiance’s board of directors met on July 18th and authorized management to conduct due diligence on Commercial Bancshares in order to explore interest in submitting an indication of interest. From July 19th through July 27th, First Defiance conducted due diligence through the data room. On July 25th, Mr. Hileman and Mr. Beach met to discuss synergies of a possible merger.

On July 27, 2016, First Defiance’s board met with its management team to review the due diligence results and a proposed indication of interest. The board approved management’s recommendation to submit the indication of interest. On July 28, 2016, First Defiance submitted the indication of interest, offering to acquire Commercial Bancshares for $51.00 per share payable in cash or stock of First Defiance, subject to not more than 20% of the merger consideration being paid in cash. The offer provided for a fixed exchange ratio. P2 did not resubmit an offer.

The Commercial Bancshares board of directors met on July 29th to review the two proposals that were then outstanding, the one from First Defiance and the one from P3. Representatives of KBW reviewed with the board publicly available information comparing the remaining two institutions and the two proposals. The board evaluated the proposals in consultation with KBW and, after discussion and deliberation, determined that the proposal from First Defiance was clearly superior in regard to pricing, liquidity and other factors. On that date, the board of directors adopted resolutions authorizing and directing Mr. Beach to accept and deliver the indication of interest to First Defiance and to commence negotiation with First Defiance of a definitive agreement consistent with the indication of interest.

First Defiance engaged Raymond James & Associates, Inc. (“Raymond James”) to act as First Defiance’s investment banking advisor in its evaluation of the merger.

After execution of a confidentiality agreement with First Defiance, Mr. Beach, Mr. Blank of Shumaker and William Showalter of Young & Associates, Inc. conducted an onsite due diligence investigation of First Defiance on August 5, 2016. They reviewed a number of documents including, business plans, budgets, minutes of the board of directors and various committees of First Defiance and First Federal, policies, financial projections and additional items. The due diligence review showed no specific areas of concern that called into question the ability of First Defiance to consummate the transaction or the condition of First Defiance generally. During this time, First Defiance continued its due diligence review of Commercial Bancshares through the data room and conversations with Commercial Bancshares’ management.

Vorys, Sater, Seymour and Pease LLP (“Vorys”), as counsel for First Defiance, prepared a draft of the Merger Agreement and delivered it to Shumaker, as counsel to Commercial Bancshares on August 10th. On August 11th, membersUnited Community. Members of First Defiance’s management team and board met with certain membersrepresentatives of Commercial Bancshares’ management teamKBW and board to discuss the merger, including opportunities and synergies. Later that day, the board of directors of Commercial Bancshares met, with representatives from Shumaker and KBW in attendance, to review the results of the due diligence investigation of First Defiance, an initial overview of the Commercial Bancshares merger agreement relative to the indication of interest letter and the likely process through signing of the merger agreement, employee meeting and announcement and reporting of the transaction.

The parties continued their negotiation of the Merger Agreement and exchanged drafts of respective disclosure schedules regarding the same on August 19th.

The board of directors of First Defiance met on the morning of August 23rd with Mr. Patel and Mr. Paramore of Raymond James and Ms. Schaefer of Vorys to review the Merger Agreement. The board discussed the merger in detail and, then, the board unanimously approved the Merger Agreement.

The board of directors of Commercial Bancshares also met on August 23, 2016 starting at 1:00 PM. All of the members of the board of directors were present with Ms. Grafmiller participating by telephone. Representatives of Shumaker and KBWBarack Ferrazzano were also in attendance. Mr. Hileman updated the board as to the recent discussions between the management teams and advisors, as well as the considerations of the special transaction committee. At this meeting, KBW reviewed the financial aspects of the proposed transactionmerger and rendered an opinion to the Board an opinionFirst Defiance board to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in itssuch opinion, the merger considerationexchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Commercial Bancshares common stock. (SeeFirst Defiance. See “The Merger Opinion of Commercial Bancshares’ Financial Advisor” below).


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After the conclusion of KBW’s presentation, the board received the form of the Merger Agreement and, with the assistance of Mr. Blank of Shumaker, reviewed it in significant detail, confirming that the form of the Merger Agreement corresponded to the terms established in the initial indication of interest and that it was typical for transactions of this type. The board reviewed the structure of the transaction, the representations and warranties, restrictions on the operations of Commercial Bancshares and Commercial Bank between signing and closing, conditions to closing and related matters. After the review of the Merger Agreement, the board, with Mr. Blank participating, discussed the transaction, posed questions to counsel and further deliberated. Thereafter, the board received and considered resolutions concerning the transaction. The members of the board unanimously approved the Merger Agreement and transactions set forth therein and authorized Mr. Beach to execute and deliver the Merger Agreement and take the other actions necessary to effect the transaction. The meeting was adjourned at approximately 3:30 PM.

A meeting of the employees of Commercial Bank was held at 5:30 PM on August 23rd to announce the transaction to them. Mr. Hileman and other members of First Defiance’s management team were presentFinancial Advisor,” beginning on page 65, for more information. Representatives of Barack Ferrazzano then advised the board on its fiduciary duties and led the board through the proposed final merger agreement and related transaction documents. After discussing and considering the proposed terms of the merger agreement and related transaction documents, and taking into consideration the matters discussed during that meeting.

Commercial Bancshares’meeting and prior meetings of the First Defiance board and the factors described under “First Defiance’s Reasons for the Merger; Board Recommendation

Commercial Bancshares’” beginning on page 62, the First Defiance board of directors believes thatunanimously determined the merger, the merger agreement, the other transaction withagreements and the other transactions contemplated by the proposed merger agreement, to be in the best interests of First Defiance, is consistent with Commercial Bancshares’ goal of enhancing shareholder valueits shareholders and providing liquidity for the holders of Commercial Bancshares common stock. In addition,its other constituencies, and the board of directors believes thatunanimously approved and adopted the proposed merger agreement, the other transaction agreements and the transactions contemplated thereby, including the merger, withand determined that it would recommend that First Defiance addressesDefiance’s shareholders adopt the board’s desire that any potential transaction be deemed inmerger agreement.

On September 8, 2019, the best interest of the customers and employees of Commercial Bank and the communities Commercial Bancshares serves. Commercial Bancshares’United Community board of directors consideredheld a variety of factors includingmeeting to consider the following:

The significant increase in liquidity to Commercial Bancshares shareholders as a thinly traded company. First Defiance stock is actively traded and listed on NASDAQ.
The expected results to Commercial Bancshares shareholders from continuing to operate as an independent community banking institution compared with the valueterms of the merger consideration offered byproposed transaction with First Defiance.
That Members of United Community’s management team and representatives from Sandler O’Neill and Wachtell Lipton were also in attendance. Sandler O’Neill provided an update on the shareholdersdiscussions with KBW with respect to United Community’s proposed exchange ratio and First Defiance’s acceptance of Commercial Bancshares who would receive a modest increasean increased exchange ratio of 0.3715. Sandler O’Neill then reviewed the market developments since the last board meeting and its updated financial analysis, and rendered an opinion to the United Community board to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Sandler O’Neill as set forth in cash dividends of approximately 4%.
Thatsuch opinion, the majority of the merger consideration would be paid to Commercial Bancshares shareholdersexchange ratio in the form of common stock of First Defiance, which would provide those shareholders receiving such stock with an opportunity to participate in any possible future earnings and appreciation in the value of the combined company.
The opinion, dated August 23, 2016, of KBWproposed merger was fair to the Commercial Boardholders of Directors as to the fairness,United Community common stock from a financial point of viewview. See “Opinion of United Community’s Financial Advisor,” beginning on page 79, for more information. Representatives of Wachtell Lipton further advised the board of directors on its fiduciary duties and asconfirmed the terms of the date ofproposed final merger agreement and related transaction documents. After considering the opinion, to the holders of Commercial common stockproposed terms of the merger agreement and related transaction documents and the various presentations of its financial and legal advisors, and taking into consideration inthe matters discussed during that meeting and prior meetings of the United Community board and the factors described under “United Community’s Reasons for the Merger; Board Recommendation,” beginning on page 77, the United Community board of directors unanimously determined the merger, the merger agreement, the other transaction documents and the other transactions contemplated by the proposed merger as more fully described below under “Opinionagreement, to be in the best interests of Commercial’s Financial Advisor”.
ThatUnited Community, its shareholders and its other constituencies, and the board of directors unanimously approved and adopted the proposed merger agreement, the other transaction agreements and the transactions contemplated thereby, including the merger, is intended to qualify as reorganization under Section 368and determined that it would recommend that United Community shareholders adopt the merger agreement.

Subsequently, the merger agreement and related transaction agreements were executed and delivered and the transaction was announced on the morning of September 9, 2019 in a press release issued jointly by United Community and First Defiance.

First Defiance’s Reasons for the Internal Revenue Code.

The expectationMerger; Board Recommendation

First Defiance’s board of directors has concluded that the merger should result in economies of scale, cost savings, and efficienciesoffers shareholders an extremely attractive opportunity to achieve the combined company.

The board of directors’ strategic business objectives. These objectives included increasing shareholder value and growing the size of the business to one of the premier financial institutions in Ohio and the greater Midwest region.

In deciding to approve the merger agreement and the transactions it contemplates, First Defiance’s board of directors evaluated the merger in consultation with management, as well as First Defiance’s legal counsel and financial advisors, and considered numerous factors, including the following:

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information with respect to the businesses, earnings, operations, financial condition, prospects, capital levels and asset quality of First Defiance and United Community, both individually and as a combined company; in reviewing these factors, the First Defiance board of directors considered the following:

the historical performance of each of First Defiance’s and United Community’s common stock;

the strategic fit of the business lines and the operating philosophies of the two institutions;

that First Defiance’s and United Community’s senior leadership share beliefs in strong community ties, customer focus and accountability, and its views regarding the long-term impacts of such philosophies with respect to the development of the communities in which the combined company will operate and the potential business performance of the combined company;

its understanding that the merger would diversify First Defiance’s loan portfolio, revenue streams and markets and strengthen its core retail deposit franchise, which may mitigate certain business risks;

the anticipated cost savings associated with the merger; and

the anticipated impact of the transaction on the combined company, including the expected impact on additional key financial metrics (including tangible book value per share, return on assets, return on tangible common equity, and cash efficiency ratio), regulatory capital ratios and anticipated earnings per share accretion;

views with respect to other potential strategic alternatives, including focusing exclusively on organic growth, pursuing other acquisitions or pursuing larger merger partners;

the complementary nature of the businesses of First Defiance and United Community, its view that the combined organization would have a stronger, deeper leadership team than First Defiance as a stand-alone company, the anticipated improved stability of the combined company’s business and earnings in varying economic and market climates relative to First Defiance on a stand-alone basis and the combined organization’s anticipated ability to provide enhanced products, services and technologies; all of which could facilitate enhanced operational performance, strategic growth and risk management for the combined company;

the fact that the merger would combine two solid banking franchises to create a bank with over $6.0 billion in assets;

the consistency of the merger with First Defiance’s long-term strategic vision to seek profitable future expansion in Ohio and the greater Midwest region, providing the foundation for expansion of its geographic footprint, leading to continued growth in overall shareholder value;

both organizations have a long-standing, community banking philosophy of superior customer service, personalized financial solutions for both personal and business customers and a commitment to their communities;

the opportunity to build greater brand recognition and awareness;

understanding that First Defiance shareholders would own approximately 52.5% of the combined company’s common stock;

the structure of the transaction as a merger of equals in which First Defiance’s board of directors and management would have significant participation in the combined company; in particular, the provisions of the merger agreement setting forth the corporate governance of the combined company, including:

the fact that Mr. Bookmyer would serve as Chairman of the combined company, Mr. Schiraldi would serve as Vice Chairman, Mr. Hileman would serve as Chief Executive Officer (transitioning to Executive Chairman in the first half of 2021) and Mr. Small would serve as President (transitioning to Chief Executive Officer in the first half of 2021);

the fact that seven of 13 total directors of the combined company would be current members of the First Defiance board of directors (including Mr. Hileman and Mr. Bookmyer); and

that the affirmative vote of at least 75% of the board of directors of the combined company would be required to remove Mr. Hileman from serving in the capacities referred to above;

the fact that First Defiance’s code of regulations and corporate governance guidelines would be amended to preserve certain corporate governance arrangements of the combined company (including senior executive management positions of the combined company and the allocation of directors between First Defiance and United Community) for a period from closing through the second anniversary of the transition of Mr. Hileman to Executive Chairman in the first half of 2021;

the familiarity of First Defiance’s senior management team with United Community’s management team and the belief of First Defiance’s senior management that the management teams and employees of First Defiance and United Community possess complementary skills and expertise and the potential advantages of a larger institution when pursuing, or seeking to retain, production and management talent;

the belief of First Defiance’s senior management and the First Defiance board of directors that the two companies share a common vision with respect to corporate culture and delivering financial performance and shareholder value and that their executive officers and employees possess complementary skills and expertise;

the advantages of a combination with an institution such as United Community that already has an established market share in the Ohio market and the opportunities for increased efficiencies and significant cost savings resulting from a combination with United Community’s current organization, resulting in increased profitability of the combined entity over time, as compared to a possible combination without a similar market presence;

the fact that the combined company would continue to be publicly held following the merger and would continue to be traded on the NASDAQ Global Select Market, providing the combined company’s shareholders with continued access to a public trading market, and that shareholders would be expected to have increased liquidity for their shares as a result of the higher market capitalization of the combined company, the significantly expanded shareholder base and the potential increase in interest from institutional investors and securities analysts;

the fact that the market capitalization of the combined institution, as compared with First Defiance’s market capitalization as a stand-alone entity, would be expected to provide the combined company with increased access to capital markets to finance the combined company’s capital requirements, and in addition would provide for enhanced market visibility;

the fact that the higher market capitalization of the combined company would be expected to enhance the attractiveness of the company’s common stock going forward, which would make the common

stock more attractive as consideration to be used in future acquisition opportunities that may allow for increased shareholder value;

the current and prospective economic and competitive and regulatory environmentenvironments facing the financial services industry, generally, and each of Commercial Bancshares and First Defiance and other financial institutions, characterized by intensifying competition from both banks andnon-bank financial service organizations, and the growing costs associated with regulatory compliance in particular.the industry;

The expected benefit

the belief that, while no assurances could be given, the business and financial advantages contemplated in connection with the merger were likely to Commercial Bancshares customers resulting from the greater depth of banking services that would become available to them asbe achieved within a resultreasonable time frame, particularly in light of the combination with First Defiance.

The belieffact that First Defiance shares Commercial Bancshares’ community banking philosophy.the organizations have transition experience due to successfully completed acquisitions and data processing conversions;


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Commercial Bancshares’ favorable impressionsreview of the experience and capabilityresults of First Defiance’s management team.
Satisfactory results of Commercial Bancshares’ summary due diligence review of United Community and discussions with First Defiance.Defiance’s senior management and outside advisors concerning United Community;

•

the opinion dated September 7, 2019 of KBW to the First Defiance board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to First Defiance of the exchange ratio in the proposed merger as more fully described under “The Merger—Opinion of First Defiance’s Financial Advisor” beginning on page 65;

The belief, based

the terms of the merger agreement, including the expected tax treatment of the merger as a “reorganization” for United States federal income tax purposes, and the deal protection and termination fee provisions, which it reviewed with its outside legal counsel;

the fact that First Defiance’s shareholders will have the opportunity to vote to approve the merger agreement;

•

the board of directors’ right to withdraw its recommendation to the First Defiance shareholders that they approve the merger agreement and the right of the United Community board of directors to withdraw its recommendation to the United Community shareholders that they adopt the merger agreement, in each case in certain circumstances, as more fully described under “The Merger Agreement—Shareholder Meetings and Recommendation of First Defiance’s and United Community’s Boards of Directors” beginning on page 118;

the restrictions on historical informationthe conduct of First Defiance’s business during the period between execution of the merger agreement and the consummation of the merger, which restrictions are customary for public company merger agreements involving financial institutions but which, subject to specific exceptions, could delay or prevent First Defiance from undertaking business opportunities that might arise or certain other actions it might otherwise take with respect to First Defiance’s business, earnings, operations financial condition, prospects, capital levels,absent the pendency of the merger;

both First Defiance’s and asset quality, that the combined company has theUnited Community’s ability to grow astake certain actions in response to an independent community financial institutionunsolicited bona fide written acquisition proposal under specific circumstances and the terms of the merger agreement that will be positionedrestrict both First Defiance’s and United Community’s ability to take advantagesolicit alternative transactions;

the potential risks associated with achieving, within anticipated time periods or at all, cost savings and successfully integrating the businesses, operations and workforces of multiple strategic options inFirst Defiance and United Community, including the futurecosts and increase shareholder value.risks of successfully integrating the differing business models and lines of business of the two companies;

The expectation

the possibility that the merger would likelyand the related integration process could result in the loss of key employees, in the disruption of First Defiance’s ongoing business and in the loss of customers for the combined company;

•

the other risks described under the section entitled “Risk Factors” and “Forward-Looking Statements” beginning on pages 27 and 35, respectively;

•

the fact that First Defiance or United Community may be obligated to pay the other party a termination fee of $18.4 million in certain circumstances as more fully described under “The Merger Agreement—Termination Fee” beginning on page 122;

the likelihood that the merger will be approved by the relevant bank regulatory authorities and by the shareholders of Commercial Bancshares in a timely manner.manner and the consideration of the relevant factors assessed by the regulators for such approvals and the evaluation of such factors;

that there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, including the risk that certain regulatory approvals might not be obtained;

the substantial costs to be incurred in connection with the merger, including the costs of integrating the businesses of First Defiance and United Community, transaction fees, expenses and other payments that will or may arise from the merger;

the potential risk of diverting management attention and resources from the operation of First Defiance’s business and towards the completion of the merger and the integration of the two companies; and

the risk that the merger may not be completed despite the combined efforts of First Defiance and United Community, or that completion may be unduly delayed, even if the required regulatory approvals are obtained and the requisite approvals are obtained from the First Defiance shareholders and the United Community shareholders, including as a result of factors outside First Defiance’s and United Community’s control.

In considering the recommendation of the First Defiance board, you should be aware that certain directors and executive officers of First Defiance may have interests in the merger that are different from, or in addition to, interests of shareholders of First Defiance generally and may create potential conflicts of interest. The First Defiance board was aware of these interests and considered them when evaluating and negotiating the merger agreement, the merger and the other transactions contemplated by the merger agreement, and in recommending to First Defiance’s shareholders that they vote in favor of the merger proposal. See “The Merger—Interests of First Defiance Directors and Executive Officers in the Merger” beginning on page 93.

The foregoingabove discussion of the information and factors considered by the Commercial BancsharesFirst Defiance board of directors is not intended to be exhaustive, but includes the material factors they considered inconsidered. In arriving at thisits determination to approve the Merger Agreementmerger agreement and the transactions it contemplates, and recommend that the Commercial BancsharesFirst Defiance shareholders vote to approve it. The Commercial Bancsharesthem, the First Defiance board of directors did not assign any relative or specific weights to the above factors, and individual directors may have given differentdiffering weights to different factors. It should be noted that the foregoing explanation of the factors considered by First Defiance’s board of directors and its reasons for recommending the merger to First Defiance’s shareholders, as well as certain information presented in this section is forward-looking in nature and, therefore, such information should be read in light of the factors discussed in the section entitled “Forward-Looking Statements”.

The Commercial BancsharesFor the reasons set forth above, the First Defiance board of directors unanimously recommends that the Commercial BancsharesFirst Defiance shareholders vote to adopt and approve“FOR” the Merger Agreement and the transactions it contemplates, including the merger.First Defiance merger proposal.

Opinion of Commercial Bancshares’First Defiance’s Financial Advisor

Commercial BancsharesFirst Defiance engaged KBW to render financial advisory and investment banking services to Commercial Bancshares,First Defiance, including an opinion to the Commercial BancsharesFirst Defiance board of directors as to the fairness, from a financial point of view, to the holders of Commercial Bancshares common stockFirst Defiance of the merger consideration to be received by such shareholdersexchange ratio in the proposed merger of Commercial Bancshares with and intomerger. First Defiance. Commercial BancsharesDefiance selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.

As part of its engagement, representatives of KBW attended the meeting of the Commercial BancsharesFirst Defiance board of directors held on August 23, 2016,September 7, 2019 at which the Commercial BancsharesFirst Defiance board of directors evaluated the proposed merger. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered an opinion to the Commercial BancsharesFirst Defiance board an opinionof directors to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in itssuch opinion, the merger considerationexchange ratio in the proposed merger was fair, from a financial point of view, to the holdersFirst Defiance. The First Defiance board of Commercial Bancshares common stock. The Commercial Bancshares boarddirectors approved the Merger Agreementmerger agreement at this meeting.

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached asAnnex B to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Commercial BancsharesFirst Defiance board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the merger considerationexchange ratio in the merger to the holders of Commercial Bancshares common stock.First Defiance. It did not address the underlying business decision of Commercial BancsharesFirst Defiance to engage in the merger or enter into the Merger Agreementmerger agreement or constitute a recommendation to the Commercial BancsharesFirst Defiance board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Commercial BancsharesFirst Defiance common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter, (including, with respect to holders of Commercial Bancshares common stock, what election any such


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shareholder should make with respect to the cash consideration, the stock consideration or any combination thereof), nor does it constitute a recommendation regardingas to whether or not any such shareholder should enter into a voting, shareholders’, affiliates’ or affiliates’other agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.

KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Commercial BancsharesFirst Defiance and First DefianceUnited Community and bearing upon the merger, including, among other things:

a draft of the Merger Agreementmerger agreement, dated August 22, 2016September 7, 2019 (the most recent draft then made available to KBW);

the audited financial statements and the Annual Reports on Form10-K for the three fiscal years ended December 31, 20152016, December 31, 2017, and December 31, 2018 of Commercial Bancshares;First Defiance;

the unaudited quarterly financial statements and the Quarterly Reports on Form10-Q for the fiscal quarters ended March 31, 20162019 and June 30, 20162019 of Commercial Bancshares;First Defiance;

the audited financial statements and the Annual Reports on Form10-K for the three fiscal years ended December 31, 20152016, December 31, 2017, and December 31, 2018 of First Defiance;United Community;

the unaudited quarterly financial statements and the Quarterly Reports on Form10-Q for the fiscal quarters ended March 31, 20162019 and June 30, 20162019 of First Defiance;United Community;

certain regulatory filings of Commercial Bancshares, Commercial Bank, First Defiance and First Federal,United Community and their respective subsidiaries, including (as applicable) the semi-annual reports on Form FR Y-9SP and quarterly reports on Form FR Y-9CFRY-9C and quarterly call reports required to be filed with respect to each semi-annual period and quarter (as the case may be) during the three year period ended December 31, 2015, to2018 and the quarterquarters ended March 31, 20162019 and to the semi-annual period and quarter ended June 30, 2016;2019;

certain other interim reports and other communications of Commercial BancsharesFirst Defiance and First DefianceUnited Community to their respective shareholders; and

other financial information concerning the respective businesses and operations of Commercial Bancshares and First Defiance that wasand United Community furnished to KBW by Commercial BancsharesFirst Defiance and First DefianceUnited Community or which KBW was otherwise directed to use for purposes of KBW’s analyses.its analysis.

KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:

the historical and current financial position and results of operations of Commercial BancsharesFirst Defiance and First Defiance;United Community;

the assets and liabilities of Commercial BancsharesFirst Defiance and First Defiance;United Community;

the nature and terms of certain other merger transactions and business combinations in the banking industry;

a comparison of certain financial and stock market information for Commercial Bancsharesof First Defiance and First DefianceUnited Community with similar information for certain other companies, the securities of which were publicly traded;

financial and operating forecasts and projections

publicly-available consensus “street estimates” of Commercial Bancshares that were prepared by, andUnited Community, as well as assumed United Community long-term growth rates provided to KBW andby United Community management, all of which information was discussed with KBW by Commercial Bancsharessuch management and that were used and relied upon by KBW based on such discussions, at the direction of suchFirst Defiance management and with the consent of the Commercial Bancshares board;First Defiance board of directors;


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publicly available consensus “street estimates” of First Defiance, for 2016 and 2017, as well as assumed long-term First Defiance long-term growth rates provided to KBW by First Defiance management, all of which information was discussed with KBW by such management and used and relied upon by KBW based on such discussions, at the direction of Commercial Bancsharessuch management and with the consent of the Commercial Bancshares board;First Defiance board of directors; and

estimates regarding certain pro forma financial effects of the merger on First Defiance (including without limitation the cost savings and related expenses expected to result or be derived from the merger) that were prepared by andFirst Defiance management, provided to and discussed with KBW by thesuch management, of First Defiance, and used and relied upon by KBW based on such discussions, at the direction of Commercial Bancsharessuch management and with the consent of the Commercial Bancshares board.First Defiance board of directors.

KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also participated in discussions that were held withby the respective managements of Commercial BancsharesFirst Defiance and First DefianceUnited Community regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as KBW deemed relevant to its inquiry. In addition, KBW considered the results of the efforts undertaken by or on behalf of Commercial Bancshares, with KBW’s assistance, to solicit indications of interest from third parties regarding a potential transaction with Commercial Bancshares.

In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information that was provided to it or that was publicly available and KBW did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied, with the consent of First Defiance, upon the management of Commercial BancsharesUnited Community as to the reasonableness and achievability of the financialpublicly available consensus “street estimates” of United Community and operating forecasts and projections of Commercial Bancsharesthe assumed United Community long-term growth rates referred to above (and the assumptions and bases therefor) that were prepared by, and provided to KBW and discussed with KBW by, such management, and KBW assumed that all such forecasts and projections wereinformation was reasonably prepared on bases reflectingand represented, or in the case of the United Community “street estimates” referred to above that such estimates were consistent with, the best currently available estimates and judgments of such management and that the forecasts, projections and estimates reflected in such forecasts and projectionsinformation would be realized in the amounts and in the time periods estimated by such management.estimated. KBW further relied withupon the consentmanagement of Commercial Bancshares, upon First Defiance management as to the reasonableness and achievability of the publicly available consensus “street estimates” of First Defiance, (and the

assumed First Defiance long termlong-term growth rates, provided to KBW by such management) referred to above, as well asand the estimates regarding certain pro forma financial effects of the merger on First Defiance (and the assumptions and bases therefor, including,(including, without limitation, the cost savings and related expenses expected to result or be derived from the merger), all as referred to above, and the assumptions and bases for all such information, and KBW assumed, at the direction of First Defiance, that all suchof the foregoing information was reasonably prepared on bases reflecting,and represented, or in the case of the First Defiancepublicly available consensus “street estimates” referred to above that such estimates were consistent with, the best currently available estimates and judgments of First Defiance management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.

It is understood that the portion of the foregoing financial information of Commercial BancsharesFirst Defiance and First DefianceUnited Community that was provided to KBW was not prepared with the expectation of public disclosure and that all of the foregoing financial information, including the publicly available consensus “street estimates” of First Defiance and United Community referred to above, that KBW was directed to use, was based on numerous variables and assumptions that are inherently uncertain including,(including, without limitation, factors related to general economic and competitive conditionsconditions) and, that, accordingly, actual results could vary significantly from those set forth in all of such information. KBW assumed, based on discussions with the respective managements of Commercial BancsharesFirst Defiance and First DefianceUnited Community and with the consent of the Commercial BancsharesFirst Defiance board of directors, that all such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.


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KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Commercial BancsharesFirst Defiance or First DefianceUnited Community since the date of the last financial statements of each such entity that were made available to KBW.KBW and that KBW was directed to use. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with Commercial Bancshares’First Defiance’s consent, that the aggregate allowances for loan and lease losses for Commercial Bancshareseach of First Defiance and First DefianceUnited Community are adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Commercial BancsharesFirst Defiance or First Defiance,United Community, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Commercial BancsharesFirst Defiance or First DefianceUnited Community under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.

KBW assumed, in all respects material to its analyses:

that

the merger and any related transactions (including the bank merger) would be completed substantially in accordance with the terms set forth in the Merger Agreementmerger agreement (the final terms of which KBW assumed would not differ in any respect material to KBW’sits analyses from the draft version of the merger agreement reviewed by KBW and referred to above) with no adjustments to the merger consideration;exchange ratio and with no other consideration or payments in respect of United Community common stock;

that

the representations and warranties of each party in the Merger Agreementmerger agreement and in all related documents and instruments referred to in the Merger Agreementmerger agreement were true and correct;

that

each party to the Merger Agreement and allmerger agreement or any of the related documents would perform all of the covenants and agreements required to be performed by such party under such documents;

that

there wereare no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the merger or any related transaction and that all conditions to the completion of the merger and any related transaction would be satisfied without any waivers or modifications to the Merger Agreementmerger agreement or any of the related documents; and

that

in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger and any related transaction,transactions, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of Commercial Bancshares, First Defiance, United Community or the pro forma combined entity or the contemplated benefits of the merger, including without limitation the cost savings and related expenses expected to result or be derived from the merger.

KBW assumed that the merger would be consummated in a manner that compliescomplied with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of Commercial BancsharesFirst Defiance that Commercial BancsharesFirst Defiance relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Commercial Bancshares, First Defiance, United Community, the merger and any related transaction (including the subsidiary bank merger), and the Merger Agreement.merger agreement. KBW did not provide advice with respect to any such matters.

KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of thesuch opinion, to the holders of Commercial Bancshares common stock, of the merger consideration to be received by such holdersexchange ratio in the merger.merger to First Defiance. KBW expressed no view or opinion as to any other terms or aspects of the merger or any term or aspect of any related transaction (including the subsidiary bank merger), including without limitation, the form or structure of the merger (including the form of the merger consideration or the allocation thereof between cash and stock) or any such related transaction, any consequences of the merger or any related transaction to Commercial Bancshares,First Defiance, its shareholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, retention, consulting, voting, support, cooperation, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger, any such related transaction, or otherwise.


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KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

the underlying business decision of Commercial BancsharesFirst Defiance to engage in the merger or enter into the Merger Agreement;merger agreement;

the relative merits of the merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Commercial BancsharesFirst Defiance or the Commercial Bancshares board;First Defiance board of directors;

any business, operational or other plans with respect to United Community or the pro forma combined entity that may be contemplated by First Defiance or the First Defiance board of directors or that may be implemented by First Defiance or the First Defiance board of directors subsequent to the closing of the merger;

the fairness of the amount or nature of any compensation to any of Commercial Bancshares’First Defiance’s officers, directors or employees, or any class of such persons, relative to theany compensation to the holders of Commercial BancsharesFirst Defiance common stock;stock or relative to the exchange ratio;

the effect of the merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Commercial Bancshares (other than the holders of Commercial Bancshares common stock solely with respect to the merger consideration, as described in KBW’s opinion and not relative to the consideration to be received by holders of any other class of securities) or holders of any class of securities of First Defiance, United Community or any other party to any transaction contemplated by the Merger Agreement;merger agreement;

whether First Defiance has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate amount of the cash consideration to the holders of Commercial Bancshares common stock at the closing of the merger;
the election by holders of Commercial Bancshares common stock to receive the cash consideration or the stock consideration, or any combination thereof, or the actual allocation between the cash consideration and the stock consideration among such holders (including, without limitation, any reallocation thereof as a result of proration pursuant to the Merger Agreement), or the relative fairness of the stock consideration and the cash consideration;

the actual value of First Defiance common stock to be issued in connection with the merger;

the prices, trading range or volume at which Commercial BancsharesFirst Defiance common stock or First DefianceUnited Community common stock would trade following the public announcement of the merger or the prices, trading range or volume at which First Defiance common stock would trade following the consummation of the merger;

any advice or opinions provided by any other advisor to any of the parties to the merger or any other transaction contemplated by the Merger Agreement;merger agreement; or

any legal, regulatory, accounting, tax or similar matters relating to Commercial Bancshares, First Defiance, United Community, any of their respective shareholders, or relating to or arising out of or as a consequence of the merger or any other related transaction (including the subsidiary bank merger), including whether or not the merger would qualify as atax-free reorganization for United States federal income tax purposes.

In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, Commercial BancsharesFirst Defiance and First Defiance.United Community. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Commercial BancsharesFirst Defiance board of directors in making its determination to approve the Merger Agreementmerger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Commercial BancsharesFirst Defiance board of directors with respect to the fairness of the merger consideration.exchange ratio. The type and amount of consideration payable in the


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merger were determined through negotiation between Commercial Bancshares and First Defiance and United Community and the decision of First Defiance to enter into the Merger Agreementmerger agreement was solely that of the Commercial Bancshares board.First Defiance board of directors.

The following is a summary of the material financial analyses presented by KBW to the Commercial BancsharesFirst Defiance board of directors in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the Commercial BancsharesFirst Defiance board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below includesinclude information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

For purposes of the financial analyses described below, KBW utilized an implied transaction value for the proposed merger of the merger consideration of $52.30$9.78 per outstanding share of Commercial BancsharesUnited Community common stock, consistingor $473.3 million in the aggregate (inclusive of the sum of (i) the implied value of theUnited Community performance stock consideration of 1.1808 shares of First Defiance commonunits andin-the-money United Community stock options), based on the 0.3715x exchange ratio in the proposed merger and the closing price of First Defiance common stock on August 22, 2016, multipliedSeptember 6, 2019. In addition to the financial analyses described below, KBW reviewed with the First Defiance board of directors for informational purposes, among other things, an implied transaction multiple for the proposed merger (based on the implied transaction value for the merger of $9.78 per outstanding share of United Community common stock) of 11.8x United Community’s estimated calendar year 2019 earnings per share (“EPS”) and 11.0x United Community’s estimated calendar year 2020 EPS using the publicly available calendar year 2019 and calendar year 2020 net income consensus “street estimates” for United Community and a diluted United Community share count provided by 80%, and (ii) the cash consideration of $51.00, multiplied by 20%.United Community management.

Commercial BancsharesFirst Defiance and United Community Selected Companies Analyses.Analysis

Using publicly available information, KBW compared the financial performance, financial condition and market performance of Commercial BancsharesFirst Defiance and United Community to 2116 selected U.S. depositories whichmajor exchange-traded (defined as

the NASDAQ, New York Stock Exchange and NYSE American) banks that were publicly traded and headquartered in the Midwest region (defined as Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin) and which hadwith total assets between $300 million$2.0 billion and $400 million.$4.0 billion. Merger targets and internet banks were excluded from the selected companies.

The selected companies were as follows:

Bridgewater Bancshares, Inc.

  

MutualFirst Financial, Inc.

Baraboo Bancorporation,

Civista Bancshares, Inc.

  HFB Financial Corporation

Nicolet Bankshares, Inc.

Central Federal Corporation

Farmers National Banc Corp.

  Jacksonville

Old Second Bancorp, Inc.

Choice Bancorp,

First Business Financial Services, Inc.

  Madison County Financial,

Southern Missouri Bancorp, Inc.

Commercial National

First Financial Corporation

  Ohio Legacy Corp

Sterling Bancorp, Inc.

County Bank Corp

First Mid Bancshares, Inc.

  Oxford

Stock Yards Bancorp, Inc.

Independent Bank Corporation

Eastern Michigan Financial Corporation

  Perpetual Federal Savings Bank

Waterstone Financial, Inc.

FFW

Mercantile Bank Corporation

  Royal Financial,

West Bancorporation, Inc.

First Bancorp of Indiana, Inc.Sturgis Bancorp, Inc.
First Federal of Northern Michigan Bancorp, Inc.West Shore Bank Corporation
FNBH Bancorp, Inc.Wolverine Bancorp, Inc.
HCB Financial Corporation

To perform this analysis, KBW used profitability and other financial information for as of, or, in the case of latest 12 months (“LTM”) information, through, theor most recent completed fiscal quarter (“MRQ”) available (which inwere the case of Commercial Bancshares was the fiscal quarterperiods ended June 30, 2016)2019) or as of the end of such periods (which was June 30, 2019) and market price information as of August 22, 2016.September 6, 2019. KBW also used EPS estimates taken from consensus “street estimates” for First Defiance, United Community and the selected companies. Where consolidated holding company level financial data for First Defiance, United Community and the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Commercial Bancshares’ historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.


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KBW’s analysis showed the following concerning the financial performance of Commercial Bancshares and the selected companies:

     
  Selected Companies
   Commercial Bancshares 25th Percentile Median Average 75th Percentile
LTM Core Return on Average Assets(1)  1.12%(3)   0.66%   0.84%   0.84%   1.02% 
LTM Core Return on Average Equity(1)  10.23%(3)   6.26%   6.98%   7.61%   10.04% 
LTM Core Return on Avg. Tangible Common Equity(1)  10.23%(3)   6.39%   7.72%   8.17%   10.81% 
LTM Net Interest Margin  4.40%   3.08%   3.35%   3.41%   3.69% 
LTM Fee Income/Revenue Ratio(2)  12.7%   9.7%   17.1%   16.6%   22.0% 
LTM Efficiency Ratio  64.8%   82.9%   74.6%   72.5%   69.6% 

(1)Core income excludes extraordinary items, non-recurring items, gains/losses on sale of securities and amortization of intangibles
(2)Excludes gains/losses on securities
(3)Commercial Bancshares’ profitability ratios have been adjusted to reflect the exclusion of a bank-owned life insurance (“BOLI”) benefit in the first fiscal quarter 2016

KBW’s analysis also showed the following concerning the financial condition of Commercial Bancshares and the selected companies:

     
  Selected Companies
   Commercial Bancshares 25th Percentile Median Average 75th Percentile
Tangible Common Equity/Tangible Assets  11.17%   8.48%   10.01%   10.67%   10.82% 
Total Capital Ratio  13.58%   14.29%   16.99%   16.92%   18.35% 
Loans/Deposits  99.0%   74.7%   83.5%   86.8%   109.0% 
Loan Loss Reserve/Gross Loans  1.29%   0.96%   1.26%   1.55%   1.91% 
Nonperforming Assets/Loans + OREO  1.50%   2.88%   2.25%   2.90%   1.71% 
LTM Net Charge-Offs/Average Loans  0.14%   0.12%   0.02%   (0.01)%   (0.07)% 

In addition, KBW’s analysis showed the following concerning the market performance of Commercial Bancshares and the selected companies:

     
  Selected Companies
   Commercial Bancshares 25th Percentile Median Average 75th Percentile
One-Year Stock Price Change  21.0%   3.2%   10.9%   13.6%   24.8% 
One-Year Total Return  24.5%   6.3%   14.4%   16.0%   25.3% 
Year-To-Date Stock Price Change  12.7%   0.9%   9.1%   8.8%   14.1% 
Stock Price/Book Value per Share  108%   75%   84%   87%   94% 
Stock Price/Tangible Book Value per Share  108%   79%   88%   89%   97% 
Stock Price/LTM Core EPS(1)  11.2x(2)   8.6x   11.3x   11.4x   13.7x 
Dividend Yield  2.9%   0.0%   2.4%   2.4%   3.5% 
LTM Dividend Payout  27.4%   0.0%   20.3%   26.7%   39.4% 

(1)Core income excludes extraordinary items, non-recurring items, gains/losses on sale of securities and amortization of intangibles
(2)Commercial Bancshares’ LTM core EPS has been adjusted to reflect the exclusion of a BOLI benefit in the first fiscal quarter 2016

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No company used as a comparison in the above selected companies analysis is identical to Commercial Bancshares. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

First Defiance Selected Companies Analysis.Using publicly available information, KBW compared the financial performance, financial condition and market performance of First Defiance to 15 selected U.S. depositories which were traded on NASDAQ, the New York Stock Exchange or the New York Stock Exchange Market and headquartered in the Midwest region and which had total assets between $2.0 billion and $3.5 billion.

The selected companies were as follows:

Bank Mutual CorporationMidWestOne Financial Group, Inc.
First Financial CorporationNicolet Bankshares, Inc.
First Mid-Illinois Bancshares, Inc.Old Second Bancorp, Inc.
German American Bancorp, Inc.Peoples Bancorp Inc.
Horizon BancorpQCR Holdings, Inc.
Independent Bank CorporationStock Yards Bancorp, Inc.
Mercantile Bank CorporationUnited Community Financial Corp.
Midland States Bancorp, Inc.

To perform this analysis, KBW used profitability and other financial information for, as of, or, in the case of LTM information, through, the fiscal quarter ended June 30, 2016 and market price information as of August 22, 2016. KBW also used 2016 and 2017 EPS estimates taken from consensus “street estimates” for First Defiance and the selected companies. Where consolidated holding company level financial data for the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in First Defiance’s or United Community’s historical financial statements, or the data prepared by Sandler O’Neill presented under the section “The Merger—Opinion of United Community’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

KBW’s analysis showed the following concerning the financial performance of First Defiance, United Community and the selected companies:

     
  Selected Companies
   First Defiance 25th Percentile Median Average 75th Percentile
LTM Core Return on Average Assets(1)  1.21%   0.85%   1.00%   0.97%   1.03% 
LTM Core Return on Average Equity(1)  9.96%   7.74%   9.34%   9.37%   10.80% 
LTM Core Return on Average Tangible Common Equity(1)  12.90%   8.76%   11.60%   11.13%   13.78% 
LTM Net Interest Margin  3.76%   3.38%   3.57%   3.60%   3.90% 
LTM Fee Income/Revenue Ratio(2)  30.0%   24.9%   27.3%   26.6%   30.3% 
LTM Efficiency Ratio  61.7%   67.2%   63.4%   64.8%   62.1% 
         Selected Companies 
   First
Defiance		  United
Community		  75th
Percentile		  Average  Median  25th
Percentile		 

Core Return on Average Assets(1)

   1.53%   1.47%   1.68%   1.50%   1.48%   1.29% 

Core Return on Average Tangible Common Equity(1)

   16.7%   14.3%   15.6%   14.6%   15.0%   13.3% 

Net Interest Margin

   4.01%   3.30%   4.07%   3.75%   3.79%   3.54% 

Fee Income / Revenue Ratio

   26.4%   22.8%   25.6%   23.3%   24.3%   14.6% 

Efficiency Ratio (%)

   60.5%   55.4%   54.7%   59.3%   57.9%   64.0% 

(1)

Core income excludesexcluded extraordinary items,non-recurring items (including deferred tax asset (“DTA”) revaluations), gains/losses on sale of securities and amortization of intangibles

(2)Excludes gains/losses on securities as calculated by S&P Global Market Intelligence.


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KBW’s analysis also showed the following concerning the financial condition of First Defiance, United Community and the selected companies:

     
  Selected Companies
   First Defiance 25th Percentile Median Average 75th Percentile
Tangible Common Equity/Tangible Assets  9.52%   8.23%   9.63%   9.54%   10.26% 
Total Capital Ratio  13.60%   13.32%   14.11%   14.59%   15.18% 
Loans/Deposits  96.9%   79.8%   88.0%   87.4%   95.1% 
Loan Loss Reserve/Gross Loans  1.38%   0.75%   0.98%   1.00%   1.16% 
Nonperforming Assets/Loans + OREO  1.45%   1.60%   1.02%   1.55%   0.81% 
LTM Net Charge-Offs/Average Loans  (0.01)%   0.22%   0.09%   0.17%   0.04% 
         Selected Companies 
   First
Defiance		  United
Community		  75th
Percentile		  Average  Median  25th
Percentile		 

Tangible Common Equity / Tangible Assets

   9.6%   10.3%   10.8%   10.7%   10.0%   9.1% 

Total Capital Ratio

   12.8%   14.2%   16.3%   15.1%   13.4%   12.8% 

Loans / Deposits

   97.9%   99.6%   89.5%   98.5%   95.5%   108.6% 

Loan Loss Reserves / Loans

   1.10%   0.87%   1.03%   0.92%   0.93%   0.81% 

Nonperforming Assets(1) / Loans and OREO

   0.97%   1.18%   0.39%   0.85%   0.67%   1.15% 

Net Charge-offs / Average Loans(2)

   (0.08%)   (0.02%)   (0.00%)   0.03%   0.01%   0.07% 

(1)

Nonperforming Assets included nonaccrual loans, accruing troubled debt restructured loans, loans 90+ days past due, and other real estate owned as defined by S&P Global Market Intelligence.

(2)

For the most recent quarter, annualized.

In addition, KBW’s analysis showed the following concerning the market performance of First Defiance, United Community and the selected companies:

     
  Selected Companies
   First Defiance 25th Percentile Median Average 75th Percentile
One-Year Stock Price Change  16.4%   11.3%   16.8%   17.9%   25.5% 
One-Year Total Return  18.6%   11.9%   19.2%   20.0%   28.1% 
Year-To-Date Stock Price Change  18.0%   (0.8)%   5.8%   8.5%   18.2% 
Stock Price/Book Value per Share  140%   117%   121%   131%   136% 
Stock Price/Tangible Book Value per Share  179%   137%   146%   152%   158% 
Stock Price/LTM Core EPS(1)  14.7x   13.2x   14.9x   15.3x   17.2x 
Stock Price/2016 Estimated EPS  14.2x   13.4x   14.4x   14.9x   15.8x 
Stock Price/2017 Estimated EPS  13.9x   11.9x   13.3x   13.7x   14.5x 
Dividend Yield  2.0%   1.9%   2.2%   2.0%   2.6% 
LTM Dividend Payout  27.8%   27.3%   32.4%   29.1%   33.7% 
         Selected Companies 
   First
Defiance		  United
Community		  75th
Percentile		  Average  Median  25th
Percentile		 

One-Year Price Change

   (17.1%)   (6.9%)   (7.8%)   (13.2%)   (14.6%)   (21.7%) 

Year-to-date Price Change

   7.4%   8.6%   14.0%   8.1%   7.2%   (0.2%) 

Price / Tangible Book Value

   1.70x   1.57x   1.54x   1.48x   1.43x   1.35x 

Price / LTM Core EPS(1)

   11.3x   11.7x   12.2x   11.2x   10.9x   10.1x 

Price / 2019 Estimated EPS(2)

   11.1x   11.6x   12.2x   11.1x   11.0x   10.0x 

Price / 2020 Estimated EPS(2)

   11.3x   10.8x   12.0x   11.0x   10.6x   9.9x 

Dividend Yield

   2.9%   2.9%   2.9%   2.1%   2.6%   0.7% 

MRQ Dividend Payout Ratio(3)

   31.1%   31.8%   35.2%   23.3%   26.4%   6.9% 

(1)

Core income excludesexcluded extraordinary items,non-recurring items (including DTA revaluations), gains/losses on sale of securities and amortization of intangibles as calculated by S&P Global Market Intelligence.

(2)

In the case of First Defiance and United Community, EPS estimates were based on net income consensus “street estimates” for First Defiance and United Community and diluted share counts for First Defiance and United Community provided by the respective management teams of First Defiance and United Community.

(3)

In the case of two of the selected companies, the dividend payout ratios were adjusted to reflect the semi-annual nature of dividend payments.

No company used as a comparison in the above selected companies analysis is identical to First Defiance.Defiance or United Community. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

SelectSelected Transactions Analysis.Analysis

KBW reviewed publicly available information related to 1817 selected U.S. whole bank andnon-mutual thrift transactions announced since January 1,June 30, 2015 with transactionannounced deal values were between $25$100 million and $150 million, acquired companies headquartered in$2.0 billion and where the Midwest region and acquirors traded on NASDAQ,accounting target’s shareholders were to own at least 35% of the New York Stock Exchange or the New York Stock Exchange Market. Acquisitions of distressed targets and merger of equalspro forma entity. Terminated transactions were excluded from the selected transactions.

The selected transactions were as follows:

Acquiror

  

Acquired Company

Acquiror

WSFS Financial Corporation

  Acquired Company

Beneficial Bancorp, Inc.

Farmers National Banc Corp.

Veritex Holdings, Inc.

  National Bancshares Corporation

Green Bancorp, Inc.

Horizon Bancorp

Cadence Bancorporation

  Peoples Bancorp, Inc.

State Bank Financial Corporation

Wintrust Financial Corporation

Allegiance Bancshares, Inc.

  Community Financial Shares,

Post Oak Bancshares, Inc.

First Capital, Inc.Choice Bancorp

  Peoples

Pacific Commerce Bancorp

Howard Bancorp, Inc. of Bullitt County

Bear State Financial, Inc.

  Metropolitan National

1st Mariner Bank

First Merchants CorporationFinancial Bancorp.

  Ameriana Bancorp
German American Bancorp, Inc.River Valley Bancorp
First Midwest Bancorp, Inc.NI Bancshares Corporation
County Bancorp, Inc.Fox River Valley Bancorp, Inc.

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AcquirorAcquired Company
MainSource Financial Group, Inc.

OceanFirst Financial Corp.

  Cheviot Financial Corp.

Sun Bancorp, Inc.

Great Western Bancorp,

Pinnacle Financial Partners, Inc.

  HF Financial Corp.

BNC Bancorp

BOK Financial Corporation

Southern National Bancorp of Virginia, Inc.

  MBT Bancshares,

Eastern Virginia Bankshares, Inc.

Wintrust Financial

Access National Corporation

  Generations Bancorp, Inc.

Middleburg Financial Corporation

Horizon Bancorp

Bar Harbor Bankshares

  La Porte Bancorp, Inc.

Lake Sunapee Bank Group

First Mid-Illinois Bancshares,

Westfield Financial, Inc.

  First Clover Leaf Financial Corp.

Chicopee Bancorp, Inc.

QCR Holdings, Inc.

Chemical Financial Corporation

  Community State Bank

Talmer Bancorp, Inc.

Wintrust Financial Corporation

BBCN Bancorp, Inc.

  First Community

Wilshire Bancorp, Inc.

Yadkin Financial Corporation

Middlefield Banc Corp.

  Liberty Bank, National Association

NewBridge Bancorp

Nicolet Bankshares, Inc.

Baylake Corp.

For each selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company and using financial data based on the acquired company’s then latest publicly available financial statements:statements prior to the announcement of the acquisition:

Price per common share to tangible book value per share of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided by total tangible common equity);

Price per common share to LTM EPS of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided by LTM earnings)net income);

Price per current calendar year estimated EPS of the acquired company in the 12 selected transactions in which consensus “street estimates” for the acquired company were available at announcement; and

Tangible equity premium to core deposits (total deposits less time deposits greater than $100,000) of the acquired company, referred to as core deposit premium.

KBW also reviewed the price per share paid for the acquired company for the 15 selected transactions in which the acquired company was publicly traded as a premium/discount to the closing price of the acquired company one day prior to the announcement of the respective transaction (expressed as a percentage and referred to as theone-day market premium). The above transaction statistics for the selected transactions were compared with the corresponding transaction statistics for the proposed merger based on the implied transaction value for the proposed merger of $52.30$9.78 per share of Commercial BancsharesUnited Community common stock, or $473.3 million in the aggregate, and using historical financial information for Commercial BancsharesUnited Community as of June 30, 2016 andor for the twelve month period12 months ended June 30, 2016.2019, the estimated calendar year 2019 EPS for United Community (calculated using the calendar year 2019 net income consensus “street estimate” and a diluted United Community share count provided by United Community management) and the closing price of United Community common stock on September 6, 2019.

The results of the analysis are set forth in the following table (excluding the impact of the LTM EPS multiples for sixtwo of the selected transactions whereand the current calendar year estimated EPS multiple for one of the selected transactions, which multiples were considered not to beconsidered meaningful because they were greater than 30.0x)40.0x):

     
  Selected Transactions
   Commercial Bancshares 25th Percentile Median Average 75th Percentile
Transaction Value/Tangible Book Value (%)  164%   126%   134%   146%   143% 
Transaction Value/LTM Earnings (x)  16.9x(1)   14.8x   17.2x   16.9x   19.0x 
Core Deposit Premium (%)  10.6%   4.4%   5.1%   6.2%   6.5% 

(1)Represents core earnings and excludes a BOLI benefit in the first fiscal quarter 2016.
      Selected Companies 
   First Defiance /
United
Community		  75th
Percentile		  Average  Median  25th
Percentile		 

Price / Tangible Book Value

   1.60x   2.27x   1.95x   1.90x   1.58x 

Price / LTM EPS

   11.9x   22.6x   21.6x   20.0x   17.9x 

Price / Current Calendar Year EPS

   11.8x   21.3x   19.8x   16.8x   16.0x 

Core Deposit Premium

   9.1%   19.8%   14.3%   13.8%   9.6% 

One-Day Market Premium

   1.7%   19.0%   13.8%   15.3%   8.2% 

No target company or transaction used as a comparison in the above selected transaction analysis is identical to Commercial BancsharesUnited Community or the proposed merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Relative Contribution Analysis.Analysis

KBW analyzed the relative standalone contribution of First Defiance and Commercial BancsharesUnited Community to various pro forma balance sheet and income statement items of the combined entity.items. This analysis did not include purchase accounting adjustments or cost savings. To perform this analysis, KBW used (i) historical balance sheet and net income data for First Defiance and Commercial BancsharesUnited Community as of June 30, 2016 or for the twelve month period12 months ended June 30, 2016,2019, and (ii) 2016 and 2017 EPSpublicly available consensus “street estimates” forof First Defiance and (iii) financial forecasts and projections relating to the 2016 and 2017 net income of Commercial Bancshares provided by Commercial Bancshares management.United Community. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of First Defiance and Commercial BancsharesUnited Community shareholders in the


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pro forma combined companyentity based on the stock consideration of 1.1808 shares of First Defiance common stock provided for in the Merger Agreement (reflecting an 80% stock/20% cash implied merger consideration mix) and also based on a hypothetical0.3715x exchange ratio assuming 100% stock consideration in the proposed merger for illustrative purposes:merger:

  
 First Defiance as a % of Total Commercial Bancshares as a % of Total
Ownership
          
80% stock/20% cash(1)  88.7%   11.3% 
100% stock(1)(2)  86.3%   13.7% 
Balance Sheet
          
Total Assets  87.6%   12.4% 
Gross Loans  86.3%   13.7% 
Deposits  86.5%   13.5% 
Tangible Common Equity  85.4%   14.6% 
Income Statement
          
LTM Core Net Income(3)  88.1%   11.9% 
2016 Estimated Net Income  88.9%   11.1% 
2017 Estimated Net Income  88.5%   11.5% 

(1)Based on First Defiance common shares outstanding per SEC filings as of 7/31/2016 and Commercial Bancshares common shares outstanding per Commercial Bancshares management as of 8/22/2016. Did not account for the dilutive effect of options or restricted shares
(2)For illustrative purposes only, assumed options are cashed out at closing. Assuming options for both First Defiance and Commercial Bancshares are converted into stock, the resulting ownership percentages would be 86.1% and 13.9% for First Defiance and Commercial Bancshares, respectively
(3)Commercial Bancshares’ net income for the twelve month period ended 6/30/2016 excluded a BOLI benefit in the first fiscal quarter 2016
   First Defiance
as a % of
Total		  United Community
as a % of
Total		 

Ownership

   

Pro Forma Ownership at 0.3715x Merger Exchange RaRatio

   52.5%   47.5% 

Balance Sheet

   

Total Assets

   53%   47% 

Gross Loans

   54%   46% 

Total Deposits

   54%   46% 

Tangible Common Equity

   51%   49% 

Income Statement

   

LTM Core Net Income

   54%   46% 

2019 Estimated Net Income

   54%   46% 

2020 Estimated Net Income

   52%   48% 

Forecasted Pro Forma Financial Impact Analysis.Analysis

KBW performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of First Defiance and Commercial Bancshares.United Community. Using (i) closing balance sheet estimates as of December 31, 20162019 for First Defiance and Commercial BancsharesUnited Community taken from publicly available consensus “street estimates” of First Defiance and United Community, (ii) publicly available consensus net income “street estimates” of First Defiance and United Community and assumed First Defiance and United Community long-term net income growth rates provided by First Defiance management the publicly available 2017 EPS consensus “street estimate” for First Defiance, an assumed long-term earnings growth rate provided by First Defianceand United Community management, financial

respectively, and operating forecasts and projections of Commercial Bancshares prepared by Commercial Bancshares management and(iii) pro forma assumptions (including, certain purchase accounting adjustments,without limitation, the cost savings and related expenses)expenses expected to result from the merger, certain accounting adjustments and restructuring charges) provided by First Defiance management, KBW analyzed the potentialestimated financial impact of the merger on certain projected financial results of First Defiance.results. This analysis indicated that the merger could be accretive to First Defiance’s estimated 2017 EPS in 2020 and estimated 2018 EPS2021 and dilutive to First Defiance’s estimated tangible book value per share at closing as of December 31, 2016.2019. Furthermore, the analysis indicated that, pro forma for the merger, each of First Defiance’s tangible common equity to tangible assets ratio, leverage ratio, and total risk-based capital ratio at closing as of December 31, 2019 could be lower and each of First Defiance’s Common Equity Tier 1 Ratio and Tier 1 Risk-Based Capital Ratio and Total Risk Based Capital Ratioat closing as of December 31, 20162019 could be lower.higher. For all of the above analysis, the actual results achieved by First Defiance following the merger may vary from the projected results, and the variations may be material.

First Defiance Discounted Cash Flow Analysis — Commercial Bancshares

KBW performed a discounted cash flow analysis of Commercial Bancshares to estimate a range for the implied equity value of Commercial Bancshares.First Defiance. In this analysis, KBW used financial forecastspublicly available consensus “street estimates” of First Defiance and projections relating to the net incomeassumed long term growth rates for First Defiance provided by First Defiance management, and assets of Commercial Bancshares prepared by and provided to KBW by Commercial Bancshares management, and assumed discount rates ranging from 14.0%8.0% to 17.0%12.0%. The rangesrange of values werewas derived by adding (i) the present value of the estimated excess cash flows that Commercial BancsharesFirst Defiance could generate over the five-yearfive year period from 2017 to 2021December 31, 2019 through December 31, 2024 as a standalone company and (ii) the present value of Commercial Bancshares’First Defiance’s implied terminal value at the end of such period. KBW assumed that Commercial Bancshares


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First Defiance would maintain a tangible common equity to tangible assetassets ratio of 8.00%8.0% and would retain sufficient earnings to maintain that level. In calculating the terminal value of Commercial Bancshares,First Defiance, KBW applied a range of 9.0x to 13.0x to 15.0xFirst Defiance’s estimated 2021 net income.2025 earnings. This discounted cash flow analysis resulted in a range of implied values per share of Commercial BancsharesFirst Defiance common stock of $40.67$25.84 per share to $48.44.$38.66 per share.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates and discount rates. The foregoing discounted cash flow analysesanalysis did not purport to be indicative of the actual values or expected values of Commercial Bancshares.First Defiance.

United Community Discounted Cash Flow Analysis — First Defiance

KBW performed a discounted cash flow analysis of First Defiance to estimate a range for the implied equity value of First Defiance.United Community. In this analysis, KBW used the publicly available consensus “street estimates” of First Defiance for 2017, as well asUnited Community and assumed long-termlong term growth rates for United Community provided by First DefianceUnited Community management, relating to the net income and assets of First Defiance, andKBW assumed discount rates ranging from 8.0% to 12.0%. The rangesrange of values werewas derived by adding (i) the present value of the estimated excess cash flows that First DefianceUnited Community could generate over the five-yearfive year period from 2017 to 2021December 31, 2019 through December 31, 2024 as a standalone company, and (ii) the present value of First Defiance’sUnited Community’s implied terminal value at the end of such period. KBW assumed that First DefianceUnited Community would maintain a tangible common equity to tangible assetassets ratio of 8.00%8.0% and would retain sufficient earnings to maintain that level. In calculating the terminal value of First Defiance,United Community, KBW applied a range of 9.0x to 13.0x to 16.0xUnited Community’s estimated 2021 net income.2025 earnings. This discounted cash flow analysis resulted in a range of implied values per share of First DefianceUnited Community common stock of $45.78$10.10 to $62.08.$14.99.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The foregoing discounted cash flow analysesanalysis did not purport to be indicative of the actual values or expected values of United Community.

Pro Forma Combined Discounted Cash Flow Analysis

KBW performed a discounted cash flow analysis to estimate an illustrative range for the implied equity value of the pro forma combined entity, taking into account the cost savings and related expenses expected to

result from the merger as well as certain accounting adjustments and restructuring charges assumed with respect thereto. In this analysis, KBW used publicly available consensus “street estimates” of First Defiance.Defiance and United Community and assumed First Defiance and United Community long-term growth rates provided by First Defiance management and United Community management, respectively, and estimated cost savings and related expenses and accounting adjustments and restructuring charges provided by First Defiance management, and KBW assumed discount rates ranging from 8.0% to 12.0%. The range of values was derived by adding (i) the present value of the estimated excess cash flows that the pro forma combined entity could generate over the 5 year period from December 31, 2019 through December 31, 2024 and (ii) the present value of the pro forma combined entity’s implied terminal value at the end of such period, in each case applying estimated cost savings and related expenses and accounting adjustments and restructuring charges. KBW assumed that the pro forma combined entity would maintain a tangible common equity to tangible assets ratio of 8.00% and would retain sufficient earnings to maintain that level. In calculating the terminal value of the pro forma combined entity, KBW applied a range of 9.0x to 13.0x the pro forma combined entity’s estimated 2025 earnings. This discounted cash flow analysis resulted in an illustrative range of implied values per share of the pro forma combined entity’s common stock of $28.69 to $43.09.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The above analysis did not purport to be indicative of the actual values or expected values of the pro forma combined entity.

Miscellaneous.Miscellaneous

KBW acted as financial advisor to Commercial BancsharesFirst Defiance in connection with the proposed merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. InFurther to certain existing sales and trading relationships of certain KBW broker-dealer affiliates with United Community, and otherwise in the ordinary course of theirKBW and its affiliates’ broker-dealer businesses, KBW and its affiliates may from time to time purchase securities from, and sell securities to, Commercial Bancshares and First Defiance and United Community. In addition, as a market makersmaker in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of Commercial BancsharesFirst Defiance or First DefianceUnited Community for its and their own respective accounts and for the accounts of its and their respective customers and clients. KBW employees may also from time to time maintain individual positions in Commercial Bancshares common stock and First Defiance common stock. As Commercial Bancshares has previously beenFirst Defiance was informed by KBW prior to the date of KBW’s opinion, such positions includedinclude an individual position in shares of First Defiance common stock held by a senior member of the KBW advisory team which providedproviding services to Commercial BancsharesFirst Defiance in connection with the proposed merger.

Pursuant to the KBW engagement agreement, Commercial BancsharesFirst Defiance has agreed to pay KBW a total cash fee equal to 1.20%0.75% of the aggregate merger consideration, $150,000$250,000 of which became payable to KBW with the rendering of itsKBW’s opinion and execution of the Merger Agreement and the balance of which is contingent upon the closingconsummation of the merger. Commercial BancsharesFirst Defiance also has agreed to reimburse KBW for reasonableout-of-pocket expenses and disbursements incurred in connection with its retentionengagement and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with thisthe present engagement, duringin the two years preceding the date of itsKBW’s opinion, KBW hasdid not provided investment banking and financial advisory services to Commercial Bancshares. During the two years preceding the date of its opinion, KBW has not providedprovide investment banking and financial advisory services to First Defiance. In the two years preceding the date of KBW’s opinion, KBW did not provide investment banking and financial advisory services to United Community. KBW may in the future provide investment banking and financial advisory services to Commercial BancsharesFirst Defiance or First DefianceUnited Community and receive compensation for such services.


TABLE OF CONTENTSUnited Community’s Reasons for the Merger; Board Recommendation

In reaching its decision to adopt and approve the merger agreement, the other transaction agreements and the transactions contemplated thereby, including the merger, and to recommend that its shareholders adopt the merger agreement, the United Community board of directors evaluated the merger in consultation with the United Community management, as well as United Community’s financial and legal advisors, and considered a number of factors, including the following material factors:

the United Community board’s understanding of the current and prospective environment in which United Community and First Defiance operate, including national and local economic conditions, the interest rate environment, the competitive and regulatory environments for financial institutions generally and the likely effect of these factors on United Community both with and without the merger;

the United Community board’s familiarity with and understanding of United Community’s business, results of operations, asset quality, financial and market position and expectations concerning United Community’s future earnings and prospects;

information and discussion regarding First Defiance’s business, results of operations, financial and market position and future earnings and prospects and the results of United Community’s due diligence investigation;

the United Community board’s evaluation, with the assistance of management and its financial and legal advisors, of strategic alternatives available to United Community for enhancing value over the long term and the potential risks, rewards and uncertainties associated with such alternatives, and the United Community board’s belief that the proposed merger with First Defiance was the best option available to United Community and its shareholders;

the strategic benefits of the transaction and the synergies and cost savings expected to be achieved by the combined company upon completion of the merger, including the following:

the creation of a community bank based in Ohio with over $6.0 billion in assets and operations throughout Ohio, Michigan, Indiana, Pennsylvania and West Virginia and the belief that this positions the combined company as the premier Midwest franchise;

the increased scale resulting from the merger and the diversification of the combined company’s balance sheet and complementary strengths of both institution’s employees, technology, processes and businesses and the expectation that these factors will enhance growth, profitability and performance;

the material earnings per share accretion that is estimated to result from the merger with fully-phased in cost savings; and

the complementary nature of the companies’ markets, credit culture and relationship banking approach.

•

the fact that the merger consideration is all stock with a fixed exchange ratio offers United Community shareholders the opportunity to fully participate in the future growth and opportunities of the combined company, and the fact that the receipt of the merger consideration (other than any cash in lieu of fractional shares) will generally betax-free to United Community’s shareholders based on the expected tax treatment of the merger as a “reorganization” for U.S. federal income tax purposes, as further described under “The Merger—Material United States Federal Income Tax Consequences”;

the corporate governance provisions of the merger agreement, including the participation of six of United Community’s directors on the board of directors of the combined company and the significant leadership positions of United Community senior management in the combined company, which the

board of directors of United Community believes would assist in integrating and operating the combined company post-closing and enhance the likelihood of realizing the strategic benefits that United Community expects to result from the merger and reduce execution risk;

•

the financial presentation of United Community’s financial advisor, Sandler O’Neill, to the United Community board on September 8, 2019 and its opinion delivered to the United Community board, to the effect that as of such date and based on and subject to certain assumptions, procedures, qualifications and limitations, the exchange ratio was fair to holders of United Community common stock from a financial point of view, as further described under “The Merger—Opinion of United Community’s Financial Advisor”;

the historical performance of each of United Community’s common stock and First Defiance’s common stock;

the implied value of the merger consideration of $9.78 for each share of United Community common stock represented approximately a 1.7% premium over the closing price of United Community common stock on September 6, 2019 (the last trading day prior to the board meeting to approve the transaction);

the regulatory and other approvals required in connection with the merger, consideration of the relevant factors assessed by the regulators for the approvals and the parties’ evaluations of those factors, and the expectation that such approvals could be received in a reasonably timely manner and without the imposition of unacceptable conditions;

the terms and conditions of the merger agreement, including, among other things, the expected tax treatment of the merger as a “reorganization” for United States federal income tax purposes, each company’s ability to take certain actions in response to an unsolicited bona fide written acquisition proposal under specific circumstances, the conditions to closing, the possibility that each company would be required to pay a termination fee under certain circumstances, the fact that each company’s shareholders will have an opportunity to vote on the merger and that their approval is a condition to completion of the merger, the terms of the merger agreement that restrict each company’s ability to solicit alternative transactions, and the provisions of the merger agreement generally requiring each company to conduct its business in the ordinary course and the other restrictions on the conduct of each company’s business prior to completion of the merger;

with the merger consideration consisting of United Community shares at a fixed exchange ratio, the potential risk for the implied value of the merger consideration to be adversely affected by a decrease in the trading price of First Defiance common stock;

the risk that the merger may not be consummated or that the closing may be unduly delayed, including as a result of factors outside either party’s control;

the potential risk of diverting management attention and resources from the operation of United Community’s business to the merger, and the possibility of employee attrition or adverse effects on client and business relationships as a result of the announcement and pendency of the merger;

the potential risks and costs associated with successfully integrating United Community’s business, operations and workforce with those of First Defiance, including the risk of not realizing all of the anticipated benefits of the merger or not realizing them in the expected timeframe; and

•

the other risks described under the sections entitled “Risk Factors” and “Forward-Looking Statements”.

In considering the recommendation of the United Community board, you should be aware that certain directors and executive officers of United Community may have interests in the merger that are different from, or in addition to, interests of shareholders of United Community generally and may create potential conflicts of interest. The United Community board was aware of these interests and considered them when evaluating and negotiating the merger agreement, the merger and the other transactions contemplated by the merger agreement,

and in recommending to United Community’s shareholders that they vote in favor of the merger proposal. See “The Merger—Interests of United Community Directors and Executive Officers in the Merger”.

This discussion of the information and factors considered by the United Community board includes the material factors considered by the United Community board, but it is not intended to be exhaustive and may not include all the factors considered by the United Community board. In view of the wide variety of factors considered, and the complexity of these matters, the United Community board did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to adopt and approve the merger agreement, the other transaction agreements and the transactions contemplated thereby, including the merger, and to recommend that its shareholders adopt the merger agreement. Rather, the United Community board viewed its position and recommendation as being based on the totality of the information presented to and factors considered by it, including discussions with, and questioning of, United Community’s management and its financial and legal advisors. In addition, individual members of the United Community board may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the United Community board and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Forward-Looking Statements”.

For the reasons set forth above, the United Community board of directors unanimously recommends that the United Community shareholders vote “FOR” the United Community merger proposal.

Opinion of United Community’s Financial Advisor

United Community retained Sandler O’Neill to act as financial advisor to its board of directors in connection with United Community’s consideration of a possible business combination with First Defiance. United Community selected Sandler O’Neill to act as its financial advisor because Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as financial advisor to United Community’s board of directors in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the September 8, 2019 meeting at which United Community’s board of directors considered the merger and the merger agreement, Sandler O’Neill delivered to the board of directors its oral opinion, which was subsequently confirmed in writing on September 8, 2019 to the effect that, as of such date, the exchange ratio was fair to the holders of United Community’s common stock from a financial point of view.The full text of Sandler O’Neill’s opinion is attached asAnnex C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of United Community common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion was directed to the board of directors of United Community in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any shareholder of United Community as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger and the merger agreement. Sandler O’Neill’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of United Community common stock and did not address the underlying business decision of United Community to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for United Community or the effect of any other transaction in which United

Community might engage. Sandler O’Neill also did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of United Community or First Defiance, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder. Sandler O’Neill’s opinion was approved by Sandler O’Neill’s fairness opinion committee.

In connection with its opinion, Sandler O’Neill reviewed and considered, among other things:

an execution copy of the merger agreement, distributed on September 7, 2019;

certain publicly available financial statements and other historical financial information of United Community and its banking subsidiary that Sandler O’Neill deemed relevant;

certain publicly available financial statements and other historical financial information of First Defiance that Sandler O’Neill deemed relevant;

publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community;

publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance;

the pro forma financial impact of the merger on First Defiance based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Defiance and confirmed by the senior management of United Community;

the relative contribution of assets, liabilities, equity and earnings of United Community and First Defiance to the combined entity;

the publicly reported historical price and trading activity for United Community common stock and First Defiance common stock, including a comparison of certain stock market information for United Community common stock and First Defiance common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;

a comparison of certain financial information for United Community and First Defiance with similar financial institutions for which information is publicly available;

governance terms of certain recent merger of equals transactions in the bank and thrift industry (on a nationwide basis), to the extent publicly available;

the current market environment generally and the banking environment in particular; and

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of the senior management of United Community and its representatives the business, financial condition, results of operations and prospects of United Community and held similar discussions with certain members of the senior management of First Defiance and its representatives regarding the business, financial condition, results of operations and prospects of First Defiance.

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Sandler O’Neill from public sources, that was

provided to Sandler O’Neill by United Community or First Defiance or their respective representatives, or that was otherwise reviewed by Sandler O’Neill, and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Sandler O’Neill relied on the assurances of the respective managements of United Community and First Defiance that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading. Sandler O’Neill was not asked to and did not undertake an independent verification of any of such information and did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of United Community or First Defiance or any of their respective subsidiaries, nor was Sandler O’Neill furnished with any such evaluations or appraisals. Sandler O’Neill rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of United Community or First Defiance or any of their respective subsidiaries. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of United Community, First Defiance, or any of their respective subsidiaries, or of the combined entity after the Merger, and Sandler O’Neill did not review any individual credit files relating to United Community or First Defiance or any of their respective subsidiaries. Sandler O’Neill assumed, with United Community’s consent, that the respective allowances for loan losses for United Community, First Defiance and their respective subsidiaries were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community. In addition, Sandler O’Neill used publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Defiance and confirmed by the senior management of United Community. With respect to the foregoing information, the respective senior managements of United Community and First Defiance confirmed to Sandler O’Neill that such information reflected (or, in the case of the publicly available analyst estimates referred to above, were consistent with) the best currently available estimates and judgments of those respective managements as to the future financial performance of United Community and First Defiance, respectively, and the other matters covered thereby, and Sandler O’Neill assumed that the future financial performance reflected in such information would be achieved. Sandler O’Neill did not express an opinion as to such information, or the assumptions on which such information was based. Sandler O’Neill assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of United Community, First Defiance or any of their respective subsidiaries since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analyses that United Community and First Defiance would remain as going concerns for all periods relevant to its analyses.

Sandler O’Neill also assumed, with United Community’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on United

Community, First Defiance, the merger or any related transactions, and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with United Community’s consent, Sandler O’Neill relied upon the advice that United Community received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the agreement. Sandler O’Neill expressed no opinion as to any such matters.

Sandler O’Neill’s opinion was necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date of its opinion. Events occurring after the date thereof could materially affect Sandler O’Neill’s opinion. Sandler O’Neill did not undertake to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. Sandler O’Neill expressed no opinion as to the trading value of United Community common stock or First Defiance common stock at any time or what the value of First Defiance common stock would be once it is actually received by the holders of United Community common stock.

In rendering its opinion, Sandler O’Neill performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying Sandler O’Neill’s opinion or the presentation made by Sandler O’Neill to United Community’s board of directors, but is a summary of the material analyses performed and presented by Sandler O’Neill. The summary includes information presented in tabular format.In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to United Community or First Defiance and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or transaction values, as the case may be, of United Community and First Defiance and the companies to which they were compared. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Sandler O’Neill made its determination as to the fairness of the exchange ratio to the holders of United Community common stock on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of United Community, First Defiance, and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to United Community’s board of directors at its September 8, 2019 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of United Community common stock or First Defiance common stock or the prices at which United Community or First Defiance common stock may be sold at any time. The analyses of

Sandler O’Neill and its opinion were among a number of factors taken into consideration by United Community’s board of directors in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the decision of United Community’s board of directors with respect to the fairness of the exchange ratio.

Summary of Proposed Merger Consideration and Implied Transaction Metrics

Sandler O’Neill reviewed the financial terms of the proposed merger. Pursuant to the terms of the merger agreement, at the effective time of the merger, each share of United Community common stock issued and outstanding immediately prior to the effective time of the merger, except for certain shares as set forth in the merger agreement, shall be converted into the right to receive 0.3715 shares of First Defiance common stock, par value $0.01 per share. Based on the closing price per share of First Defiance common stock on September 6, 2019 of $26.32 and based upon 48,085,839 United Community common shares outstanding, 233,641 United Community performance stock units, and 163,832 United Community options with a weighted average exercise price of $4.63, Sandler O’Neill calculated an aggregate implied transaction value of $473.3 million. Based upon financial information for United Community as of or for the last twelve months (“LTM”) ended June 30, 2019, publicly available mean analyst EPS estimates for the year ending December 31, 2019 and December 31, 2020, and the closing price of United Community’s common stock on September 6, 2019, Sandler O’Neill calculated the following implied transaction metrics:

Transaction Price / United Community June 30, 2019 Book Value per Share:

148% 

Transaction Price / United Community June 30, 2019 Tangible Book Value per Share:

160% 

Transaction Price / United Community LTM Earnings per Share:

12.5x

Transaction Price / United Community 2019E Mean Analyst Earnings per Share(1):

11.7x

Transaction Price / United Community 2020E Mean Analyst Earnings per Share(1):

11.0x

Tangible Book Premium / Core Deposits(2):

9.1% 

Tangible Book Premium / Core Deposits(3):

8.2% 

Market Premium as of 9/6/19:

1.7% 

(1)

Based on publicly available mean analyst earnings per share estimates

(2)

Core deposits defined as total deposits less time deposits with balances greater than $100,000

(3)

Core deposits defined as total deposits less time deposits with balances greater than $250,000

Contribution Analysis

Sandler O’Neill reviewed the relative contribution of United Community and First Defiance to the pro forma balance sheet and income of the combined entity based upon financial information for United Community and First Defiance as of or for the LTM ended June 30, 2019. This analysis excludedmark-to-market and other transaction-related adjustments. The results of this analysis are set forth in the following table, which also compares the results of this analysis with the implied pro forma ownership percentages of United Community and First Defiance shareholders in the combined company:

   United
Community		   First Defiance 
$ values in thousands                

Balance Sheet as of June 30, 2019:

        

Net Loans

  $2,327    47.1%   $2,610    52.9% 

Total Assets

  $2,869    46.7%   $3,278    53.3% 

Total Deposits

  $2,259    45.7%   $2,681    54.3% 

Total Common Equity

  $318    43.8%   $407    56.2% 

Tangible Common Equity

  $294    49.1%   $305    50.9% 

Earnings:

        

LTM Net Income

  $38.2    44.8%   $47.1    55.2% 

2019E Mean Analyst Net Income(1)

  $40.4    46.1%   $47.3    53.9% 

2020E Mean Analyst Net Income(1)

  $42.9    48.1%   $46.3    51.9% 

Market Valuation:

        

Market Capitalization as of 9/6/19

  $462.1    47.1%   $519.2    52.9% 

Market Capitalization Based on5-Day VWAPs as of 9/6/19

  $464.0    47.4%   $515.8    52.6% 

Market Capitalization Based on10-Day VWAPs as of 9/6/19

  $463.1    47.3%   $515.7    52.7% 

Proposed Pro Forma Ownership

     47.5%      52.5% 

(1)

Based on publicly available mean analyst earnings per share estimates

Stock Trading History

Sandler O’Neill reviewed the publicly available historical reported trading prices of United Community common stock and First Defiance common stock for theone-year and three-year periods ended September 6, 2019. Sandler O’Neill then compared the relationship between the movements in the price of United Community common stock and First Defiance common stock, respectively, to movements in their respective peer groups (as described below) as well as certain stock indices.

United Community’sOne-Year Stock Performance

   Beginning Value
September 6, 2018		  Ending Value
September 6, 2019		 

United Community

   100%   93.1% 

United Community Peer Group

   100%   85.2% 

S&P 500 Index

   100%   103.5% 

NASDAQ Bank Index

   100%   81.0% 

United Community’s Three-Year Stock Performance

   Beginning Value
September 6, 2016		  Ending Value
September 6, 2019		 

United Community

   100%   145.4% 

United Community Peer Group

   100%   121.9% 

S&P 500 Index

   100%   136.2% 

NASDAQ Bank Index

   100%   115.5% 

First Defiance’sOne-Year Stock Performance

   Beginning Value
September 6, 2018		  Ending Value
September 6, 2019		 

First Defiance

   100%   82.9% 

First Defiance Peer Group

   100%   85.6% 

S&P 500 Index

   100%   103.5% 

NASDAQ Bank Index

   100%   81.0% 

First Defiance’s Three-Year Stock Performance

   Beginning Value
September 6, 2016		  Ending Value
September 6, 2019		 

First Defiance

   100%   118.1% 

First Defiance Peer Group

   100%   123.0% 

S&P 500 Index

   100%   136.2% 

NASDAQ Bank Index

   100%   115.5% 

Comparable Company Analyses

Sandler O’Neill used publicly available information to compare selected financial information for United Community with a group of financial institutions selected by Sandler O’Neill (the “United Community Peer Group”). The United Community Peer Group included public, major exchange traded (NASDAQ, NYSE, NYSEAM) banks and thrifts, headquartered in the Midwest region with total assets between $1.0 billion and $5.0 billion and ROAA greater than 1.25% as of or for the LTM ended June 30, 2019, but excluded targets of announced merger transactions and mutual holding companies. The United Community Peer Group consisted of the following companies:

Bank First Corporation

Independent Bank Corporation

Bridgewater Bancshares, Inc.

Lakeland Financial Corporation

Community Trust Bancorp, Inc.

Macatawa Bank Corporation

Farmers & Merchants Bancorp, Inc.

Mercantile Bank Corporation

Farmers National Banc Corp.

Nicolet Bankshares, Inc.

First Defiance Financial Corp.

Old Second Bancorp, Inc.

First Financial Corporation

Southern Missouri Bancorp, Inc.

First Savings Financial Group

Sterling Bancorp, Inc.

German American Bancorp, Inc.

Stock Yards Bancorp, Inc.

Great Southern Bancorp, Inc.

Waterstone Financial, Inc.

The analysis compared publicly available financial information for United Community with corresponding data for the United Community Peer Group as of or for the LTM ended June 30, 2019 with pricing data as of September 6, 2019. The table below sets forth the data for United Community and the median, mean, low and high data for the United Community Peer Group. Certain financial data prepared by Sandler O’Neill, as

referenced in the table presented below, may not correspond to the data presented in United Community’s historical financial statements, as a result of the different periods, assumptions and methods used by Sander O’Neill to compute the financial data presented.

United Community Comparable Company Analysis

   United
Community		   United
Community
Peer Group
Median		   United
Community
Peer Group
Mean		   United
Community
Peer Group
Low		   United
Community
Peer Group
High		 

Total assets ($mm)

   2,869    3,060    2,964    1,229    4,976 

Loans / Deposits (%)

   99.6    92.2    96.1    80.9    129.9 

Nonperforming assets(1) / Total assets (%)

   0.97    0.50    0.73    0.09    2.20 

Tangible common equity/Tangible assets (%)

   10.32    10.31    10.94    8.72    19.17 

Tier 1 risk-based capital ratio (%)

   13.23    12.43    13.94    10.49    25.29 

Total risk-based capital ratio (%)

   14.17    13.72    15.36    11.99    26.12 

CRE / Total risk-based capital ratio (%)

   217.9    191.1    218.1    89.5    477.5 

LTM return on average assets (%)

   1.36    1.49    1.51    1.26    1.89 

LTM return on average equity (%)

   12.16    13.10    13.25    7.65    18.30 

LTM Net interest margin (%)

   3.37    3.85    3.82    2.97    4.33 

LTM Efficiency ratio (%)

   56.22    57.15    57.35    38.00    77.09 

Price/Tangible book value (%)

   157    148    159    112    219 

Price/LTM earnings per share (x)

   12.3    11.3    11.8    8.0    15.7 

Price/2019E earnings per share(2) (x)

   11.3    11.2    11.8    8.5    15.1 

Price/2020E earnings per share(2) (x)

   10.6    11.8    11.5    8.2    14.7 

Current dividend yield (%)

   3.3    2.5    2.1    0.0    3.9 

Market value ($mm)

   462    451    510    139    1,077 

(1)

Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases, and real estate owned

(2)

Based on publicly available median analyst earnings per share estimates

Note: Bank level financial data as of or for the period ended June 30, 2019 was used where consolidated holding company data was unavailable.

Sandler O’Neill used publicly available information to perform a similar analysis for First Defiance by comparing selected financial information for First Defiance with a group of financial institutions selected by Sandler O’Neill (the “First Defiance Peer Group”). The First Defiance Peer Group included public, major exchange traded (NASDAQ, NYSE, NYSEAM) banks and thrifts, headquartered in the Midwest region with total assets between $1.0 billion and $5.0 billion and ROAA greater than 1.25% as of or for the LTM ended June 30, 2019, but excluded targets of announced merger transactions and mutual holding companies. The First Defiance Peer Group consisted of the following companies:

Bank First Corporation

Lakeland Financial Corporation

Bridgewater Bancshares, Inc.

Macatawa Bank Corporation

Community Trust Bancorp, Inc.

Mercantile Bank Corporation

Farmers & Merchants Bancorp, Inc.

Nicolet Bankshares, Inc.

Farmers National Banc Corp.

Old Second Bancorp, Inc.

First Financial Corporation

Southern Missouri Bancorp, Inc.

First Savings Financial Group

Sterling Bancorp, Inc.

German American Bancorp, Inc.

Stock Yards Bancorp, Inc.

Great Southern Bancorp, Inc.

United Community Financial Corp.

Independent Bank Corporation

Waterstone Financial, Inc.

The analysis compared publicly available financial information for First Defiance with corresponding data for the First Defiance Peer Group as of or for the as of or for the LTM ended June 30, 2019 with pricing data as of September 6, 2019. The table below sets forth the data for First Defiance and the median, mean, low and high data for the First Defiance Peer Group. Certain financial data prepared by Sandler O’Neill, as referenced in the table presented below, may not correspond to the data presented in First Defiance’s historical financial statements, as a result of the different periods, assumptions and methods used by Sander O’Neill to compute the financial data presented.

First Defiance Comparable Company Analysis

   First
Defiance		   First
Defiance
Peer Group
Median		   First
Defiance
Peer Group
Mean		   First
Defiance
Peer Group
Low		   First
Defiance
Peer Group
High		 

Total assets ($mm)

   3,278    2,962    2,943    1,229    4,976 

Loans / Deposits (%)

   97.9    92.2    96.2    80.9    129.9 

Nonperforming assets¹ / Total assets (%)

   0.78    0.50    0.74    0.09    2.20 

Tangible common equity/Tangible assets (%)

   9.60    10.36    10.98    8.72    19.17 

Tier 1 risk-based capital ratio (%)

   11.75    12.56    14.01    10.49    25.29 

Total risk-based capital ratio (%)

   12.75    13.96    15.43    11.99    26.12 

CRE / Total risk-based capital ratio (%)

   289.8    191.1    214.5    89.5    477.5 

LTM return on average assets (%)

   1.49    1.47    1.51    1.26    1.89 

LTM return on average equity (%)

   11.95    13.10    13.26    7.65    18.30 

LTM Net interest margin (%)

   4.02    3.83    3.78    2.97    4.33 

LTM Efficiency ratio (%)

   60.02    56.65    57.16    38.00    77.09 

Price/Tangible book value (%)

   170    148    159    112    219 

Price/LTM earnings per share (x)

   11.3    11.3    11.9    8.0    15.7 

Price/2019E earnings per share(2) (x)

   11.0    11.3    11.8    8.5    15.1 

Price/2020E earnings per share(2) (x)

   11.0    11.8    11.5    8.2    14.7 

Current dividend yield (%)

   2.9    2.5    2.2    0.0    3.9 

Market value ($mm)

   519    448    508    139    1,077 

(1)

Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases, and real estate owned

(2)

Based on publicly available median analyst earnings per share estimates

Note: Bank level financial data as of or for the period ended June 30, 2019 was used where consolidated holding company data was unavailable.

Net Present Value Analyses

Sandler O’Neill performed an analysis that estimated the net present value of United Community common stock assuming United Community performed in accordance with publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community. To approximate the terminal value of a share of United Community common stock at December 31, 2023, Sandler O’Neill applied price to 2023 earnings multiples ranging from 10.0x to 15.0x and multiples of December 31, 2023 tangible book value ranging from 130% to 205%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of United Community

common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of United Community common stock of $7.01 to $11.54 when applying multiples of earnings and $7.30 to $12.61 when applying multiples of tangible book value.

Earnings Per Share Multiples

Discount Rate

  10.0x   11.0x   12.0x   13.0x   14.0x   15.0x 

11.0%

  $8.13   $8.81   $9.49   $10.17   $10.86   $11.54 

12.0%

  $7.83   $8.48   $9.14   $9.79   $10.45   $11.10 

13.0%

  $7.54   $8.17   $8.80   $9.43   $10.06   $10.69 

14.0%

  $7.27   $7.87   $8.48   $9.08   $9.69   $10.29 

15.0%

  $7.01   $7.59   $8.17   $8.75   $9.33   $9.91 

Tangible Book Value Per Share Multiples

Discount Rate

  130%   145%   160%   175%   190%   205% 

11.0%

  $8.47   $9.30   $10.13   $10.95   $11.78   $12.61 

12.0%

  $8.16   $8.95   $9.75   $10.54   $11.33   $12.13 

13.0%

  $7.86   $8.62   $9.38   $10.15   $10.91   $11.67 

14.0%

  $7.57   $8.31   $9.04   $9.77   $10.50   $11.24 

15.0%

  $7.30   $8.01   $8.71   $9.41   $10.12   $10.82 

Sandler O’Neill also considered and discussed with the United Community’s board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to earnings. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming United Community’s earnings varied from 20% above estimates to 20% below estimates. This analysis resulted in the following range of per share values for United Community’s common stock, applying the price to 2023 earnings multiples range of 10.0x to 15.0x referred to above and a discount rate of 13.16%.

Earnings Per Share Multiples

Annual Budget Variance

  10.0x   11.0x   12.0x   13.0x   14.0x   15.0x 

(20.0%)

  $6.25   $6.75   $7.25   $7.75   $8.25   $8.75 

(10.0%)

  $6.87   $7.43   $8.00   $8.56   $9.12   $9.68 

0.0%

  $7.50   $8.12   $8.75   $9.37   $10.00   $10.62 

10.0%

  $8.12   $8.81   $9.50   $10.18   $10.87   $11.56 

20.0%

  $8.75   $9.50   $10.25   $11.00   $11.75   $12.50 

Sandler O’Neill also performed an analysis that estimated the net present value per share of First Defiance common stock, assuming First Defiance performed in accordance with publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance. To approximate the terminal value of a share of First Defiance common stock at December 31, 2023, Sandler O’Neill applied price to 2023 earnings multiples ranging from 10.0x to 15.0x and multiples of December 31, 2023 tangible book value ranging from 130% to 205%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of First Defiance common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of First Defiance common stock of $17.88 to $29.73 when applying multiples of earnings and $18.84 to $32.88 when applying multiples of tangible book value.

Earnings Per Share Multiples

Discount Rate

  10.0x   11.0x   12.0x   13.0x   14.0x   15.0x 

11.0%

  $20.77   $22.56   $24.35   $26.14   $27.93   $29.73 

12.0%

  $19.99   $21.71   $23.43   $25.16   $26.88   $28.60 

13.0%

  $19.25   $20.91   $22.56   $24.21   $25.87   $27.52 

14.0%

  $18.55   $20.14   $21.73   $23.32   $24.91   $26.50 

15.0%

  $17.88   $19.41   $20.94   $22.46   $23.99   $25.52 

Tangible Book Value Per Share Multiples

Discount Rate

  130%   145%   160%   175%   190%   205% 

11.0%

  $21.89   $24.09   $26.29   $28.49   $30.68   $32.88 

12.0%

  $21.07   $23.18   $25.30   $27.41   $29.52   $31.63 

13.0%

  $20.29   $22.32   $24.35   $26.38   $28.41   $30.43 

14.0%

  $19.55   $21.50   $23.45   $25.40   $27.35   $29.30 

15.0%

  $18.84   $20.71   $22.59   $24.46   $26.34   $28.21 

Sandler O’Neill also considered and discussed with United Community’s board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to earnings. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming First Defiance’s earnings varied from 20% above estimates to 20% below estimates. This analysis resulted in the following range of per share values for First Defiance common stock, applying the price to 2023 earnings multiples range of 10.0x to 15.0x referred to above and a discount rate of 13.16%.

Earnings Per Share Multiples

Annual Budget Variance

  10.0x   11.0x   12.0x   13.0x   14.0x   15.0x 

(20.0%)

  $15.85   $17.17   $18.48   $19.80   $21.11   $22.43 

(10.0%)

  $17.50   $18.97   $20.45   $21.93   $23.41   $24.89 

0.0%

  $19.14   $20.78   $22.43   $24.07   $25.71   $27.35 

10.0%

  $20.78   $22.59   $24.40   $26.20   $28.01   $29.82 

20.0%

  $22.43   $24.40   $26.37   $28.34   $30.31   $32.28 

Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Pro Forma Transaction Analysis

Sandler O’Neill analyzed certain potential pro forma effects of the merger on First Defiance assuming the merger closes December 31, 2019. Sandler O’Neill utilized the following information and assumptions: (a) publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community, (b) publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance, and (c) certain

assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Defiance and confirmed by the senior management of United Community. The analysis indicated that the transaction could be accretive to First Defiance’s estimated earnings per share (excludingone-time transaction costs and expenses) in the years ending December 31, 2020 through December 31, 2023 and dilutive to First Defiance’s estimated tangible book value per share at close and at December 31, 2020, and accretive to First Defiance’s estimated tangible book value per share at December 31, 2021, December 31, 2022, and December 31, 2023.

In connection with this analysis, Sandler O’Neill considered and discussed with United Community’s board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the merger, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Sandler O’Neill’s Relationship

Sandler O’Neill is acting as United Community’s financial advisor in connection with the merger and will receive a fee for such services in an amount equal to 0.75% of the aggregate merger consideration, which fee is contingent upon the closing of the merger. At the time of announcement, based on First Defiance’s closing stock price of $26.32 as of September 6, 2019, Sandler O’Neill’s advisory fee was approximately $3.5 million. Sandler O’Neill also received a $400,000 fee from United Community upon rendering its opinion, which opinion fee will be credited in full towards the advisory fee which will become payable to Sandler O’Neill on the day of closing of the merger. United Community has also agreed to indemnify Sandler O’Neill against certain claims and liabilities arising out of Sandler O’Neill’s engagement and to reimburse Sandler O’Neill for certain of itsout-of-pocket expenses incurred in connection with Sandler O’Neill’s engagement.

Sandler O’Neill did not provide any other investment banking services to United Community, nor did Sandler O’Neill provide any investment banking services to First Defiance, in the two years preceding the date of its opinion. In the ordinary course of Sandler O’Neill’s business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to United Community, First Defiance and their respective affiliates. Sandler O’Neill may also actively trade the equity and debt securities of United Community, First Defiance and their respective affiliates for Sandler O’Neill’s account and for the accounts of Sandler O’Neill’s customers.

Certain Unaudited Prospective Financial Information

Certain Unaudited Prospective Financial Information of First Defiance

First Defiance and United Community do not as a matter of course make public projections as to future performance, revenues, earnings or other financial results due to, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, First Defiance and United Community are including in this proxy statement/prospectus certain unaudited prospective financial information for First Defiance and United Community that was made available as described below. The inclusion of this information should not be regarded as an indication that any of First Defiance, United Community, Sandler O’Neill or KBW, their respective representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results, or that it should be construed as financial guidance, and it should not be relied on as such.

For purposes of Sandler O’Neill’s First Defiance net present value analysis performed in connection with Sandler O’Neill’s opinion, Sandler O’Neill used publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate of 7% and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance. The following table

summarizes this unaudited prospective financial information with respect to First Defiance as used by Sandler O’Neill for its First Defiance net present value analysis:

   For the Years Ended December 31, 
   2019   2020   2021   2022   2023 

Net income ($ in thousands)

  $47,263   $46,340   $49,405   $52,863   $56,565 

Earnings per share

  $2.38   $2.34   $2.50   $2.68   $2.87 

Dividends per share

  $0.77   $0.80   $0.83   $0.86   $0.89 

Similarly, for purposes of certain discounted cash flow analyses performed by KBW in connection with KBW’s opinion, KBW used publicly available mean consensus “street estimates” for calendar years 2019 and 2020 First Defiance net income and earnings per share, as well as an assumed First Defiance long-term earnings per share growth rate of 7% provided by First Defiance management, all of which information was discussed with KBW by such management and used and relied upon by KBW at the direction of such management.

Certain Unaudited Prospective Financial Information of United Community

For purposes of Sandler O’Neill’s United Community net present value analysis performed in connection with Sandler O’Neill’s opinion, Sandler O’Neill usedpublicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate of 7% and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community. The following table summarizes this unaudited prospective financial information with respect to United Community as used by Sandler O’Neill for its United Community net present value analysis:

   For the Years Ended December 31, 
   2019   2020   2021   2022   2023 

Net income ($ in thousands)

  $40,368   $42,874   $45,876   $49,089   $52,523 

Earnings per share

  $0.83   $0.89   $0.95   $1.02   $1.09 

Dividends per share

  $0.30   $0.34   $0.38   $0.42   $0.46 

Similarly, for purposes of certain discounted cash flow analyses performed by KBW in connection with KBW’s opinion, KBW used publicly available mean consensus “street estimates” for calendar years 2019 and 2020 United Community net income and earnings per share, as well as an assumed United Community long-term earnings per share growth rate of 7% provided by United Community management, all of which information was discussed with KBW by such management and used and relied upon by KBW at the direction of First Defiance management.

This information is subjective in many respects. While presented with numeric specificity, the unaudited prospective financial information reflects numerous estimates and assumptions with respect to business, economic, market, competition, regulatory and financial conditions and matters specific to First Defiance’s and United Community’s respective business, all of which are difficult to predict and many of which are beyond First Defiance’s and United Community’s control. The unaudited prospective financial information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and therefore, is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. No assurance can be given that the unaudited prospective financial information and the underlying estimates and assumptions will be realized. In addition, since the unaudited prospective financial information covers multiple years, such information by its nature becomes subject to greater uncertainty with each successive year. Actual results may differ materially from those set forth above, and important factors that may affect actual results and cause the unaudited prospective financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to First Defiance’s and United

Community’s business, industry performance, general business and economic conditions, customer requirements, competition and adverse changes in applicable laws, regulations or rules. For other factors that could cause actual results to differ, please see the sections entitled “Risk Factors” and “Forward-Looking Statements.”

The unaudited prospective financial information appearing above was not prepared with a view toward public disclosure (except for publicly available mean analyst net income, earnings per share and dividends per share estimates), nor was it prepared with a view toward compliance with GAAP, the prevailing practices in the banking industry, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited prospective financial information requires significant estimates and assumptions that make it inherently less comparable to the similarly titled GAAP measures in First Defiance’s or United Community’s historical GAAP financial statements. Neither First Defiance’s nor United Community’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained in this document, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the unaudited prospective financial information. The independent registered public accountant reports included in this proxy statement/prospectus relate to historical financial information of each of First Defiance and United Community. They do not extend to the unaudited prospective financial information and should not be read to do so.

Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the dates of the respective fairness opinions delivered by Sandler O’Neill and KBW. No assurance can be given that, had the unaudited prospective financial information been prepared as of the date of this proxy statement/prospectus, similar estimates and assumptions would be used. Neither First Defiance nor United Community intends to, and expressly disclaims any obligation to, make publicly available any update or other revision to the unaudited prospective financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even if any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions. The unaudited prospective financial information does not take into account the possible financial and other effects on First Defiance or United Community of the merger and does not attempt to predict or suggest future results of the combined company after giving effect to the merger. The unaudited prospective financial information does not give effect to the merger, including the impact of negotiating or executing the merger agreement, the expenses that may be incurred in connection with completing the merger, the potential synergies that may be achieved by the combined company as a result of the merger, the effect on First Defiance or United Community of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the merger agreement had not been executed, but that were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the unaudited prospective financial information does not take into account the effect on First Defiance or United Community of any possible failure of the merger to occur. By inclusion of the unaudited prospective financial information in this document, none of First Defiance, United Community, Sandler O’Neill, KBW or their respective affiliates, associates, officers, directors, advisors, agents or other representatives makes any representation to any shareholder of First Defiance or United Community or any other person regarding First Defiance’s or United Community’s ultimate performance compared to the information contained in the unaudited prospective financial information or that the projected results will be achieved. The inclusion of the unaudited prospective financial information in this document should not be deemed an admission or representation by First Defiance or United Community that it is viewed as material information, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the unaudited prospective financial information included above is not being included to influence your decision whether to vote to approve the merger, but is being provided solely because it was made available to Sandler O’Neill and KBW as discussed above, in connection with the merger.

In light of the foregoing, and considering that the special meetings of First Defiance and United Community shareholders will be held several months after the unaudited prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, shareholders are cautioned not to place unwarranted reliance on such information, and First Defiance and United Community urge all shareholders to review First Defiance’s and United Community’s financial statements and other information contained elsewhere in this document for a description of First Defiance’s and United Community’s respective businesses and reported financial results. See “Where You Can Find More Information” beginning on page 145.

Management and Board of Directors of First Defiance After the Merger

Upon completionThe merger agreement provides that, following the merger, Donald P. Hileman, the current Chief Executive Officer of First Defiance, will continue to serve as the Chief Executive Officer of the surviving company and surviving bank, and that Gary M. Small, the current President and Chief Executive Officer of United Community, will become President of the surviving company and surviving bank. In addition, John L. Bookmyer, the current Chairman of First Defiance, will continue to serve as Chairman of the surviving company and surviving bank following the merger, and Richard J. Schiraldi, the current Chairman of United Community, will become Vice Chairman of the surviving company and surviving bank.

The merger agreement also provides that, on a date during the period commencing January 1, 2021, and ending June 30, 2021, as determined by the surviving company’s board of directors, or any such earlier date as of which Mr. Hileman ceases for any reason to serve in the position of Chief Executive Officer of the surviving company or surviving bank, as applicable, (i) Mr. Small shall become President and Chief Executive Officer of the surviving company and surviving bank, (ii) Mr. Hileman shall become Executive Chairman of the surviving company and surviving bank, and (iii) Mr. Schiraldi shall continue as Vice Chairman of the surviving company and surviving bank. In addition, the merger agreement provides that the respective boards of directors of the surviving company and surviving bank will each consist of 13 members, with seven members designated by First Defiance (including its Chief Executive Officer, Chairman and five other members of the First Defiance or First Federal board of directors), and six members designated by United Community (including its Chief Executive Officer, Chairman and four other members of the United Community or Home Savings board of directors). Other than as specifically identified above, the other members of the board of directors of the surviving company have not yet been identified.

Interests of First Defiance Directors and Executive Officers in the Merger

In considering the recommendation of the First Defiance board of directors, First Defiance shareholders should be aware that the directors and executive officers of First Defiance are expected to continue in their current positions, with the exception of the addition of Robert E. Beach, a current director of Commercial Bancshares, who has been chosen by First Defiance in consultation with Commercial Bancshares to be appointed as a director of First Defiance pursuant to the Merger Agreement. Information about the current First Defiance directors and executive officers can be found in First Defiance’s 2015 Annual Report on Form 10-K incorporated by reference under “Incorporation of Certain Documents by Reference” beginning on page 117.

Robert E. Beach, age 64, has served as a director of Commercial Bancshares since 2007. Mr. Beach serves as President and CEO of Commercial Bancshares and Commercial Bank. Prior to joining Commercial Bancshares, he served as Area President of Key Bank in Findlay, Ohio. Mr. Beach has more than 30 years of management experience in the banking industry. His current term as a director of Commercial Bancshares will expire at the 2019 annual meeting of Commercial Bancshares shareholders.

Mr. Beach has been deemed “independent” by the First Defiance board of directors, according to NASDAQ listing standards. Following the merger, Mr. Beach, as a non-employee director of First Defiance, will receive an annual retainer of $29,000 and a fee of $750 for each board meeting attended for either First Defiance or First Federal. Mr. Beach will also be eligible to defer his retainer and/or meeting fees payable to him under the First Defiance Deferred Compensation Plan. For more information regarding the First Defiance Deferred Compensation Plan and the compensation paid to directors of First Defiance, see First Defiance’s 2015 Annual Report on Form 10-K incorporated by reference under “Incorporation of Certain Documents by Reference” beginning on page 117.

Interests of Commercial Bancshares Directors and Executive Officers in the Merger

In considering the recommendation of the board of directors of Commercial Bancshares to vote for the merger proposal, Commercial Bancshares shareholders should be aware thathave certain of Commercial Bancshares’ directors and executive officers have interests in the merger as individuals that aremay be different from, or in addition to, or different from, theirthe interests asof First Defiance shareholders of Commercial Bancshares.generally. The Commercial BancsharesFirst Defiance board of directors was aware of these factorsinterests and considered them, among other matters, in approvingmaking its recommendation that First Defiance shareholders vote to approve the Merger Agreementmerger proposal.

Treatment of First Defiance Equity-Based Awards

The executives and directors of First Defiance hold outstanding awards under the First Defiance equity incentive plans. Messrs. Hileman, Nungester, Reisner, Rose, Allen, and Harris each hold outstanding awards of performance-based restricted stock units; Messrs. Nungester and Allen, and thenon-employee directors, each hold outstanding awards of restricted stock; and Mr. Allen holds outstanding awards of restricted stock units. Pursuant to the employment and change in control agreements between First Defiance and the merger. These interests are described below. For purposes of this disclosure,named executive officers (other than Mr. Harris), the merger constituteswill be considered a “change in control.” As a result, awards held by such executives will vest upon a termination other than for cause following the effective time of the merger. The performance-based awards will vest on apro-rata basis, while the other awards will vest in full.

Mr. Harris and thenon-employee directors do not have employment or other agreements with First Defiance under which their outstanding equity awards will vest on an accelerated basis in connection with a merger-related

termination. However, in order to better align the treatment of United Community and First Defiance directors and employees, the merger agreement provides First Defiance discretion to deem the merger a change in control changeunder applicable award agreements and plans. It has not yet been determined as of control or termthe date of similar meaning.this filing whether and for whom First Defiance will exercise such discretion.

For an estimate of the amounts that would become payable to First Defiance’s named executive officers in respect of their unvested equity-based award agreements if a severance-qualifying termination of employment were to occur immediately following the effective time of the merger, see “The Merger—Merger-related Compensation for First Defiance’s Named Executive Officers.” First Defiance estimates that the aggregate amount that would become payable to its executive officers who are not named executive officers with respect to accelerated vesting of their unvested equity-based awards to be $564,997, based on a price per share of First Defiance common stock of $27.82 (the average closing price of common stock of First Defiance over the five trading days following the announcement of the merger), and assuming that such executives incur a termination other than for cause following the effective time of the merger and such effective time of the merger were October 15, 2019.

New Employment Agreements.Agreement with Donald P. Hileman  Commercial Bancshares has

In connection with the execution of the merger agreement, First Defiance entered into an employment agreement with each of: Steven M. StrineMr. Hileman setting forth the terms of his continuing employment with First Defiance following the effective time of the merger. The employment agreement provides that Mr. Hileman will continue to serve as Chief Executive Officer of First Defiance and Susan E. Brown, each agreement dated June 10, 2015; Robert E. BeachFirst Federal and Bruce Beck, each agreement dated June 11, 2015;as a member of the boards of directors of First Defiance and Scott A. Oboy, datedFirst Federal. On a date between January 1, 2021 and June 30, 2015.2021, to be determined by the board of directors following the effective time (the “Succession Date”), Mr. Beach’s agreement hasHileman will retire as Chief Executive Officer and transition to the role of Executive Chairman of First Defiance and First Federal. Mr. Hileman will serve as Executive Chairman for a term of three years, Messrs. Oboy and Strine’s agreements each have a termperiod of two years, during which time he will continue to serve on the boards of directors of First Defiance and First Federal. In consideration for his services as Chief Executive Officer, Mr. Beck and Ms. Brown’s agreements each have a termHileman will be entitled to (a) an annual base salary of one year. At the end of the original term, each of the agreements is automatically extended from year to year for additional one year periods, unless either Commercial Bancshares or the officer provides notice of nonrenewal at least 60 days$495,000, (b) target annual incentive opportunities of not less than 50% of his annual base salary, (c) an annual equity award with a target value of not less than 45% of his annual base salary, and (d) employee benefits and fringe benefits (including additional life insurance, supplemental disability, paid vacation and reimbursement of club dues) that are no less favorable than those provided by First Defiance prior to the expiration date of the current term of the agreement, and subject to earlier termination as set forth in the agreement.

Each of the agreements contain a provision that provides for certain paymentseffective time or, if any of the following occurs: (i) within one year after a change in control (as defined below), the officer’s employment is terminated without cause; (ii) within one year after a change in control, the officer resigns because he or she has been demoted, had his or her base salary reduced, had his or her principal place of employment transferred away from Wyandot County, Ohio or a contiguous county, or had his or her job title, status or responsibility materially reduced; or (iii) (a) the officer’s employment is terminated by Commercial Bancshares without cause, (b) there is a change in control within one year following the termination, and (c) the officer’s termination of employment was at the request of a third party who has taken steps reasonably calculated to effect a change in control or was otherwise in anticipation of a change in control. In the event of a termination under any of these circumstances, Commercial Bancshares is obligated to pay the officer monthly payments in an amount equal to: for Mr. Beach — 2.99 times the sum of his then current annual base salary divided by 36, with a total of 36 payments; for each of Messrs. Oboy and Strine — 2.0 times his then current base salary divided by 24, with a total of 24 payments; and for each of Mr. Beck and Ms. Brown — 1.5 times the officer’s then current base salary divided by 18, with a total of 18 payments. Such payments commence


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within 30 days of the date of termination. These payments are reduced by any continuing compensation (as defined below) paid and payablemore favorable, those provided to the officer. In addition, if the officer elects COBRA continuation coverage and pays the applicable premiums, Commercial Bancshares will reimburse the officer for the premiums paid for comparable medical benefits for a period equalChief Executive Officer of United Community immediately prior to the shorter of: (1)effective time. Mr. Hileman’s compensation and benefits will be reviewed by the time that he or she is provided comparable coverage by a subsequent employer or thorough his spouse’s employer or (2) for Messrs. Beach, Oboy and Strine — 24 months, and for Mr. Beck and Ms. Brown — 18 months.

For purposes of the above employment agreements, a “change in control” occurs on the date of a transaction where (i) any person or group in a 12 month period becomes the beneficial owner, directly or indirectly, of securities of Commercial Bancshares representing more than 50% of the combined voting power of Commercial Bancshares’ then outstanding securities; (ii) during any period of 12 consecutive months, a majority of memberscompensation committee of the board of directors is replaced by directors whose appointment or election is not endorsed by a majorityof First Defiance as soon as practicable following the closing of the membersmerger to ensure they are commensurate with market practices for Mr. Hileman’s role with First Defiance relative to First Defiance’s peer group following the closing of the merger. In addition, Mr. Hileman will receive aone-time cash retention award of $2,250,000 in connection with the cancellation of his current employment agreement.

Upon his transition to Executive Chairman, Mr. Hileman’s annual base salary will be reduced to a market-based level to be determined by the board of directors. He will not participate in the annual incentive plan of First Defiance unless otherwise determined by the board of directors, and he will be eligible for equity-based awards as a member of the board beforeof directors but not under the datelong-term incentive plan for executive management of First Defiance. During this period, he will remain an employee of First Defiance and be eligible for retirement and welfare benefits on the same basis as other full-time employees.

If the employment of Mr. Hileman is terminated by First Defiance without cause or by the executive for good reason prior to his transition to Executive Chairman, subject to the execution of a release of claims, he will be entitled to the following severance benefits:

•

Prorated Bonus.A prorated annual cash bonus for the year in which termination occurs, determined assuming performance goals are satisfied at the target level.

•

Long-Term Incentive Awards.(a) Accelerated vesting in full of any unvested time-vesting long-term incentive awards, (b) any performance-vesting long-term incentive awards for which the performance

period is complete shall vest in full and any such awards for which the performance period is not complete shall be earned as provided in the applicable award agreement and vest in full and (c) any vested stock options exercisable for the full remaining term thereof.

If the compensation and benefits payable under the employment agreement become subject to Section 280G of the appointmentCode, such amounts will be reduced to the extent such reduction would place the applicable executive in a betterafter-tax position. The retention award is not anticipated to become subject to Section 280G because the merger is not expected to constitute a “change in control” of First Defiance for purposes of Section 280G.

The employment agreement also contains certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of clients, customers and employees, each of which applies during Mr. Hileman’s employment and for one year thereafter.

Employment and Change in Control Agreements with First Defiance

Superseded Employment Agreement with Donald P. Hileman

First Defiance is party to an employment agreement with Mr. Hileman, which will be superseded upon the effective time by the new employment agreement with Mr. Hileman, as noted above. Under the superseded employment agreement, if the employment of Mr. Hileman was terminated involuntarily without cause or election;by Mr. Hileman for good reason within six months before or (iii)12 months following a merger, consolidation or reorganization is consummated with any other corporation or entity pursuant tochange in control of First Defiance, which the shareholdersmerger qualifies, subject to the execution of Commercial Bancshares immediately priora release of claims, he would be entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to the product of (a) 2.99multiplied by (b) the sum of (i) his annual base salary plus (ii) his average annual bonus for the most recently completed five-year period.

•

COBRA Benefits. Healthcare continuation coverage under COBRA equal to the coverage in place on the date of termination, at no cost to the executive, until the earlier of the first anniversary of such termination or eligibility under another employer’s group health plans; or, in lieu thereof, a lump sum cash payment equal to 12 months of such premiums.

If the compensation and benefits payable under the employment agreement were subject to Section 280G of the Code, such amounts would be reduced to the extent such reduction would result in the total compensation and benefits being equal to an amount $1.00 less than the amount that would make the executive subject to Section 280G of the Code. Notwithstanding the foregoing, no such reduction is anticipated because the merger is not expected to constitute a “change in control” of First Defiance for purposes of Section 280G.

The employment agreement also contains certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of employees, each of which applies for 12 months following termination of employment.

Agreements with Other Executive Officers

Employment Agreements with Messrs. Nungester and Allen

First Defiance is party to employment agreements with Mr. Nungester and, until December 31, 2019, Mr. Allen. Under such agreements, if the employment of the executive is terminated involuntarily without cause or by the executive for good reason within six months before or 12 months following a change in control of First Defiance, which the merger qualifies, subject to the execution of a release of claims, the executive is entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to the product of (a) 2.99multiplied by (b) the sum of (i) the executive’s current annual base salary (in the case of Mr. Allen, his average annual salary for the most recently completed five-year period) plus (ii) the executive’s average annual bonus for the most recently completed five-year period.

•

COBRA Benefits. With respect to Mr. Nungester, healthcare continuation coverage under COBRA equal to the coverage in place on the date of termination, at no cost to the executive, until the earlier of the first anniversary of such termination or eligibility under another employer’s group health plans; or, in lieu thereof, a lump sum cash payment equal to 12 months of such premiums; and with respect to Mr. Allen, healthcare continuation coverage under COBRA equal to the coverage in place on the date of termination, at no cost to the executive, until December 31, 2019.

If the compensation and benefits payable under the employment agreements were subject to Section 280G of the Code, such amounts would be reduced to the extent such reduction would result in the total compensation and benefits being equal to an amount $1.00 less than the amount that would make the executives subject to Section 280G of the Code. Notwithstanding the foregoing, no such reductions are anticipated because the merger is not expected to constitute a “change in control” of First Defiance for purposes of Section 280G.

The agreements also contain certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of employees, each of which applies for 12 months following termination of employment.

Change in Control Agreements with Messrs. Reisner and Allen

First Defiance is party to change in control agreements with Mr. Reisner and, effective January 1, 2020, Mr. Allen. Under the agreements, if the employment of the executive is terminated involuntarily without cause or by the executive for good reason within six months before or 12 months following a change in control of First Defiance, which the merger qualifies, subject to the execution of a release of claims, the executive is entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to the product of (a) twomultiplied by (b) the sum of (i) the executive’s current annual base salary plus (ii) the executive’s average annual bonus for the most recently completed five-year period.

•

COBRA Benefits. Healthcare continuation coverage under COBRA equal to the coverage in place on the date of termination, at no cost to the executive, until the earlier of the first anniversary of such termination or eligibility under another employer’s group health plans.

If the compensation and benefits payable under the change in control agreements were subject to Section 280G of the Code, such amounts would be reduced to the extent such reduction would result in the total compensation and benefits being equal to an amount $1.00 less than the amount that would make the executives subject to Section 280G of the Code. Notwithstanding the foregoing, no such reductions are anticipated because the merger is not expected to not constitute a “change in control” of First Defiance for purposes of Section 280G.

The agreements also contain certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of customers, suppliers, and employees, each of which applies for 12 months following termination of employment.

Change in Control Agreement with Mr. Rose

First Defiance is party to change in control agreement with Mr. Rose. Under the agreement, if the employment of the executive is terminated involuntarily without cause or by the executive for good reason within six months before or 12 months following a change in control of First Defiance, which the merger qualifies, subject to the execution of a release of claims, the executive is entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to his current annual base salary.

•

COBRA Benefits. Healthcare continuation coverage under COBRA equal to the coverage in place on the date of termination, at no cost to the executive, until the earlier of the first anniversary of such termination or his eligibility under another employer’s group health plans.

If the compensation and benefits payable under the change in control agreement were subject to Section 280G of the Code, such amounts would be reduced to the extent such reduction would result in the total compensation and benefits being equal to an amount $1.00 less than the amount that would make the executive subject to Section 280G of the Code. Notwithstanding the foregoing, no such reduction is anticipated because the merger is not expected to constitute a “change in control” of First Defiance for the purposes of Section 280G.

The agreement also contains certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of customers, suppliers, and employees, each of which applies for 12 months following the executive’s termination of employment.

First Defiance Severance Plan

Pursuant to the merger consolidation or reorganization do not immediately thereafter directly or indirectly own more than 50%agreement, employees of the combined voting power of the voting securities entitledFirst Defiance and United Community without contractual termination and severance protections, including Mr. Harris, are eligible for benefits under a severance plan to votebe developed jointly by First Defiance and United Community. It is anticipated that Mr. Harris will be eligible for a severance payment in the election of directors of the merged, consolidated or reorganized entity; or (iv) the purchase by any individual, entity or group of persons acting as a group not controlled by or affiliated with Commercial Bancshares of assets that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all assets of Commercial Bancshares immediately prior to such acquisition.

For purposes of the above employment agreements, “continuing compensation” means (i) an amount equal to 1/12one year of the employee’s annual base salary in effect on the effective dateunder such plan.

Estimated Value of the notice of termination determined under the then current policies of Commercial Bancshares for executive compensation, plus (ii) one month of the employee’s annual employee benefits, except for reimbursement of certain business expenses.

Under each of the agreements, any payments or benefits payable to the officer will be cut back to the extent that such payments or benefits would result in the imposition of excise taxes under Sections 280G and 4999 of the Code.

Each of the above officers is subject to a 12-month post-termination non-compete and non-solicitation agreement following termination for any reason, except that Mr. Beck and Ms. Brown’s non-compete agreement is only for 9 months.Severance Entitlements

For an estimate of the value of the cash severance payments and COBRA benefits described above that would bebecome payable to each of theFirst Defiance’s named executive officers Messrs. Beach, Oboy and Strine, under their employment or change in control agreements in connection withupon a qualifying termination following the merger, see “Merger-Related Compensation for Commercial Bancshares’ Named Executive Officers” below.

Split Dollar Life Insurance Agreements.  Commercial Bancshares has entered into split dollar life insurance agreements with certain officers, including Mr. Oboy (the “Split-Dollar Agreement”). Under the terms of the Split Dollar Agreement with Mr. Oboy he has a fully vested interest in certain insurance policies that provide him a right to name beneficiaries to receive a death benefit equal to three times his annual base salary at the time of his death, or in the event of his death followingseverance-qualifying termination of employment at termination of employment. Commercial Bank, or any successor, is obligated under the terms of the Split Dollar Agreement to pay all premiums due on the respective policies of insurance. First Defiance has agreed in the Merger Agreement, as required by the Split Dollar Agreement, to expressly assume all obligations under the Split Dollar Agreement.

Stock Options.  In accordance with the Merger Agreement, at the effective time of the merger, each Commercial Bancshares stock option outstanding and unexercised immediately prior to the effective time of the merger that is exercisable or will become exercisable as a result of the merger will be terminated immediately prior to the effective time of the merger and entitled to receive cash equal to the excess, if any, of $51.00 over the exercise price of such Commercial Bancshares stock option. As of the date of this proxy statement/prospectus, directors and executive officers of Commercial Bancshares, as a group, hold outstanding options to purchase


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     shares of Commercial Bancshares common stock with a weighted average exercise price of $     per share. Assuming a closing date of            , 2017, a total of      unvested options held by executive officers of Commercial Bancshares will be accelerated and will vest upon the completion of the merger.

Restricted Stock.  All unvested restricted stock awarded to directors and executive officers of Commercial Bancshares will become vested immediately upon the closing of the merger. As of the date of this proxy statement/prospectus, directors and executive officers of Commercial Bancshares, as a group, hold      shares of unvested restricted stock. A total of approximately      shares will be accelerated and vest upon completion of the merger.

Board of Directors of First Defiance Following the Merger.  Pursuant to the Merger Agreement, First Defiance agreed to take all appropriate action so that, as of the effective time, one current director of Commercial Bancshares, who will be selected by First Defiance in consultation with Commercial Bancshares, will be appointed as a director of First Defiance. First Defiance has selected Mr. Beach to be appointed to the board following the completion of the merger.

Indemnification.  For six years following the effective time of the merger, see “The Merger—Merger-related Compensation for First Defiance’s Named Executive Officers.” First Defiance has agreedestimates that the aggregate value of the cash severance payments and COBRA benefits that would become payable to indemnify and hold harmless to the fullest extent permitted by applicable law, the Commercial Bancshares’ articlesFirst Defiance’s executive officers who are not named executive officers under their employment or change in control agreements upon a severance-qualifying termination of incorporation and its code of regulations, each present director and officer of Commercial Bancshares and Commercial Bank. First Defiance has also agreed that for a period of six yearsemployment immediately following the effective time of the merger itto be $1,743,254.

Director and Officer Indemnification and Insurance

Pursuant to the terms of the merger agreement, from and after the effective time, First Defiance will provideindemnify certain persons, including First Defiance’s directors and executive officers. In addition, for a period of six years from the effective time, First Defiance will maintain First Defiance’s current directors’ and officers’ liability insurance that serves to reimburse the presentpolicies. For additional information, see “The Merger Agreement—Director and former officersOfficer Indemnification and directorsInsurance.”

Post-Closing Roles

As noted above, Mr. Hileman will remain Chief Executive Officer of Commercial Bancshares or its subsidiaries with respect to claims against such officersFirst Defiance and directors arising from facts or events occurringFirst Federal at or before the effective time until the Succession Date. As of this filing, it is expected that Mr. Nungester will remain as Chief Financial Officer and that Mr. Rose will serve as Chief Strategy Officer. The continuing roles of Messrs. Reisner, Allen, and Harris have not yet been determined. In addition, pursuant to the merger agreement, seven of the 13 members of the board of directors of First Defiance and First Federal immediately following the closing of the merger will be designated by First Defiance to remain on the board of directors, including the transactions contemplatedMr. Hileman and Mr. Bookmyer, who will remain as Chairman. The board members to be designated by the Merger Agreement.

Merger-Related Compensation for Commercial Bancshares’ Named Executive Officers

As described in detail above, Commercial Bancshares has entered into an employment contract with each of Messrs. Beach, OboyFirst Defiance have not been identified, and Strine that provides for severance compensation and the reimbursement of certain health insurance costs in the event of their termination of employment in connection with a change in control. Additionally, under the terms of the Commercial Bancshares’ equity plans and award agreements all unvested options and restricted stock awards are immediately vested upon a change in control. Each of Messrs. Beach, Oboy and Strine’s employment agreements contain customary non-competition, non-solicitation and confidentiality covenants.

The table and footnotes below reflect the estimated amount ofany compensation that each of the named executive officers of Commercial Bancshares is entitled to receive upon a qualifying termination ofmay be payable for such executive’s employment following a change in control under their employment agreements. In addition, the table presents the value of the acceleration of the vesting of equity awards under the terms of the award agreements and plan documents of Commercial Bancshares as a result of the merger. The amounts shown assume a termination of employmentservice has not been determined as of the date of this proxy statement/prospectus and assumefiling.

Merger-related Compensation for First Defiance’s Named Executive Officers

The information set forth in the table below is intended to comply with Item 402(t) of RegulationS-K, which requires disclosure of information about certain compensation for each of First Defiance’s named

executive officers that is based on or otherwise relates to the merger. The merger-related compensation described below is based on the named executive officers’ existing compensation arrangements with First Defiance. With respect to Mr. Hileman, in accordance with SEC guidance, the severance described would be payable under his existing employment agreement, which will be superseded upon the closing of the merger is consummated. Amounts do not include compensationby his new employment agreement. With respect to Mr. Allen, in accordance with SEC guidance, the severance described below would be payable under his existing employment agreement, which will be superseded as of January 1, 2020 by his new change in control agreement. For additional details regarding the terms of the payments described below, as well as the terms of the existing employment agreements between First Defiance and benefits available to allMessrs. Hileman and Allen, see the discussion under the caption “The Merger—Interests of Commercial Bancshares’ general employees on a non-discriminatory basis. First Defiance’s Directors and Executive Officers in the Merger” above.

The amounts reportedindicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described in this document,below, and do not reflect certain compensation actions that may occur before the completioneffective time of the merger. As a resultFor purposes of calculating such amounts, we have assumed:

October 15, 2019, as the closing date of the foregoing assumptions, the actual amounts, if any, to be received by merger;

a termination of each named executive officer may materially differ fromofficer’s employment without cause, effective as of immediately following the amounts set forth below.effective time of the merger; and

Golden Parachute Compensation

    
Name and Principal Position
(a)		 Cash(1)
($)		 Equity(2)
($)		 Perquisite/ Benefits(3)
($)		 Total
($)
Robert E. Beach President and CEO (PEO)  759,266   313,981   32,568   1,105,815 
Scott A. Oboy, EVP and Chief Financial Officer (PFO)  336,916   126,363   47,472   510,751 
Steven M. Strine, EVP and Senior Lending Officer  281,216   126,363   32,568   440,147 

a price per share of First Defiance common stock of $27.82 (the average closing price of First Defiance common stock over the five trading days following the announcement of the merger).

Name

  Cash
Severance
($)(2)		   Equity
($)(3)		   COBRA
Benefit
($)(4)		   Total
($)		 

Named Executive Officers

        

Donald P. Hileman

  $2,161,918   $1,152,471   $16,712   $3,331,101 

Paul D. Nungester, Jr.

  $954,546   $306,187   $22,004   $1,282,737 

Kevin T. Thompson(1)

   —      —      —      —   

John R. Reisner

  $583,880   $384,472   $14,804   $983,156 

Dennis E. Rose, Jr.

  $178,869   $235,162   $14,973   $429,004 

Gregory R. Allen

  $796,861   $330,335   $2,785   $1,129,981 

Timothy K. Harris

  $180,777    —      —     $180,777 

(1)

Kevin T. Thompson previously served as Chief Financial Officer of First Defiance and First Federal. Mr. Thompson retired on April 30, 2019 and is not eligible for merger-related compensation or benefits.

(2)

The cash paymentsamount payable to each of the Commercial Bancshares named executive officers consistconsists of 36a severance payment equal monthly paymentsto the product of $21,091.00(a) 2.99 (in the case of Messrs. Hileman, Nungester and Allen) or two (in the case of Mr. Reisner)multiplied by (b) the sum of (i) the executive’s annual base salary (or, in the case of Mr. Beach and 24 monthly payments of $14,038.00


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and $11,717.00,Allen, his average annual salary for the most recently completed five-year period) plus (ii) the executive’s average annual bonus for the most recently completed five-year period. With respect to Mr. Oboy and Mr. Strine, respectively. All suchRose, the severance payment is equal to one year of base salary. The payments are “double-trigger” and are payable in the event of involuntary or constructivefollowing a termination of employment withinwithout cause or for good reason (i.e., “double-trigger”) and the execution of a release of claims. It is anticipated that the cash amount payable to Mr. Harris under the severance plan will consist of one year of salary.

(3)

The cash value attributable to accelerated vesting of equity-based awards, which occurs only upon a termination other than for cause (i.e., “double trigger”), consists of the product of (a) the number of shares that will be subject to accelerated vesting times (b) $27.82, the price per share of First Defiance common stock, which represents the average closing price of First Defiance common stock over the five trading days following the announcement of the merger.

Following the effective time, the restricted stock held by Mr. Allen under the 2010 equity plan would vest upon his termination other than for cause within six months. The restricted stock held by Mr. Nungester and

restricted stock units held by Mr. Allen, each under the 2018 equity plan, would vest upon termination other than for cause within 12 months. The performance-based restricted stock units held by Messrs. Hileman, Reisner, Allen, and Rose under each plan, and by Mr. Nungester under the 2018 plan only, would vest upon termination other than for cause prior to the end of the applicable performance periods, at the greater number of units that would have vested assuming a target level of performance for the entire performance period, or the number of units that would vest at the actual level of performance through the fiscal quarter ended nearest to the date of termination. Values in the table below reflects the maximum level of payout for the performance-based awards. The performance-based restricted stock units held by Mr. Harris under both plans are not subject to accelerated vesting in connection with a merger-related termination unless the board of directors of First Defiance deems the merger a “change in control” for the purposes of his award agreements.

Name

  Performance-
Vesting RSUs
($)		   Restricted
Stock
($)		   Restricted
Stock Units
($)		 

Named Executive Officers

      

Donald P. Hileman

  $1,152,471    —      —   

Paul D. Nungester, Jr.

  $180,997   $125,190    —   

Kevin T. Thompson

   —      —      —   

John R. Reisner

  $384,472    —      —   

Dennis E. Rose, Jr.

  $235,162    —      —   

Gregory R. Allen

  $125,023   $166,920   $38,392 

Timothy K. Harris

   —      —      —   

With respect to Messrs. Hileman, Nungester, Reisner, Rose, and Allen, the COBRA Benefit consists of the cash value of healthcare continuation coverage equal to the coverage in place on the date of termination until the first anniversary of such termination (in the case of Mr. Allen, until December 31, 2019), at no cost to the executive, in the event of a termination of employment without cause or for good reason (i.e., “double-trigger”) and the execution of a release of claims. First Defiance may elect to pay the value of this benefit in a lump sum cash payment to Messrs. Hileman, Nungester and Allen. It is anticipated that Mr.  Harris will not be eligible for a COBRA benefit under the severance plan.

Interests of United Community Directors and Executive Officers in the Merger

In considering the recommendation of the United Community board of directors, United Community shareholders should be aware that the directors and executive officers of United Community have certain interests in the merger that may be different from, or in addition to, the interests of United Community shareholders generally. The United Community board of directors was aware of these interests and considered them, among other matters, in making its recommendation that United Community shareholders vote to approve the merger proposal.

Treatment of United Community’s Equity-Based Awards

At the effective time of the merger, each option to purchase shares of United Community common stock, whether vested or unvested, that is unexercised immediately prior to the effective time will fully vest and convert into an option to purchase shares of First Defiance common stock, with appropriate adjustments to reflect the application of the exchange ratio, and each United Community restricted stock award and United Community PSU award will fully vest and convert into the right to receive the merger consideration in respect of each share of United Community common stock subject to such award. Any performance-based vesting conditions applicable to such United Community PSU award will be measured consistent with the terms of the applicable award agreement applicable upon a change in control for such United Community PSU award, as determined by the United Community board of directors or compensation committee prior to the effective time.    

For an estimate of the amounts that would become payable to United Community’s executive officers (each of whom is also a named executive officer) upon the vesting and settlement of their unvested equity-based awards, see “The Merger—Merger-related Compensation for United Community’s Named Executive Officers.” United Community estimates that the aggregate amount that would become payable to its eightnon-employee directors in settlement of their unvested equity-based awards if the effective time of the merger were October 15, 2019, based on a price per share of United Community common stock of $10.28 (the average closing price of common stock of United Community over the five trading days following the announcement of the merger), to be $246,843.

2019 Annual Incentive Plan

United Community’s 2019 Annual Incentive Plan provides that, upon a change in control during 2019, annual incentives would be deemed earned at the target level and paid within 60 days following the change in control. In addition, the merger agreement provides that United Community may pay annual incentives and othernon-equity bonuses in respect of fiscal year 2019 prior to the effective time of the merger, as determined based on actual performance as of the effective time (adjusted for any costs or expenses associated with the merger) in the ordinary course.

For an estimate of the amounts that would become payable to United Community’s named executive officers in respect of 2019 annual incentives, see “The Merger—Merger-related Compensation for United Community’s Named Executive Officers” below.

New Employment Arrangements with First Defiance

In connection with the execution of the merger agreement, First Defiance entered into an employment agreement with Mr. Small setting forth the terms of his employment with First Defiance following the effective time of the merger. The employment agreement provides that Mr. Small will serve as the President of First Defiance and First Federal and, until the bank merger, Home Savings and as a member of the boards of directors of First Defiance and First Federal and, until the bank merger, Home Savings. In addition to the foregoing positions, on the Succession Date, Mr. Small will be appointed to the position of Chief Executive Officer. In consideration for his services, Mr. Small will be entitled to (a) an annual base salary of at least $480,000, (b) target annual incentive opportunities of not less than 50% of his annual base salary, (c) an annual equity award with a target value of not less than 40% of his annual base salary, and (d) employee benefits and fringe benefits (including additional life insurance, supplemental disability, paid vacation and reimbursement of club dues) that are no less favorable than those provided by United Community prior to the effective time or, if more favorable, those provided to the Chief Executive Officer of First Defiance immediately prior to the effective time. The foregoing amounts will be reviewed by the compensation committee of the board of directors of First Defiance as soon as practicable following the closing of the merger to ensure they are commensurate with market practices for Mr. Small’s role with First Defiance relative to First Defiance’s peer group following the closing of the merger. In addition, on the Succession Date, Mr. Small will receive aone-time special equity retention grant of restricted common stock of First Defiance having a grant date fair value equal to $750,000, which would vest inone-fifth (1/5) installments upon each of the first (1st), second (2nd), third (3rd), fourth (4th) and fifth (5th) anniversaries of the Succession Date, subject to Mr. Small’s continued employment through such date.

If the employment of Mr. Small is terminated by First Defiance without cause or by the executive for good reason during the term of his employment agreement, subject to the execution of a release of claims, he would be entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to the product of (a) two (or, if the termination occurs before the second (2nd) anniversary of the Succession Date or within six months before or two years following a change in control of First Defiance, 2.99)multiplied by (b) the sum of his annual base salary and his target annual bonus (or if higher, the annual bonus paid or payable to Mr. Small in respect of the most recently completed fiscal year).

•

Prorated Bonus.A prorated annual cash bonus for the year in which termination occurs, determined assuming performance goals are satisfied at the target level.

•

Long-Term Incentive Awards.(a) Accelerated vesting in full of any unvested time-vesting long-term incentive awards, (b) any performance-vesting long-term incentive awards for which the performance period is complete shall vest in full and any such awards for which the performance period is not complete shall be earned as provided in the applicable award agreement and vest in full and (c) any vested stock options exercisable for the full remaining term thereof.

•

COBRA Payment.A lump sum cash payment equal to 18 months of COBRA premiums for the health insurance coverage he had in place on the date of termination.

If the compensation and benefits payable under the employment agreement become subject to Section 280G of the Code, such amounts will be reduced to the extent such reduction would place the applicable executive in a betterafter-tax position.

The employment agreement contains certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of clients, customers and employees, each of which applies during Mr. Small’s employment and for one year thereafter.

Employment and Change in Control Agreements with United Community

Superseded Employment Agreement with Gary Small

United Community is party to an employment agreement with Mr. Small, which will be superseded upon the effective time by a new employment agreement with First Defiance, as noted above. Under the superseded United Community employment agreement, if the employment of Mr. Small was terminated involuntarily without cause or by Mr. Small for good reason within nine months before or 18 months following a change in control of United Community, subject to the execution of a release of claims, he would be entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to the changeproduct of (a) 2.99multiplied by (b) the sum of his annual base salary and his target annual bonus (or if higher, the annual bonus paid or payable to Mr. Small in control.respect of the most recently completed fiscal year).

•

COBRA Payment. A lump sum cash payment equal to 18 months of COBRA premiums for the health insurance coverage he had in place on the date of termination.

•

Accrued But Unpaid Annual Incentive. Payment of any accrued but unpaid annual incentive award.

If the compensation and benefits payable under the employment agreement were subject to Section 280G of the Code, such amounts would be reduced to the extent such reduction would result in the total compensation and benefits being equal to an amount $1.00 less than the amount that would make Mr. Small subject to Section 280G of the Code.

The employment agreement contains certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning noncompetition and nonsolicitation of clients, customers and employees, each of which applies during Mr. Small’s employment and for 12 months thereafter, except in the event of termination by Mr. Small for good reason.

Severance and Change in Control Agreements with Executive Officers

United Community is party to executive severance and change in control agreements with Messrs. Esson, Afzal, Garrity and Nohra. Under such agreements, if the employment of an executive was terminated involuntarily without cause or by the executive for good reason during the term of the severance and change in

control agreements, subject to the execution of a release of claims, the executive would be entitled to the following severance benefits:

•

Severance Payment. A cash severance payment equal to the product of (a) two (in the case of Messrs. Afzal and Garrity) or 1.5 (in the case of Messrs. Esson and Nohra)multiplied by (b) the sum of the executive’s annual base salary and target annual bonus.

•

COBRA Payment. A lump sum cash payment equal to 18 months of COBRA premiums for the health insurance coverage he had in place on the date of termination.

•

Accrued But Unpaid Annual Incentive. Payment of any accrued but unpaid annual incentive award.

If the compensation and benefits payable under the employment agreement were subject to Section 280G of the Code, such amounts would be reduced to the extent such reduction would result in the total compensation and benefits being equal to an amount $1.00 less than the amount that would make the executive subject to Section 280G of the Code.

The employment agreement contains certain restrictive covenants, including a perpetual nondisclosure covenant and covenants concerning nonsolicitation of clients, customers and employees, each of which applies for 12 months following the executive’s termination of employment.

Estimated Value of Severance Entitlements

For an estimate of the amounts that would become payable to United Community’s named executive officers under their employment or change in control agreements if a severance-qualifying termination of employment were to occur immediately following the effective time of the merger, see “The Merger—Merger-related Compensation for United Community’s Named Executive Officers.”

Director and Officer Indemnification and Insurance

Pursuant to the terms of the merger agreement, from and after the effective time, First Defiance will indemnify certain persons, including United Community’s directors and executive officers. In addition, for a period of six years from the effective time, First Defiance will maintain United Community’s current directors’ and officers’ liability insurance policies. For additional information, see “The Merger Agreement—Director and Officer Indemnification and Insurance.”

Post-Closing Roles

As noted above, Mr. Small, currently President and Chief Executive Officer of United Community and Home Savings, will become President of First Defiance and First Federal at the effective time and subsequently will become Chief Executive Officer of First Defiance and First Federal. In addition, pursuant to the merger agreement, six of the 13 members of the board of directors of First Defiance and First Federal immediately following the closing of the merger will be designated by United Community, including Richard J. Schiraldi, the current Chairman of United Community, who will become Vice Chairman of First Defiance and First Federal. The board members to be designated by United Community have not been identified, and any compensation that may be payable for such service has not been determined as of the date of this filing.

Merger-related Compensation for United Community’s Named Executive Officers

The information set forth in the table below is intended to comply with Item 402(t) of RegulationS-K, which requires disclosure of information about certain compensation for each of United Community’s named executive officers that is based on or otherwise relates to the merger. The merger-related compensation described below is based on the named executive officers’ existing compensation arrangements with United Community.

With respect to Mr. Small, in accordance with SEC guidance, it describes the severance that would be payable under his employment agreement with United Community, which will be superseded upon the closing of the merger by an employment agreement with First Defiance. For additional details regarding the terms of the payments described below, as well as the terms of the employment agreement between First Defiance and Mr. Small, see the discussion under the caption “The Merger—Interests of United Community’s Directors and Executive Officers in the Merger” above.

The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below, and do not reflect certain compensation actions that may occur before the effective time of the merger. For purposes of calculating such amounts, we have assumed:

October 15, 2019, as the closing date of the merger;

a termination of each named executive officer’s employment without cause, effective as of immediately following the effective time of the merger; and

a price per share of United Community common stock of $10.28 (the average closing price of United Community common stock over the five trading days following the announcement of the merger).

Name

  Cash
Severance
($)(1)		   Accelerated
Vesting of
Equity
($)(2)		   Total ($) 

Named Executive Officers

      

Gary M. Small

   2,464,251    842,559    3,306,810 

Timothy W. Esson

   609,088    463,112    1,072,200 

Zahid Afzal

   985,369    556,896    1,542,265 

Matthew T. Garrity

   951,791    419,339    1,371,130 

Jude J. Nohra

   703,329    338,681    1,042,010 

(1)

The cash amount payable to the named executive officers consists of the following:

(a)

Cash Severance:A cash severance payment equal to the product of (a) 2.99 (in the case of Mr. Small), two (in the case of Messrs. Afzal and Garrity) or 1.5 (in the case of Messrs. Esson and Nohra)multiplied by (b) the sum of the executive’s annual base salary and target annual bonus (or in the case of Mr. Small, if higher, the annual bonus paid or payable in respect of the most recently completed fiscal year), which is payable following a termination of employment without cause or for good reason (i.e., “double-trigger”) and the execution of a release of claims.

(b)

Target Annual Bonus: A cash bonus for 2019, determined assuming performance goals are satisfied at the target level, which is payable as a result of the occurrence of the effective time (i.e., “single-trigger”).

(c)

COBRA Payment: A lump sum cash payment equal to 18 months of COBRA premiums for the health insurance coverage the executive had in place on the date of termination, which is payable following a termination of employment without cause or for good reason (i.e., “double-trigger”) and the execution of a release of claims.

Set forth below is the estimated value of each component of the aggregate cash amount.

Name

  Cash
Payment ($)		   Bonus ($)   COBRA
Payment ($)		 

Named Executive Officers

      

Gary M. Small

   2,195,856    240,000    28,395 

Timothy W. Esson

   503,217    93,840    12,031 

Zahid Afzal

   839,554    117,420    28,395 

Matthew T. Garrity

   810,096    113,300    28,395 

Jude J. Nohra

   568,854    106,080    28,395 

(2)Presented below are

At the separate formseffective time of equity compensation containing accelerationthe merger, each option to purchase shares of United Community common stock, whether vested or unvested, that is unexercised immediately prior to the effective time will fully vest and convert into an option to purchase shares of First Defiance common stock, with appropriate adjustments to reflect the application of the exchange ratio. Additionally, at the effective time, each unvested United Community restricted stock award and performance-vesting RSU would fully vest and convert into the right to receive the merger consideration in respect of each share of United Community common stock subject to such award. Any performance-based vesting provisions resulting fromconditions applicable to any United Community performance-vesting RSU award would be measured consistent with the merger. The acceleration provisions are “single trigger” and causeterms of the acceleration of vestingapplicable award agreement applicable upon a change in control andfor such acceleration is not conditioned upon terminationUnited Community PSU award, as determined by the United Community board of employment. All unvested options that are accelerated as a result of the merger will be settled in cash in an amount equaldirectors or its compensation committee prior to the in-the-money value of such options measured by the difference between the exercise price of such option and $51.00, the amount payable to the holders under the termseffective time of the merger. Each unvested restricted stock award thatSet forth below is accelerated as a result of the merger will be eligible to be converted into the merger consideration at the election of the holder. The dollarestimated value of the restricted shares the vestingeach type of which is accelerated as a result of the merger are shown below, in accordance with SEC Reg S-K, Item 402(t), in an amount equal to the average closing market price of Commercial Bancshares common stock over the first five business days following the public announcement of the merger on August 23, 2016, or $51.49 per share.

   
Name Stock Options
($)		 Restricted Stock
($)		 Total
($)
Robert E. Beach  110,595   203,386   313,981 
Scott A. Oboy  49,128   77,235   126,363 
Steven M. Strine  49,128   77,235   126,363 
(3)Each ofunvested United Community equity-based award held by the named executive officers are entitled under their employment contracts to reimbursement, for a period of 24 months following their termination of employment,that would become vested upon the effective time of the cost of their election under COBRA to purchase health insurance or other comparable insurance after the expiration of their COBRA rights. Themerger. All such amounts indicated represent the value of such benefit based upon the present cost of health insurance under the Commercial Bancshares group term health insurance plan. The obligation to reimburse the cost of health insurance to each of the named executive officers is subject to reduction in the event they obtain such coverage through other employment or through coverage provided by their spouse’s employer.are single-trigger.

Name

  Stock Options
($)		   Restricted
Stock
($)		   Performance-
Vesting RSUs
($)		 

Named Executive Officers

      

Gary M. Small

   31,000    18,360    793,199 

Timothy W. Esson

   163,600    7,299    292,213 

Zahid Afzal

   25,800    256,229    274,867 

Matthew T. Garrity

   —      9,509    409,830 

Jude J. Nohra

   —      8,265    330,416 

Regulatory Approvals Required for the Merger

Completion of the merger and the bank merger are subject to the receipt of all approvals (and such approvals having remained in full force and effect) required to complete the transactions contemplated by the Merger Agreementmerger agreement from the OCCFederal Reserve, the FDIC and possibly, the Federal Reserve,ODFI, and the expiration of any applicable statutory waiting periods. First Defiance and Commercial BancsharesUnited Community have agreed to use their respective commercially reasonable best efforts to obtain all required regulatory approvals. First Defiance, Commercial BancsharesUnited Community and/or their respective subsidiaries will filehave filed applications and notices to obtain these regulatory approvals.

Although we currently believe we should be able to obtain all required regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to First Defiance after the completion of the merger or will contain a burdensome condition.

Federal Reserve Board.In connection with the merger, First Federal will convert to an Ohio bank. As a result, First Defiance is a unitary thrift holding company and its primary regulator is the Federal Reserve. First Defiance will be requesting confirmation from the Federal Reserve that no application is requiredmust apply to the Federal Reserve under Section 3 of the BHC Act for the transactions contemplated by the Merger Agreement.registration as a bank holding company. In connection with its application as a bank holding company, First Defiance expects such confirmation will be obtained, but if that were not the case, First Defiance would needintends to obtain prior approvalfile a declaration of the transactions contemplated by the Merger Agreement fromfinancial holding company status with the Federal Reserve. A financial holding company is a classification of bank holding company that is permitted to engage in a broader range of activities than other bank holding companies. In considering the approval of a transaction such as the conversion to a bank holding company and the merger, the Bank Holding Company Act of 1956, as amended, (the “BHC Act”) requires the Federal Reserve to review, with respect to the thrift holding companies and the financial institutions concerned:review: (1) the competitive impact of the transaction, (2) the financial condition and future prospects, including capital positions and managerial resources, (3) the convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries of the bank holding companies under the CRA,Community Reinvestment Act of 1977 (which we refer to as the “CRA”), (4) the effectiveness of the companies and the depository institutions concerned in combating money launderingmoney-laundering activities, and (5) the extent to which the proposal would result in greater or more concentrated risks to the


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stability of the United StatesU.S. banking or financial system. In connection with such aits review, the Federal Reserve will provideprovides an opportunity for public comment on the application and is

authorized to hold a public meeting or other proceeding if they determine that such meeting or other proceeding would be appropriate.

Under the CRA, the Federal Reserve must take into account the record of performance of the companies and the depository institutions concerned in meeting the credit needs of the entire community, includinglow- and moderate-income neighborhoods, served by such companies and depository institutions. Depository institutions are periodically examined for compliance with the CRA by their primary federal supervisor and are assigned ratings. In evaluating the record of performance of an institution in meeting the credit needs of the entire community served by the institution, the Federal Reserve considers the institution’s record of compliance with the CRA, including the most recent rating assigned by its primary federal supervisor. As of their last respective CRA examinations, each of First Financial and Home Savings was rated “Satisfactory” with respect to CRA compliance

FDIC.The applicable federal statute (the “Bank Merger Act”) mandates that the prior approval of the FDIC, the primary federal regulator of the resulting bank, is required to merge Home Savings with and into First Federal. In evaluating an application filed under the Bank Merger Act, the FDIC generally considers: (1) the competitive impact of the transaction, (2) financial and managerial resources of the banks party to the bank merger or mergers, (3) the convenience and needs of the community to be served and the record of the banks under the CRA, including their CRA ratings, (4) the banks’ effectiveness in combating money-laundering activities and (5) the extent to which the bank merger or mergers would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. In connection with its review, the FDIC provides an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if they determine it determines such meeting or other proceeding wouldto be appropriate.appropriate

OCC.ODFI.  The prior approval ofIn connection with the OCCbank merger, First Federal will convert to an Ohio bank and will be required under Section 18(c)to file a bank merger application with the superintendent of ODFI. In evaluating the application, the ODFI will consider the following factors: (1) whether the transaction would result in a monopoly or would further any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the Federal Deposit Insurance Act, which we referstate and any markets served by the resulting or surviving bank; (2) whether the effect of the proposed transaction in any part of the state and any markets served by the resulting or surviving bank may be to assubstantially lessen competition, tend to create a monopoly, or in any other manner restrain trade, unless the Bank Merger Act, to merge Commercial Bank into First Federal. In evaluating an application filed undersuperintendent finds the Bank Merger Act, the OCC generally considers: (1) the competitive impactanticompetitive effects of the transaction (2)would clearly be outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served; (3) the financial and managerial resources and future prospects of the banks parties to the bank merger, (3) the banks’ effectiveness in combating money laundering activities, andinvolved; (4) the extent to which the bank merger would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. As required by the Community Reinvestment Act (the “CRA”) and in reviewing the convenience and needs of the communities to be served, the Federal Reserve Board and the OCC will consider the records of performanceserved; (5) whether, upon completion of the relevant insured depository institutions undertransaction, the CRA. In their most recent respective CRA performance evaluations, both First Federalresulting or surviving state bank will meet the Ohio statutory requirements applicable to financial institutions; and Commercial Bank received an overall “satisfactory”(6) the comments of any regulatory rating.

Public Notice and Comments.  Furthermore, the BHC Act, the Bank Merger Act and applicable regulations require published notice of, and the opportunity for public comment on, these applications, and authorize the Federal Reserve Board and the OCC to hold a public hearing or meeting if the Federal Reserve Board or the OCC determines that a hearing or meeting would be appropriate. The Federal Reserve Board and the OCC take into account the views of third party commenters, particularly on the subjectauthority notified of the merging parties’ CRA performance and record of service to their respective communities, and any hearing, meeting or comments provided by third parties could prolong the period during which the applications are under review by the Federal Reserve Board and the OCC.

Waiting Periods.  Transactions approved by the OCC generally may not be completed until 30 days after the approval of the OCC is received, during which time the Department of Justice, which we refer to as the DOJ, may challenge the transaction on antitrust grounds. With the approval of the applicable federal agency and the concurrence of the DOJ, the waiting period may be reduced to no less than 15 days. The commencement of an antitrust action would stay the effectiveness of such an approval unless a court specifically ordered otherwise. In reviewing the merger, the DOJ could analyze the merger’s effect on competition differently than the Federal Reserve Board or the OCC, and thus it is possible that the DOJ could reach a different conclusion than the Federal Reserve Board or the OCC regarding the merger’s effects on competition. A determination by the DOJ not to object to the merger may not prevent the filing of antitrust actions by private persons or state attorneys general.

Additional Regulatory Approvals and Notices.  Notifications and/or applications requesting approval may be submitted to various other federal and state regulatory authorities and self-regulatory organizations.merger.

There can be no assurances that the regulatory approvals discussed above will be received on a timely basis, or as to the ability of First Defiance and Commercial BancsharesUnited Community to obtain the approvals on satisfactory terms or the absence of litigation challenging such approvals. There can likewise be no assurances that U.S. or state regulatory authorities will not attempt to challenge the merger on antitrust grounds or for other reasons, or, if such a challenge is made, as to the result of such challenge.

Accounting Treatment

First Defiance and United Community prepare their respective financial statements in accordance with GAAP. Although the parties have structured the merger as a merger of equals, GAAP requires that one party to the merger be identified as the acquirer. The merger will be treated as a purchaseaccounted for using the acquisition method of accounting, purposes. Accordingly,and First Defiance will recordbe treated as the assetsaccounting acquirer. In identifying First Defiance as the acquiring entity for accounting purposes, First Defiance and liabilitiesUnited Community took into account a number of Commercial Bancshares on its books at estimated fair value. The excess, if any,factors as of the fair valuedate of this joint proxy statement/prospectus, including the expected relative size of First

Defiance and United Community at the time of the liabilities assumed and consideration paid overmerger, voting rights of all equity instruments in the fair valuecombined company, the intended corporate governance structure of the assets received will be assigned to specificcombined company and unidentified intangible assets. The resulting unidentified intangible asset will not be amortized, but will be testedthe fact that First Defiance is issuing shares of its common stock as consideration. No single factor was the sole determinant in the overall conclusion that First Defiance is the acquirer for impairment as prescribed under ASC Topic 350, “Intangible — Goodwill and Other.”accounting purposes; rather all factors were considered in arriving at such conclusion.


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Public Trading Markets

First Defiance common stock is listed on the NASDAQ Global Select Market under the symbol “FDEF.” Commercial BancsharesUnited Community common stock trades principallyis listed on the OTCQXNASDAQ Global Select Market under the symbol “CMOH.“UCFC.” Upon completion of the merger, Commercial BancsharesUnited Community common stock will no longer be listed on the OTCQXNASDAQ Global Select Market and thereafter will be deregistered under the Exchange Act. The First Defiance common stock issuable in the merger will be listed on NASDAQ.the NASDAQ Global Select Market.

Resale of First Defiance Common Stock

All shares of First Defiance common stock received by Commercial Bancshares shareholdersLitigation Relating to the Merger

On October 16, 2019, an action captioned Robert J. Fellman v. United Community Financial Corp. et al., Case 1:19-cv-09572, was filed in the merger will be freely tradableU.S. District Court for purposesthe Southern District of New York against United Community and its directors. This complaint contends, among other things, that the registration statement on Form S-4, of which this joint proxy statement/prospectus forms a part, is false and misleading because it omits certain allegedly material information concerning the background of the Securities Actproposed merger transaction and certain valuation analyses performed by United Community’s financial advisor in violation of 1933, as amended, which is referred to as the Securities Act,Sections 14(a) and 20(a) of the Exchange Act, except for sharesand Rule 14a-9 promulgated under the Exchange Act. The action seeks, among other things, to: (i) enjoin the defendants from consummating the merger unless and until the defendants disseminate revised disclosures; and (ii) recover damages in the event the merger is completed. The court has not acted on this complaint, and no relief has been granted as of First Defiance common stock received by any Commercial Bancshares shareholder who becomes an “affiliate” of First Defiance after completion ofthis time. The defendants believe the merger. This document does not cover resales of shares of First Defiance common stock received by any person upon completionclaims are without merit and intend to defend against them.

THE MERGER AGREEMENT

The following describes certain aspects of the merger, including certain material provisions of the merger agreement. The following description of the merger agreement is subject to, and no personqualified in its entirety by reference to, the merger agreement, which is authorizedattached to make any use of this joint proxy statement/prospectus asAnnex A and is incorporated by reference into this joint proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document in connection with any resale.governing the merger.


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THE MERGER AGREEMENT

Explanatory Note Regarding the Merger Agreement

The Merger Agreement and this summary of terms aremerger agreement is included to provide you with information regarding its terms. Neither the merger agreement nor the summary of its material terms of the Merger Agreement.included in this section is intended to provide any factual information about First Defiance or United Community. Factual disclosures about First Defiance and Commercial BancsharesUnited Community contained in this joint proxy statement/prospectus and/or in the public reports of First Defiance and Commercial BancsharesUnited Community filed with the SEC (as described in “Where You Can Find More Information”) may supplement, update or modify the factual disclosures about First Defiance and Commercial BancsharesUnited Community contained in the Merger Agreement.merger agreement. The Merger Agreementmerger agreement contains representations, warranties and warranties by First Defiance, oncovenants of the one hand, and by Commercial Bancshares, on the other hand.parties customary for transactions of this nature. The representations, warranties, and covenants madedescribed below and included in the Merger Agreementmerger agreement were made only for purposes of the merger agreement and as of specific dates, may be subject to limitations, qualifications, or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between First Defiance and Commercial Bancshares were qualified and subject to important limitations agreed to by First Defiance and Commercial Bancshares in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing circumstances in which a party to the Merger Agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the Merger Agreement,United Community rather than establishing matters as facts. The representationsfacts, and warranties also may be subject to a contractual standardstandards of materiality differentthat differ from that generally applicablethose standards relevant to shareholders and reports and documents filed with the SEC and some were qualified by the matters contained in the confidential disclosure schedules that First Defiance and Commercial Bancshares each delivered in connection with the Merger Agreement and certain documents filed with the SEC. Moreover, information concerning the subject matter ofinvestors. You should not rely on the representations, and warranties, which do not purport to be accurate as of the date of this proxy statement/prospectus, may have changed since the date of the Merger Agreement.

For the foregoing reasons, the representations and warrantiescovenants, or any descriptions of those provisions should not be read alone or relied upondescription thereof as characterizations of the actual state of facts or condition of First Defiance, or Commercial BancsharesUnited Community, or any of their respective subsidiaries or affiliates. Instead, suchMoreover, information concerning the subject matter of the representations, warranties, and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by First Defiance or United Community. The representations and warranties and other provisions or descriptionsof the merger agreement should not be read alone but, instead, should be read only in conjunction with the other information provided elsewhere in this document orjoint proxy statement/prospectus and in the documents incorporated by reference into this joint proxy statement/prospectus. Please see “Incorporation of Certain Documents by ReferenceWhere You Can Find More Information” beginning on page 145.

117.Structure of the Merger

Each of First Defiance and Commercial Bancshares will provide additional disclosures in their public reports to the extent they are awareUnited Community’s respective boards of the existence of any material facts that are required to be disclosed under federal securities laws and that might otherwise contradict the terms and information contained in the Merger Agreement and will update such disclosure as required by federal securities laws.

Effects of the Merger

As a result ofdirectors has unanimously approved the merger Commercial Bancshares will mergeagreement. The merger agreement provides for the merger of United Community with and into First Defiance, with First Defiance continuing as the surviving company.corporation. Immediately following the merger, Home Savings will merge with and into First Federal. First Federal will be the surviving entity in the bank merger and, immediately prior to the bank merger, will be converted into an Ohio state-chartered bank. Before completion of the merger, First Defiance and United Community may mutually agree to change the method of effecting the merger to the extent that they deem such a change to be desirable, provided that (i) any such change shall not affect the U.S. federal income tax consequences of the merger to holders of United Community common stock and (ii) no such change shall (a) alter or change the amount or kind of the consideration to be issued to holders of United Community common stock as consideration in the merger, (b) materially impede or delay consummation of the merger, or (c) require the approval of the shareholders of First Defiance or United Community unless such approval is obtained. If the parties agree to make such a change, they shall execute appropriate documents to reflect the change. The merger agreement further provides that if either First Defiance or United Community fails to obtain the required vote of its shareholders to adopt the merger agreement, each of the parties will in good faith use its reasonable best efforts to negotiate a restructuring of the transaction (provided that neither party will have any obligation to alter or change any material terms, including the exchange ratio, the amount or kind of the consideration to be issued United Community shareholders as provided for in the merger agreement, in a manner adverse to such party or its shareholders) and/or resubmit the merger agreement and/or the transactions contemplated thereby (or as restructured) to its respective shareholders for adoption.

Merger Consideration

Each share of United Community common stock issued and outstanding immediately prior to the completion of the merger, except for shares of United Community common stock owned by United Community as treasury stock or owned directly or indirectly by First Defiance (in each case other than in a fiduciary or agency capacity or as a result of debts previously contracted), will be converted into the right to receive 0.3715 shares of First Defiance common stock, subject to the payment of cash instead of fractional shares of First Defiance common stock.

If the outstanding shares of First Defiance common stock are changed into a different number or kind of shares or securities or into a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, reorganization, split, combination or exchange of shares, or there is any extraordinary dividend or distribution, the merger consideration will be adjusted appropriately to provide the holders of United Community common stock the same economic effect as contemplated by the merger agreement prior to such event.

Fractional Shares

First Defiance will not issue any fractional shares of First Defiance common stock in the merger. Instead, a United Community shareholder who otherwise would have received a fraction of a share of First Defiance common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying (i) the volume weighted average closing price of First Defiance common stock over the ten (10) day trading period ending on the third trading day prior to the closing of the merger by (ii) the fractional share of First Defiance common stock to which such shareholder would otherwise be entitled (after taking into account all shares of United Community common stock held by such holder immediately prior to the effective time of the merger).

Governing Documents; Directors and Officers; Governance Matters; Headquarters

At the effective time of the merger, and subject to the approval by the First Defiance shareholders of the First Defiance articles of incorporation andproposal, the code of regulations of First Defiance asarticles of incorporation in effect immediately prior to the effective time of the merger will be amended and restated to increase the number of authorized shares of First Defiance common stock from 50,000,000 to 75,000,000 and grant the board of directors of First Defiance the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors, subject to any exceptions provided in First Defiance’s code of regulations, and, as so amended and restated, shall be the articles of incorporation of the surviving corporation after completion of the merger until thereafter amended in accordance with applicable law.

In addition, at the effective time of the merger, the First Defiance code of regulations in effect immediately prior to the effective time of the merger will be amended and restated to provide a new Article XII providing for certain governance matters relating to the merger which are described below (including the location of the surviving bank’s main office, officers of the surviving corporation and surviving bank, designation of members of the board of directors of the surviving corporation and surviving bank and committees of the board of directors of the surviving corporation), granting the board of directors of First Defiance the power to repeal, alter, amend or rescind First Defiance’s code of regulations by the affirmative vote of a majority of the authorized number of directors. Article X and Article XI are already contained in the bylaws of the First Defiance board of directors and are merely being moved from those bylaws into the code of regulations. The amended and restated code of regulations also include new Article X and Article XI which are substantially identical to the First Defiance board of directors’ general powers, the number and classification of members of the board of directors, meetings, special meetings, quorum for meetings, manner of acting, action without a meeting, resignation, vacancies, presumption of assent of members and compensation of members of the board of directors and committees of the board of directors. As so amended and restated, the First Defiance Code of Regulations shall be the code of regulations of the surviving company.

As a resultcorporation after completion of the merger there will no longer be any publicly held shares of Commercial Bancshares common stock. Those Commercial Bancshares shareholders who receive alluntil thereafter amended in accordance with applicable law.

On or prior to the effective time of the merger, consideration in the formFirst Defiance board of cashdirectors shall cause the number of directors that will not participate incomprise the full board of directors of the surviving corporation and the surviving bank to be thirteen (13), consisting of (a) Donald P. Hileman, the chief executive officer of First Defiance’s future earnings and potential growth as shareholdersDefiance, John L. Bookmyer, the chairman of First Defiance and five other members of the First Defiance board and/or First Federal board as of immediately prior to the effective time, designated by First Defiance, and (b) Gary M. Small, the chief executive officer of United Community, Richard J. Schiraldi, the chairman of United Community, and four other members of the United Community board and/or Home Savings board as of immediately prior to the effective time, designated by United Community, to be effective at the effective time of the merger.

On or prior to the effective time of the merger, the First Defiance board of directors will no longer beartake such actions as are necessary to cause (i) Mr. Hileman to continue to serve as the risk of any losses incurred in the operationChief Executive Officer of the surviving company’s businesscorporation and the surviving bank, (ii) Mr. Small to become the President of the surviving corporation and the surviving bank, (iii) John L. Bookmyer to continue to serve as Chairman of the surviving corporation and the surviving bank, and (iv) Mr. Schiraldi to become Vice Chairman of the surviving corporation and the surviving bank.

On a date during the period commencing January 1, 2021, and ending June 30, 2021, as determined by the board of directors of the surviving corporation, or any such earlier date as of which Mr. Hileman ceases for any decreasesreason to serve in the valueposition of Chief Executive Officer of the surviving corporation or the surviving bank, as applicable (the “succession date”), then (i) Mr. Small will become Chief Executive Officer and President of the surviving corporation and the surviving bank, (ii) Mr. Hileman will become Executive Chairman of the surviving corporation and the surviving bank and (iii) Mr. Schiraldi will continue as Vice Chairman of the surviving corporation and the surviving bank.

At the effective time of the merger, the location of the headquarters and principal executive offices of the surviving corporation will be Defiance, Ohio, and the principal executive offices of the surviving bank will be located in Youngstown, Ohio.

Prior to the second anniversary of the succession date, any repeal, alteration, amendment or rescindment by the board of directors of the surviving corporation to the provisions of the code of regulations implementing the above arrangements will require (and any such repeal, alteration, amendment or rescindment may be proposed or recommended by the board of directors for adoption by the shareholders of the surviving corporation only by) the affirmative vote of three-fourths of the authorized number of directors. Prior to the second anniversary of the succession date, the surviving corporation may not exercise its authority, in its capacity as sole stockholder of the surviving bank, to (and the surviving corporation will cause the surviving bank not to) modify, amend or repeal any of the provisions of the organizational documents of the surviving bank implementing the above arrangements, or implement or adopt any provisions of the organizational documents of the surviving bank inconsistent with the above arrangements, in each case, without the affirmative vote of three-fourths of the authorized number of directors of the surviving corporation.

Treatment of United Community Equity-Based Awards

Options: If the merger is completed, each United Community option that business. Those Commercial Bancshares shareholders receivingis outstanding and unexercised immediately prior to the completion of the merger will fully vest and be converted into a First Defiance option to purchase (a) the number of whole shares of First Defiance common stock as(rounded down to the nearest whole share) that is equal to (i) the number of shares of United Community common stock subject to such United Community option immediately prior to the effective time of the merger consideration will only participate in the surviving company’s future earnings and potential growth through their ownershipmultiplied by (ii) 0.3715, (b) at an exercise price per share of First Defiance common stock. Allstock (rounded up to the nearest whole cent) equal to (i) the exercise price for each share of United Community common stock subject to such United Community option immediately prior to the effective time of the other incidentsmerger divided by (ii) the 0.3715, subject to the terms and conditions of directthe United Community stock ownership in Commercial Bancshares,plan, if any, pursuant to which such asUnited Community option was granted and/or any associated award agreement.

Restricted Stock: If the merger is completed, each United Community restricted stock award that is outstanding immediately prior to the effective time of the merger will fully vest and be cancelled and converted automatically into the right to vote on certain corporate decisions,receive 0.3715 shares of First Defiance common stock, subject to electthe payment of cash instead of fractional shares of First Defiance common stock, in respect of each share of United Community common stock underlying such United Community restricted stock award.

Performance Share Units: If the merger is completed, each United Community PSU award that is outstanding immediately prior to the effective time of the merger will fully vest (with any performance-based vesting condition applicable to such United Community PSU award to be measured consistent with the terms of the applicable award agreement applicable upon a change in control for such United Community PSU award, as determined by the United Community board of directors andor its compensation committee prior to receive dividends and distributions from Commercial Bancshares, will be extinguished uponthe completion of the merger) and will be cancelled and converted automatically into the right to receive 0.3715 shares of First Defiance common stock, subject to the payment of cash instead of fractional shares of First Defiance common stock, in respect of each share of United Community common stock underlying such United Community PSU award; provided, that the United Community board of directors or its compensation committee will exclude any costs or expenses related to the merger, if any, from the performance metrics applicable to the United Community PSU awards when determining actual United Community performance through the closing date of the merger.


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Closing and Effective Time of the Merger

The merger will occur at a mutually agreeable timebe completed only if all conditions to the merger discussed in this joint proxy statement/prospectus and place afterset forth in the satisfactionmerger agreement are either satisfied or waiver ofwaived. Please see “The MergerAgreement—Conditions to Complete the last closing condition to be satisfied, including the receipt of all regulatory and shareholder approvals and after the expiration of all regulatory waiting periods. Merger” beginning on page 120.

The merger will become effective at 11:59 p.m. Eastern Standard Time on the date of the closing or at such other time specifiedas First Defiance and United Community may agree and specify in the certificate of merger to be filed with the Ohio Secretary of State. AsState of the State of Ohio. The closing of the transactions contemplated by the merger agreement will occur at 10:00 a.m., local Chicago time, on the date that is three (3) business days after the satisfaction or waiver of this document, the parties expectlast to occur of the conditions set forth in the merger agreement (other than those conditions that by their nature are to be satisfied or waived at the closing of the merger, but subject to the satisfaction or valid waiver of those conditions), or at such other time as First Defiance and United Community may agree in writing. It currently is anticipated that the completion of the merger will be effectiveoccur during the first quarter of 2017. However, there2020, subject to the receipt of shareholder and regulatory approvals and other customary closing conditions, but neither First Defiance nor United Community can be no assurance as toguarantee when or if the merger will occur.be completed.

IfConversion of Shares; Exchange of Certificates

The conversion of United Community common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. After completion of the merger, the exchange agent will exchange certificates representing shares of United Community common stock for the merger consideration to be received pursuant to the terms of the merger agreement. Shares of United Community common stock held in book-entry form will automatically be exchanged for book-entry shares of First Defiance common stock.

Letter of Transmittal

As promptly as practicable after the effective time of the merger, and in any event within five (5) days thereafter, the exchange agent will mail to each holder of record of one or more certificates representing United Community common stock immediately prior to the effective time of the merger a letter of transmittal and instructions on how to surrender shares of United Community common stock in exchange for the merger consideration the holder is not completedentitled to receive under the merger agreement.

If a certificate for United Community common stock has been lost, stolen or destroyed, the exchange agent will issue the merger consideration upon receipt of (i) an affidavit of that fact by the closeclaimant and (ii) if required by First Defiance, the posting of business on June 30, 2017, the Merger Agreementa bond in an amount as First Defiance may determine is reasonably necessary as indemnity against any claim that may be terminated by either Commercial Bancsharesmade against it with respect to such certificate.

After completion of the merger, there will be no further transfers on the stock transfer books of United Community of shares of United Community common stock that were issued and outstanding immediately prior to the effective time.

Dividends and Distributions

No dividends or other distributions declared with respect to First Defiance unlesscommon stock and payable to the failureholders of record thereof after the effective time of the closingmerger will be paid to occurthe holder of any unsurrendered certificates of United Community common stock until the holder surrenders such certificate in accordance with the merger agreement. After the surrender of a certificate in accordance with the merger agreement, the record holder thereof will be entitled to receive any such dividends or other distributions, without any interest, which had previously become payable with respect to the whole shares of First Defiance common stock that the shares of United Community common stock represented by such date is duecertificate have been converted into the right to receive under the failure of the party seeking to terminate the Merger Agreement to perform or observe the covenants and agreements of such party set forth in the Merger Agreement.merger agreement.

Representations and Warranties

The Merger Agreementmerger agreement contains customary representations and warranties of Commercial Bancshareseach of First Defiance and First DefianceUnited Community relating to their respective businesses. The representations and warranties in the Merger Agreementmerger agreement do not survive the effective timeclosing of the merger.

EachThe merger agreement contains representations and warranties made by each of Commercial BancsharesUnited Community and First Defiance made representations and warranties relating to a number of matters, including, but not limited to, the following:

corporate matters, including due organization and qualification and corporate power of itselfsubsidiaries;

authority to execute and its subsidiaries;

capitalization;
authority relative to executiondeliver the merger agreement and deliverythe enforceability of the Merger Agreement and merger agreement

the absence of conflicts with, or violations of, organizational documents, lawsmaterial agreements or other obligations as a result of the merger;

transactions contemplated by the merger agreement, and required governmental and other regulatory filings and other consents and approvals in connection with the merger;

reports to

capitalization and subsidiary capitalization;

filings with the SEC;

SEC, financial statements, internal controls, absence of undisclosed liabilities and reports to regulatory authorities;

books and records,records;

real property;

loan matters;

tax matters;

employee and accounting practices;employee benefit plan matters;

compliance with applicable laws;

legal proceedings;

the absence of certain changes or events;

certain material contracts and absence of defaults under such contracts;

insurance matters;

environmental matters;

related party transactions;

broker’s fees payable in connection with the merger;

the absence of certain changes or events;

approval delays and CRA rating;

legal proceedings;

labor matters;

tax matters;

intellectual property;

compliance with applicable laws;

investment securities and derivatives;

certain material contracts;
absence of agreements with regulatory authorities;
related party transactions;
inapplicability of state takeover statutes;
absence of action or any fact or circumstance that could reasonably be expected to prevent the mergers, taken together, from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code; and

the accuracy of information supplied for inclusion in this joint proxy statement/prospectus and other similar documents.documents and the registration statement of which this joint proxy statement/prospectus forms a part;

First Defiance also represented

inapplicability of takeover statutes; and warranted to Commercial Bancshares that it has, or will have available to it prior to

tax treatment of the closing date, all funds necessary to satisfy its obligations undertransactions contemplated by the Merger Agreement.merger agreement.


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In addition, certain representations and warranties relating to a number of matters were made only by Commercial Bancshares, including:

reports to regulatory agencies;
risk management instruments and transactions;
employee and employee benefit plan matters;
environmental matters;
investment securities;
real property;
intellectual property;
opinion from Commercial Bancshares’ financial advisor;
loan portfolio;
insurance matters;
investment adviser subsidiary;
books and records;
prohibited payments; and
undisclosed liabilities.

Certain representations and warranties of Commercial BancsharesFirst Defiance and First DefianceUnited Community are qualified as to knowledge, “materiality” or “material adverse effect.”

For purposes of the Merger Agreement,merger agreement, a “material adverse effect,” when used in reference to Commercial Bancshares,either United Community or First Defiance means an event, circumstance, change, effect or the surviving company, meansoccurrence which, individually or together with any other event, circumstance, change, effect or occurrence: (i) has a material adverse effect on (i) the business, properties,financial condition, assets, liabilities or results of operations or financial condition of such party and its subsidiaries, taken as a whole (provided, that, with respect to this clause (i), material adverse effect does not include the impact of (A) changes, after the date of the Merger Agreement, in GAAPwhole; or applicable regulatory accounting requirements, (B) changes, after the date of the Merger Agreement, in laws, rules, or regulations of general applicability to companies in the industries in which such party and its subsidiaries operate, or interpretations thereof by courts or governmental entities, (C) changes, after the date of the Merger Agreement, in global, national, or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market (including equity, credit and debt markets, as well as changes in interest rates) conditions affecting the financial services industry generally and not specifically relating to such party or its subsidiaries, (D) failure, in and of itself, to meet earnings projections or internal financial forecasts, but not including the underlying causes thereof, (E) disclosure or consummation of the transactions contemplated by the Merger Agreement (including any effect on a party’s relationships with its customers or employees) or actions expressly required by the Merger Agreement in contemplation of the transactions contemplated by the Merger Agreement, (F) actions or omissions taken pursuant to the written consent of First Defiance, in the case of Commercial Bancshares, or Commercial Bancshares, in the case of First Defiance; except, with respect to subclauses (A), (B), or (C), to the extent that the effects of such change are(ii) materially disproportionately adverse to the business, properties, assets, liabilities, results of operations, or financial condition of such party and its subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its subsidiaries operate) or (ii)impairs the ability of such party to timelyperform its obligations under the merger agreement or to consummate the merger and the other transactions contemplated thereunder; provided that, in the case of (i) above only, in determining whether a material adverse effect has occurred, there shall be excluded any effect to the extent attributable to or resulting from: (a) changes in applicable law and the interpretation of such applicable law by courts or governmental authorities; (b) changes in United States generally accepted accounting principles (GAAP) or regulatory accounting requirements; (c) changes or events generally affecting banks, bank holding companies or financial holding companies, or the economy or the financial, securities or credit markets, including changes in prevailing interest rates, liquidity and quality, currency exchange rates, price levels or trading volumes in the U.S. or foreign securities markets; (d) changes in national or international political or social conditions including the engagement by the Merger Agreement.

Covenants and Agreements

Conduct of Businesses PriorUnited States in hostilities, whether or not pursuant to the Completiondeclaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States; (e) floods, hurricanes, tornados, earthquakes, fires or other natural disasters; (f) any failure by First Defiance or United Community, as applicable, to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period or any changes in the trading price or trading volume of United Community common stock or the First Defiance common stock, as applicable (but the facts and circumstances giving rise to such failure or such changes that are not otherwise excluded from the definition of material adverse effect may be taken into account in determining whether there has been a material adverse effect); (g) the effects of the Merger.  Commercial Bancshares has agreed that, prior to the effective timepublic disclosure or pendency of the merger it will conduct its businesses,agreement and cause its subsidiariesthe actions expressly permitted or required by the merger agreement (other than the general obligation to conduct their respective businesses in the ordinary course consistent with past practice in all material respects and use reasonable best efforts to maintain and preserve intact itstheir respective business organizationorganizations and advantageous business


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relationships. Commercial Bancshares relationships) or that are taken at the request of, or with the prior written consent of, the other party in contemplation of the merger, including the costs and expenses associated therewith and the response or reaction of customers, vendors, licensors, investors or employees; and (h) any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers related to the merger; except with respect to subsections (a), (b), (c), (d) and (e) above, to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of First Defiance or United Community, as applicable, and its subsidiaries, taken as a

whole, as compared to other companies in the industry in which First Defiance or United Community, as applicable, and its subsidiaries operate.

Covenants and Agreements

Conduct of Businesses Prior to the Completion of the Merger

First Defiance and United Community have agreed that, prior to (and shallthe effective time (or earlier termination of the merger agreement), subject to specified exceptions, they will, and will cause each of their respective subsidiaries to)to, (i) conduct their respective businesses in the ordinary course consistent with past practice in all material respects, and (ii) use reasonable best efforts to maintain and preserve intact their respective business organizations and advantageous business relationships. In addition, each of United Community and First Defiance has agreed that, during the same period, subject to specified exceptions, it will, and will cause each of its subsidiaries to, take no action that would reasonably be likelyexpected to adversely affect or delay the ability of either First Defiance or United Community to obtain any necessary approvals of any governmental entity or regulatory agency or to performrequired for the covenants and agreements in the Merger Agreement or to complete the merger and other transactions contemplated by the Merger Agreement on a timely basis.merger agreement, to perform its covenants and agreements under the merger agreement, or to consummate the transactions contemplated by the merger agreement.

In addition to the general covenants above, Commercial Bancshares has agreed that priorAdditionally, United Community and First Defiance have undertaken further covenants. Prior to the effective time of the merger (or earlier termination of the merger agreement), subject to specified exceptions, it willneither United Community nor First Defiance may, and United Community and First Defiance must cause its respective subsidiaries not and will not permit its subsidiaries to, without the prior written consent of First Defiance:the other party (such consent not to be unreasonably withheld, conditioned or delayed):

other than pursuant to the terms of any contract to which it is a party that is outstanding on the date of the merger agreement, issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of capital stock or any security convertible into capital stock except for issuances pursuant to the exercise or settlement of awards under certain plans in accordance with their terms; permit any additional shares of capital stock to become subject to new grants, except for grants of equity awards or issuances of shares of capital stock that arise under existing benefit plans in the ordinary course of business, incurbusiness; or grant any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligationsregistration rights with respect to shares of any other person;such capital stock;

adjust, split, combine

make, declare, pay or reclassifyset aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of capital stock;

otherstock (other than dividends from its wholly owned subsidiaries to it or another of its wholly owned subsidiaries), and each party will be permitted to continue paying its regular quarterly cash dividend of $0.25 per share, make, declare or pay any dividend or make any other distribution on, or consistent with past practice;

directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of itscapital stock (other than dividends paid by anyrepurchases of its subsidiariessuch capital stock in the ordinary course of business consistent with past practice to satisfy obligations under certain benefit plans or the acceptance of Commercial Bancshares sharessuch capital stock as payment for the exercise price of stock options or for withholding of taxes incurred in accordanceconnection with past practice and the terms of any applicable award agreements);

grant any stock options, stock appreciation rights, performance shares, restricted stock units, restricted shares or other equity-based awards;
issue, sell or otherwise permit to become outstanding any additional shares of capital stock or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock or any options, warrants, or other rights of any kind to acquire any shares of capital stock, except for the issuance of shares upon the exercise of outstanding stock options;
sell, transfer, mortgage, encumber,options or otherwise disposefor withholding taxes incurred in connection with the exercise of anystock options or the vesting or settlement of its material properties or assets, or cancel, release or assign any material indebtedness to any person or any claims held by any person, other than in the ordinary course of business;
(i) terminate, amend, or waive any provision of, certain contracts or agreements, or make any change in any instrument or agreement governing the terms of any of its securities, other than normal renewalsequity compensation awards in the ordinary course of business or (ii) enter into certain contracts;consistent with past practice);

except as required under applicable law or the terms of any of its benefit plans, (i) enter into, adopt or terminate any benefit plan, (ii) amend any benefit plan, other than amendmentsfor transactions in the ordinary course of business consistent with past practice, materially amend the terms of, waive any material rights under, terminate, knowingly violate the material terms of or enter into any material contract or any material restriction of the party to conduct its business as it is presently being conducted;

enter into any new credit or new lending relationship greater than $15 million or make or issue a commitment (including a letter of credit) or renew or extend an existing commitment for any loan, or amend or modify in any material respect any loan (including in any manner that do not materially increase the costwould result in any

additional extension of credit or principal forgiveness or effect any uncompensated release of collateral), outside the ordinary course of business or in excess of the dollar-threshold limitations contained in such party’s loan policy, in each case, without giving the other party at least three business days’ prior notice;

sell, transfer, mortgage, encumber, license, or expenseotherwise dispose of maintaining such plan, program, policyany of its assets, deposits, business or arrangements, (iii)properties to any other thanentity, except for sales, transfers, mortgages, encumbrances, licenses, or other dispositions in the ordinary course of business consistent with past practice increaseand in a transaction that, together with other such transactions, is not material to such party and its subsidiaries, taken as a whole;

acquire (other than by way of foreclosures or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith, in each case in the compensation payable toordinary course of business consistent with past practice) all or any currentportion of the assets, business, deposits or former employee, officer, director, independent contractor or consultant, (iv)properties of any other thanentity except in the ordinary course of business consistent with past practice pay or award, or commitand in a transaction that, together with other such transactions, is not material to pay or award, any bonuses or incentive compensation (so long as the total amount of bonusessuch party and incentive compensation paid by Commercial Bancshares and all of its subsidiaries, for 2016 does not exceed $400,000), (v) accelerate the vesting of any equity-based awards or other compensation, (vi) enter into any collective bargaining agreement or similar agreement or arrangement, (vii) fund any rabbi trust or similar arrangement, (viii) terminate the employment or services of any officer, employee, independent contractor or consultant whose annual base salary or base wage is greater than $75,000, other than for cause, or (ix) hire any officer, employee, independent contractor or consultant whose annual base salary or base wage is greater than $75,000; provided, however, that First Defiance will not unreasonably withhold or delaytaken as a whole;

amend its consent regarding an exception to subsections (viii) or (ix) above, and will respond to Commercial Bancshares’ requests within three business days after receipt;


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except for debt workouts in the ordinary course of business, settle any material claim, suit, action or proceeding in an amount and for consideration in excess of $150,000 individually or $300,000 in the aggregate (net of any insurance proceeds or indemnity, contribution or similar payments received by Commercial Bancshares or any of its Subsidiaries in respect thereof) or that would impose any material restriction on the business of it or its Subsidiaries or First Defiance;
amend the Commercial Bancshares articles of incorporation or its code of regulations, or comparablesimilar governing documents of its subsidiaries;
merge or consolidate itself or any of its subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its subsidiaries;

materially restructure or materially change its investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, except as may be required by GAAP or by applicable laws, regulations, guidelines or policies imposed or requested by any governmental entity;

implement or adopt any material change in its accounting principles, practices or methods, other than as may be required by GAAP or applicable regulatory accounting requirements;

except as permitted by the merger agreement or as required by any applicable law or existing benefit plan: (1) increase in any manner the compensation or benefits of any of the current or former directors, officers, employees, consultants, independent contractors or other service providers of such entity, other than increases in the ordinary course of business consistent with past practice; (2) become a party to, establish, materially amend, commence participation in, terminate or commit itself to the adoption of any stock option plan or other stock-based compensation plan, compensation, severance, pension,consulting, non-competition, change in control, retirement, profit-sharing, welfare benefit, or other employee benefit plan or agreement or employment agreement with or for the benefit of any such person (or newly hired employees), director or shareholder; (3) accelerate the vesting of or lapsing of restrictions with respect to any stock-based compensation or other long-term incentive compensation under any existing benefit plan; (4) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any benefit plan; or (5) materially change any actuarial assumptions used to calculate funding obligations with respect to any existing benefit plan that is required by applicable laws, regulations, guidelineslaw to be funded or policies imposedchange the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP or any governmental entity,applicable law;

incur or requested by First Defiance;guarantee any indebtedness for borrowed money other than in the ordinary course of business consistent with past practice;

(i)

enter into any material new line of business or materially change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking and operating hedging policies, securitization and servicing policies (including any change in the maximum ratio or similar limits as a percentage of its capital exposure applicable with respect to its loan portfolio or any segment thereof), except as required by such policies or applicable law regulation or policies imposedrequested by any governmental entity;regulatory authority;

(i) make

settle any action, suit, claim or purchaseproceeding against it or any indirectof its subsidiaries, except for an action, suit, claim or brokered loans, or (ii) purchase from or sell to any financial institution or other non-depository lenderproceeding that is settled in an interest in a loan, other than in the ordinary course of businessamount and consistent with past practice and in any case with dollar amountsfor consideration not in excess of the amounts for originations set forth below; provided, however, that First Defiance will not unreasonably withhold or delay its consent regarding an exception to this;

take any action$250,000 and that would change Commercial Bancshares’ loan loss reserves in a manner that is not in compliance with Commercial Bancshares’ policyimpose any material restriction on the datebusiness of this Agreement and past practices consistently applied and in material compliance with GAAP;such party;

make any capital expenditure or capital addition or improvement or purchase other assets outside of the ordinary course of business which individually exceeds $75,000 or in the aggregate exceed $200,000;
(i) establish any new lending programs or make any changes in the policies of any subsidiary concerning which persons may approve loans, (ii) price or reprice any loans inconsistent with Commercial Bancshares current pricing methodology, or (iii) originate or issue any: (A) loans except in accordance with existing lending policies, and lending limits and authorities; or (B) (1) unsecured consumer loans in excess of $25,000; (2) individual commercial loans in excess of $1,000,000; or (3) construction, acquisition or development loans, residential permanent loans, loans secured by special purpose property, or SBA loans, to any one borrower in excess of $2,000,000 in the aggregate; provided, however, that First Defiance will not unreasonably withhold or delay its consent regarding an exception to this and will respond to Commercial Bancshares’ requests within three business days after receipt;
(i) make, change or revoke any tax election, (ii) change an annual tax accounting period, (iii) adopt or change any tax accounting method, (iv) file any amended tax return, (v) enter into any closing agreement with respect to taxes, (vi) settle any tax claim, audit, assessment or dispute or surrender any right to claim a refund of taxes, (vii) fail to prepare or file or cause to be prepared or filed in a timely manner consistent with past practice all tax returns that are required to be filed (with extensions) at or before the closing of the merger, (viii) fail to pay any tax due (whether or not

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required to be shown on any such Tax Returns), (ix) consent to the extension or waiver of any statute of limitations with respect to taxes, or (x) offer or agree to do any of the foregoing or surrender its rights to do any of the foregoing or to claim any refund of taxes or to file any amended tax return;
(i) make application for the opening, relocation or relocationclosing of any, or open, relocate or relocate,close any, branch office, loan production office or other significant office or operations facility of itfacility;

make or its subsidiaries, (ii) other than in consultation with First Defiance, make application for the closing of or close any branch or (iii) purchase any new real property (other than other real estate owned properties in the ordinary course) or enter into, amend or renewchange any material lease with respecttax elections, change or consent to real property;

knowingly take any action that is intended tochange in its method of accounting for tax purposes (except as required by applicable tax law), settle or would reasonably be likely to adversely affect or materially delay the ability of Commercial Bancshares or its subsidiaries to obtaincompromise any necessary approvals of any governmental entity required for the merger or bank merger or the necessary vote of Commercial Bancshares’ shareholders or to perform its covenants and agreements under the Merger Agreement or to consummate the merger;

foreclose upon or otherwise take title to or possession or control of any real property without first obtaining a Phase I Environmental Report in accordance with the requirements of ASTM E1527-13 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Practice” thereon that indicates that the property does not contain any “Recognized Environmental Conditions” (as defined in the ASTM-E1527-13 standard for Phase I assessments) regarding pollutants, contaminants or hazardous or toxic waste materials including asbestos and petroleum products;

material tax liability, claim or assessment, enter into any closing agreement, waive or extend any statute of limitations with respect to a material amount of taxes, surrender any right to claim a refund for a material amount of taxes, or file any material amended tax return;

���

hire any employee with an annual salary in excess of $200,000; or

except as otherwise permitted, make any written communications to the employees of Commercial Bancshares or its subsidiaries with respect to employment, compensation or benefits matters addressed in the Merger Agreement or related, directly or indirectly, to the merger; or

agree to take, make any commitment to take, or adopt any resolutions of itsthe board of directors or similar governing body in support of, any of the above prohibited actions.actions described above.

First DefianceEach party has agreed, to a more limited set of restrictions on its business prior to the completion of the merger. Specifically, First Defiance has agreed that prior to the effective time of the merger, except as expressly permitted byto notify the Merger Agreement,other party of any fact, event or circumstance known to it will not, without the prior written consent of Commercial Bancshares (which shall not be unreasonably withheld):

amend the First Defiance articles or code of regulations in a manner that would materially and adversely affect the holders of Commercial Bancshares Shares relative to other holders of First Defiance shareholders;
adjust, split, combine or reclassify any capital stock of First Defiance or make, declare or pay any extraordinary dividend on any capital stock;
merge or consolidate itself or any of its subsidiaries with any other personthat: (i) where it or its subsidiary, as applicable, is not the surviving person or (ii) if the merger or consolidation is reasonably likely, individually or taken together with all other facts, events and circumstances known to it, to result in a material adverse effect on such party; or (ii) would cause or constitute a material breach of any of such party’s representations, warranties, covenants or agreements contained in the merger agreement that reasonably could be expected to give rise, individually or in the aggregate, to the failure closing condition; provided, however, that a failure to notify the other party will not constitute a breach of the merger agreement or the failure of any closing condition unless the underlying material adverse effect or material breach would independently result in the failure of a closing condition to be materially delayed orsatisfied.

Prior to the receipteffective time of the regulatory approvals to be prevented or materially delayed;

knowingly take any action that is intended to or would reasonably be likely to adversely affect or materially delay the ability of First Defiance ormerger, each party and its subsidiaries to obtain any necessary approvals of any governmental entity required for the transactions contemplated by the Merger Agreement or to perform its covenants and agreements under the Merger Agreement or to consummate the transactions contemplated by the Merger Agreement; or
agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of, any of the above prohibited actions.

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Regulatory Matters.  First Defiance and Commercial Bancshares have agreed to promptly prepare and file with the SEC a registration statement on Form S-4, of which this document is a part. First Defiance and Commercial Bancshares have agreed to use reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, and to mail or deliver the proxy statement/prospectus to Commercial Bancshares’ shareholders. First Defiance has also agreed to use its reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to complete the merger, and Commercial Bancshares has agreed to furnish all information concerning Commercial Bancshares and the holders of Commercial Bancshares common stock as may be reasonably requested in connection with any such action.

First Defiance and Commercial Bancsharesbanking subsidiary have agreed to cooperate with the other party and its banking subsidiary in connection with planning for the efficient and orderly combination of the parties and the operation of Home Savings and First Federal, and in preparing for the consolidation of Home Savings and First Federal’s appropriate operating functions to be effective on the effective date of the merger or such later date as the parties may mutually agree. Each party has agreed to provide office space and support services (and other reasonably requested support and assistance) in connection with the foregoing, and senior officers of United Community and First Defiance will meet from time to time as United Community or First Defiance may reasonably request, to review the financial and operational affairs of United Community and Home Savings, and each party shall give due consideration to the other party’s input on such matters, with the understanding that, notwithstanding any other provision contained in the merger agreement: (a) neither party nor its banking subsidiary will under any circumstance be permitted to exercise control of the other party, its banking subsidiary or any of such party’s other subsidiaries prior to the effective time of the merger; (b) neither party nor any of their respective subsidiaries will be under any obligation to act in a manner that could reasonably be deemed to constitute anti-competitive behavior under federal or state antitrust laws; and (c) neither party nor any of their respective subsidiaries shall be required to agree to or incur any material obligation or to terminate or amend any contract, in each case that is not contingent upon the consummation of the merger.

Regulatory Matters

First Defiance and United Community have agreed to cooperate and use their respective reasonable best efforts to as promptly prepare and file (and shall use reasonable best efforts to make such filings within 30 days of the date of the merger agreement) all necessary documentation, to effect all applications, notices, petitions, and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third partiesfrom the Federal Reserve, the FDIC and governmental entities thatthe ODFI which are necessary or advisable to completeconsummate the transactions contemplated by the merger agreement and to comply with the terms and conditions of all such permits, consents, approvals, and authorizations.

Additionally, eachauthorizations of all such regulatory authorities. First Defiance and Commercial BancsharesUnited Community have also agreed to, upon request, furnish to theeach other with all information concerning itself, its subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with this proxy statement/prospectus, the Form S-4 or any other statement, filing, notice, or application made by or on behalf of First Defiance, Commercial Bancshares or any of their respective subsidiaries to any governmental entity in connection with the merger, as well as to promptly keep each other apprised of the status of matters related to the completion of the transactions contemplated by the merger agreement.

It is a condition to each party’s obligation to close that the parties have received necessary regulatory approvals contemplated by the merger agreement and all statutory waiting periods in respect thereof have expired, without the imposition of any condition or restriction that would reasonably be expected to have a material adverse effect on the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger.

Employee Benefit Matters

All individuals who provide services to or are employed by United Community immediately prior to closing will automatically become employees of First Defiance as of the closing of the merger. For a period of one (1) year following the closing (or, if shorter, the period that such former employee of United Community or employee of First Defiance holds the position held by such employee as of immediately prior to the effective time), First Defiance will provide, or will cause to be provided, to each such employee base compensation that is no less favorable than the base compensation provided to such employee immediately prior to the effective time.

From and after the effective time of the merger, unless otherwise mutually determined by United Community and First Defiance, the United Community benefit plans and First Defiance benefit plans in effect as of the date of the merger agreement will remain in effect with respect to employees of United Community and First Defiance (and their respective subsidiaries), respectively, covered by such plans at the effective time of the merger who continue to be employed by the surviving corporation until such time as the surviving corporation will, subject to applicable law and the terms of such plans, modify any existing plans or adopt new benefit plans with respect to employees of the surviving corporation and its subsidiaries. Prior to the effective time of the merger, First Defiance and United Community will cooperate in reviewing, evaluating and analyzing such benefit plans with a view toward developing new plans appropriate for the employees covered thereby, and it is the intention of First Defiance and United Community to develop such new plans as soon as reasonably practicable after the closing of the merger.

For all purposes under the new plans, each applicable employee will be credited with his or her years of service with United Community or First Defiance, or their subsidiaries, as applicable, to the same extent as such employee was entitled to credit for such service under any applicable plan in which such employee participated or was eligible to participate immediately prior to the date First Defiance commences providing benefits to such employees with respect to the applicable new plan (the “transition date”), provided that the foregoing will not apply to the extent that its application would result in a duplication of benefits with respect to the same period of service.

In addition, as of the transition date: (i) each such employee shall be immediately eligible to participate, without any waiting time, in any and all new plans to the extent coverage under such new plan is similar in type to an applicable United Community benefit plan or First Defiance benefit plan, respectively, in which such employee was participating immediately prior to the transition date; (ii) for purposes of each new plan providing medical, dental, pharmaceutical, vision or similar benefits to any such employee,all pre-existing condition exclusionsand actively-at-work requirements of such new plan will be waived for such employee and his or her covered dependents, unless such conditions would not have been waived under the prior plan in which such employee participated or was eligible to participate immediately prior to the transition date; and (iii) any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the prior plan ending on the transition date will be taken into account under such new plan to the extent such eligible expenses were incurred during the plan year of the new plan in which the transition date occurs for purposes of satisfying all deductible, coinsurance andmaximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such new plan.

From and following the closing, First Defiance will assume and honor the obligations of United Community and its subsidiaries under all employment, severance, change in control, consulting, and other similar plans, programs, agreements, arrangements, policies and practices (collectively, the “severance plans”) in accordance with their terms. The merger will constitute or be deemed a “change in control” (or concept of similar import) for purposes of the United Community benefit plans, and First Defiance may, in its sole discretion, deem the merger a “change in control” (or concept of similar import) for purposes of its own benefit plans. With respect to any employee who provides services to or is employed by United Community immediately prior to closing or any employee of First Employee who does not have contractual severance or termination protections and whose

employment is terminated between the closing date of the merger and the first anniversary thereof, First Defiance will provide severance protections consistent with the terms of a severance plan or policy to be developed by First Defiance and United Community between the date of the merger agreement and the closing date of the merger or, if no such plan or policy is adopted, First Defiance will provide severance benefits on terms consistent with the severance plan applicable to such employee immediately prior to closing or, if more favorable, the severance plan applicable to similarly situated employees of the other party immediately prior to closing, determined without taking into account any reduction after the closing of the merger in compensation paid to such employee.

Director and Officer Indemnification and Insurance

The merger agreement provides that from and after the effective time of the merger, the surviving corporation will indemnify and hold harmless, to the fullest extent permitted by applicable law, each current or former director, officer or employee of United Community or any of its subsidiaries or fiduciary of United Community or any of its subsidiaries under any United Community benefit plans or any person who is or was serving at the request of United Community or any of its subsidiaries as a director, officer, trustee or employee of another person against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the effective time of the merger, including the transactions contemplated by the merger agreement, whether asserted or claimed prior to, at or after the effective time of the merger, and will also advance expenses to such persons to the fullest extent permitted by applicable law, provided that such person provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

For a period of six (6) years after the closing, First Defiance will maintain in effect United Community’s current directors’ and officers’ liability insurance covering each person currently covered by United Community’s directors’ and officers’ liability insurance policy for acts or omissions occurring prior to the effective time of the merger. However, First Defiance will not be required to expend annually in the aggregate an amount in excess of 300% of the amount of the current annual premiums paid by United Community as of the date of the merger agreement for such purpose and, if First Defiance is unable to maintain such policy (or substitute policy), First Defiance will obtain as much comparable insurance as is available and for as long a period of time as is available following the closing of the merger by payment of such amount. In addition, First Defiance may substitute “tail” policies for such coverage the terms of which, including coverage and amount, cannot be less favorable in any material respect to such directors and officers than United Community’s existing policies as of date of the merger agreement, or United Community may obtain extended reporting period coverage under its insurance programs, to be effective as of the effective time of the merger.

Dividends

First Defiance and United Community will coordinate with the other for the declaration of any dividends in respect of First Defiance common stock and United Community common stock and the record dates and payment dates relating thereto to ensure that United Community shareholders do not fail to receive one dividend (or receive two dividends) in any quarter.

Commitments to the Community

Following the effective time of the merger, the surviving corporation will maintain the level of philanthropic and community investment provided by each of First Defiance and United Community in their respective communities prior to the effective time of the merger.

Certain Additional Covenants

The merger agreement also contains additional covenants, including, among others, covenants relating to the filing of this joint proxy statement/prospectus, the listing of the shares of First Defiance common stock to be issued in the merger, access to information, exemption from takeover laws, public announcements with respect to the transactions contemplated by the merger agreement, exemption under Rule16b-3 promulgated under the Exchange Act in connection with the merger, and First Defiance’s assumption of United Community’s obligations in respect of its outstanding debt, guarantees, securities, and other agreements to the extent required by the terms of such debt, guarantees, securities, and other agreements.

Shareholder Approval.  Commercial Bancshares’Meetings and Recommendation of First Defiance’s and United Community’s Boards of Directors

Each of United Community and First Defiance has agreed to hold a special meeting of its shareholders for the purpose of voting upon adoption of the merger agreement (and, in the case of First Defiance, approval of the First Defiance code of regulations proposal and the First Defiance articles of incorporation proposal) as soon as reasonably practicable and upon other related matters. The board of directors of each of United Community and First Defiance has resolvedagreed to recommenduse its reasonable best efforts to obtain from its shareholders the Commercial Bancsharesvote required to adopt the merger agreement (and, in the case of First Defiance, approval of the First Defiance code of regulations proposal and the First Defiance articles of incorporation proposal), including by communicating to its shareholders its recommendation (and including such recommendation in this joint proxy statement/prospectus) that they adopt and approve the Merger Agreementmerger agreement and the transactions contemplated thereby, except in the case of an adverse recommendation change (as defined below). Commercial Bancshares must engage a proxy solicitor reasonably acceptable to First Defiance to assist in the solicitation of proxies from shareholders relating to such required vote.thereby. However, if the Commercial Bancshares board of directors of United Community or First Defiance, after receiving the advice of its outside counsel, and, with respect to financial matters, its financial advisors, determines in good faith that it would morebe reasonably likely than notto result in a violation of its fiduciary duties under applicable law to continue to recommend the Merger Agreement,merger agreement, then it may (but shall not be required to) submit the Merger Agreementmerger agreement to its shareholders without recommendation or may withhold or withdraw or modify in a manner adverse to First Defiance its recommendation to its shareholders (each of the foregoing defined in this proxy statement/prospectus as an “adverse recommendation change”) (although the resolutions approving the Merger Agreementmerger agreement may not be rescinded or amended) and may communicate the basis for its adverselack of a recommendation change to its shareholders in this joint proxy statement/prospectus or a supplemental amendment thereto to the extent required by law, provided that (1)(i) it gives First Defiancethe other party at least three business days’ prior written notice of its intention to take such action and a reasonable description of the event or circumstances giving rise to its determination to take such action (including, in the event such action is taken by the Commercial BancsharesFirst Defiance’s or United Community’s board of directors in response to an acquisition proposal, the latest material terms and conditions of, and the identity of the third-party makingin any such acquisition proposal, or any amendment or modification thereof, or describe in reasonable detail such other event or circumstances); and (2)(ii) at the end of such notice period, the Commercial BancsharesFirst Defiance or United Community board of directors, as applicable, takes into account any amendment or modification to the Merger Agreementmerger agreement proposed by First Defiancethe other party and after receiving the advice of its outside counsel, and, with respect to financial matters, its financial advisors, determines in good faith that it nevertheless would nevertheless morebe reasonably likely than notto result in a violation of its fiduciary duties under applicable law to continue to recommend the Merger Agreement.merger agreement. Any material amendment to any acquisition proposal will require a new notice period.

ExceptNotwithstanding any change in recommendation by the caseboard of an adverse recommendation change, Commercial Bancsharesdirectors of United Community or First Defiance, unless the merger agreement has been terminated in accordance with its terms, each party is required to convene a special meeting of its shareholders and to submit the merger agreement to a vote of such shareholders. First Defiance and United Community have agreed to use their reasonable best efforts to cooperate to hold the United Community special meeting and the First Defiance special meeting on the same day and at the same time as soon as reasonably practicable after the date of the merger agreement and to set the same record date for each such meeting. First Defiance and United Community must adjourn or postpone its shareholdersuch meeting up to two times if there are insufficient shares of Commercial BancsharesFirst Defiance common stock or United Community common stock, as the case may be, represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or if on the date of such meeting Commercial BancsharesUnited Community or First Defiance, as applicable, has not received proxies representing a sufficient number of shares necessary for adoption of the Merger Agreement.merger agreement.


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All of the directors of Commercial Bancshares entered into voting agreements with First Defiance under which they agreed to vote all of their shares of Commercial Bancshares common stock in favor of the approval of the Merger Agreement.

NASDAQ Listing.  First Defiance will cause the shares of First Defiance common stock to be issued in the merger to be authorized for listing on the NASDAQ, subject to official notice of issuance, prior to the effective time of the merger.

Employee Matters.  The Merger Agreement provides that First Defiance will provide the employees of Commercial Bancshares and its subsidiaries who become employees of First Defiance or First Federal at the effective time with benefits that are, in the aggregate, substantially the same as the benefits provided to similarly situated employees of First Defiance. Further, any employee of Commercial Bancshares or Commercial Bank who does not have an employment agreement, change in control agreement or severance agreement, who is not entitled to a severance benefit under another severance plan and who is not offered employment with First Defiance or First Federal with salary and bonus opportunities substantially the same as the those with Commercial Bancshares or Commercial Bank or whose employment is terminated within six months of the effective time will receive a cash payment in an amount equal to two weeks of the employee’s current base salary for each full year of service, with a minimum payment of four weeks and a maximum of 26 weeks of pay.

Indemnification and Directors’ and Officers’ Insurance.  From and after the effective time of the merger, First Defiance will indemnify and hold harmless, to the fullest extent permitted by applicable law, the Commercial Bancshares’ articles of incorporation and code of regulations, each present director and officer of Commercial Bancshares and Commercial Bank for a period of six years following the effective time.

First Defiance has also agreed, that for a period of six years following the effective time of the merger, it will maintain in effect the current policies of directors’ and officers’ liability insurance maintained by Commercial Bancshares or its subsidiaries with a substantially comparable insurer of at least the same coverage and amounts and containing terms and conditions that are no less advantageous to the insured, with respect to claims against present and former officers and directors of Commercial Bancshares and its subsidiaries arising from facts or events that occurred at or prior to the completion of the merger. However, First Defiance is not required to spend annually more than 125% of the current annual premium paid as of the date of the merger agreement by Commercial Bancshares for such insurance (the “premium cap”), and if the premiums for the insurance would at any time exceed that amount, then First Defiance will maintain policies of insurance which, in its good faith determination, provide the maximum coverage available at an annual premium equal to the premium cap. In lieu of the foregoing, Commercial Bancshares, with the consent of First Defiance, may (and, at First Defiance’s request, will use its reasonable best efforts to) obtain at or prior to the effective time of the merger a six-year “tail” policy under Commercial Bancshares’ existing directors’ and officers’ insurance policy and similar policy covering fiduciaries under the Commercial Bancshares benefit plans providing equivalent coverage to that described in the above if such a policy can be obtained for an amount that, in the aggregate, does not exceed the premium cap. If such a “tail policy” is purchased, First Defiance must maintain the policy in full force and effect and not cancel such policy.

Additional Director.  First Defiance has agreed to take all action to appoint one current director of Commercial Bancshares to the First Defiance board at the effective time of the merger.

Agreement Not to Solicit Other Offers.  Under the terms of the Merger Agreement, Commercial BancsharesOffers

First Defiance and United Community have agreed that they will not, and will cause itstheir subsidiaries and its anduse their reasonable best efforts to cause their officers, directors, agents, advisors, and representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage, or knowingly facilitate inquiries or proposals with respect to any acquisition proposal, (ii) engage or participate in any negotiations with any person concerning any acquisition proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to, any acquisition proposal.proposal except to notify a person that has made or, to the knowledge of First Defiance or United Community, as applicable, is making any inquiries with respect to, or is considering making, an acquisition proposal, of the existence of First Defiance’s or United Community’s obligations with respect to such acquisition proposals under the merger agreement. For purposes of the Merger Agreement,merger agreement, an “acquisition proposal” means, with respect to a party, other than the transactions contemplated by the Merger Agreement,merger agreement, any offer, proposal, or proposalinquiry relating to, or any third-party indication of interest in, (i)(a) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of Commercial Bancsharessuch party and its subsidiaries, or 25% or more of any class of equity or voting securities of Commercial Bancshares or its subsidiaries whose assets, individually or in the aggregate, constitute more


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than 25% of the consolidated assets of Commercial Bancshares, (ii) any tender offer or exchange offer that, if consummated, would result in such third-party beneficially owning more than 25% of any class of equity or voting securities of Commercial Bancsharesparty or its subsidiaries whose assets, individually or in the aggregate, constitute more than 25% of the consolidated assets of Commercial Bancshares,such party, (b) any tender offer (including a self-tender offer) or (iii) a merger, consolidation, share exchange offer that, if consummated, would result in such third-party beneficially owning 25% or other business combinationmore of any class of equity or reorganization involving Commercial Bancsharesvoting securities of such party or its subsidiaries whose assets, individually or in the aggregate, constitute more than 25% of the consolidated assets of Commercial Bancshares, except in each case, for any sale of whole loans and securitizationssuch party or (c) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution, or other similar transaction involving such party or its subsidiaries whose assets, individually or in the ordinary courseaggregate, constitute more than 25% of business and anybona fide internal reorganization.the consolidated assets of such party.

However, in the event that prior to the adoption of the Merger Agreementmerger agreement by Commercial Bancshares’First Defiance’s or United Community’s shareholders, Commercial Bancsharesas applicable, either First Defiance or United Community receives an unsolicitedbona fide written acquisition proposal it(the “receiving party”), and the board of directors of the receiving party concludes in good faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors) that such acquisition proposal constitutes or would be reasonably likely to result in a superior proposal, such receiving party may, and may permit its subsidiaries and its and theirsubsidiaries’ officers, directors, agents, advisors, and representatives to, furnish or cause to be furnished nonpublic information or data and participate in negotiations or discussions to the extent that its board of directors concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisor)advisors) that failure to take such actions would be morereasonably likely than not to result in a violation of its fiduciary duties under applicable law, provided that, prior to providing any such nonpublic information, Commercial Bancshares provides such information to First Defiance andreceiving party enters into a confidentiality agreement with such third-party on terms no less favorable to it than the confidentiality agreement between First Defiance and Commercial Bancshares,United Community, and which confidentiality agreement does not provide such person with any exclusive right to negotiate with Commercial Bancshares.

Commercial Bancshares agreed to,such receiving party. The receiving party will, and will use its reasonable best efforts to cause its and its subsidiaries’ officers, directors, agents, advisors, and representatives to, immediately cease and cause to be terminated any activities, discussions, or negotiations conducted before the date of the Merger Agreementmerger agreement with any person other than First Defiance or United Community, as applicable, with respect to any acquisition proposal. Commercial BancsharesThe receiving party will promptly (within 24 hours) advise First Defiance within one business daythe other party following receipt of any acquisition proposal or any inquiry which could reasonably be expected to lead to an acquisition proposal, includingand the materialsubstance thereof (including the terms and conditions of and the identity of the person making such inquiry or acquisition proposal and a copy thereof if in writing and any related documentation or correspondence), and will keep First Defiance reasonably informedthe other party apprised of any related developments, discussions, and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or acquisition proposal. In addition, Commercial BancsharesFirst Defiance and United Community has agreed to use itstheir reasonable best efforts subject to applicable law and the fiduciary duties of the Commercial Bancshares board of directors to enforce any existing confidentiality or standstill agreements to which iteither or any of itstheir subsidiaries is a party. Commercial Bancshares has also agreedparty, unless the First Defiance or United Community board of directors, as applicable, determines in good faith that during the term of the Merger Agreement,failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable law, in which event it will not and will cause its subsidiaries and its and their officers, directors, agents, advisors, and representatives to not enter into any binding acquisitionmay waive or amend such confidentiality or standstill agreement merger agreement or other definitive transaction agreement (other than a confidentiality agreement permitted pursuantsolely to the previous paragraph) relatingextent necessary to anypermit a third party to make an acquisition proposal.

Certain Additional Covenants.  The Merger Agreement also contains additional covenants, including, among others, covenants relating to coordination with respect to litigation relatingproposal on a confidential basis to the merger and further actions required to consummate the merger, advice relating to the occurrenceboard of a material change, access to information, exemption from takeover laws, public announcements with respect to the transactions contemplated by the merger agreement, exemption from liability under Section 16(b) of the Exchange Act, and the absence of control over the other party’s business.directors.

Conditions to Complete the Merger

First Defiance’s and Commercial Bancshares’United Community’s respective obligations to complete the merger are subject to the satisfaction or waiver of several conditions, including:the following conditions:

the accuracy of the representations and warranties of the other party contained in the merger agreement as of the date on which the merger agreement was entered into and as of the closing date, subject to the materiality standards provided in the merger agreement (and the receipt by each party of an officer’s certificate from the other party to such effect);

the performance by the other party in all material respects of all of the covenants and obligations required to be performed by it under the merger agreement at or prior to the closing date (and the receipt by each party of an officer’s certificate from the other party to such effect);

the adoption of the Merger Agreementmerger agreement by Commercial Bancshares’First Defiance’s shareholders and by United Community’s shareholders;

the authorization for listing on NASDAQapproval of the First Defiance common stockcode of regulations proposal by First Defiance’s shareholders;

the receipt of necessary regulatory approvals contemplated by the merger agreement and the expiration of all statutory waiting periods in respect thereof, without the imposition of any condition or restriction that would reasonably be expected to be issued in connection withhave a material adverse effect on the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger;;

the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part with respect to the First Defiance common stock to be issued upon the consummation of the merger, and the absence of any stop order (or proceedings for that purpose initiated or threatened and not withdrawn);


TABLE OF CONTENTSthe authorization for listing on NASDAQ, subject to official notice of issuance, of the First Defiance common stock to be issued upon the consummation of the merger;

the absence of any change in the financial condition, assets or business of the other party or its subsidiaries from the date of the merger agreement until the closing date that has had or would reasonably be expected to have a material adverse effect on the other party;

the absence of any order, injunction, or decree by any court or agencyregulatory authority of competent jurisdiction or other legal restraint or prohibition preventing the completion of the merger or the bankother transactions contemplated by the merger agreement, and the

absence of any statute, rule, regulation, order, injunction, or decree enacted, entered, promulgated, or enforced by any governmental entity thatregulatory authority which prohibits or makes illegal consummation of the merger;
merger, the receipt of all regulatory authorizations, consents, ordersbank merger or approvals (1) required from the federal banking agencies, (2) required under the HSR Act and (3) otherwise set forth in the Merger Agreement that are necessary to consummate theother transactions contemplated or those the failure of which to be obtained would reasonably be likely to have, individually or in the aggregate, a material adverse effect on First Defiance or the surviving corporation, having been obtained and remaining in full force and effect and all statutory waiting periods having expired;
the accuracy of the representations and warranties of the other party contained in the Merger Agreement as of the date on which the Merger Agreement was entered into and (except to the extent such representations and warranties speak as of an earlier date) as of the date on whichby the merger is completed;agreement; and

the performance by the other party in all material respects of all obligations required to be performed by it under the Merger Agreement at or prior to the date on which the merger is completed and the receipt by each party of an officer’s certificate from the other party to such effect;

receipt by such party of an opinion of its outside legal counsel to the effect that on the basis of facts, representations, and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; and

the absence of any event, circumstance or development that has had or could reasonably be expected to have a material adverse effect on the other party.Code.

Neither Commercial BancsharesUnited Community nor First Defiance can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this joint proxy statement/prospectus, neither Commercial BancsharesUnited Community nor First Defiance has reason to believe that any of these conditions will not be satisfied.

Termination of the Merger Agreement

The Merger Agreementmerger agreement can be terminated at any time prior to completion of the merger in the following circumstances:

by mutual written consent of First Defiance and Commercial Bancshares;United Community, evidenced by appropriate written board resolutions;

by either First Defianceparty if the other party breaches or Commercial Bancshares iffails to perform any governmental entity that must grant a regulatory approval has denied approval of its representations, warranties, covenants or agreements under the merger agreement, which breach or the bank merger and such denial has become final and nonappealable, or any governmental entity of competent jurisdiction has issued a final nonappealable order, injunction or decree permanently enjoining or otherwise prohibiting, or making illegal, the consummation of the merger or the bank merger, unless the failure to obtain a requisite regulatory approval is due toperform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the closing would otherwise occur would result in the failure of any of the party seekingconditions to terminate the Merger Agreementterminating party’s obligation to close set forth under the merger agreement and such breach or failure to perform or observe its covenants and agreements under the Merger Agreement;

by either First Defiance or Commercial Bancshares if the merger has not been completed on or before June 30, 2017 (the “termination date”), unless the failure of the merger tocannot be consummated by that date is duecured within forty-five (45) days following written notice to the failure of the party seekingcommitting such breach, making such untrue representation and warranty or failing to terminate the Merger Agreement to perform or observe its covenants and agreements under the Merger Agreement;
by either First Defiance or Commercial Bancshares (providedperform; provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement)merger agreement;

by either First Defiance or United Community, if thereany required regulatory approval has been denied and such denial has become final and nonappealable; provided, that the right to terminate the merger agreement for such denial is not available to a breachparty whose failure (or the failure of any of its affiliates) to fulfill any of its obligations (excluding representations and warranties) under the covenantsmerger agreement has been the cause of or agreementsresulted in the occurrence of such denial;

by First Defiance or United Community if the closing shall not have occurred at or before September 9, 2020, provided that the terminating party’s failure to fulfill any of its obligations (excluding warranties and representations) under the merger agreement shall not have been the cause of or resulted in the failure of the effective time of the merger to occur on or before such date;

by First Defiance or United Community if any court of competent jurisdiction or other regulatory authority shall have issued a judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting any of the representations or warranties (or any such representation or warranty ceases to be true) set forth in the Merger Agreement on the part of the other party which, either individually or in the aggregate, would constitute, if occurring or continuing on the date the merger is completed, the failure of a


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closing condition of the terminating party and which is not cured within the earlier of the termination date and 30 days following written notice to the party committing such breach, ortransactions contemplated by its nature or timing cannot be cured during such period;
by First Defiance if in its reasonable judgment, the evidence of title that Commercial Bancshares has provided to it regarding the real properties that it owns evidence a breach of the representations and warranties in the Merger Agreement regarding the ownership of the properties and such properties have an individual or aggregate fair market value in excess of $500,000 and Commercial Bancshares is unwilling to cure such breach within 60 days.
by First Defiance if, prior to obtaining the approval of the Merger Agreement by Commercial Bancshares common shareholders, (x) Commercial Bancshares or the Commercial Bancshares board of directors (i) submits the merger agreement and such judgment, order, injunction, rule, decree or other action shall have become final and nonappealable, unless the party seeking termination’s failure to fulfill any of its shareholders without a recommendation for approval, or otherwise withdraws or materiallyobligations (excluding warranties and adversely modifies (or discloses its intention to withdraw or materially and adversely modify) its recommendation as contemplated by the Merger Agreement, or recommends to its shareholders an acquisition proposal other thanrepresentations) under the merger agreement is the cause of such judgment, order, injunction, rule, decree or (ii) materially breaches its obligationsother action;

by United Community prior to holdsuch time as the First Defiance merger proposal and the First Defiance code of regulations proposal are approved, if (i) the First Defiance board shall have (a) failed to recommend in this joint proxy statement/prospectus that the shareholders of First Defiance adopt the merger agreement, or withdrawn, modified or qualified such recommendation in a meetingmanner adverse to United Community, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of its shareholders to adopt and approve the Merger Agreement or not to solicit alternative acquisition proposals; or (y) a tender offer or exchange offer for 20% or moreconstituting an proposal to acquire First Defiance that has been publicly disclosed within ten (10) business days after the commencement of the outstanding shares of Commercial Bancshares common stock is commenced, and the Commercial Bancshares board of directors recommends that the shareholders of Commercial Bancshares tender their shares in such tender or exchange offer, in any such case whether or otherwise failsnot permitted by the terms of the merger agreement or (b) recommended or endorsed a proposal to acquire First Defiance or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt the merger agreement within ten (10) business days after a proposal to acquire First Defiance is publicly announced or (ii) First Defiance or the First Defiance board has breached in any material respect its obligations to thenon-solicitation of acquisition proposals, calling a meeting of its shareholders, or recommending that its shareholders adopt the merger agreement and approve the First Defiance articles of incorporation proposal and the First Defiance code of regulations proposal; or

by First Defiance prior to such time as the United Community merger proposal is approved, if (i) the United Community board shall have (a) failed to recommend in this joint proxy statement/prospectus that the shareholders of United Community adopt the merger agreement, or withdrawn, modified or qualified such shareholders reject suchrecommendation in a manner adverse to First Defiance, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting a proposal to acquire United Community that has been publicly disclosed within ten (10) business days after the 10 business day period specifiedcommencement of such tender or exchange offer, in Rule 14e-2(a) underany such case whether or not permitted by the Exchange Act; or

by First Defiance if the Commercial Bancshares’ total shareholders’ equity (as defined below) calculated asterms of the last day ofmerger agreement or (b) recommended or endorsed a proposal to acquire United Community or failed to issue a press release reaffirming its recommendation that the month prior to the date the merger is completed is less than $36.2 million. For purposes of this section, “total shareholders’ equity” means the total shareholders’ equity as reported in the financial statements included in certain filings made by Commercial Bancshares with the SEC, calculated in accordance with GAAP. However, total shareholders’ equity will not include any accumulated comprehensive income or any of the following costs and expenses actually incurred by Commercial Bancshares that are directly related to the merger and are paid or accrued for on or prior to the last day of the month prior to the date the merger is completed: (i) legal, accounting, professional, advisory, brokerage and fairness opinion fees and expenses (including reimbursable costs), (ii) termination, estimated conversion costs and penalty costs associated with vendor contracts and/or commitments, including data processing contracts and commitments, (iii) the costs and expenses incurred by Commercial Bancshares relating to the printing and mailing of this proxy statement/prospectus and the fees and expenses related to the retention of a proxy solicitor, and (iv) the cost of compensation and other benefits to be provided under each change in control, severance, employment or similar agreement to which Commercial Bancshares or any of its subsidiaries is a party.

shareholders of United Community adopt the merger agreement within ten (10) business days after a proposal to acquire United Community is publicly announced, or (ii) United Community or the United Community board has breached in any material respect its obligations to thenon-solicitation of acquisition proposals, calling a meeting of its shareholders, or recommending that its shareholders adopt the merger agreement.

Effect of Termination

If the Merger Agreementmerger agreement is validly terminated, it will become void withoutand have no effect, except that (i) both First Defiance and United Community will remain liable for any liability on the partliabilities or damages arising out of its willful and material breach of any provision of the parties unless a party knowingly breaches the Merger Agreement. However, themerger agreement and (ii) designated provisions of the Merger Agreementmerger agreement will survive the termination, including those relating to confidentiality obligationspayment of the parties, the termination fee publicity and certain other technical provisions will continue in effect notwithstanding terminationthe confidential treatment of the Merger Agreement.information.

Termination Fee

Commercial BancsharesUnited Community and/or First Defiance, as applicable, will pay First Defiance a termination fee of $18,400,000 (the “termination fee”) if the merger agreement is terminated in either of the following circumstances:

In

in the event that after the date of the Merger Agreementmerger agreement and prior to itsthe termination thereof, a bona fide acquisition proposal has beento acquire United Community is made known to Commercial Bancsharesthe senior management or board of directors of United Community, or has been made directly to its shareholders generally or any person shall have publicly announced a United Community acquisition proposal (and not withdrawn) a bona fidewithdrawn such United Community acquisition proposal with respectat least two business days prior to Commercial Bancsharesthe United Community shareholder meeting) and (A)(i) thereafter, the Merger Agreementmerger agreement is terminated by either First Defiance or Commercial Bancshares becauseUnited Community on the basis that the merger has


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not been completed prior to the termination date, and Commercial Bancshares has failed to obtain the required vote of its shareholders at the duly convened special meeting of Commercial Bancshares’ shareholders at which a vote on the adoption of the Merger Agreement is taken, or (B) thereafter the Merger Agreement is terminated by First Defiance based on a breach of the Merger Agreement by Commercial Bancshares that would constitute the failure of a closing condition and that has not been cured during the permitted time period, or by its nature cannot be cured during such period, and (C) prior to the date that is 12 months after the date of such termination, Commercial Bancshares not occurred by September 9, 2020 without the United Community shareholder approval having been obtained and all other closing conditions being satisfied or capable of being satisfied or (ii) thereafter, the merger agreement is terminated by First Defiance on the basis that United Community breached its representations, warranties, covenants or obligations set forth in the merger agreement as a result of a willful breach and (iii) prior to the date that is twelve (12) months after the date of such termination, United Community enters into a definitive agreement or consummates a transaction with respect to a proposal to acquire United Community (whether or not the same proposal as that referred to above), then United Community must, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay First Defiance the termination fee (provided that the references to 25% in the definition of  “acquisition proposal” are deemed to be references to 50% for this purpose);

United Community will pay First Defiance by wire transfer of same day funds the termination fee in the event that First Defiance terminates the agreement because of a United Community board of directors change of recommendation;

in the event that after the date of the merger agreement and prior to the termination thereof, a bona fide proposal to acquire First Defiance is made to the senior management or board of directors of First Defiance, or has been made directly to its shareholders generally or any person shall have publicly announced a First Defiance acquisition proposal (and not withdrawn such First Defiance acquisition proposal at least two business days prior to the First Defiance shareholder meeting) and (i) thereafter, the merger agreement is terminated by either First Defiance or United Community on the basis that the merger has not occurred by September 9, 2020 without the First Defiance shareholder approval having been obtained and all other closing conditions being satisfied or capable of being satisfied or (ii) thereafter, the merger agreement is terminated by United Community on the basis that United Community breached its representations, warranties, covenants or obligations set forth in the merger agreement as a result of a willful breach and (iii) prior to the date that is twelve (12) months after the date of such termination, First Defiance enters into a definitive agreement or consummates a

transaction with respect to an acquisitiona proposal to acquire First Defiance (whether or not the same acquisition proposal as that referred to above), then Commercial Bancshares will,First Defiance must, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay First Defiance, by wire transfer of same day funds, a fee equal to $2.4 million (the “termination fee”).

•In the event that First Defiance terminates the Merger Agreement pursuant to the fifth bullet set forth under “The Merger Agreement — Termination of the Merger Agreement” above, Commercial Bancshares will, as promptly as reasonably practicable after the date of termination (and in any event, within three business days thereafter), pay First Defiance by wire transfer of same day fundsUnited Community the termination fee.fee (provided that the references to 25% in the definition of  “acquisition proposal” are deemed to be references to 50% for this purpose);

First Defiance will pay United Community by wire transfer of same day funds the Termination Fee in the event that United Community terminates the agreement because of a First Defiance board of directors change of recommendation.

Amendments, ExtensionsExpenses and Waivers

Fees

TheEach of First Defiance and United Community will bear its own expenses incurred in connection with the preparation, execution and performance of the merger agreement and the transactions contemplated thereby, whether or not such transactions are consummated.

Amendment, Waiver, and Extension of the Merger Agreement

Subject to compliance with applicable law, the merger agreement may be amended by the parties, by action taken or authorized by their respective boards of directors of First Defiance and United Community at any time before or after approval of the Merger Agreement proposalmatters presented in connection with the merger by the Commercial Bancshares shareholders in writing signed on behalf of eachFirst Defiance and United Community, except that after adoption of the parties, provided that after any approval of the transactions contemplatedmerger agreement by the Merger Agreement by the Commercial Bancsharesrespective shareholders of First Defiance or United Community, there may not be, without further approval of such shareholders, any amendment of the Merger Agreementmerger agreement that requires further approval under applicable law.

At any time prior to the effective timecompletion of the merger, the partiesrespective boards of directors of First Defiance and United Community may, to the extent legally allowed, extend the time for the performance of any of the obligations or other acts of the other party, waive any inaccuracies in the representations and warranties contained in the Merger Agreementmerger agreement or in any document delivered pursuant to the merger agreement, and waive compliance with any of the agreements or satisfaction of any conditions contained in the Merger Agreement. Anymerger agreement.

Voting Agreement

In connection with entering into the merger agreement, oneach director of United Community and each director of First Defiance has entered into a voting agreement with First Defiance and United Community.

Pursuant to the partvoting agreement, each shareholder party, in his capacity as a shareholder of United Community or First Defiance, as applicable, agreed to vote all shares of United Community common stock or First Defiance common stock, as applicable, beneficially owned by such shareholder, as follows:

in favor of the approval or adoption of the merger agreement and the transactions contemplated thereby (including any amendments or modifications of the terms thereof approved by the United Community board of directors or the First Defiance board of directors, as applicable, and adopted in accordance with the terms thereof);

in the case of the First Defiance directors only, in favor of the approval of the amendment to the First Defiance articles of incorporation contemplated by the merger agreement and the approval of the amendment to the First Defiance code of regulations contemplated by the merger agreement;

in favor of any proposal to adjourn or postpone the United Community special meeting or the First Defiance special meeting, as applicable, to a partylater date if there are not sufficient votes to any extensionapprove the merger agreement and such adjournment or waiver must bepostponement is in a signed writing.

Fees and Expenses

All fees and expenses incurred in connectionaccordance with the merger agreement;

against any action or agreement that would prevent, materially impede or materially delay the Merger Agreement, andcompletion of the transactions contemplated by the Merger Agreement will be paidmerger agreement; and

against any proposal that relates to an acquisition proposal, other than the transactions contemplated by the merger agreement, without regard to the terms of such proposal.

Subject to certain conditions, each shareholder party incurringhas granted the other party an irrevocable proxy to vote such feesshareholder’s shares of United Community common stock or expenses, whether or not the merger is completed, except that the costs of mailing this proxy statement/prospectus will be shared equally by First Defiance and Commercial Bancshares.

Governing Law; Jurisdiction

The Merger Agreement is governed by and will be construedcommon stock, as applicable, in accordance with the lawsvoting agreement. Each shareholder party has also agreed not to transfer such shareholder’s shares of United Community common stock or First Defiance common stock, as applicable, prior to receipt of the StateUnited Community shareholder approval or the First Defiance shareholder approval, as applicable without the prior written consent of Ohio without regardUnited Community and First Defiance, subject to certain exceptions.

The voting agreement applies to each shareholder party in such shareholder’s capacity as a shareholder of United Community or First Defiance, as applicable, and does not apply in any manner to any shareholder’s capacity as a director or officer of Community or First Defiance, as applicable, conflicts of law. The parties agree that any action or proceeding in respect of any claim arising out oftheir respective subsidiaries or related to the Merger Agreement or the transactions contemplated thereby will be brought exclusively in any federalother capacity (and does not limit or state courtaffect any actions taken by any person in such person’s capacity of competent jurisdiction locateddirector or officer of Community or First Defiance, as applicable, or their respective subsidiaries, including by causing Community or First Defiance, as applicable, to exercise its rights under the merger agreement). The voting and support obligations of each shareholder party will terminate upon the earlier of: (i) the effective time of the merger; (ii) the termination of the merger agreement in accordance with its terms; and (iii) the entry, without the prior written consent of such shareholder, into an amendment or modification of the merger agreement which results in a decrease or change in the Statecomposition of Ohio.the merger consideration.


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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

This section describes the intended, material U.S. federal income tax consequences of the merger to First Defiance, Commercial Bancshares, and U.S. holders“U.S. holders” (as defined below) of Commercial BancsharesUnited Community common stock whothat exchange their United Community common stock for First Defiance common stock cash or a combination of First Defiance common stock and cash pursuant toin the merger. First Defiance and Commercial Bancshares intend for the merger to be treated as a reorganization within the meaning of Section 368(a)(1)(A) of the Code, and First Defiance and Commercial Bancshares intend that each will be a “party to a reorganization” within the meaning of Section 368(b) of the Code. The closing of the merger is conditioned upon the receipt by Commercial Bancshares of an opinion of Shumaker, tax counsel to Commercial Bancshares, and the receipt by First Defiance of an opinion of Vorys, tax counsel to First Defiance, each dated as of the closing date of the merger, substantially to the effect that, on the basis of facts, representations and assumptions set forth in that opinion (including factual representations contained in certificates of officers of First Defiance and Commercial Bancshares), the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. This section summarizes the matters addressed in the tax opinions of Shumaker and Vorys filed as exhibits to the registration statement of which this proxy statement/prospectus is a part.

First Defiance and Commercial Bancshares have not requested and do not intend to request any ruling from the Internal Revenue Service as to the U.S. federal income tax consequences of the merger, and the tax opinions to be delivered in connection with the merger are not binding on the Internal Revenue Service. Consequently, there is no assurance of the accuracy of the anticipated U.S. federal income tax consequences to First Defiance, Commercial Bancshares, and the U.S. holders of Commercial Bancshares common stock described in this proxy statement/prospectus.

The following discussion is based onupon the Code, its legislative history, existing final, temporary and proposedthe U.S. Treasury Department regulations promulgated thereunder published Internal Revenue Serviceand judicial and administrative authorities, rulings and court decisions, all as currently in effect as of the date hereof, and all of which are subject tothis joint proxy statement/prospectus. These authorities may change, possibly with retroactive effect. Anyeffect, and any such change could affect the continuing validity of this discussion.

For purposes of this discussion, the term “U.S. holder” means:

a citizen or residentaccuracy of the U.S.;
a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organizedstatements and conclusions set forth in or under the laws of the U.S. or any state or political subdivision thereof;
a trust that (1) is subject to (A) the primary supervision of a court within the U.S. and (B) the authority of one or more U.S. persons to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury Department regulations to be treated as a U.S. person; or
an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Commercial Bancshares common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partnership, or a partner in such partnership, holding Commercial Bancshares common stock, you should consult your tax advisor.

discussion. This discussion is addressed only to those Commercial Bancshares shareholders who hold their Commercial Bancshares common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment), and does not address all of the U.S. federal income tax consequences that may be relevant to particular Commercial Bancshares shareholders in light of their individual circumstances or to Commercial Bancshares shareholders who are subject to special rules, such as:

mutual funds, banks, thrifts or other financial institutions;
S corporations or other pass-through entities (or investors in S corporations or other pass-through entities);

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retirement plans or pension funds;
insurance companies;
tax-exempt organizations;
dealers or brokers in stocks and securities, or currencies;
traders in securities that elect to use the mark-to-market method of accounting;
regulated investment companies;
real estate investment trusts;
persons who exercise dissenters’ rights;
persons who hold Commercial Bancshares common stock as part of a straddle, hedge, constructive sale, conversion transaction or other risk management transaction;
persons who purchase or sell their Commercial Bancshares common stock as part of a wash sale;
expatriates or persons who have a functional currency other than the U.S. dollar;
persons who are not U.S. holders; and
persons who acquired their Commercial Bancshares common stock through the exercise of an employee stock option or otherwise as compensation or through a tax qualified retirement plan.

In addition, this discussion does not address any alternative minimum tax, U.S. federal estate or gift tax or any state, local or foreign tax consequences of the merger, nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010. 2010, nor does it address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax.

The following discussion applies only to U.S. holders who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. holders in light of their particular circumstances and does not apply to U.S. holders subject to special treatment under the U.S. federal income tax laws (such as, for example, dealers or brokers in securities, commodities or foreign currencies, traders in securities that elect to apply amark-to-market method of accounting, banks and certain other financial institutions, insurance companies, mutual funds,tax-exempt organizations, holders subject to the alternative minimum tax provisions of the Code, partnerships, S corporations or other pass-through entities or investors therein, regulated investment companies, real estate investment trusts, controlled foreign corporations, passive foreign investment companies, former citizens or residents of the United States, U.S. expatriates, holders whose functional currency is not the U.S. dollar, holders who hold United Community common stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment, retirement plans, individual retirement accounts, or othertax-deferred accounts, holders who acquired United Community common stock pursuant to the exercise of employee stock options, through a tax qualified retirement plan or otherwise as compensation, holders who exercise dissenters’ rights or holders who actually or constructively own more than 5% of United Community common stock).

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of United Community common stock that is for U.S. federal income tax purposes (1) an individual citizen or resident of the United States, (2) a corporation, or entity treated as a corporation for U.S. federal income tax purposes, organized in or under the laws of the United States or any state thereof or the District of Columbia, (3) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes or (4) an estate, the income of which is subject to U.S. federal income tax, regardless of its source.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds United Community common stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that holds United Community common stock, and any partners in such partnership, should consult their own First Defiance tax advisors regarding the tax consequences of the merger to their specific circumstances.

Determining the actual tax consequences of the merger to a holder of Commercial Bancshares common stockyou may be complex.All holders of Commercial Bancshares common stockcomplex and will depend on your specific situation and on factors that are not within our control. You should consult theiryour own First Defiance tax advisorsadvisor as to the specific tax consequences of the merger to them.In addition, because a holder of Commercial Bancshares common stock may receive a mix of cashin your particular circumstances, including the applicability and stock despite having made a cash election or stock election, it will not be possible for holders of Commercial Bancshares common stock to determine the specific tax consequenceseffect of the mergeralternative minimum tax and any state, local, foreign and other tax laws and of changes in those laws.

To the extent this section consists of statements as to them atmatters of U.S. federal income tax law, this section constitutes the timeopinion of makingBarack Ferrazzano and the election.opinion of Wachtell Lipton.

U.S.

Tax Consequences of the Merger Generally

Subject to the limitations, assumptions and qualifications described herein, and based upon the facts and representations contained in the representation letters received from First Defiance and United Community in connection with the filing of the registration statement on Form S 4 of which this proxy statement/prospectus is a part, Barack Ferrazzano, counsel to First Defiance, and Commercial Bancshares

Reorganization Treatment. The merger is intendedWachtell Lipton, counsel to be a reorganization within the meaning of Section 368(a)(1)(A)United Community, are of the Code, and First Defiance and Commercial Bancshares are each intended to be a “party to a reorganization” within the meaning of Section 368(b) of the Code. The obligation of Commercial Bancshares and First Defiance to complete the merger is conditioned upon the receipt of opinions from the respective tax counsel of Commercial Bancshares and First Defiance to the effectopinion that the merger will for federal income tax purposes qualify as a “reorganization” based upon customary representations made by Commercial Bancshares and First Defiance.If the intended reorganization treatment is respected by the Internal Revenue Service and the courts, then the material U.S. federal income tax consequences described below are anticipated.

No Gain or Loss.  No gain or loss will be recognized by First Defiance or Commercial Bancshares as a result of the merger.

Tax Basis.  The tax basis of the assets of Commercial Bancshares in the hands of First Defiance will be the same as the tax basis of such assets in the hands of Commercial Bancshares immediately prior to the merger.

Holding Period.  The holding period of the assets of Commercial Bancshares to be received by First Defiance will include the period during which such assets were held by Commercial Bancshares.


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U.S. Federal Income Tax Consequences to U.S. Holders of Commercial Bancshares Common Stock Based Upon Merger Consideration Received

If the merger is treated as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. It is a condition to the obligation of First Defiance to complete the merger that First Defiance receive an opinion from Barack Ferrazzano, dated as of the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the obligation of United Community to complete the merger that United Community receive an opinion from Wachtell Lipton, dated as of the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. These opinions will be based on facts and representations contained in representation letters provided by First Defiance and United Community and on customary factual assumptions. None of the opinions described above will be binding on the Internal Revenue Service, which we refer to as the IRS, or any court. First Defiance and United Community have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which those opinions are based are inconsistent with the actual facts, or if any condition contained in the merger agreement and affecting these opinions is waived by any party, the U.S. federal income tax consequences basedof the merger could be adversely affected.

Accordingly, and on the basis of the foregoing opinions, as a result of the merger qualifying as a “reorganization” within the meaning of Section 368(a) of the Code, upon the form of merger consideration received, are as follows:

Solely First Defiance Common Stock.  A U.S. holder of Commercial Bancsharesexchanging your United Community common stock will recognize no gain or loss with respect tofor First Defiance common stock, such U.S. holder receives pursuant to the merger (withyou generally will not recognize gain or loss, except with respect to cash received in lieuinstead of a fractional First Defiance common share, see “— Cash In Lieu of Fractional Shares” below).

Solely Cash.  A U.S. holder of Commercial Bancshares common stock who receives solely cash in exchange for all of its Commercial Bancshares common stock, or properly exercises its dissenters’ rights, and does not constructively own First Defiance’s common stock after the merger (see“— Possible Dividend Treatment” below), will recognize a gain or loss for federal income tax purposes equal to the difference between the cash received and such U.S. holder’s tax basis in Commercial Bancshares common stock surrendered in exchange for the cash. Such gain or loss will be a capital gain or loss, provided that such shares were held as capital assets of the U.S. holder at the effective time of the merger. Such gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period is more than one year. The Code contains limitations on the extent to which a taxpayer may deduct capital losses from ordinary income.

Combination of Cash and First Defiance Common Stock.  A U.S. holder of Commercial Bancshares common stock will recognize gain (but not loss) with respect to the First Defiance common stock and cash such U.S. holder receives pursuant to the merger, in an amount equal to the lesser of (i) the amount by which the sum of the fair market value of the First Defiance common stock and the amount of cash received by such U.S. holder (other than cash received in lieu of a fractional First Defiance common share), exceeds such U.S. holder’s basis in its Commercial Bancshares common stock, and (ii) the amount of cash received by such U.S. holder (other than any cash received in lieu of a fractional First Defiance common share, as discussed under “— Cash In Lieu ofFractional Shares” below). Subject to possible dividend treatment (as discussed below under“— Possible Dividend Treatment,”below), gain that U.S. holders of Commercial Bancshares common stock recognize in connection with the merger generally will constitute capital gain and will constitute long-term capital gain if such U.S. holders have held their Commercial Bancshares common stock for more than one year at the effective time of the merger. Long-term capital gain of certain non-corporate holders of Commercial Bancshares common stock, including individuals, is generally taxed at preferential rates.

. The aggregate tax basis of the First Defiance common stock received by a U.S. holder of Commercial Bancshares common stockthat you receive in the merger (including aany fractional First Defiance common share, if any,shares deemed issuedreceived and redeemed by First Defiance)for cash as described below) will beequal your aggregate adjusted tax basis in the same as the basis of the Commercial BancsharesUnited Community common stock surrenderedyou surrender in exchangethe merger. Your holding period for the First Defiance common stock and cash, reduced by the amount of cash received by such U.S. holder in the merger (other than any cash received in lieu of a fractional First Defiance common share), and increased by any gain recognized by such U.S. holderthat you receive in the merger (including any portionfractional share deemed received and redeemed for cash as described below) will include your holding period of the gain that is treated as a dividend (as described below), but excluding any gain or loss resulting from the deemed issuance and redemption of a fractional First Defiance common share). The holding period for First DefianceUnited Community common stock received by such U.S. holder (including a fractional First Defiance common share, if any, deemed to be issued and redeemed by First Defiance) will include such U.S. holder’s holding period for Commercial Bancshares common stock surrenderedthat you surrender in exchange for the First Defiance common stock.merger. If a U.S. holder of Commercial Bancshares common stockyou acquired different blocks of Commercial BancsharesUnited Community common stock at different times or at different prices, any gain or lossthe First Defiance common stock you receive will be determined separately with respectallocated pro rata to each block of Commercial Bancshares common stock. In computing the amount of gain recognized, if any, a U.S. holder of Commercial Bancshares common stock may not offset a loss realized on one block of stock against the gain realized on another block of stock. U.S. holders of Commercial Bancshares common stock should consult their tax advisors regarding the manner in which First DefianceUnited Community common stock, and cash received in the merger should be allocated among different blocks of Commercial Bancshares common stock and regarding their basesbasis and holding periods in the particular sharesperiod of each block of First Defiance common stock received inyou receive will be determined on ablock-for-block basis depending on the merger.basis and holding period of the blocks of United Community common stock exchanged for such block of First Defiance common stock.


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Cash in LieuInstead of Fractional Shares

A U.S. holder of Commercial Bancshares common shares who receivesIf you receive cash in lieuinstead of a fractional share of First Defiance common stock, generallyyou will be treated as having received such fractional share of First Defiance common stock pursuant to the merger and then as having received such cash in redemption ofsold such fractional share. Gainshare of First Defiance common stock for cash. As a result, you generally will recognize gain or loss generally will be recognized based onequal to the difference between the amount of cash received and the basis in lieu of theyour fractional share and the portion of the U.S. holder’s aggregate adjusted basis in the Commercial BancsharesFirst Defiance common stock surrendered which is allocable to the fractional share. Subject to possible dividend treatment (as discussed below under“— Possible Dividend Treatment”), suchas set forth above. Such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if, as of the U.S. holder’seffective date of the merger, the holding period for its Commercial Bancsharessuch fractional share (including the holding period of United Community common stock surrendered therefor) exceeds one year at the effective timeyear. Long-term capital gains of the merger.individuals are generally eligible for reduced rates of taxation. The Code contains limitations on the extent to which a taxpayer may deductdeductibility of capital losses from ordinary income.is subject to limitations.

Possible Dividend Treatment

In some cases described above, the gain recognized byInformation Reporting and Backup Withholding

If you are a U.S. holder couldnon-corporate United Community shareholder, you may be treated as having the effect of the distribution of a dividendsubject, under the tests set forth in Section 302 of the Code, in which case such gain would be treated as dividend income. Because the possibility of dividend treatment depends primarily upon each holder’s particular circumstances, including the application of certain constructive ownership rules, U.S. holders of Commercial Bancshares common stock should consult their tax advisors regarding the application of the foregoing rules to their particular circumstances.

Backup Withholding and Reporting Requirements

Under certain circumstances, to information reporting and backup withholding on any cash payments made to a U.S. holder of Commercial Bancshares common stock pursuant to the Merger mayyou receive. You generally will not be

subject to backup withholding, athowever, if you (1) furnish a rate of 28% of the cash payable to the U.S. holder, unless the U.S. holder furnishes itscorrect taxpayer identification number, in the manner prescribed in applicable Treasury Department regulations,certify that you are not subject to backup withholding and otherwise compliescomply with all the applicable requirements of the backup withholding rules.rules; or (2) provide proof that you are otherwise exempt from backup withholding. Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not an additional tax and will generally be allowed as a refund or credit against the U.S. holder’syour U.S. federal income tax liability. A U.S. holder of Commercial Bancshares common stock who receives First Defiance common stock as a result ofliability, provided you timely furnish the Merger should retain records pertainingrequired information to the Merger, including records relating to the numberIRS.

This discussion of shares and the basis of such U.S. holder’s Commercial Bancshares common stock. Each U.S. holder of Commercial Bancshares common stock who is required to file a U.S. federal income tax return and who is a “significant holder” that receives First Defiance common stock in the Merger will be required to file a statement with such U.S. federal income tax return in accordance with Treasury Department regulations section 1.368-3 setting forth such U.S. holder’s basis in the Commercial Bancshares common stock surrendered, the fair market value of the First Defiance common stock and cash received in the Merger, and certain other information.

The preceding discussion of material U.S. federal income tax consequences ofis not intended to be, and should not be construed as, tax advice. United Community shareholders are urged to consult their independent tax advisors with respect to the merger is included in this proxy statement/prospectus for generalinformation only, and is intended only as a summaryapplication of material U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction or under any applicable tax treaty.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial information and explanatory notes show the historical financial positions and results of operations of First Defiance and United Community, and have been prepared to illustrate the effects of the merger. Itmerger involving First Defiance and United Community under the acquisition method of accounting with First Defiance treated as the acquirer. Under the acquisition method of accounting, the assets and liabilities of United Community, as of the effective date of the merger, will be recorded by First Defiance at their respective fair values and the excess of the merger consideration over the fair value of United Community’s net assets will be allocated to goodwill. The unaudited pro forma condensed combined balance sheet as of June 30, 2019, is presented as if the merger occurred on June 30, 2019, and the unaudited pro forma condensed combined income statement for the periods ended June 30, 2019, and December 31, 2018 are presented as if the merger had occurred on January 1, 2019 and 2018, respectively. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the income statement only, expected to have a continuing impact on consolidated results of operations.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. The adjustments included in these unaudited pro forma condensed combined financial statements are preliminary and may be revised. The unaudited pro forma condensed combined financial information also does not consider any potential impacts of potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors.

As explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but not be limited to, changes in (i) United Community’s balance sheet through the effective time of the merger; (ii) the aggregate value of merger consideration paid if the price of First Defiance’s stock varies from the assumed $26.32 per share; (iii) total merger-related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.

The unaudited pro forma condensed combined financial information is provided for informational purposes only. The unaudited pro forma condensed combined financial information is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined company after completion of the proposed transaction. The preparation of the unaudited pro forma condensed combined financial information and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma condensed combined financial statements should be read together with:

The accompanying notes to the unaudited pro forma condensed combined financial information;

First Defiance’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2019, included in First Defiance’s Quarterly Report on Form10-Q for the quarter ended June 30, 2019, and are incorporated by reference in this joint proxy statement/prospectus;

First Defiance’s audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2018, included in First Defiance’s Annual Report on Form10-K for the year ended December 31, 2018, and are incorporated by reference in this joint proxy statement/prospectus;

United Community’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2019, included in United Community’s Quarterly Report on Form10-Q for the quarter ended June 30, 2019, and are incorporated by reference in this joint proxy statement/prospectus;

United Community’s audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2018, included in United Community’s Annual Report on Form10-K for the year ended December 31, 2018, and are incorporated by reference in this joint proxy statement/prospectus; and

•

Other information pertaining to First Defiance and United Community contained in or incorporated by reference into this joint proxy statement/prospectus. See “Selected Historical Financial Information of First Defiance” and “Selected Historical Financial Information of United Community” included elsewhere in this joint proxy statement/prospectus.

Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2019

(In thousands)  First
Defiance
Historical		  United
Community
Historical		  Pro Forma
Merger
Adjustments		  Notes  Pro Forma
Combined		 

ASSETS

       

Cash and due from banks

  $50,597  $27,507  $(8,325)  I  $69,779 

Interest-earning deposits with financial institutions

   33,000   27,055   —       60,055 
  

 

 

  

 

 

  

 

 

    

 

 

 

Cash and cash equivalents

   83,597   54,562   (8,325)     129,834 

Investment securitiesavailable-for-sale, at fair value

   296,115   319,009   —       615,124 

Investment securitiesheld-to-maturity

   485   —     —       485 

Trading securities

   —     705   —       705 

Loans held for sale

   14,509   97,477   —       111,986 

Loans receivable

   2,624,219   2,249,808   (15,247)  A   4,858,780 

Less: Allowance for loan losses

   (28,934)   (20,482)   20,482  B   (28,934) 
  

 

 

  

 

 

  

 

 

    

 

 

 

Net loans

   2,595,285   2,229,326   5,235     4,829,846 

Premises and equipment

   39,959   22,130   —       62,089 

Goodwill

   98,569   20,221   131,003  C   249,793 

Other intangibles

   3,816   3,562   24,938  D   32,316 

Accrued interest and other assets

   145,217   122,124   2,630  E   269,971 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total assets

  $3,277,552  $2,869,116  $155,481    $6,302,149 
  

 

 

  

 

 

  

 

 

    

 

 

 
LIABILITIES                

Deposits

  $2,680,637  $2,259,179  $1,900  F  $4,941,716 

Securities sold under agreements to repurchase

   3,064   146   —       3,210 

FHLB borrowings

   105,178   233,000   —       338,178 

Subordinated debentures

   36,083   —     —       36,083 

Accrued interest and other liabilities

   45,374   59,237   6,334  G   110,945 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total liabilities

   2,870,336   2,551,562   8,234     5,430,132 
SHAREHOLDERS’ EQUITY                

Common stock and paid in capital

   161,332   177,319   295,159  H   633,810 

Retained earnings

   311,576   204,355   (212,032)  I   303,899 

Accumulated other comprehensive (loss) income

   4,167   (15,180)   15,180  J   4,167 

Treasury stock, at cost

   (69,859)   (48,940)   48,940  K   (69,859) 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total shareholders’ equity

   407,216   317,554   147,247     872,017 
  

 

 

  

 

 

  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

  $3,277,552  $2,869,116  $155,481    $6,302,149 
  

 

 

  

 

 

  

 

 

    

 

 

 

Unaudited Pro Forma Condensed Combined Statements of Income for the six months ended

June 30, 2019

(In thousands, except per share data)  First
Defiance
Historical		   United
Community
Historical		  Pro Forma
Merger
Adjustments		  Notes   Pro Forma
Combined		 

Interest income

        

Loans

  $63,874   $54,227  $1,258   L   $119,359 

Investment securities

   4,343    4,015   —       8,358 

Other earning assets

   943    958   —       1,901 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total interest income

   69,160    59,200   1,258     129,618 

Interest expense

        

Deposits

   10,586    13,771   (950)   M    23,407 

FHLB advances and other

   601    1,200   —       1,801 

Subordinated debentures

   714    —     —       714 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total interest expense

   11,901    14,971   (950)     25,922 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net interest income

   57,259    44,229   2,208     103,696 

Provision for loan losses

   494    10   (10)   N    494 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net interest income after provision for loan losses

   56,765    44,219   2,218     103,202 

Noninterest income

        

Service charges and other charges

   6,308    4,233   —       10,541 

Mortgage banking income

   3,978    4,307   —     O    8,285 

Insurance commissions

   7,731    1,246   —       8,977 

Gain (loss) on sale of securities

   —      395   —       395 

Gain (loss) on sale of real estate owned

   —      (64)   —       (64) 

Gain (loss) on sale ofnon-mortgage loans

   110    —     —       110 

Trust income

   999    1,705   —       2,704 

Income from Bank Owned Life Insurance

   919    782   —       1,701 

Other

   1,254    140   —       1,394 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total noninterest income

   21,299    12,744   —       34,043 

Noninterest expenses

        

Compensation and benefits

   28,483    19,681   —       48,164 

Occupancy

   4,545    2,074   —       6,619 

Data processing

   4,564    4,501   —       9,065 

Other

   11,509    7,394   2,513   P    21,416 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total noninterest expenses

   49,101    33,650   2,513     85,264 
  

 

 

   

 

 

  

 

 

    

 

 

 

Income before income taxes

   28,963    23,313   (295)     51,981 

Income tax expense

   5,282    4,171   (62)   Q    9,391 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net income

  $23,681   $19,142  $(233)    $42,590 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net earnings per common share—basic

  $1.19   $0.39     $1.12 
  

 

 

   

 

 

     

 

 

 

Net earnings per common share—diluted

  $1.19   $0.39     $1.12 
  

 

 

   

 

 

     

 

 

 

Average basic shares outstanding

   19,897    48,638    X    37,966 
  

 

 

   

 

 

     

 

 

 

Average diluted shares outstanding

   19,976    48,839    X    38,120 
  

 

 

   

 

 

     

 

 

 

Unaudited Pro Forma Condensed Combined Statements of Income for the year ended

December 31, 2018

(In thousands, except per share data)  First
Defiance
Historical		   United
Community
Historical		  Pro Forma
Merger
Adjustments		  Notes   Pro Forma
Combined		 

Interest income

        

Loans

  $114,398   $100,971  $2,516   R   $217,885 

Investment securities

   8,134    7,968   —       16,102 

Other earning assets

   2,185    1,633   —       3,818 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total interest income

   124,717    110,572   2,516     237,805 

Interest expense

        

Deposits

   13,897    17,796   (1,900)   S    29,793 

FHLB advances and other

   1,284    4,831   —       6,115 

Subordinated debentures

   1,281    —     —       1,281 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total interest expense

   16,462    22,627   (1,900)     37,189 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net interest income

   108,255    87,945   4,416     200,616 

Provision for loan losses

   1,176    699   (699)   T    1,176 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net interest income after provision for loan losses

   107,079    87,246   5,115     199,440 

Noninterest income

        

Service charges and other charges

   13,100    11,319   —       24,419 

Mortgage banking income

   7,077    5,090   —     U    12,167 

Insurance commissions

   14,085    2,197   —       16,282 

Gain (loss) on sale of securities

   173    42   —       215 

Gain (loss) on sale of real estate owned

   —      (260)   —       (260) 

Gain (loss) on sale ofnon-mortgage loans

   317    —     —       317 

Trust income

   2,091    3,121   —       5,212 

Income from Bank Owned Life Insurance

   1,767    1,732   —       3,499 

Other

   598    161   —       759 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total noninterest income

   39,208    23,402   —       62,610 

Noninterest expenses

        

Compensation and benefits

   52,566    37,071   —       89,637 

Occupancy

   8,641    4,167   —       12,808 

Data processing

   8,555    8,679   —       17,234 

Other

   19,650    15,162   4,885   V    39,697 
  

 

 

   

 

 

  

 

 

    

 

 

 

Total noninterest expenses

   89,412    65,079   4,885     159,376 
  

 

 

   

 

 

  

 

 

    

 

 

 

Income before income taxes

   56,875    45,569   230     102,674 

Income tax expense

   10,626    8,391   48   W    19,065 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net income

  $46,249   $37,178  $182    $83,609 
  

 

 

   

 

 

  

 

 

    

 

 

 

Net earnings per common share—basic

  $2.27   $0.75     $2.16 
  

 

 

   

 

 

     

 

 

 

Net earnings per common share—diluted

  $2.26   $0.74     $2.14 
  

 

 

   

 

 

     

 

 

 

Average basic shares outstanding

   20,349    49,591    X    38,772 
  

 

 

   

 

 

     

 

 

 

Average diluted shares outstanding

   20,468    49,850    X    38,987 
  

 

 

   

 

 

     

 

 

 

Notes to Unaudited Pro Forma Condensed Combined Financial Information

Note1-Description of Transaction

On September 9, 2019, First Defiance and United Community announced that they had entered into a complete analysismerger agreement pursuant to which United Community will be merged with and into First Defiance, with First Defiance continuing as the surviving corporation. Following the completion of the merger, Home Savings Bank, a wholly-owned bank subsidiary of United Community, will merge with and into First Federal Bank, a wholly-owned bank subsidiary of First Defiance, with First Federal Bank continuing as the surviving bank. In the merger, each share of United Community common stock issued and outstanding immediately prior to the completion of the merger, except for specified shares of United Community common stock held by United Community ordiscussion First Defiance, will be converted into the right to receive 0.3715 shares of all potential tax effectsFirst Defiance common stock. Cash will be paid in lieu of fractional shares of First Defiance common stock that would otherwise be issued in connection with the merger.

Note2-Basis of Presentation

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting giving effect to the merger involving First Defiance and United Community, with First Defiance as the acquirer. Certain reclassifications have been made to United Community historical information so as to conform to First Defiance’s presentation, including instances where certain amounts reflected individually by United Community have been combined for presentation purposes as well as other instances where accounts previously disclosed in footnotes by United Community have been reflected individually for presentation purposes. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. The unaudited pro forma condensed combined financial information provides for the issuance of approximately 17.9 million shares of First Defiance common stock in connection with the merger based on the number of shares of United Community common stock outstanding and reserved for issuance under various equity plans as of June 30, 2019, and the 0.3715 exchange ratio. Based on First Defiance’s closing stock price on September 6, 2019, the value of the aggregate stock consideration would be approximately $472 million.

Under the acquisition method of accounting, the assets and liabilities of United Community will be recorded at the respective fair values on the merger date. The fair value on the merger date represents management’s best estimates based on available information and facts and circumstances in existence on the merger date. The pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but not be limited to, changes in (i) United Community’s balance sheet through the effective time of the merger; (ii) the aggregate value of merger consideration paid if the price of First Defiance’s stock varies from the assumed $26.32 per share; (iii) total merger-related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.

The accounting policies of both First Defiance and United Community are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be importantdetermined.

Note3-Estimated Merger and Integration Costs

In connection with the merger, the plan to you.Each Commercial Bancshares shareholder should consult with his, her or its own tax advisor regardingintegrate First Defiance’s and United Community’s operations is still being developed. Over the next several months, the specific details of these plans will continue to be refined. First Defiance and United Community are currently in the process of assessing the two companies’ personnel,

benefit plans, premises, equipment, computer systems, and service contracts to determine where they may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve involuntary termination of employees, vacating leased premises, changing information systems and benefit plans, cancelling contracts with service providers and selling or otherwise disposing of certain premises, furniture and equipment. First Defiance and United Community expect to incur merger-related expenses including system conversion costs, employee retention and severance agreements, communications to customers, and others. To the extent there are costs associated with these actions, the costs will be recorded based on the nature and timing of these integration actions. Certain acquisition and restructuring costs are recognized separately from a business combination and generally will be expensed as incurred. We estimated the total pre-tax merger-related costs to be approximately $30 million and expect they will be incurred primarily in fiscal year 2020. We have reflected approximately $8.3 million of direct pre-tax merger-related costs in the accompanying pro forma financial information.

Note4-Estimated Annual Cost Savings

First Defiance and United Community expect to realize approximately $17 million in annualpre-tax cost savings following the merger, which management expects realize up to 75% in the first 12 months subsequent to closing the transaction and 100% thereafter. However, there is no assurance that the anticipated cost savings will be realized on the anticipated time schedule or at all. These cost savings are not reflected in the presented pro forma financial information.

Note5-Pro Forma Merger Adjustments

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All taxable adjustments were calculated using a 21% tax consequencesrate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.

Balance Sheet  June 30, 2019 
   (Dollars in thousands) 

A. Adjustments to loans receivable

  

To reflect United Community’s portfolio loans at fair value for current interest rates

  $14,000 

To reflect expected credit loss in United Community’s portfolio loans. Excludes any impact for CECL, which becomes effective in 2020.

   (29,247) 
  

 

 

 
  $(15,247) 
  

 

 

 

B. Adjustment to allowance for loan losses

  

To remove United Community’s allowance at merger date as the credit risk is contemplated in the fair value adjustment in adjustment A above. Excludes any impact for CECL, which becomes effective in 2020.

  $20,482 
  

 

 

 

C. Adjustment to goodwill, net

  

To reflect goodwill created as a result of the merger

  $151,224 

To reflect elimination of United Community’s goodwill at merger date

   (20,221) 
  

 

 

 
  $131,003 
  

 

 

 

D. Adjustment to core deposit intangible, net

  

To record the estimated fair value of acquired identifiable intangible assets, calculated as 2.00% of United Community’s core deposits. Core deposits represent total deposits less time deposits. The acquired core deposit intangible will be amortized over 10 years using asum-of-the-years digits amortization.

  $28,500 

To reflect elimination of United Community’s existing core deposit intangible at merger date

   (3,562) 
  

 

 

 
  $24,938 
  

 

 

 

Balance Sheet  June 30, 2019 
   (Dollars in thousands) 

E. Adjustment to other assets

  

To reflect United Community’s mortgage servicing rights at fair value compared to amortized cost basis

  $3,900 

To reflect net deferred tax asset as a result of the merger fair value adjustments

   (1,270) 
  

 

 

 
  $2,630 
  

 

 

 

F. Adjustments to deposits

 

To record estimated fair value based on current market rates for similar products. The adjustment will be accreted into income over one year.

  $1,900 
  

 

 

 

G. Adjustment to other liabilities

  
  

To reflect net deferred tax liability as a result of the merger fair value adjustments

  $6,334 
  

 

 

 

H. Adjustments to shareholders’ equity

  

To eliminate historical United Community common stock and paid in capital

  $(177,319) 

To reflect issuance of common stock to United Community shareholders

   472,478 
  

 

 

 
  $295,159 
  

 

 

 

I. Adjustments to retained earnings

  

To eliminate United Community’s retained earnings

  $(204,355) 

To reflectafter-tax impact of estimated direct merger-related costs ($8,325,000pre-tax, reflected as an adjustment to cash)

   (7,677) 
  

 

 

 
  $(212,032) 
  

 

 

 

J. Adjustment to accumulated other comprehensive (loss) income

  
  

To eliminate United Community’s accumulated other comprehensive income

  $15,180 
  

 

 

 

K. Adjustment to treasury stock, at cost

  
  

To eliminate United Community’s treasury stock, at cost

  $48,940 
  

 

 

 

Income Statements  June 30, 2019 

L. Adjustment to loans interest income

  

To reflect net accretion of loan credit mark and amortization of loan rate mark, both over an estimated 4.5 year average life

  $1,258 
  

 

 

 

M. Adjustment to deposit interest expense

  

To reflect accretion of deposit rate mark over an estimated one year average life

  $(950) 
  

 

 

 

N. Adjustment to provision for loan losses

  

To eliminate United Community’s provision for loan losses. Excludes any impact for CECL, which becomes effective in 2020.

  $(10) 
  

 

 

 

O. Adjustment to other mortgage banking income

  

No adjustment reflected due to adjusting United Community’s mortgage servicing rights to fair value compared to amortized cost basis

  $0 
  

 

 

 

P. Adjustment to other noninterest expense

  

To reflect net amortization of acquired identifiable intangible assets based on amortization period of 10 years using asum-of-the-years digits amortization and accretion of United Community’s intangibles over an estimated 6.5 year average life

  $2,513 
  

 

 

 

Q. Adjustment to income tax provision

  

To reflect the income tax effect of pro forma adjustmentsL-P at estimated marginal tax rate of 21.0%

  $(62) 
  

 

 

 

   December 31, 2018 

R. Adjustment to loans interest income

  

To reflect net accretion of loan credit mark and amortization of loan rate mark, both over an estimated 4.5 year average life

  $2,516 
  

 

 

 

S. Adjustment to deposit interest expense

  

To reflect accretion of deposit rate mark over an estimated one year average life

  $(1,900) 
  

 

 

 

T. Adjustment to provision for loan losses

  

To eliminate United Community’s provision for loan losses. Excludes any impact for CECL, which becomes effective in 2020.

  $(699) 
  

 

 

 

U. Adjustment to other mortgage banking income

  

No adjustment reflected due to adjusting United Community’s mortgage servicing rights to fair value compared to amortized cost basis

  $0 
  

 

 

 

V. Adjustment to other noninterest expense

  

To reflect net amortization of acquired identifiable intangible assets based on amortization period of 10 years using asum-of-the-years digits amortization and accretion of United Community’s intangibles over an estimated 6.5 year average life

  $4,885 
  

 

 

 

W. Adjustment to income tax provision

  

To reflect the income tax effect of pro forma adjustmentsR-V at estimated marginal tax rate of 21.0%

  $48 
  

 

 

 

X. Average shares outstanding

  

To arrive at consolidated pro forma average shares outstanding, UCFC respective average outstanding shares were multiplied by the exchange ratio of 0.3715 and then added to FDEF respective average outstanding shares

  

Note6-Preliminary Purchase Accounting Allocation

The unaudited pro forma condensed combined financial information reflects the issuance of approximately 17.9 million shares of First Defiance common stock totaling approximately $472 million. The merger will be accounted for using the acquisition method of accounting; accordingly the First Defiance cost to acquire United Community will be allocated to the shareholderassets (including identifiable intangible assets) and liabilities of United Community at their respective estimated fair values as of the mergerincluding date. Accordingly, the applicationpro forma purchase price was preliminarily allocated to the assets acquired and effect of state, local and foreign income and other tax laws.the liabilities assumed based on their estimated fair values as summarized in the following table.

ASSETS

  

Cash and cash equivalents

  $46,237 

Investment securitiesavailable-for-sale, at market value

   319,009 

Trading securities

   705 

Loans held for sale

   97,477 

Loans and leases

   2,234,561 

Less: Allowance for loan and lease losses

   0 
  

 

 

 

Net loans and leases

   2,234,561 

Premises and equipment

   22,130 

Goodwill

   151,224 

Other intangibles

   28,500 

Accrued interest and other assets

   124,754 
  

 

 

 

Total assets

  $3,024,597 
  

 

 

 

LIABILITIES

  

Deposits

  $2,261,079 

Securities sold under agreements to repurchase

   146 

FHLB -term borrowings

   233,000 

Accrued interest and other liabilities

   65,571 
  

 

 

 

Total liabilities assumed

   2,559,796 
  

 

 

 

Fair value of net assets acquired

  $464,801 
  

 

 

 

TABLE OF CONTENTS

COMPARISON OF RIGHTS OF FIRST DEFIANCE SHAREHOLDERS

AND
COMMERCIAL BANCSHARES UNITED COMMUNITY SHAREHOLDERS

General

Commercial Bancshares is incorporated under the laws of the State of Ohio and the rights of Commercial Bancshares shareholders are governed by Commercial Bancshares’ amended and restated articles of incorporation and Commercial Bancshares’ code of regulations and by applicable provisions of the Ohio General Corporation Law (“OGCL”). First Defiance is also incorporated under the laws of the State of Ohio and the rights of First Defiance shareholders are governed by First Defiance’s articles of incorporation and First Defiance’s code of regulations, each as amended to date, and by the OGCL. United Community is also incorporated under the laws of the State of Ohio and the rights of United Community shareholders are governed by United Community’s articles of incorporation and United Community’s amended code of regulations, each as amended to date, and by applicable provisions of the OGCL. If the merger is completed, Commercial BancsharesUnited Community shareholders who receive shares of First Defiance common stock will become First Defiance shareholders. The rights of those Commercial BancsharesUnited Community shareholders who become First Defiance shareholders will likewise be governed by First Defiance’s articles of incorporation and code of regulations, both of which will be amended and restated if the First Defiance shareholders approve the First Defiance articles of incorporation proposal and the First Defiance code of regulations proposal as described under “First Defiance’s Proposals” above. Because the First Defiance code of regulations proposal is a condition to the closing of the merger, this comparison of rights assumes that the First Defiance code of regulations proposal is approved and United Community shareholders’ rights will be governed by the First Defiance amended and restated code of regulations. However, theThe rights of suchUnited Community shareholders who receive shares of First Defiance common stock will continue to be governed by the OGCL.

Comparison

The following summary is not a complete statement of Shareholders’ Rights

Set forth below is a summary comparison of material differences between the rights of First Defiance shareholders underof the First Defiance articlestwo companies or a complete description of incorporation and code of regulations (left column), and the rights of Commercial Bancshares shareholders under the Commercial Bancshares amended and restated articles of incorporation and code of regulations (right column). The summary set forth below is not intendedspecific provisions referred to provide a comprehensive discussion of each company’s governing documents.below. This summary is qualified in its entirety by reference to First Defiance’s and United Community’s respective governing documents and the full textprovisions of the OGCL, which we urge you to read carefully and in their entirety. Copies of the respective companies’ governing documents have been filed with the SEC. To find out where copies of these documents can be obtained, see “Where You Can Find More Information” beginning on page 145. Copies of First Defiance articles of incorporation and code of regulations, and the Commercial BancsharesDefiance’s proposed amended and restated articles of incorporation and amended and restated code of regulations.regulations are attached to this joint proxy statement/prospectus asAnnex D andAnnex E, respectively.

Authorized Stock

First Defiance

  

Commercial BancsharesUnited Community

•  

The First DefianceDefiance’s articles of incorporation authorize 30,000,00055,000,000 shares of capital stock, consisting of 25,000,00050,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock, $0.01 par value. If the First Defiance articles of incorporation proposal is approved by the First Defiance shareholders, First Defiance’s articles of incorporation will authorize First Defiance to issue up to 75,000,000 shares of First Defiance common stock. The First Defiance articles of incorporation proposal does not affect the authorized number of shares of First Defiance preferred stock.

  

•  

The Commercial Bancshares amendedUnited Community’s articles of incorporation authorize 4,000,000500,000,000 shares of capital stock, consisting of 499,000,000 shares of common stock, nowithout par value, and no1,000,000 preferred stock.shares, without par value.

Voting Rights

First Defiance

  

Commercial BancsharesUnited Community

•  

Shareholders are entitled to one vote per share.share of First Defiance common stock.

•  

Shareholders are entitled to one vote per share.

•  

Unless otherwise provided in the code of regulations or articles of incorporation, a majority of votes cast by shareholders at a meeting is sufficient to pass on any matter before the shareholders.

  

Shareholders are entitled to one vote per share of United Community common stock.

•  

Unless otherwise provided in the amended code of regulations or articles of incorporation, the vote of the holders of a majority of shares represented in person orvotes cast by proxyshareholders at a meeting is sufficient to determinepass on any matter before a meeting ofthe shareholders. At each meeting for the election of directors, those nominees receiving the greatest number of votes shall be elected.

Voting Rights

First Defiance

United Community

•  

Holders of shares of First Defiance common sharesstock may not cumulate their votes for the election of directors.

  

•  

Holders of shares of United Community common sharesstock may not cumulate their votes for the election of directors.


TABLE OF CONTENTS

Quorum

Director Nominations

First Defiance

  

Commercial BancsharesUnited Community

•  

A majority of the outstanding shares of First Defiance common stock entitled to vote, represented in person or by proxy, constitutes a quorum for the transaction of business at a shareholder meeting.

•  

For the determination of the number of directors or election of directors, the shareholders present in person or by proxy at any such meeting constitutes a quorum.

•  

For a shareholder meeting called for any other purpose, the holders of a majority of shares entitled to vote thereat, present in person or by proxy, constitutes a quorum.

Director Nominations
First DefianceCommercial Bancshares

•  

First Defiance shareholders generally must submit director nominations at least 60 days prior to the anniversary of the last annual First Defiance shareholders’ meeting. Each such notice given by a shareholder with respect to nominations for the election of directors shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of common stock of First Defiance which are beneficially owned by each such nominee. In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by First Defiance.

  

•  

Commercial BancsharesUnited Community shareholders generally must submit director nominations not less than 45 days nor more than 90at least 60 days prior to the anniversary of the last annual United Community shareholders’ meeting, provided that if the annual meeting for the election of directors is not held on or before the 31st day following such anniversary, then the written notice shall be delivered to and received by the secretary of United Community within a reasonable time prior to the date of the annual meeting for which the nomination is provided.

•  If a nominee proposed for election is to be voted upon at a special meeting of the shareholders at which directors are to be elected, written notice of the proposed nominee must be received by the Secretary of United Community no later than the close of business on the seventh day following the day on which notice of the special meeting was mailed to shareholders.

•  Each such notice given by a shareholder with respect to nominations for the election of directors shall set forth (i) the name, age and business address or residence of the nominee, (ii) the principal occupation or employment of the nominee and (iii) the number of shares of United Community common stock that are being submitted.owned by the person and the length of time any such shares have been so owned.

Size of Board of Directors

First Defiance

  

Commercial BancsharesUnited Community

•  

The First Defiance articles of incorporation provide that the number of directors to be fixed by shareholder resolution, shall notcannot be less than 5 nor more than 15.

•  The current board of directors consists of 13 directors, with one vacancy, divided into three classes, elected for staggered three-year terms.

•     Following the effective time of the merger, the First Defiance board of directors will continue to have 13 members, divided into three classes. See “The Merger—Management and Board ofDirectors of First Defiance After the Merger” for further

  

•  

TheUnited Community’s amended code of regulations provides that the number of directors may notcannot be less than 95 nor more than 15, to be fixed by shareholder resolution or the affirmative vote of a majority of the total number of directors that Commercial Bancshares would have if there were no vacancies on the board.13.

•  

The board is to be divided into classes as follows: (1) two classes of directors elected for two year terms, if the board consists of 6, 7 or 8 members, and (2) three classes of directors elected for three year terms, if the board consists of 9 or more directors.

•  

The board is to be divided into three classes of not less three directors, with each class to be as nearly equal in number as the total number of directors permits, with each class being elected for staggered three year terms.

•  

TheUnited Community’s current board of directors consists of 11nine directors, divided into three classes, as nearly equal in number as possible, to be elected for staggered three-year terms.

•  

The current board of directors consists of 9 directors, divided into three classes to be elected for staggered three-year terms.

Director Removal

Size of Board of Directors

First Defiance

  

Commercial BancsharesUnited Community

information regarding the directors and officers of First Defiance following consummation of the merger.

Director Removal

First Defiance

United Community

•  

The First Defiance articles of incorporation provide that a director may be removed without cause by the affirmative vote of 75% of the votes eligible to be cast by shareholders. A director may be removed with cause by not less than a majority of the total votes eligible to be cast by shareholders. Cause for removal exists only if the director has been declared incompetent by a court, convicted of a felony or of an offense punishable by imprisonment for a term of more than one year, or deemed liable by a court for gross negligence or misconduct in the performance of such director’s duties to First Defiance.

  

•  

TheUnited Community’s amended code of regulations provides that no directordirectors may be removed at any time, with or without cause, by athe affirmative vote of shareholders if75% of the numbervoting power of shares voted against his or her removal would be sufficient to elect such person by a cumulative vote at an election for the total amount of directors that would constitute the established number of directors on the board, absent any vacancies.United Community.


TABLE OF CONTENTS

Required Vote for Business Combinations with Related Persons

First Defiance

  

Commercial BancsharesUnited Community

•  

If aA “business combination” involving a “related person” does not receive approvalrequires (i) the affirmative vote of two-thirds of directors who are unaffiliated with such related person, at least 80%a majority of the outstanding shares entitled to vote thereon (a(and, if any class or series of shares is entitled to vote separately, the affirmative vote of the holders of at leasttwo-thirds of the outstanding shares of each such class or series) and (ii) a majority of which cannot bethe outstanding shares entitled to vote not including shares deemed beneficially owned by a related person) must authorize the business combination.person.

•  

Commercial Bancshares does not have a similar provision in its code of regulations or articles of incorporation.

•  

The term “Related Person”“related person” is defined to include any individual, corporation, partnership or other entity whichthat owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of First Defiance common stock.shares.

•  

A “Business Combination” is defined to include:

º

•  any merger or consolidation of First Defiance with or into any Related Person;

ºrelated person;

•  any sale, lease, exchange, mortgage, transfer, or other disposition of all or more than 25% of the assets of First Defiance or its subsidiaries to any Related Person;

ºrelated person;

•  any merger or consolidation of a Related Personrelated person with First Defiance or its subsidiaries;

  

•  United Community does not have a similar provision in its articles of incorporation or amended code of regulations.

ºRequired Vote for Business Combinations with Related Persons

First Defiance

United Community

•  any sale, lease, exchange, transfer or other disposition of all or more than 25% of the assets of a Related Personrelated person to First Defiance or its subsidiaries;

º

•  the issuance of any securities of First Defiance or its subsidiaries to a Related Person;

ºrelated person;

•  the acquisition by First Defiance or its subsidiaries of any securities of the Related Person;

ºrelated person;

•  any reclassification of the First Defiance common stock, or any recapitalization involving the common stock of First Defiance; and

º

•  any agreement, contract or other arrangement providing for any of the above transactions.

  

TABLE OF CONTENTS

Special Meetings

Special Meetings of Shareholders

First Defiance

  

Commercial BancsharesUnited Community

•  

Special meetings of shareholders may be called by (i) First Defiance’s chairman of the board; (ii) the president or, in the case of the president’s absence, death or disability, a vice president authorized to exercise the authority of the president; (iii) the board of directors; or (iv) the holders of 50% or more of all outstanding shares of First Defiance common stock entitled to vote.

•  Special meetings of shareholders may be called by (i) United Community’s chairman of the board; (ii) the president or, in the case of the president’s absence, death or disability, the vice president authorized to exercise the authority of the president; (iii) the secretary; (iv) the board of directors; or (iv) the holders of a majorityat least 25% of all outstanding shares of First Defiance common stock.

•  

Special meetings of shareholders may be called by (i) Commercial Bancshares’ chairman of the board and the president by joint action, (ii) a majority of the board acting with or without a meeting or (iii) the holder or holders of at least one-half of all the outstanding shares of Commercial BancsharesUnited Community common stock entitled to vote thereat.vote.

Notice of Shareholder Meetings

First Defiance

  

Commercial BancsharesUnited Community

•  

Written notice of a shareholder meeting must be mailed to shareholders of record entitled to vote at such meeting at least 7 days, but no more than 60 days, before the date fixed for the meeting.

•  

Written notice of a shareholder meeting must be given to each shareholder of record entitled to vote at such meeting at least 10 days but no more than 60 days before the date fixed for the meeting.

•  

Shareholders may waive the right to written notice of a shareholder meeting in a writing filed in Commercial Bancshares’First Defiance’s records. Attendance at

•  Written notice of a shareholder meeting without protestingmust be mailed to shareholders of record entitled to vote at such meeting at least 7 days, but no more than 60 days, before the lack of proper notice shall be deemed to be a waiver by such shareholder ofdate fixed for the meeting.

•  Shareholders may waive the right to written notice of such meeting.a shareholder meeting in a writing filed in United Community’s records.

Action by Shareholders Without a Meeting

First Defiance

  

Commercial BancsharesUnited Community

•  

Any action required to be taken at an annual or special meeting of shareholders may alternatively be taken without a meeting by a signed written consent by all shareholders entitled to vote.

  

•  

Any action that may be authorized or taken at any meeting of shareholders may alternatively be authorized or taken without a meeting by a signed written consent of shareholders entitled to notice of such meeting.

Amendment of the Articles of Incorporation or Code of Regulations

First Defiance

  

Commercial BancsharesUnited Community

•  The First Defiance articles of incorporation may be amended or repealed by the Board of directors of First Defiance upon approval of a majority of the voting power of First Defiance except for certain specified provisions, which may only be amended or repealed if approved by the affirmative vote of the holders of not less than a majority of the voting power of First Defiance entitled to vote at a meeting of First Defiance shareholders called for that purpose.

•  The First Defiance amended and restated code of regulations may be amended, repealed, altered, amended or rescinded by (i) the vote of the holders of not less than two-thirdsa majority of the outstanding First Defiance shares entitled to vote on the matter.matter or (ii) by the affirmative vote of a majority of the authorized number of directors. In addition, prior to the second anniversary of the date on which Mr. Small is appointed Chief Executive Officer of First Defiance pursuant to the merger agreement, any repeal, alteration, amendment or rescindment by the board of directors of certain provisions of the amended and restated code of regulations implementing certain governance arrangements in connection with the merger shall require (and any such repeal, alteration, amendment or rescindment may be proposed or recommended by the board of directors for adoption by the First Defiance shareholders only by) the affirmative vote of three-fourths of the authorized number of directors. See “The Merger Agreement—Governing Documents; Directors and Officers; Governance Matters; Headquarters.”

  

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TheAmendment of United Community’s articles of incorporation requirestwo-thirds of the outstanding voting shares and amendment of the amended code of regulations may generally be amended, repealed for added to by either (i) the affirmative vote of the holders of a majority of shares entitling to vote thereon, at a meeting of shareholders, or (ii) written consent of the holders of a majority of shares entitled to vote thereon. If an amendment is adopted pursuant to written consent of the shareholders, a copy of the amendment or addition must be mailed to each shareholder of record who would be entitled to vote thereon and who did not participate in the adoption thereon.


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Amendment of the Code of Regulations
First DefianceCommercial Bancshares

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The following provisions must be amended or added to by the affirmative vote or written consent of the holders of two-thirds of shares entitled to vote on such matter:

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Number of directors,

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Classification of directors, and

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Removal of directors.

Amendment of the Articles of Incorporation
First DefianceCommercial Bancshares

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The articles of incorporation may be amended or repealed uponrequires approval of a majority of the shares entitled to vote onoutstanding voting shares; however, if the matter, except for certain specified provisions.

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The articlesboard of incorporation may generally be amended or repealed by the affirmative vote of the holdersdirectors recommends against approval of a majority of shares entitledshareholder’s proposed amendment to vote in the election of directors.

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Those provisions relating to the following matters may not be repealed, replaced, altered, amended or rescinded unless approved by the affirmative vote of the holders of note less than 75% of the First Defiance shares entitled to vote on the matter:

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Any matter in the articles of incorporation that would be subject to approval of two-thirds of shares entitled to vote thereon under theor code of regulations, then a vote of 80% of the outstanding voting shares is subject to such higher voting standard.

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Number, classes, and terms of directors,

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Indemnification,

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Written consent of shareholders in lieu of a meeting,

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Those entitled to call special meetings of shareholders,

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Shareholder nominations of directors,

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Voting standards for removal of directors,

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Duties of directors,

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Limitation on liability of directors,

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Voting standards for business combinations,

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Voting standards for amendments to the code of regulations and the articles of incorporation.required.

The following section describessections describe anti-takeover statues and other shareholder protections provided by Ohio law. Such protections apply to the shareholders of eligible corporations unless such corporation’s articles of incorporation or code of regulations provide otherwise.


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Ohio Control Share Acquisition Statute

The Ohio Revised Code provides in Section 1701.831 that specified notice and informational filings and special shareholder meetings and voting procedures must occur before consummation of a proposed “control share acquisition.” A control share acquisition is defined as any acquisition, directly or indirectly, of an issuer’s shares that would entitle the acquirer to exercise or direct the voting power of the issuer in the election of directors within any of the following ranges:

one-fifth or more, but less thanone-third, of the voting power;

one-third or more, but less than a majority, of the voting power; or

a majority or more of the voting power.

Assuming compliance with the notice and information filing requirements, the proposed control share acquisition may take place only if, at a duly convened special meeting of shareholders, the acquisition is approved by both a majority of the voting power of the issuer represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the intended acquirer and the directors and officers of the issuer.

First Defiance

  

Commercial BancsharesUnited Community

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Has not opted out of the control share acquisition statute.

  

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Has not opted out of the control share acquisition statute.

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The code of regulations otherwise provide that any person who proposes to make a control share acquisition (as defined in the Ohio Revised Code) must deliver a statement of such proposal to Commercial Bancshares. If the board of directors authorizes the acquisition, the proposed acquirer may consummate the acquisition no later than 180 days after board authorization. If the board does not authorize the acquisition or otherwise waives such requirement, the proposed acquisition must be approved at a special meeting of shareholders in accordance with the provisions of the control share acquisition statute.

Ohio Merger Moratorium Statute

Chapter 1704 of the Ohio Revised Code prohibits specified business combinations and transactions between an “issuing public corporation” and an “interested shareholder” for at least three years after the interested shareholder attains 10% voting ownership, unless the board of directors of the issuing public corporation approves the transaction before the interested shareholder attains 10% voting ownership.

An interested shareholder is a person who either:

owns 10% or morea number of the shares of the issuing public corporation sufficient to exercise 10% of the voting power of the public corporation or

was the owner, at any time within the three-year period immediately prior to the date on which it is sought to be determined whether the person is an interested shareholder, of a number of shares of the issuing public corporation sufficient to exercise 10% of the voting power of the public corporation.

An issuing public corporation is defined as an Ohio corporation with 50 or more shareholders that has its principal place of business, principal executive offices, or substantial assets within the State of Ohio, and as to which no close corporation agreement exists. Examples of transactions regulated by the merger moratorium provisions include mergers, consolidations, voluntary dissolutions, the disposition of assets and the transfer of shares.


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After the three-year period, a moratorium transaction may take place provided that certain conditions are satisfied, including that:

prior to the interested shareholders’ share acquisition date, the board of directors approved the purchase of shares by the interested shareholder;

the transaction is approved by the holders of shares with at leasttwo-thirds of the voting power of the corporation (or a different proportion set forth in the articles of incorporation), including at least a majority of the outstanding shares after excluding shares controlled by the interested shareholder; or

the business combination results in shareholders, other than the interested shareholder, receiving a fair price plus interest for their shares, as determined in accordance with the statute.

First Defiance

  Commercial Bancshares

United Community

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Has not opted out of the Ohio merger moratorium statute.

  

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Has not opted out of the Ohio merger moratorium statute.


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INFORMATION WITH RESPECT TO COMMERCIAL BANCSHARES

Description of Commercial Bancshares’ Business

General

In February 1995, Commercial Bancshares received approval from the Board of Governors of the Federal Reserve System to become a bank holding company by acquiring all the voting shares of common stock of Commercial Bank. The principal business of Commercial Bancshares presently is to operate Commercial Bank, which is a wholly-owned subsidiary, and its principal asset. Commercial Bancshares and the main office of Commercial Bank are located at 118 South Sandusky Avenue, Upper Sandusky, Ohio 43351. On December 23, 2003, Articles of Incorporation were filed for Commercial Financial and Insurance Agency, LTD (“Commercial Financial”), an Ohio limited liability company. This company, a subsidiary of Commercial Bancshares, was formed to enable Commercial Bancshares to expand the products and services available to current customers and others to include the sales of non-deposit investment products and other selected financial and insurance products and services.

Although wholly owned by Commercial Bancshares, Commercial Bank functions as an independent community bank. Commercial Bank was organized on April 20, 1920 as a state-chartered Bank and incorporated as “The Lewis Bank & Trust Corporation” under the laws and statutes of the State of Ohio. An amendment to the articles of incorporation on February 8, 1929 changed the name of Commercial Bank to its present name. Commercial Bank provides customary retail and commercial banking services to its customers, including acceptance of deposits for demand, savings and time accounts, individual retirement accounts (IRAs) and servicing of such accounts; commercial, consumer and real estate lending, including installment loans, and safe deposit and night depository facilities. Commercial Bank is a nonmember of the Federal Reserve System, is insured by the Federal Deposit Insurance Corporation (FDIC) and is regulated by the Ohio Division of the Financial Institutions and the FDIC.

Commercial Bank grants residential, installment and commercial loans to customers located primarily in the Ohio counties of Wyandot, Marion and Hancock and the surrounding area. Commercial loans are primarily variable rate and include operating lines of credit and term loans made to small businesses, primarily based on the ability to repay the loan from the cash flow of the business. Such loans are typically secured by business assets such as equipment and inventory, and occasionally by the business owner’s personal residence. When the borrower is not an individual, Commercial Bank generally obtains the personal guarantee of the business owner. Commercial real estate loans are primarily secured by borrower-occupied business real estate, and are dependent on the ability of the related business to generate adequate cash flow to service the debt. Such loans predominantly carry adjustable interest rates. Residential real estate loans are made with primarily fixed rates and are secured by the borrower’s residence. Such loans are made based on the borrower’s ability to make repayment from employment and other income. Commercial Bank generally makes these loans in amounts of 80% or less of the value of collateral. An appraisal is obtained from a qualified real estate appraiser for substantially all loans secured by real estate. Construction loans are secured by residential and business real estate that primarily will be borrower-occupied upon completion. Commercial Bank usually does not make the permanent loan at the end of the construction phase, unless the customer accepts a variable rate mortgage. Installment loans to individuals include loans secured by automobiles and other consumer assets, including second mortgages on personal residences.

As with other financial institutions, the earnings of Commercial Bancshares are affected by general economic conditions and by the monetary policies of the Federal Reserve Board. Continued weakness in employment and real estate markets and the general uncertainty as to the state of the economic recovery made for a challenging year. During 2016, management continued their efforts to manage non-performing assets and work with borrowers to mitigate and protect against risk of loss. Considerable time and effort was taken to understand, prepare for and implement rapidly increasing regulatory requirements with the expectation of additional rules and regulations to follow from bodies such as the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission (the “SEC”), and newly created bodies writing new rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Generally, the Dodd-Frank Act imposes more stringent regulatory capital requirements on financial institutions. The Dodd-Frank Act requires that the Financial Stability Oversight Council make recommendations to the Federal Reserve regarding the establishment of heightened prudential standards for


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risk-based capital, leverage, liquidity and contingent capital. Although the future impact of these mandatory and discretionary rulemakings by federal regulatory agencies cannot be accurately predicted, it will expose Commercial Banking industry to more extensive regulations and heavier compliance burdens.

Commercial Bancshares, primarily through Commercial Savings Bank, is subject to extensive federal regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and Commercial Banking system as a whole, not shareholders. These regulations affect Commercial Bancshares’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect Commercial Bancshares in substantial and unpredictable ways. Such changes could subject Commercial Bancshares to additional costs, limit the types of financial services and products Commercial Bancshares may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil monetary penalties and/or reputation damage, which could have a material adverse effect on Commercial Bancshares’s business, financial condition and results of operations. While Commercial Bancshares has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

The general economic conditions in Commercial Bancshares’s market area have generally been consistent with the state as a whole. Commercial Bancshares is not aware of any exposure to material costs associated with environmental hazardous waste cleanup. Commercial Bank’s loan procedures require that where such potential risk is considered likely to exist, before approving any commercial real estate loan, management must obtain state and federal environmental regulatory studies.

Competition in Financial Services

Commercial Bank and Commercial Financial compete for business primarily in the Ohio counties of Wyandot, Hancock and Marion. Commercial Bancshares’s competitors for business come from two primary sources: large regional firms and independent community banks and thrifts. As of June 30, 2016 (the most recent date for which the FDIC provides market share information), there were 19 depository institutions (excluding credit unions) competing in these markets. As of that date, Commercial Bancshares ranked 3rd with 12.77% of the total market share, or aggregate deposits of approximately $301 million. Last year, out of 19 depository institutions, Commercial Bancshares ranked 4th with 12.72% of the total market share, or aggregate deposits of approximately $288 million.

Commercial Bank also competes, particularly for deposit dollars, with insurance companies, brokerage firms and investment companies. Competition with independent community banks is enhanced by creating product niches so as not to resort solely to pricing as a means to attract business.

Employees

Currently Commercial Bank has 73 full-time employees and 24 part-time employees.


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Properties

Commercial Bancshares’ headquarters and Commercial Bank’s main office are located at 118 South Sandusky Avenue, Upper Sandusky, Ohio, in Wyandot County. The building is used exclusively by Commercial Bancshares and Commercial Bank.

LocationDescription
1.Main Office
118 S. Sandusky Ave.
Upper Sandusky, Ohio 43351		Two story building built in the early 1900’s and remodeled in 2012.
2.Carey Office
128 S. Vance Street
Carey, OH 43316		One story building built and opened in 1973, and remodeled in 2007.
3.Harpster Office
17480 Cherokee Street
Harpster, OH 43323		One story building purchased in 1978.
4.Findlay Tiffin Avenue Office
1600 Tiffin Avenue
Findlay, OH 45840		One story building purchased in 1992. The building was renovated in 1999 to add more office space.
5.Marion Jamesway Office
279 Jamesway
Marion, OH 43302		One story building constructed and opened in 1996.
6.Operations Center
245 Tarhee Trail
Upper Sandusky, OH 43351		One story building constructed and opened in 2006.
7.Marion Barks Rd West Office
195 Barks Rd West
Marion, OH 43302		One story building purchased in 2008. The building was renovated and opened in 2009.
8.Arlington Office
112 East Liberty Street
Arlington, OH 45814		Two-story building opened in 2009. Purchased building in 2013. Building had been leased prior.

Bank considers its physical properties to be in good operating condition (subject to reasonable wear and tear) and suitable for the purposes for which they are being used. All properties are owned by the Bank unless otherwise indicated.

Legal Proceedings

There is no pending litigation, other than routine litigation incidental to the business of Commercial Bancshares, Bank or Commercial Financial of a material nature involving or naming Commercial Bancshares, Bank or Commercial Financial as a defendant. Furthermore, there are no material legal proceedings in which any director, officer or affiliate of Commercial Bancshares or any security holder owning five percent of Commercial Bancshares’s common stock; or any associates of such persons is a party or has a material interest that is adverse to Commercial Bancshares, Bank or Commercial Financial. None of the routine litigation in which Commercial Bancshares, Bank or Commercial Financial is involved in is expected to have a material adverse impact on the financial position or results of operations of Commercial Bancshares, Bank or Commercial Financial.

Quantitative and Qualitative Disclosures on Market Risk

As a smaller reporting company, Commercial Bancshares is not required to provide quantitative and qualitative disclosures about market risk.


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Changes in or Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with Commercial Bancshares’ independent accountants on accounting and financial disclosures.

Supplementary Financial Information

As a smaller reporting company, Commercial Bancshares is not required to provide supplementary financial information.


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MARKET PRICE FOR AND DIVIDENDS ON COMMERCIAL BANCSHARES COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Market Information; Dividends

The common stock of Commercial Bancshares is not listed on any stock exchange. While there is no established public trading market for Commercial Bancshares’ common stock, its shares are currently quoted in the inter-dealer quotation or “over-the-counter” marketplace using the trading symbol “CMOH.” Commercial Bancshares’ stock trades principally on the OTCQX, which is operated by OTC Markets Group, Inc. (formerly Pink OTC Markets, Inc.). Trading on the OTCQX market is limited to companies that satisfy certain financial standards, are current in their required disclosures with the Securities and Exchange Commission or U.S. banking regulator, and are sponsored by a professional third-party investment bank or attorney meeting the criteria of an OTCQX Advisor.

A table setting forth the quarterly high and low prices per share for Commercial Bancshares common stock for 2014, 2015, and the six month period ended June 30, 2016 appears under the heading “Market Price and Dividend Information” beginning on page 12. The closing prices per share of Commercial Bancshares common stock as reported on the OTCQX as of the trading day immediately preceding the public announcement of the merger and the the last practicable trading day before the printing of this document can also be found under “Market Price and Dividend Information.” As of            , 2016, Commercial Bancshares had      outstanding shares of common stock held by approximately      shareholders.

Commercial Bancshares pays quarterly cash dividends in March, June, September and December. Information regarding the cash dividends declared by Commercial Bancshares per quarter during 2014, 2015, and the six month period ended June 30, 2016 has been provided in the table appearing under “Market Price and Dividend Information” beginning on page 12. For a discussion of certain regulatory restrictions limiting the payment of dividends by Commercial Bancshares, please see Note 16 to the consolidated financial statements for Commercial Bancshares for the years ended December 31, 2015, 2014 and 2013 and for the six months ended June 30, 2016, beginning on page 166.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as to the Commercial Bancshares common stock beneficially owned, as of            , 2016, the record date for the shares eligible to vote at the Commercial Bancshares special meeting, by (i) each person who is known to Commercial Bancshares to beneficially own more than 5% of the outstanding shares of Commercial Bancshares voting common stock, (ii) each director of Commercial Bancshares, (iii) certain executive officers of Commercial Bancshares and (iv) all directors and executive officers of Commercial Bancshares as a group. Unless otherwise indicated, all shares are owned directly and the indicated person or entity has sole voting and investment power.

NameBeneficial Ownership of Common Stock(1)Percent of Outstanding Shares Common Stock
Directors
Robert E. Beach,
President and Chief Executive Officer		(2)% 
Daniel E. Berg(3)% 
Dr. John W. Bremyer(4)% 
Lynn R. Child(5)% 
Mark E. Dillon(6)% 
Deborah J. Grafmiller(7)
Kurt D. Kimmel(8)
Stanley K. Kinnett(9)
Lee M. Sisler(10)

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NameBeneficial Ownership of Common Stock(1)Percent of Outstanding Shares Common Stock
Executive Officers
Scott A. Oboy,
Executive Vice President and Chief Financial Officer		(11)% 
Steven M. Strine,
Executive Vice President, Senior Lending Officer		(12)% 
All Directors and Executive Officers as a Group (13 persons)(14)(13)% 

*Ownership of less than 1% of the class.
(1)All shares are held of record with sole voting and investment power unless otherwise indicated. Beneficial ownership numbers are as of     . Participants in Commercial Bancshares’ nonqualified deferred compensation plan have no voting or investment powers for shares held under that plan. Total holdings and participant holdings under Commercial Bancshares’ nonqualified deferred compensation plan have been rounded down to reflect only whole shares.
(2)Includes      shares held under Commercial Bancshares’ nonqualified deferred compensation plan and      shares covered by stock options currently exercisable.
(3)Includes      shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(4)Includes     shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(5)Includes     shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(4)Includes      shares held by spouse as trustee and      shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(5)Includes      shares covered by stock options currently exercisable.
(6)Includes     shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(7)Includes      shares for which Ms. Grafmiller has shared voting and investment power and      shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(8)Includes      shares for which Mr. Kimmel has shared voting and investment power, and      shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(9)Includes     shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(10)Includes     shares held by spouse as trustee and      shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(11)Includes     shares covered by stock options currently exercisable.
(12)Includes     shares covered by stock options currently exercisable.
(13)Includes     shares covered by stock options currently exercisable and     shares held under Commercial Bancshares’ nonqualified deferred compensation plan.
(14)Includes all executive officers.

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COMMERCIAL BANCSHARES’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following review presents management’s discussion and analysis of the consolidated financial condition of Commercial Bancshares and its wholly owned subsidiaries, Commercial Bank and Commercial Financial and Insurance Agency, LTD. This review includes first a discussion of the current interim financial condition and results of operation at June 30, 2016, compared to December 31, 2015, and the consolidated results of operations for the three and six-month periods ended June 30, 2016 compared to the same periods in 2015. Following that discussion is a review of the financial condition and results of operations at December 31, 2015 and 2014, and the consolidated results of operations for each of the years in the three-year period ended December 31, 2015. This entire discussion should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other financial data presented elsewhere in this proxy/prospectus.

Commercial Bancshares is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on the liquidity, capital resources or operations except as discussed herein. Furthermore, Commercial Bancshares is not aware of any current recommendations by regulatory authorities that would have such effect if implemented.

Overview

Interim period ended June 30, 2016.

Commercial Bancshares generates a significant amount of its revenue, cash flows and net income from interest income and net interest income. The ability to properly manage net interest income under changing market environments is crucial to the success of Commercial Bancshares. Managing credit risk also has a significant influence on the operating results of Commercial Bancshares. Results of operations are also affected by noninterest income, such as service charges on deposit accounts and fees on other services, income from lending activities and bank-owned life insurance as well as noninterest expenses such as salaries and employee benefits, occupancy, furniture and equipment, professional and other services, and other expenses, including income taxes. Economic conditions, competition and the monetary and fiscal policies of the Federal government significantly affect financial institutions.

Net income for the six months ended June 30, 2016 increased $1,000,000 or 62.7% to $2,594,000, compared to $1,594,000 for the six months ended June 30, 2015. Net income per diluted common share increased $0.84 or 64.1% to $2.15 for the six months ended June 30, 2016, compared to $1.31 per diluted common share for the same period in 2015. The increase in net income was primarily attributable to the recognition of $677,000 of other income as a result of bank-owned life insurance proceeds received during the first quarter of 2016.

Commercial Bancshares’ return on average equity and return on average assets for the six months ended June 30, 2016 was 13.99% and 1.53%, respectively, compared to 9.15% and 0.96% for the same period in 2015. Commercial Bancshares’ efficiency ratio, on a fully taxable equivalent basis was 59.38% for the six months ended June 30, 2016, compared to 69.21% for the same period in 2015.

Year ended December 31, 2015.

Commercial Bancshares reported net income of $3,425,000, or $2.80 per diluted share for the year ended December 31, 2015, representing a 3.9% increase over 2014. The increase in net income for 2015 compared to 2014 can be largely attributed to a decrease in the provision for loan losses and to a lesser extent, an increase in net interest income. Highlights for the twelve months ended December 31, 2015:

Net loan growth of $18,047,000 or 6.6%, predominantly in the commercial and agricultural loan portfolio.
A slight decline in deposits of $2,145,000 or 0.7%, primarily due to a decrease in certificates of deposit balances, partially offset by growth in interest and noninterest-bearing demand deposits of $3,054,000 and $5,224,000, respectively.

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Commercial Bancshares’ net interest margin, on a fully taxable equivalent basis, was 4.46% for the twelve months ended December 31, 2015 compared to 4.62% for the twelve months ended December 31, 2014.
Net interest income increased $83,000 to $13,682,000 or 0.6% for the twelve months ended December 31, 2015 from $13,599,000 for the same period in 2014, largely due to the increase in average loan balances of $5,841,000.
OREO and other miscellaneous loan expense increased $71,000 or 16.2% to $510,000 for the twelve months ended December 31, 2015 from $439,000 for the same period in 2014, due primarily to realized holding losses or write-downs on the valuation of OREO properties as well as increases in maintenance costs and property taxes associated with these assets. OREO related expenses are expected to decline as Commercial Bancshares’ largest commercial real estate properties have been sold and the overall OREO balance has been reduced to $70,000 as of December 31, 2015.
Commercial Bancshares’ return on average equity and return on average assets for the twelve months ended December 31, 2015 was 9.60% and 1.03%, respectively, compared to 9.94% and 1.02% for the twelve months ended December 31, 2014.
Commercial Bancshares’ efficiency ratio, on a fully taxable equivalent basis, was 67.18% for the twelve months ended December 31, 2015, compared to 67.24% for the same period in 2014. The efficiency ratio measures the amount of expense incurred to generate a dollar of revenue and is calculated by dividing noninterest expense by the sum of taxable equivalent net interest income before provision and other noninterest income, excluding net gains (losses) on sales of investment securities and net gains (losses) on sales of fixed assets.
Commercial Bank’s capital position remained strong with all regulatory capital ratios significantly exceeding the “well capitalized” thresholds established by regulators. At December 31, 2015, Commercial Bank’s CET1, Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 11.80%, 10.60%, 11.80% and 13.00%, respectively, compared to Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios of 10.10%, 11.80% and 13.10% for the twelve months ended December 31, 2014.

Critical Accounting Policies

Commercial Bancshares’ consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices applicable to the banking industry. Application of these principles requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. These estimates, assumptions and judgments are based on information available as of the date of the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility between reporting periods. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. Management has identified the determination of the allowance for loan losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.


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Allowance for loan losses.  Commercial Bancshares assesses the adequacy of its allowance for loan losses as of the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely. A loan may be partially charged off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan agreement is unlikely.

Commercial Bancshares deems loans impaired when, based on current information and events, it is probable that Commercial Bancshares will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual term means that both the principal and interest payments of a loan will be collected as scheduled in the loan agreement. An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs.

In assessing the adequacy of the allowance, Commercial Bancshares also considers the results of its ongoing internal and independent loan review processes. Commercial Bancshares’ loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio. Commercial Bancshares’ loan review process includes the judgment of management, the input from independent loan reviewers and reviews that may have been conducted by bank regulatory agencies as part of their examination process. Commercial Bancshares incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

The level of the allowance is believed by management to be adequate to absorb probable losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged off. For additional information see“Allowance for Loan Losses” under Financial Condition.

Fair value estimates.  The carrying value of certain financial assets and liabilities of Commercial Bancshares is impacted by the application of fair value measurements, either directly, or indirectly. Fair value is defined as the amount at which an asset or liability could be exchanged in a current transaction between willing, unrelated parties, other than in a forced or liquidation sale. In certain cases, an asset or liability is measured and reported at fair value on a recurring basis, such as investment securities classified as available for sale. In other cases, management must rely on estimates or judgments to determine if an asset or liability not measured at fair value warrants an impairment write-down or whether a valuation reserve should be established.

Commercial Bancshares estimates the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. Active markets are those where transaction volumes are sufficient to provide objective pricing information with reasonably narrow bid/ask spreads and where quoted prices do not vary widely. When the financial instruments are not actively traded, other observable market inputs such as quoted prices of securities with similar characteristics may be used, if available, to determine fair value. Inactive markets are characterized by low transaction volumes, price quotations that vary substantially among market participants, or in which minimal information is released publicly.

When observable market prices do not exist, Commercial Bancshares estimates fair value primarily by using cash flow and other financial modeling methods. The valuation methods may also consider factors such as liquidity and concentration concerns. Other factors such as model assumptions, market dislocations and


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unexpected correlations can affect estimates of fair value. Changes in these underlying factors, assumptions or estimates in any of these areas could materially impact the amount of revenue or loss recorded.

Comparison of Financial Condition at June 30, 2016 and December 31, 2015

Assets totaled $342,014,000 at June 30, 2016, compared to $341,090,000 at December 31, 2015, reflecting an increase of $924,000 or 0.3%, primarily reflecting modest increases in federal funds sold and net loans, partially offset by a decrease in other assets. Liabilities totaling $303,798,000 at June 30, 2016, decreased $1,156,000 or 0.4%, largely reflecting the repayment of FHLB advances, offset by an increase in deposit balances. Shareholders’ equity increased $2,080,000 or 5.8% to $38,216,000 at June 30, 2016 from $36,136,000 at December 31, 2015.

Cash equivalents and federal funds sold include working cash funds, due from banks, interest-bearing deposits in other financial institutions, items in process of collection and federal funds sold. Commercial Bank is required to maintain average reserve balances with the Federal Reserve Bank based on average daily deposit balances and statutory reserve ratios prescribed by the type of deposit account. The average balance held in reserve for the six months ended June 30, 2016 was $3,971,000, compared to $4,201,000 for the same period in 2015. At June 30, 2016, cash equivalents and federal funds sold totaled $20,278,000, an increase of $1,383,000 or 7.3% from $18,895,000 at December 31, 2015.

The investment securities portfolio is comprised primarily of residential mortgage-backed securities, tax-exempt securities of state and political subdivisions, (available for sale as well as held to maturity), debt securities issued by U.S. government-sponsored agencies and other equity securities. Investment securities decreased 2.6% or $298,000 to $11,288,000 at June 30, 2016 from $11,586,000 at December 31, 2015. The decline in investment securities was predominantly due to principal pay downs and prepayments of mortgage-backed securities. Available for sale investment securities are reported at fair value with unrealized holding gains and losses, based on the difference between amortized cost and fair value, reported net of deferred tax, as accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Declines in the fair value of individual securities below their cost that are other-than-temporary, result in write downs of the individual securities to their fair values. Securities that are held as available for sale are used as part of Commercial Bancshares’ asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital and other similar factors are classified as available for sale. Securities that management has the positive intent and ability to hold until maturity are classified as held to maturity. Held to maturity investment securities are carried at amortized cost.

At June 30, 2016, Commercial Bancshares’ investment portfolio consisted primarily of obligations of state and political subdivisions, mortgage-backed securities and U.S. government agency securities. To reduce Commercial Bancshares’ income tax burden, $4,850,000 or 43.0% of Commercial Bancshares’ investment portfolio as of June 30, 2016, was invested in tax exempt obligations of state and political subdivisions, compared to $4,898,000 or 42.3% of Commercial Bancshares’ investment portfolio at December 31, 2015.

Loans are reported at their outstanding principal balances less unearned income, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income from loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield. Loans make up the largest component of total assets. At June 30, 2016, net loans of $294,019,000, representing 86.0% of total assets, increased $947,000 or 0.3% from net loans of $293,072,000 at December 31, 2015. The increase in net loans between periods was largely due to an increase in the consumer real estate loan portfolio of $1,089,000, offset by slight declines in commercial and consumer loan balances.

Commercial Bancshares’ loan portfolio represents its largest and highest yielding assets. The fundamental lending business of Commercial Bancshares is based on understanding, measuring and controlling the credit risk inherent in the loan portfolio. Commercial Bancshares’ loan portfolio is subject to varying degrees of credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. Commercial Bancshares’ credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. Typically, each consumer and residential lending product has a generally predictable level of credit losses based on historical loss


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experience. Home mortgage and home equity loans and lines generally have the lowest credit loss experience, while loans secured by personal property, such as auto loans, are generally expected to experience more elevated credit losses. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Declining economic conditions generally have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations. Commercial Bancshares believes the general economic outlook remains stable without any clear or substantive trends in employment rates, real estate values or overall consumer or commercial confidence, spending or investment.

To control and manage credit risk, management has a credit process in place to ensure credit standards are maintained along with strong oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks and involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include the monitoring of portfolio credit quality, early identification of potential problem credits and the aggressive management of problem credits. In 2009, during the economic downturn, executive management implemented the following measures to proactively manage credit risk in the loan portfolios:

Reviewed all underwriting guidelines for various loan portfolios and have strengthened underwriting guidelines where needed.
Evaluated outside loan review parameters, engaging the services of a well-established firm to continue with such loan review, addressing not only specific loans but underwriting analysis, documentation, credit evaluation and risk identification.
Increased the frequency of internal reviews to monthly reviews of past due and delinquent loans to assess probable credit risks early in the delinquency process to minimize losses.
Aggressively seeks ownership and control, when appropriate, of real estate properties, which would otherwise go through time-consuming and costly foreclosure proceedings to effectively control the disposition of such collateral.
Aggressively obtaining updated financial information on commercial credits and performing analytical reviews to determine debt source capacities in business performance trends.
Engaged a well-established auditing firm to analyze Commercial Bancshares’ loan loss reserve methodology and documentation.

The allowance for loan losses (“ALLL”) is established through a provision for loan losses charged to current earnings. The allowance for loan losses is maintained at a level estimated by management to absorb probable losses inherent in the loan portfolio and is based on management’s continuing evaluation of the portfolio, the related risk characteristics, and the overall economic conditions affecting the portfolio. This estimation is inherently subjective as it requires measures that are susceptible to significant revision as more information becomes available.

Commercial Bancshares’ methodology in determining the allowance for loan losses includes segmenting the loan portfolio into various components and applying various loss factors to estimate the amount of probable losses. The largest segment of the loan portfolio is comprised of credit-rated commercial loans, comprising 71% of total loans as of June 30, 2016. Credit-rated commercial loans include commercial and industrial loans along with loans to commercial borrowers that are secured by real estate (commercial property, multi-family residential property, 1-4 family residential property, and construction and land). For each loan within this segment, a credit rating is assigned based on a review of specific risk factors including (i) historical and projected financial results of the borrower, (ii) market conditions of the borrower’s industry


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that may affect the borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv) nature of the underlying collateral, if any, and (v) borrower’s history of payment performance.

When assigning a credit rating to a loan, management uses an internal, nine-level rating system in which a rating of one carries the lowest level of credit risk and is used for borrowers exhibiting the strongest financial condition. Loans rated one through five are deemed to be acceptable quality and are considered “Pass”. Loans that are deemed to be of questionable quality are rated six (special mention). Loans with adverse classifications (substandard or doubtful) are rated seven and eight, respectively. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the borrower characterized by a well-defined weakness.

The outstanding amounts of credit-rated commercial loans are aggregated by credit rating, and management estimates the allowance for losses for each credit rating using loss factors based on historical loss experience and qualitative adjustments reflecting the current economic conditions and outlook for housing, employment, manufacturing, and consumer spending. The economic adjustments reflect the imprecision that is inherent in the estimates of probable loan losses, and are intended to ensure adequacy of the overall allowance amount. The loss factors assigned to each credit rating are adjusted based on management’s judgment, along with certain qualitative factors such as the trend and severity of problem loans that can cause the estimation of inherent losses to differ from historical experience. Any change to an individual credit rating may affect the amount of the related allowance.

Commercial Bancshares’ internal review process results in the periodic review of assigned credit ratings to reflect changes in specific risk factors. Commercial lines of credit are generally issued with terms of one year, and upon annual renewal, a full review of the specific risk factors to assess the appropriateness of the assigned credit ratings. Furthermore, loans classified as special mention, substandard or doubtful are placed on an internal watch list and undergo a credit rating review on a quarterly basis (special mention loans) or monthly basis (substandard and doubtful loans).

As part of the oversight and review process, Commercial Bancshares maintains an allowance for loan losses to absorb estimated and probable losses inherent in the loan portfolio at the balance sheet date. The allowance is based on two basic principles of accounting: (1) the requirement that a loss be accrued when it is probable that the loss has occurred at the date of the financial statements and the amount of the loss can be reasonably estimated and (2) the requirement that losses, if any, be accrued when it is probable that Commercial Bancshares will not collect all principal and interest payments according to the loan’s contractual terms.

Commercial Bancshares’ allowance for loan losses has two basic components: a general reserve reflecting historical losses by loan category and loan classification, as adjusted by several factors whose effects are not reflected in historical loss ratios, and specific allowances for individually identified loans. General reserves are based upon historical loss experience by portfolio segment, measured and supplemented to address various risk characteristics of Commercial Bancshares’ loan portfolio, including:

Trends in delinquencies and other non-performing loans
Changes in the risk profile related to large loans in the portfolio
Changes in the categories of loans comprising the loan portfolio
Concentrations of loans to specific industry segments
Changes in economic conditions on both a local and a national level
Changes in Commercial Bancshares’ credit administration and loan portfolio management processes
Quality of Commercial Bancshares’ credit risk identification process

The portion of the reserve representing specific allowances is derived by accumulating the specific allowances established on individually impaired loans that have significant conditions or circumstances that indicate that a loss may be probable. Specific reserves are calculated on individually impaired loans and are


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established based on Commercial Bancshares’ calculation of the probable losses inherent in an individual loan. For loans on which Commercial Bancshares has not elected to use the collateral value as a basis to establish the measure of impairment, Commercial Bancshares measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate. In determining the cash flows to be included in the discount calculation, Commercial Bancshares considers a number of factors, that combined are used to estimate the probability and severity of potential losses.

The borrower’s overall financial condition
Resources and payment record
Support available from financial guarantors

At June 30, 2016 and December 31, 2015, the general reserve represented 98% of the total allowance for loan losses while the specified reserve accounted for 2% of the total. The severity of estimated losses on impaired loans can differ substantially from actual losses. The general reserve is calculated in two parts based on an internal risk classification of loans within each portfolio segment. General reserves on loans considered to be “classified” under regulatory guidance are calculated separately from loans considered to be “pass” rated under the same guidance. This segregation allows management to monitor the reserves related to higher risk loans separate from the remainder of the portfolio in order to better manage risk and ensure the sufficiency of reserves.

The allowance for loan losses is established and maintained at a level management deems adequate to cover losses inherent in the loan portfolio as of the balance sheet date and is based on management’s evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. The amount of the allowance is affected by: (i) loan charge-offs, which decreases the allowance, (ii) recoveries on loans previously charged off, which increases the allowance and (iii) the provision of possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

At June 30, 2016 and December 31, 2015, the allowance for loan losses stood at $3,853,000 and $3,861,000, respectively, and the ratio of the allowance for loan losses to total loans was 1.29% and 1.30%, respectively. The annualized ratio of net charge-offs to average outstanding loans was 0.02% at June 30, 2016, compared to 0.16% at December 31, 2015. For the three months ended June 30, 2016, Commercial Bancshares recovered $5,000 to the allowance for loan losses following net charge-offs of $4,000, compared to a provision of $57,000 to the allowance for loan losses following net charge-offs of $66,000 for the same period in 2015. For the six months ended June 30, 2016, Commercial Bancshares provided $17,000 to the allowance for loan losses to maintain the balance at an adequate level following net charge-offs of $25,000. For the six months ended June 30, 2015, Commercial Bancshares provided $53,000 to the allowance for loan losses following net charge-offs of $83,000.

The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be responsive to changes in portfolio credit quality and inherent credit losses. The changes are reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans is regularly recalculated with new information as it becomes available. In addition, bank regulators, as an integral part of their supervisory functions, periodically review Commercial Bancshares’ loan portfolio and related allowance for loan losses. These regulatory agencies may require Commercial Bancshares to increase its provision for loan losses or to recognize further loan charge-offs based upon their judgments. An increase in the allowance for loan losses by these regulatory agencies could materially adversely affect Commercial Bancshares’ financial condition and the results of operations.


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Before loans are charged off, they typically go through a phase of non-performing status. Various stages exist when dealing with such non-performance. The first stage is simple delinquency, where customers consistently start paying late, 30, 60, 90 days at a time. These accounts may then be put on a list of loans to “watch” as they continue to under-perform according to original terms. Loans are placed on nonaccrual status when management believes the collection of the principal and interest is doubtful. A delinquent loan is generally placed on nonaccrual status when principal and/or interest is past due 90 days or more or if the financial strength of the borrower has declined or other facts would make the repayment of the loan suspect, unless the loan is well-secured or in the process of collection. When a loan is placed on nonaccrual status, all interest which has been accrued is charged back against current earnings as a reduction in interest income, which adversely affects the yield on loans in the period of reversal. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Loans placed on nonaccrual status may be returned to accrual status after payments are received for a minimum of six consecutive months in accordance with the loan documents, and any doubt as to the loan’s full collectability has been removed or the troubled loan is restructured and evidenced by a credit evaluation of the borrower’s financial condition and the prospects for full payment.

Commercial Bancshares’ methodology for evaluating whether a loan is impaired begins with risk-rating credits on an individual basis. Loans with a pass rating represent those not classified on Commercial Bancshares’ rating scale for problem credits, as minimal credit risk has been identified. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness that jeopardizes the repayment of the debt. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans rated as doubtful in whole, or in part, are placed on nonaccrual status.

Loans are placed on nonaccrual status when management believes the collection of principal and interest is doubtful, or when loans are past due as to principal and interest 90 days or more, except in certain circumstances when interest accruals are continued on loans deemed by management to be fully collateralized and in the process of being collected. At June 30, 2016 and December 31, 2015 there were no 90 day delinquent loans that were on accrual status. In such cases, the loans are individually evaluated in order to determine whether to continue income recognition after 90 days beyond the due dates.

When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price of the loan, except when the sole (remaining) source of repayment for the loan is the liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows. If management determines the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs and deferred loan fees or costs), impairment is recognized through an allowance estimate or a charge-off to the allowance. When management determines an impaired loan is a confirmed loss, the estimated impairment is directly charged off to the loan rather than creating a specific reserve for inclusion in the allowance for loan losses. However, not all impaired loans are in nonaccrual status as they may be current with regards to the payment terms. Their determination as an impaired loan is based on some inherent weakness in the credit that may, if certain circumstances occur or arise, result in an inability to comply with the loan agreement’s contractual terms. Impaired loans exclude large groups of smaller-homogeneous loans that are collectively evaluated for impairment such as consumer real estate and installment loans.

The allowance for loan losses, specifically related to impaired loans at June 30, 2016 and December 31, 2015 was $67,000 and $76,000, respectively, related to loans with principal balances of $1,688,000 and $1,714,000. Impaired loans with no related allowance recorded at June 30, 2016 totaled $3,130,000, compared to $3,158,000 at December 31, 2015. Total impaired loans at June 30, 2016 totaled $4,818,000, a decrease of $54,000 or 1.1%, from total impaired loans of $4,872,000 at December 31, 2015. Commercial Bancshares’ financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on the loan portfolio, unless a loan is placed on nonaccrual status. Amounts received on nonaccrual loans generally are applied first to principal and then to interest only after all principal has been collected. For


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the three months ended June 30, 2016, Commercial Bancshares received interest payments of $104,000, related to impaired loans averaging $4,827,000, compared to interest payments of $74,000, related to impaired loans averaging $5,940,000 for the same period in 2015. For the six months ended June 30, 2016, Commercial Bancshares received interest payments of $157,000 related to impaired loans averaging $4,838,000, compared to interest payments of $137,000, related to impaired loans averaging $5,947,000 for the same period in 2015.

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectable. Commercial Bancshares’ policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined. Management believes that by taking a proactive approach to identifying problems and determining their ultimate collectability, using both internal and external portfolio loan reviews, that any potential losses which may be incurred on these credits in the future are incorporated into its analysis of the adequacy of Commercial Bancshares’ allowance for loan losses.

Due to the weakening credit status of a borrower, Commercial Bancshares may elect to formally restructure certain loans to facilitate a repayment plan that minimizes the potential losses Commercial Bancshares might incur. Restructured loans, or troubled debt restructurings (“TDRs”), are classified as impaired loans and may either be in accruing or nonaccruing status. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered. Concessionary modifications are classified as troubled debt restructurings unless the modification results in only an insignificant delay in the payments to be received. Troubled debt restructured loans are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows discounted using the loan’s effective interest rate at inception or the fair value of the collateral, less selling costs if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses. In periods subsequent to the modification, all TDRs are evaluated individually, including those that have payment defaults, for possible impairment. A nonaccrual TDR may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Additionally, there should be a sustained period of repayment performance (generally a period of six months) by the borrower in accordance with the modified contractual terms.

Troubled debt restructured loans totaled $4,330,000 at June 30, 2016 and represented five credit relationships in which economic concessions were granted to borrowers to better align the terms of their loans with their current ability to pay. Troubled debt restructured balances are down slightly from $4,349,000 at December 31, 2015, primarily reflecting monthly payments received on account. As of June 30, 2016, 88% of all restructured loans were performing in accordance with the terms of the restructure. The specified reserve required for these TDRs, whether collateral dependent or not, was $67,000, representing 2% of the total loan loss reserve and 100% of the total specified reserve. There are no commitments to lend additional amounts to borrowers with loans that are classified as troubled debt restructurings as of June 30, 2016.

Non-performing assets include nonaccrual loans as well as other real estate owned and other repossessed assets. Non-performing loans are comprised of loans on nonaccrual status along with loans that are contractually past due 90 days or more but have not been classified as nonaccrual. At June 30, 2016, Commercial Bancshares had non-performing loans totaling $632,000, representing 0.21% of gross loans, compared to non-performing loans of $721,000 or 0.24% of gross loans at December 31, 2015. Management evaluated non-performing loans at June 30, 2016 and believes they have charged off, written down or established adequate loss reserves on all identified problem loans.

Other assets, including premises and equipment, accrued interest receivable, bank-owned life insurance, OREO and other repossessed assets, and other assets decreased $1,108,000 or 6.3% to $16,429,000 at June 30, 2016 from $17,537,000 at December 31, 2015. The decrease in other assets was primarily due to a decrease of $1,114,000 or 12.2% in bank-owned life insurance due to the death of a former executive and proceeds received on the life insurance policy associated with the former executive. Premises and equipment


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decreased $242,000 or 4.3% to $5,436,000 at June 30, 2016 from $5,678,000 at December 31, 2015, largely reflecting depreciation expense, offset with capital purchases of $55,000.

Other real estate owned acquired through partial or total satisfaction of non-performing loans is included in other assets and recorded at fair value less anticipated selling costs based upon the property’s appraised value at the date of transfer, with any difference between the fair value of the property less costs to sell, and the carrying value of the loan charged to the reserve for loan losses. Subsequent write downs that may be required are expensed as incurred. Gains and losses realized from the sale of other real estate owned is included in noninterest income while valuation adjustments are included in noninterest expense. During the six months ended June 30, 2016, two properties with a total carrying value of $39,000 were transferred to OREO while three properties with a carrying value of $70,000 was sold at a net loss of $11,000. At June 30, 2016, Commercial Bancshares held two properties in OREO with a carrying value of $34,000, down from $70,000 at year-end 2015.

Other repossessed assets, resulting from loans where Commercial Bancshares has received title or physical possession of the borrower’s assets, is included in other assets and is recorded at fair value, less estimated selling costs. At the time of repossession, the recorded amount of the loan is written down to the fair value of the equipment or vehicle by a charge to the reserve for loan losses. Gains and losses realized from the sale of other repossessed assets is included in noninterest income while valuation adjustments are included in noninterest expense. During the six months ended June 30, 2016, additions to other repossessed assets totaled $2,000. During the same period, repossessed assets with a total carrying value of $86,000, sold for a net loss of $21,000 while another $39,000 in valuation adjustments were taken against income. Other repossessed inventory had a zero balance at June 30, 2016, compared to a balance of $123,000 at December 31, 2015.

Total deposits increased $4,310,000 or 1.5% to $300,936,000 at June 30, 2016 from $296,626,000 at December 31, 2015. The increase in deposits was primarily due to an increase of $9,522,000 or 8.3% in savings and time deposits less than $250,000 and an increase of $2,955,000 or 37.3% in savings and time deposits greater than $250,000. The increase in savings and time deposits was partially offset by decreases of $3,949,000 and $4,218,000 in interest and noninterest-bearing demand deposits, respectively.

Commercial Bank offers a broad selection of deposit accounts, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing checking accounts and money market accounts, savings accounts and certificates of deposits. Included in the certificates of deposit balances at June 30, 2016 was a total of $34,594,000 of reciprocal certificates of deposits offered under the Certificate Deposit Account Registry Service (“CDARS”), a program in which Commercial Bank participates. Under the CDARS program, participating banks are able to match customer’s deposits that would otherwise exceed the limits for FDIC insurance with certificates of deposits offered at other participating banks and thereby provide FDIC insurance to these excess deposits.

Commercial Bancshares also offers a variety of deposit accounts designed for businesses operating in its market areas. Business banking deposit products include commercial checking accounts, commercial money market accounts and checking accounts specifically designed for small businesses. Commercial Bancshares also offers bill paying and cash management services through its online banking system as well as a remote deposit capture product. Interest rates paid are competitively priced for each particular deposit product and structured to meet Commercial Bancshares’ funding requirements. Management believes that additional funds can be attracted and deposit growth can be realized through deposit pricing if Commercial Bancshares experiences increased loan demand or other liquidity needs.

Commercial Bancshares utilizes both short-term and long-term borrowings as an alternate funding source to deposits and can be used to fund Commercial Bancshares’ liquidity needs. Short-term borrowings, which include federal funds purchased, are borrowings from other banks that mature daily. FHLB advances are loans from Federal Home Loan Bank that can mature daily or have longer maturities for fixed or floating rates of interest. FHLB borrowings are generally used to provide additional funding for loan growth when it is in excess of deposit growth and to manage interest rate risk, but can also be used as an additional source of liquidity for Commercial Bancshares. Borrowed funds totaled $1,514,000 at June 30, 2016, a decrease of $5,060,000 or 77.0% from borrowed funds of $6,574,000 at December 31, 2015. Commercial Bancshares’


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borrowing capacity at FHLB totaled $40,261,000 of which $30,748,000 was available at June 30, 2016. Management believes Commercial Bancshares has adequate liquidity to meet its commitments for the foreseeable future.

Shareholders’ equity increased $2,080,000 or 5.8% to $38,216,000 at June 30, 2016 from $36,136,000 at December 31, 2015. The increase in shareholders’ equity was primarily attributable to current earnings of $2,594,000 less $454,000 for the purchase of treasury stock, plus an adjustment of $568,000 relating to the deferred compensation plan, treasury stock and stock-based compensation expense activity. Commercial Bancshares declared cash dividends of $0.50 per share for the six months ended June 30, 2016, decreasing equity by $600,000. Included in shareholder’s equity is accumulated other comprehensive income which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, which decreased $28,000 for the six months ended June 30, 2016. Such unrealized gains or losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities.

For the six months ended June 30, 2016, Commercial Bancshares returned 23.13% of earnings through dividends of $600,000 at $0.50 per share compared to a return on earnings of 28.54% through dividends of $455,000 at $0.38 per share during the same period in 2015. Average shareholders’ equity to average assets was 10.97% for the six months ended June 30, 2016, compared to 10.45% for the six months ended June 30, 2015.

Comparison of Results of Operations for the Three Months and Six Months Ended June 30, 2016

Commercial Bancshares reported net income, after taxes of $998,000 for the three months ended June 30, 2016, an increase of $177,000 or 21.6% from net income, after taxes of $821,000 for the three months ended June 30, 2015. Basic and diluted net income per common share was $0.84 and $0.83, respectively, for the second quarter ended June 30, 2016, compared to basic and diluted net income per common share of $0.68 and $0.67, respectively, for the second quarter of 2015. The increase in net income was driven by an increase in net interest income after provision for loan losses of $133,000, an increase in noninterest income of $57,000 and a decrease in noninterest expense of $103,000, resulting in an increase in income tax expense of $116,000. Net income, after taxes for the six months ended June 30, 2016 was $2,594,000, an increase of $1,000,000 or 62.7% from net income of $1,594,000 for the six months ended June 30, 2015. Basic and diluted net income per common share was $2.19 and $2.15, respectively, compared to basic and diluted net income per common share of $1.33 and $1.31, respectively, for the same period in 2015. The increase in net income for the six months ended June 30, 2016 was primarily attributable to the recognition of $677,000 of other income as a result of bank-owned life insurance proceeds. Significant components of Commercial Bancshares’ results of operations are included below.

Net interest income, by definition, is the difference between interest income generated on interest-earning assets and the interest expense incurred on interest-bearing liabilities. Various factors contribute to changes in net interest income, including volumes, interest rates and the composition or mix of interest-earning assets in relation to interest-bearing liabilities. For comparative purposes, income from tax exempt securities has been adjusted to a tax equivalent basis using the federal statutory tax rate of 34% and a 20% disallowance of interest expense deductibility under the Tax Equity and Fiscal Responsibility Act (“TEFRA”) rules.

Net interest margin is significantly impacted by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin is calculated by expressing tax equivalent net interest income as a percentage of average interest-earning assets and represents Commercial Bancshares’ net yield on its earning assets. Net interest margin is an indicator of Commercial Bancshares’ effectiveness in generating income from its earning assets. Net interest margin is affected by the structure of the balance sheet as well as by competitive pressures, Federal Reserve regulatory and monetary policies and the economy. Commercial Bancshares’ net interest margin, on a fully taxable equivalent basis, was 4.46% for the three-month period ended June 30, 2016, compared to 4.51% for the same period in 2015. Interest rate spread, which is the average yield on interest-earning assets minus the average rate paid on interest-bearing liabilities, was 4.38% and 4.44% for the three months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016, Commercial Bancshares’ net interest margin and interest rate spread was


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4.50% and 4.43%, respectively, compared to net interest margin and interest rate spread of 4.45% and 4.38%, respectively, for the same period in 2015.

Net interest income, on a fully taxable equivalent basis, for the three months ended June 30, 2016, was $3,581,000, an increase of $62,000 or 1.8%, compared to $3,519,000 for the same period in 2015. Net interest income, on a fully taxable equivalent basis, for the six months ended June 30, 2016 was $7,108,000, an increase of $245,000 or 3.6%, compared to $6,863,000 for the same period in 2015. The increase for both the three and six-month periods was largely attributable to growth in the loan portfolio compared to the same periods in 2015. Commercial Bancshares’ overall cost of funds in 2016 remained relatively constant at 0.36% and 0.35% for the three and six-month periods, respectively, compared to 0.35% and 0.36% for the same periods in 2015. The average yield on earning assets for the three and six months ended June 30, 2016 was 4.74% and 4.78%, respectively, compared to 4.79% and 4.74% for the same periods in 2015.

Interest and fee income, on a fully taxable equivalent basis totaled $3,808,000 for the three months ended June 30, 2016, an increase of $70,000 or 1.9% from $3,738,000 for same period in 2015. Average net loans, representing 90.30% and 87.07% of average earning assets at June 30, 2016 and 2015, respectively, increased $19,260,000 or 7.1%, while the average tax equivalent yield earned decreased 20 basis points. Average federal funds sold, representing 6.18% and 8.27% of average earning assets at June 30, 2016 and 2015, respectively, decreased $5,915,000 or 22.9%, while the average yield earned increased 25 basis points. Average investment securities, representing 3.52% and 4.66% of average earning assets at June 30, 2016 and 2015, respectively, decreased $3,206,000 or 22.0%, while the average tax equivalent yield earned decreased 16 basis points.

The table that follows presents Commercial Bancshares’ (i) average assets, liabilities and shareholders’ equity, (ii) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (iii) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (iv) interest rate spread(the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities), and (v) net interest margin(net interest income as a percentage of total average interest-earning assets).

Table 1 Yield Analysis

For the three-month period ended June 30, 2016 and 2015.

(Dollar amounts in thousands)

      
 Three Months Ended June 30,
   2016 2015
   Average balance Interest Income/ Expense Yield/
Rate		 Average balance Interest Income/ Expense Yield/
Rate
Federal funds sold $19,961  $25   0.50%  $25,876  $16   0.25% 
Investment securities:
                              
Taxable securities(1)  6,503   43   2.66   7,523   48   2.56 
Tax exempt securities(1)  4,865   70   5.79   7,051   103   5.86 
Loans(2)(3)  291,757   3,670   5.06   272,497   3,571   5.26 
Earning assets  323,086   3,808   4.74%   312,947   3,738   4.79% 
Other assets  21,501         23,544       
Total assets $344,587        $336,491       
Interest-bearing demand deposits $118,551  $24   0.08%  $117,962  $23   0.08% 
Savings deposits  30,253   2   0.03   27,563   2   0.03 
Time deposits  103,801   193   0.75   100,744   185   0.74 
Borrowed funds  1,621   8   1.98   1,651   9   2.19 
Interest-bearing liabilities  254,226   227   0.36%   247,920   219   0.35% 
Noninterest-bearing demand deposits  50,980             51,761           
Other liabilities  1,488             1,420           
Shareholders’ equity  37,893         35,390       
Total liabilities and shareholders’ equity $344,587        $336,491       
Net interest income    $3,581        $3,519    
Interest rate spread            4.38%             4.44% 
Net interest margin(4)            4.46%             4.52% 

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(1)Average yields on all securities have been computed based on amortized cost. Income on tax exempt securities has been computed on a tax equivalent basis using a 34% federal tax rate and a 20% disallowance of interest expense deductibility under TEFRA rules. The amount of such adjustment was $25,000 and $34,000 for the three-month period ended June 30, 2016 and 2015, respectively.
(2)Average balance is net of deferred loan fees of $739,000 and $610,000 for the three months ended June 30, 2016 and 2015, respectively.
(3)Interest income includes loan fees of $178,000 and $178,000 for the three-month period ended June 30, 2016 and 2015, respectively, as well as $41,000 and $38,000 of deferred dealer reserve expense for the same years.
(4)Net interest margin is the ratio of annualized tax equivalent net interest income to average earning assets.

The table that follows presents Commercial Bancshares’ (i) average assets, liabilities and shareholders’ equity, (ii) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (iii) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (iv) interest rate spread(the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities), and (v) net interest margin(net interest income as a percentage of total average interest-earning assets).

Table 2 Yield Analysis

For the six-month period ended June 30, 2016 and 2015.

(Dollar amounts in thousands)

      
 Six Months Ended June 30,
   2016 2015
   Average balance Interest Income/ Expense Yield/
Rate		 Average balance Interest Income/ Expense Yield/
Rate
Federal funds sold $15,290  $38   0.50%  $25,531  $31   0.24% 
Investment securities:
                              
Taxable securities(1)  6,565   86   2.63   7,332   96   2.64 
Tax exempt securities(1)  4,879   141   5.81   6,825   204   6.03 
Loans(2)(3)  291,002   7,286   5.04   271,476   6,977   5.18 
Earning assets  317,736   7,551   4.78%   311,164   7,308   4.74% 
Other assets  22,091         24,902       
Total assets $339,827        $336,066       
Interest-bearing demand deposits $117,743  $47   0.08%  $117,262  $46   0.08% 
Savings deposits  29,832   5   0.03   27,089   4   0.03 
Time deposits  100,436   370   0.74   104,320   377   0.73 
Borrowed funds  3,315   21   1.27   1,670   18   2.17 
Interest-bearing liabilities  251,326   443   0.35%   250,341   445   0.36% 
Noninterest-bearing demand deposits  49,679             48,994           
Other liabilities  1,545             1,600           
Shareholders’ equity  37,277         35,131       
Total liabilities and shareholders’ equity $339,827        $336,066       
Net interest income    $7,108        $6,863    
Interest rate spread            4.43%             4.38% 
Net interest margin(4)            4.50%             4.45% 

(1)Average yields on all securities have been computed based on amortized cost. Income on tax-exempt securities has been computed on a tax equivalent basis using a 34% federal tax rate and a 20% disallowance of interest expense deductibility under TEFRA rules. The amount of such adjustment was $48,000 and $72,000 for the six-month period ended June 30, 2016 and 2015, respectively.

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(2)Average balance is net of deferred loan fees of $726,000 and $599,000 for the six months ended June 30, 2016 and 2015, respectively.
(3)Interest income includes loan fees of $327,000 and $296,000 for the six-month period ended June 30, 2016 and 2015, respectively, as well as $71,000 and $78,000 of deferred dealer reserve expense for the same years.
(4)Net interest margin is the ratio of annualized tax equivalent net interest income to average earning assets.

Interest and fee income, on a fully taxable equivalent basis totaled $7,551,000 for the six months ended June 30, 2016, an increase of $243,000 or 3.3%, from $7,308,000 for the same period in 2015. Average net loans, representing 91.59% and 87.25%, of average earning assets at June 30, 2016 and 2015, respectively, increased $19,526,000 or 7.2%, while the average tax equivalent yield earned decreased 14 basis points. Average federal funds sold, representing 4.81% and 8.20% of average earning assets at June 30, 2016 and 2015, respectively, decreased $10,241,000 or 40.1%, while average yields earned increased 26 basis points. Average investment securities, representing 3.60% and 4.55% of average earning assets at June 30, 2016 and 2015, respectively, decreased $2,713,000 or 19.2%, while the average tax equivalent yield earned decreased 28 basis points.

Interest expense totaled $227,000 for the three months ended June 30, 2016, increasing slightly from interest expense of $219,000 for the three months ended June 30, 2015. Average interest-bearing demand deposits, representing 46.63% and 47.58% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, increased $589,000 or 0.5%, with no change in the average rate paid between periods. Average savings account balances, representing 11.90% and 11.12% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, increased $2,690,000 or 9.8%, with no change in the average rate paid between periods. Average time deposits, representing 40.83% and 40.64% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, increased $3,057,000 or 3.0%, while the average rate paid increased 1 basis point between periods. Average borrowings, representing 0.64% and 0.67% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, decreased $30,000 or 1.8%, while the average rate paid decreased 21 basis points.

Interest expense totaled $443,000 for the six months ended June 30, 2016, a decrease of $2,000 or 0.5% from $445,000 for the same period in 2015. Average interest-bearing demand deposits, representing 46.85% and 46.84% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, increased $481,000 or 0.4%, with no change in the average rate paid between periods. Average savings account balances, representing 11.87% and 10.82% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, increased $2,743,000 or 10.1%, with no change in the average rate paid between periods. Average time deposits, representing 39.96% and 41.67% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, decreased $3,884,000 or 3.7%, while the average rate paid increased 1 basis point between periods. Average borrowings, representing 1.32% and 0.67% of average interest-bearing liabilities at June 30, 2016 and 2015, respectively, increased $1,645,000 or 98.5%, while the average rate paid decreased 90 basis points.

Commercial Bancshares establishes an allowance for loan losses through charges to earnings, which are shown in the statements of operations as the provision for loan losses. Through the provision for or recovery of loan losses, an allowance is maintained that reflects management’s best estimate of probable incurred losses related to specifically identified loans as well as the inherent risk of loss related to the remaining portfolio. In evaluating the allowance for loan losses, management considers various factors that include loan growth, the amount and composition of the loan portfolio (including non-performing and potential problem loans), diversification, or conversely, concentrations by industry, geography or collateral within the portfolio, historical loan loss experience, current delinquency levels, the estimated value of the underlying collateral, prevailing economic conditions and other relevant factors. Loan charge-offs are recorded to this allowance when loans are deemed uncollectible, in whole or in part. Impacting the provision for loan losses in any accounting period are several factors including the amount of loan growth during the period, broken down by loan type, the level of charge-offs during the period, the changes in the amount of impaired loans, changes in risk ratings assigned to loans, specific loan impairments, credit quality and ultimately, the results of management’s assessment of the inherent risks of the loan portfolio.


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A recovery of $5,000 was credited to provision expense for the three months ended June 30, 2016, compared to provision expense of $57,000 for the three months ended June 30, 2015. The provision charged against income for the six months ended June 30, 2016 was $17,000, compared to a provision of $53,000 for the six months ended June 30, 2015. The decrease in the provision for loan losses was primarily due to a decline in delinquencies and net charge-offs as well as lower levels of adversely classified loans Net charge-offs for the three and six months ended June 30, 2016 was $4,000 and $25,000, respectively, compared to net charge-offs of $66,000 and $83,000 for the same periods in 2015. Classified loans decreased $336,000 or 7.6% to $4,063,000 at June 30, 2016 from $4,399,000 at June 30, 2015.

Management considers the allowance for loan losses at June 30, 2016 adequate to cover loan losses based on its assessment of various factors affecting the loan portfolio, including the level of problem loans, overall delinquencies, business conditions, estimated collateral values and loss experience. A decline in local and national economic conditions, or other factors, could result in a material increase in the allowance for loan losses which could adversely affect Commercial Bancshares’ financial condition and results of operations. Further information relating to factors affecting the allowance for loan losses is discussed underFinancial Condition.

Noninterest income consists primarily of fees and commissions earned on services that are provided to Commercial Bancshares’ banking customers, income generated from the leasing of office space, third-party mortgage referral fee income and other miscellaneous income. Noninterest income for the three and six months ended June 30, 2016 was $520,000 and $1,651,000, respectively, compared to $463,000 and $972,000 for the three and six months ended June 30, 2015. Following are some of the more significant factors affecting noninterest income in 2016:

An increase of $35,000 in other income for the three-month period, primarily due to a refund of 2015 FDIC assessment fees of $39,000 from the Division of Financial Institutions. This refund is the result of recent legislation that eliminated the regulatory fees paid to the Division by Ohio-chartered banks and savings institutions.
An increase in miscellaneous income for the six-month period, largely driven by a $677,000 death benefit that exceeded the cash surrender value of $1,222,000 on a bank-owned life insurance policy associated with a former executive.
A decrease of $15,000 and $42,000 in rent income, for the three and six-month periods, respectively, largely due to lost income due to the sale of a branch office during the first quarter of 2015. Commercial Bancshares leased office space at this branch.

Noninterest expense consists primarily of personnel, occupancy, equipment and other operating expenses. Noninterest expense for the three and six months ended June 30, 2016 totaled $2,614,000 and $5,207,000, respectively, compared to $2,717,000 and $5,409,000 for the three and six months ended June 30, 2015. Following are some of the more significant factors affecting noninterest expense during 2016:

An increase of $89,000 and $137,000 in salaries and employee benefits for the three and six-month periods, respectively, primarily reflecting annual salary increases as well as an increase in employee compensation costs relating to stock option awards, and an increase in group medical insurance plan expense.
A decrease of $179,000 and $318,000 in OREO and other miscellaneous loan expense for the three and six-month periods, respectively, largely due to the sale of two large commercial real estate properties during the second and third quarters of 2015.
A decrease of $30,000 and $46,000 in FDIC deposit insurance for the three and six-month periods, primarily due to recent legislation passed by the Ohio General Assembly that eliminated the regulatory fees paid to the Division of Finance Institutions by Ohio-chartered banks and savings institutions.
An increase of $39,000 in repo depreciation expense for the six-month period, reflecting valuation adjustments taken on existing inventory during the first quarter of 2016.

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Commercial Bancshares’ pre-tax income for the three and six months ended June 30, 2016 totaled $1,467,000 and $3,487,000, respectively, resulting in a tax provision of $469,000 and $893,000, compared to pre-tax income of $1,174,000 and $2,301,000 resulting in a tax provision of $353,000 and $707,000 for the same periods in 2015. Commercial Bancshares’ effective tax rate for the three and six months ended June 30, 2016 was 31.97% and 25.61%, respectively, compared to 30.07% and 30.73% for the same periods in 2015. The difference between Commercial Bancshares’ effective tax rate and the statutory rate is primarily attributable to Commercial Bancshares’ tax-exempt income. Tax-exempt income includes income earned on certain state and political subdivisions securities that qualify for state and/or federal income tax exemption and Commercial Bancshares’ earnings on Bank-owned life insurance policies, which are exempt from federal taxation.

Liquidity

Liquidity is the ability to satisfy demands for deposit withdrawals, lending commitments and other corporate needs. Commercial Bancshares’ liquidity primarily represented by cash equivalents and federal funds sold, is a result of its operating, investing and financing activities, which are summarized in the Condensed Consolidated Statements of Cash Flows. Primary sources of funds are deposits, prepayments and maturities of outstanding loans and securities. While scheduled payments from the amortization of loans and securities are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. Funds are primarily used to meet ongoing commitments, satisfy operational expenses, payout maturing certificates of deposit and savings withdrawals and fund loan demand, with excess funds being invested in short-term, interest-earning assets. Additional funds are generated through Federal Home Loan Bank advances, overnight borrowings and other sources.

Commercial Bancshares’ liquidity ratio at June 30, 2016 was 6.48% compared to 5.74% at December 31, 2015. Another measure of liquidity is the relationship of net loans to deposits and borrowed funds with lower ratios indicating greater liquidity. At June 30, 2016, the ratio of net loans to deposits and borrowed funds was 97.21% compared to 96.66% at year-end 2015. Management believes its sources of liquidity are adequate to meet the needs of Commercial Bancshares.

As presented in the accompanying unaudited Consolidated Statements of Cash Flows, the sources of liquidity vary between periods. Commercial Bancshares’ cash equivalents and federal funds sold totaled $20,278,000 at June 30, 2016, compared to $19,266,000 at June 30, 2015. The primary sources of funds during the first six months of 2016 included $7,000,000 in Federal Home Loan Bank advances, an increase in deposit balances of $4,310,000 and net cash provided by operating activities of $3,389,000. The primary uses of funds during the six months ended June 30, 2016 included the repayment of $12,060,000 in Federal Home Loan Bank advances, $962,000 in loan originations (net of principal collections), $600,000 in cash dividends and treasury stock purchases of $454,000.

The primary sources of funds during the six months ended June 30, 2015 included $1,613,000 in net cash provided by operating activities, $1,237,000 in proceeds from the disposition of premises and equipment, $1,214,000 in proceeds from the sale of OREO and other repossessed assets and $1,099,000 in loan repayments (net of loan originations). The primary uses of funds during the six months ended June 30, 2015 included $11,074,000 in deposit withdrawals, $1,780,000 in security investment purchases and $455,000 in cash dividends.

Capital Resources

Banking regulations have established minimum capital requirements for banks including risk-based capital ratios and leverage ratios. Regulations require all banks to have a minimum total risk-based capital ratio of 8.0%, with half of the capital composed of core capital. Minimum leverage ratios range from 3.0% to 5.0% of total assets. Conceptually, risk-based capital requirements assess the riskiness of a financial institution’s balance sheet and off-balance sheet commitments in relation to its capital. Core capital, or Tier 1 capital, includes common equity, perpetual preferred stock and minority interests that are held by others in consolidated subsidiaries minus intangible assets. Supplementary capital, or Tier 2 capital, includes core capital and such items as mandatory convertible securities, subordinated debt and the allowance for loans and lease losses, subject to certain limitations. Qualified Tier 2 capital can equal up to 100% of an institution’s Tier 1 capital with certain limitations in meeting the total risk-based capital requirements.


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In July 2013, U.S. banking regulators adopted final rules related to standards on bank capital adequacy and liquidity (commonly referred to as “Basel III”). Under the new rules, Commercial Bank is subject to new capital requirements that include: (i) creation of a new required ratio for common equity Tier 1 (“CET1”) capital; (ii) an increase to the minimum Tier 1 capital ratio; (iii) changes to risk-weightings of certain assets for purposes of the risk-based capital ratios; (iv) creation of an additional capital conservation buffer of 2.5% in excess of the required minimum capital ratios; and (v) changes to what qualifies as capital for purposes of meeting these capital requirements.

The Tier 1 common capital ratio excludes any preferred shares or non-controlling interests when determining the calculation. This differs from the Tier 1 capital ratio which is based on the sum of its equity capital and disclosed reserves, and sometimes non-redeemable, non-cumulative preferred stock. Under Basel III, Commercial Bank is required to maintain a minimum CET1 ratio of 4.5% of risk-weighted assets. At June 30, 2016, Commercial Bank’s CET1 ratio was 12.3%, compared to 11.8% at December 31, 2015. Commercial Bank’s leverage and risk-based capital ratios at June 30, 2016, were 10.8% and 13.6%, respectively, compared to leverage and risk-based capital ratios of 10.6% and 13.0%, respectively, at December 31, 2015. Commercial Bank’s capital conservation buffer was 5.6% at June 30, 2016, well above the required buffer of 2.5%. Commercial Bank exceeded the minimum regulatory requirements to be considered well capitalized for both periods. Should it become necessary to raise capital to expand the activities of Commercial Bancshares, Commercial Bancshares believes there are sufficient un-issued shares to satisfy Commercial Bancshares’ objectives.

Table 3 Contractual Obligations and Commitments

Commercial Bancshares has certain obligations and commitments to make future payments under contract. The following table presents Commercial Bancshares’ contractual obligations and commitments(in thousands) at June 30, 2016:

     
Contractual Obligations Payments Due by Period
 Total Less Than One Year 1 – 3
Years		 3 – 5
Years		 After
5 Years
Time deposits and certificates of deposit $104,141  $52,474  $37,870  $9,172  $4,625 
Borrowed funds  1,514   0   0   0   1,514 
Total contractual obligations $105,655  $52,474  $37,870  $9,172  $6,139 

     
Other Commitments Amount of Commitment — Expiration by Period
 Total Less Than One Year 1 – 3
Years		 3 – 5
Years		 After
5 Years
Commitments to extend commercial credit $30,144  $17,342  $4,166  $146  $8,490 
Commitments to extend consumer credit  12,274   1,840   4,030   3,161   3,243 
Standby letters of credit  227   227   0   0   0 
Total contractual obligations $42,645  $19,409  $8,196  $3,307  $11,733 

Other obligations and commitments which are not included above include the deferred compensation plan, index plan reserve and split dollar life insurance. The timing of payments for these plans is unknown. See Note 1 of the 2015 Annual Report for additional details.

Items listed under “Contractual Obligations” represent standard bank financing activity under normal terms and practices. Such funds normally rollover or are replaced by like items depending on the then-current financing needs. Items shown under “Other Commitments” also represent standard bank activity, but for extending credit to bank customers. Commercial credits generally represent lines of credit or approved loans with drawable funds still available under the contract terms. On an on-going basis, approximately half of these amounts are expected to be drawn. Consumer credits generally represent amounts drawable under revolving home equity lines or credit card programs. Such amounts are usually deemed less likely to be drawn upon in total as consumers tend not to draw down all amounts on such lines. Utilization rates tend to be fairly constant over time. Standby letters of credit represent guarantees to finance specific projects whose primary source of financing comes from other sources. In the unlikely event of the other source’s failure to provide sufficient financing, Commercial Bank would be called upon to fill the need. Commercial Bancshares is also


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continually engaged in the process of approving new loans in a bidding competition with other banks. Management and Board committees approve the terms of these potential new loans with conditions and/or counter terms made to the applicant customers. Customers may accept the terms, make a counter proposal, or accept terms from a competitor. These loans are not yet under contract, but offers have been tendered, and would be required to be funded if accepted. Such agreements represent approximately $13,603,000 at June 30, 2016 in varying maturity terms.

Comparison of Financial Condition December 31, 2015 and December 31, 2014

Assets totaled $341,090,000 at December 31, 2015, compared to $336,529,000 at December 31, 2014, reflecting an increase of $4,561,000 or 1.4%, largely due to an increase in net loans of $18,047,000 or 6.6%, partially offset by decreases in federal funds sold, other assets and investment securities of $8,015,000, $3,580,000 and $1,650,000, respectively. Liabilities totaled $304,954,000 at December 31, 2015, compared to $302,303,000 at December 31, 2014, reflecting an increase of $2,651,000 or 0.9%, largely due to an increase in borrowed funds of $4,882,000, partially offset by a decrease in total deposits of $2,145,000. Shareholders’ equity increased 5.6% to $36,136,000 at December 31, 2015, from $34,226,000 at December 31, 2014.

Cash equivalents and federal funds sold include working cash funds, due from banks, interest-bearing deposits in other financial institutions, items in process of collection and federal funds sold. Commercial Bank is required to maintain average reserve balances with the Federal Reserve Bank based on average daily deposit balances and statutory reserve ratios prescribed by the type of deposit account. The average balance held in reserve for the twelve months ended December 31, 2015 was $4,374,000, compared to $5,267,000 for the same period in 2014. At December 31, 2015, cash equivalents and federal funds sold totaled $18,895,000, a decrease of $8,256,000 or 30.4% from cash equivalents and federal funds sold of $27,151,000 at December 31, 2014.

The investment securities portfolio is comprised primarily of residential mortgage-backed securities, tax-exempt securities of state and political subdivisions, (available for sale as well as held to maturity), debt securities issued by U.S. government-sponsored agencies and other equity securities. Investment securities decreased 12.5% or $1,650,000 to $11,586,000 at December 31, 2015 from $13,236,000 at December 31, 2014. The decline in investment securities was predominantly due to the call of municipal and Government Agency securities of $2,773,000 and $459,000 in principal pay downs and prepayments of mortgage-backed securities, partially offset with purchases of U.S. government agency and municipal securities totaling $1,780,000. Available for sale investment securities are reported at fair value with unrealized holding gains and losses, based on the difference between amortized cost and fair value, reported net of deferred tax, as accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Declines in the fair value of individual securities below their cost that are other-than-temporary, result in write downs of the individual securities to their fair values. Securities that are held as available for sale are used as part of Commercial Bancshares’ asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital and other similar factors are classified as available for sale. Securities that management has the positive intent and ability to hold until maturity are classified as held to maturity. Held to maturity investment securities are carried at amortized cost.

At December 31, 2015, the investment portfolio consisted primarily of obligations of state and political subdivisions, mortgage-backed securities and U.S. government agency securities. To reduce Commercial Bancshares’ income tax burden, $4,898,000 or 42.3% of Commercial Bancshares’ investment portfolio as of December 31, 2015, was invested in tax-exempt obligations of state and political subdivisions, compared to $6,596,000 or 49.8% at December 31, 2014.

Loans

Loans are reported at their outstanding principal balances less unearned income, the allowance for loan losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield. Loans make up the largest component of total assets. At December 31, 2015, net loans of $293,072,000, representing 85.92% of total assets, increased 6.6% or $18,047,000 from net loans of $275,025,000 at December 31, 2014. The increase in net loans between periods


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was predominantly in the commercial and agricultural loan portfolio, up $17,408,000 or 7.7%. Contributing factors to the increase in commercial loan demand is the stabilization in the regional economy in which Commercial Bancshares operates as well as the efforts of Commercial Bancshares’ experienced loan officers in developing new loan relationships, combined with the support of existing customers. Consumer real estate loans increased 7.9% or $1,761,000, while installment and home equity loans decreased $1,251,000 and $136,000, respectively.

Table 4 below, provides a summary of the loan distribution by product type.

Table 4 Loan Portfolio Distribution

     
At December 31
(In thousands)
 2015
Amount		 2014
Amount		 2013
Amount		 2012
Amount		 2011
Amount
Commercial $242,916  $225,508  $216,298  $193,546  $177,402 
Real Estate  23,944   22,183   18,806   16,129   15,456 
Consumer  12,023   13,274   16,030   18,271   22,175 
Home equity  18,050   18,186   18,834   19,398   19,818 
Indirect finance  0   0   0   0   22 
Total loans $296,933  $279,151  $269,968  $247,344  $234,873 

The following is a schedule of commercial loan maturities (in thousands) based on contractual terms as of December 31, 2015.

   
 One Year or Less One Through Five Years Over Five Years
    $39,957   $37,881   $165,078 

Of the commercial loans included in the preceding schedule with maturities exceeding one year, $25,131,000 have fixed rates to maturity, while $177,828,000 have adjustable rates.

Commercial Bancshares’ loan portfolio represents its largest and highest yielding assets. The fundamental lending business of Commercial Bancshares is based on understanding, measuring and controlling the credit risk inherent in the loan portfolio. Commercial Bancshares’ loan portfolio is subject to varying degrees of credit risk. Credit risk entails both general risks, which are inherent in the process of lending, and risk specific to individual borrowers. Commercial Bancshares’ credit risk is mitigated through portfolio diversification, which limits exposure to any single customer, industry or collateral type. Typically, each consumer and residential lending product has a generally predictable level of credit losses based on historical loss experience. Home mortgage and home equity loans and lines generally have the lowest credit loss experience, while loans secured by personal property, such as auto loans, are generally expected to experience more elevated credit losses. Credit risk in commercial lending can vary significantly, as losses as a percentage of outstanding loans can shift widely during economic cycles and are particularly sensitive to changing economic conditions. Generally, improving economic conditions result in improved operating results on the part of commercial customers, enhancing their ability to meet their particular debt service requirements. Improvements, if any, in operating cash flows can be offset by the impact of rising interest rates that may occur during improved economic times. Declining economic conditions have an adverse effect on the operating results of commercial customers, reducing their ability to meet debt service obligations. Commercial Bancshares believes the general economic outlook remains stable without any clear or substantive trends in employment rates, real estate values or overall consumer or commercial confidence, spending or investment.

To control and manage credit risk, management has a credit process in place to ensure credit standards are maintained along with strong oversight and review procedures. The primary purpose of loan underwriting is the evaluation of specific lending risks and involves the analysis of the borrower’s ability to service the debt as well as the assessment of the value of the underlying collateral. Oversight and review procedures include the monitoring of portfolio credit quality, early identification of potential problem credits and the aggressive management of problem credits. Executive management has implemented the following measures to proactively manage credit risk in the loan portfolios:

Reviewed all underwriting guidelines for various loan portfolios and have strengthened underwriting guidelines where needed.

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Evaluated outside loan review parameters, engaging the services of a well-established firm to continue with such loan review, addressing not only specific loans but underwriting analysis, documentation, credit evaluation and risk identification.
Increased the frequency of internal reviews to monthly reviews of past due and delinquent loans to assess probable credit risks early in the delinquency process to minimize losses.
Aggressively seeks ownership and control, when appropriate, of real estate properties, which would otherwise go through time-consuming and costly foreclosure proceedings to effectively control the disposition of such collateral.
Aggressively obtaining updated financial information on commercial credits and performing analytical reviews to determine debt source capacities in business performance trends.
Engaged a well-established auditing firm to analyze Commercial Bancshares’ loan loss reserve methodology and documentation.

Allowance for Loan Losses

The allowance for loan losses (“ALLL”) is established through a provision for loan losses charged to current earnings. The allowance for loan losses is maintained at a level estimated by management to absorb probable losses inherent in the loan portfolio and is based on management’s continuing evaluation of the portfolio, the related risk characteristics, and the overall economic conditions affecting the portfolio. This estimation is inherently subjective as it requires measures that are susceptible to significant revision as more information becomes available.

Commercial Bancshares’ methodology in determining the allowance for loan losses includes segmenting the loan portfolio into various components and applying various loss factors to estimate the amount of probable losses. The largest segment of the loan portfolio is comprised of credit-rated commercial loans, comprising 82% of total loans as of December 31, 2015. Credit-rated commercial loans include commercial and industrial loans along with loans to commercial borrowers that are secured by real estate (commercial property, multi-family residential property, 1-4 family residential property, and construction and land). For each loan within this segment, a credit rating is assigned based on a review of specific risk factors including (i) historical and projected financial results of the borrower, (ii) market conditions of the borrower’s industry that may affect the borrower’s future financial performance, (iii) business experience of the borrower’s management, (iv) nature of the underlying collateral, if any, and (v) borrower’s history of payment performance.

When assigning a credit rating to a loan, management uses an internal, nine-level rating system in which a rating of one carries the lowest level of credit risk and is used for borrowers exhibiting the strongest financial condition. Loans rated one through five are deemed to be acceptable quality and are considered “Pass”. Loans that are deemed to be of questionable quality are rated six (special mention). Loans with adverse classifications (substandard or doubtful) are rated seven and eight, respectively. A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the borrower characterized by a well-defined weakness.

The outstanding amounts of credit-rated commercial loans are aggregated by credit rating, and management estimates the allowance for losses for each credit rating using loss factors based on historical loss experience and qualitative adjustments reflecting the current economic conditions and outlook for housing, employment, manufacturing, and consumer spending. The economic adjustments reflect the imprecision that is inherent in the estimates of probable loan losses, and are intended to ensure adequacy of the overall allowance amount. The loss factors assigned to each credit rating are adjusted based on management’s judgment, along with certain qualitative factors such as the trend and severity of problem loans that can cause the estimation of inherent losses to differ from historical experience. Any change to an individual credit rating may affect the amount of the related allowance.

Commercial Bancshares’ internal review process results in the periodic review of assigned credit ratings to reflect changes in specific risk factors. Commercial lines of credit are generally issued with terms of one year, and upon annual renewal, a full review of the specific risk factors to assess the appropriateness of the


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assigned credit ratings. Furthermore, loans classified as special mention, substandard or doubtful are placed on an internal watch list and undergo a credit rating review on a quarterly basis (special mention loans) or monthly basis (substandard and doubtful loans).

As part of the oversight and review process, Commercial Bancshares maintains an allowance for loan losses to absorb estimated and probable losses inherent in the loan portfolio at the balance sheet date. The allowance is based on two basic principles of accounting: (1) the requirement that a loss be accrued when it is probable that the loss has occurred at the date of the financial statements and the amount of the loss can be reasonably estimated and (2) the requirement that losses, if any, be accrued when it is probable that Commercial Bancshares will not collect all principal and interest payments according to the loan’s contractual terms.

Commercial Bancshares’ allowance for loan losses has two basic components: a general reserve reflecting historical losses by loan category and loan classification, as adjusted by several factors whose effects are not reflected in historical loss ratios, and specific allowances for individually identified loans. General reserves are based upon historical loss experience by portfolio segment, measured and supplemented to address various risk characteristics of Commercial Bancshares’ loan portfolio, including:

Trends in delinquencies and other non-performing loans
Changes in the risk profile related to large loans in the portfolio
Changes in the categories of loans comprising the loan portfolio
Concentrations of loans to specific industry segments
Changes in economic conditions on both a local and a national level
Changes in Commercial Bancshares’ credit administration and loan portfolio management processes
Quality of Commercial Bancshares’ credit risk identification process

The portion of the reserve representing specific allowances is derived by accumulating the specific allowances established on individually impaired loans that have significant conditions or circumstances that indicate that a loss may be probable. Specific reserves are calculated on individually impaired loans and are established based on Commercial Bancshares’ calculation of the probable losses inherent in an individual loan. For loans on which Commercial Bancshares has not elected to use the collateral value as a basis to establish the measure of impairment, Commercial Bancshares measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate. In determining the cash flows to be included in the discount calculation, Commercial Bancshares considers a number of factors, that combined are used to estimate the probability and severity of potential losses.

The borrower’s overall financial condition
Resources and payment record
Support available from financial guarantors

At December 31, 2015, the general reserve represented 98% of the total allowance for loan losses while the specified reserve accounted for 2% of the total, compared to 93% and 7% at December 31, 2014. The severity of estimated losses on impaired loans can differ substantially from actual losses. The general reserve is calculated in two parts based on an internal risk classification of loans within each portfolio segment. General reserves on loans considered to be “classified” under regulatory guidance are calculated separately from loans considered to be “pass” rated under the same guidance. This segregation allows management to monitor the reserves related to higher risk loans separate from the remainder of the portfolio in order to better manage risk and ensure the sufficiency of reserves.

The allowance for loan losses is established and maintained at a level management deems adequate to cover losses inherent in the loan portfolio as of the balance sheet date and is based on management’s evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. The amount of the allowance is affected by: (i) loan charge-offs, which decreases the allowance, (ii) recoveries on loans


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previously charged off, which increases the allowance and (iii) the provision of possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

At December 31, 2015 and 2014, the allowance for loan losses stood at $3,861,000 and $4,126,000, respectively, and the ratio of the allowance for loan losses to total loans was 1.30% and 1.48%. The ratio of net charge-offs to average outstanding loans was 0.16% for the year ended December 31, 2015, compared to 0.19% in 2014. During 2015, Commercial Bancshares provided $188,000 to the allowance for loan losses to maintain the balance at an adequate level following net charge-offs of $453,000. During 2014 and 2013, Commercial Bancshares provided $309,000 and $531,000, respectively, to the allowance for loan losses following net charge-offs of $526,000 and $229,000. The overall credit quality of the loan portfolio continued to improve as a result of strategies to strengthen credit underwriting. Improving credit quality is the primary driver of the decrease in the allowance for loan losses and related provision expense. The increase in net charge-offs during 2014 was due primarily to the charge-off of two large commercial business loans representing 55.41% of total charge-offs for the year.

The methodology used in the periodic review of reserve adequacy, which is performed at least quarterly, is designed to be responsive to changes in portfolio credit quality and inherent credit losses. The changes are reflected in both the pooled formula reserve and in specific reserves as the collectability of larger classified loans is regularly recalculated with new information as it becomes available.

In addition, bank regulators, as an integral part of their supervisory functions, periodically review Commercial Bancshares’ loan portfolio and related allowance for loan losses. These regulatory agencies may require Commercial Bancshares to increase its provision for loan losses or to recognize further loan charge-offs based upon their judgments. An increase in the allowance for loan losses by these regulatory agencies could materially adversely affect Commercial Bancshares’ financial condition and the results of operations.

Before loans are charged off, they typically go through a phase of non-performing status. Various stages exist when dealing with such non-performance. The first stage is simple delinquency, where customers consistently start paying late, 30, 60, 90 days at a time. These accounts may then be put on a list of loans to “watch” as they continue to under-perform according to original terms. Loans are placed on nonaccrual status when management believes the collection of the principal and interest is doubtful. A delinquent loan is generally placed on nonaccrual status when principal and/or interest is past due 90 days or more or if the financial strength of the borrower has declined or other facts would make the repayment of the loan suspect, unless the loan is well-secured or in the process of collection. When a loan is placed on nonaccrual status, all interest which has been accrued is charged back against current earnings as a reduction in interest income, which adversely affects the yield on loans in the period of reversal. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Loans placed on nonaccrual status may be returned to accrual status after payments are received for a minimum of six consecutive months in accordance with the loan documents, and any doubt as to the loan’s full collectability has been removed or the troubled loan is restructured and evidenced by a credit evaluation of the borrower’s financial condition and the prospects for full payment.


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Table 5 Summary of Allowance for Loan Losses

The following schedule summarizes the charge-offs and recoveries, by loan segment, charged to the allowance for loan losses(in thousands) at December 31,

     
 2015 2014 2013 2012 2011
Balance at beginning of period $4,126  $4,343  $4,041  $3,779  $3,198 
Loans charged off:
                         
Commercial  (357)   (430)   (79)   (387)   (241) 
Real Estate  (17)   (32)   (90)   (64)   0 
Consumer  (160)   (140)   (171)   (151)   (269) 
Total loans charged off  (534)   (602)   (340)   (602)   (510 
Recoveries of loans previously charged off:
                         
Commercial  49   37   52   12   15 
Real Estate  0   8   8   0   0 
Consumer  32   31   51   54   87 
Total loan recoveries  81   76   111   66   102 
Provision charged to operating expense  188   309   531   798   989 
Balance at end of period $3,861  $4,126  $4,343  $4,041  $3,779 
Allowance for loan losses as a percentage of:
             ��           
Period end loans  1.30%   1.48%   1.61%   1.63%   1.61% 

Commercial Bancshares’ methodology for evaluating whether a loan is impaired begins with risk-rating credits on an individual basis. Loans with a pass rating represent those not classified on Commercial Bancshares’ rating scale for problem credits, as minimal credit risk has been identified. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness that jeopardizes the repayment of the debt. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans rated as doubtful in whole, or in part, are placed on nonaccrual status.

Loans are placed on nonaccrual status when management believes the collection of principal and interest is doubtful, or when loans are past due as to principal and interest 90 days or more, except in certain circumstances when interest accruals are continued on loans deemed by management to be fully collateralized and in the process of being collected. At December 31, 2015 and 2014, there were no 90 day delinquent loans that were on accrual status. In such cases, the loans are individually evaluated in order to determine whether to continue income recognition after 90 days beyond the due dates.

When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the observable market price of the loan, except when the sole (remaining) source of repayment for the loan is the liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows. If management determines the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs and deferred loan fees or costs), impairment is recognized through an allowance estimate or a charge-off to the allowance. When management determines an impaired loan is a confirmed loss, the estimated impairment is directly charged off to the loan rather than creating a specific reserve for inclusion in the allowance for loan losses. However, not all impaired loans are in nonaccrual status as they may be current with regards to the payment terms. Their determination as an impaired loan is based on some inherent weakness in the credit that may, if certain circumstances occur or arise, result in an inability to comply with the loan agreement’s contractual terms. Impaired loans exclude large groups of smaller-homogeneous loans that are collectively evaluated for impairment such as consumer real estate and installment loans.


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Table 6 Percentage of Each Loan Segment to Total Loans

Summary of the allowance for loan losses(in thousands)allocated by loan segment at December 31,

          
 2015 2014 2013 2012 2011
Loan Type Allowance
Amount		 % of
Total
Loans		 Allowance
Amount		 % of
Total
Loans		 Allowance
Amount		 % of
Total
Loans		 Allowance
Amount		 % of
Total
Loans		 Allowance
Amount		 % of
Total
Loans
Commercial $3,122   82%  $3,340   81%  $3,517   81%  $3,175   78%  $2,849   75% 
Real Estate  299   8   277   8   235   5   284   7   278   7 
Consumer  440   10   509   11   591   14   582   15   652   18 
Total ALLL $3,861   100%  $4,126   100%  $4,343   100%  $4,041   100%  $3,779   100% 

The allowance for loan losses, specifically related to impaired loans at December 31, 2015 and 2014 was $76,000 and $302,000, respectively, related to loans with principal balances of $1,714,000 and $3,886,000. Impaired loans with no related allowance recorded at December 31, 2015 totaled $3,158,000 compared to $1,942,000 at December 31, 2014. Total impaired loans at December 31, 2015 totaled $4,872,000, a decrease of $956,000 or 16.4% from total impaired loans of $5,828,000 at December 31, 2014. Commercial Bancshares’ financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on the loan portfolio, unless a loan is placed on nonaccrual status. Amounts received on nonaccrual loans generally are applied first to principal and then to interest only after all principal has been collected. For the year ended December 31, 2015, Commercial Bancshares received interest payments of $271,000, related to impaired loans averaging $5,536,000, compared to interest payments of $328,000 and $235,000, related to impaired loans averaging $7,606,000 and $10,231,000 for the years ended December 31, 2014 and 2013, respectively.

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectable. Commercial Bancshares’ policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined. Management believes that by taking a proactive approach to identifying problems and determining their ultimate collectability, using both internal and external portfolio loan reviews, that any potential losses which may be incurred on these credits in the future are incorporated into its analysis of the adequacy of Commercial Bancshares’ allowance for loan losses.

Due to the weakening credit status of a borrower, Commercial Bancshares may elect to formally restructure certain loans to facilitate a repayment plan that minimizes the potential losses Commercial Bancshares might incur. Restructured loans, or troubled debt restructurings (“TDRs”), are classified as impaired loans and may either be in accruing or nonaccruing status. In most cases the modification is either a concessionary reduction in interest rate, extension of the maturity date or reduction in the principal balance that would otherwise not be considered. Concessionary modifications are classified as troubled debt restructurings unless the modification results in only an insignificant delay in the payments to be received. Troubled debt restructured loans are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows discounted using the loan’s effective interest rate at inception or the fair value of the collateral, less selling costs if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses. In periods subsequent to the modification, all TDRs are evaluated individually, including those that have payment defaults, for possible impairment. A nonaccrual TDR may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Additionally, there should be a sustained period of repayment performance (generally a period of six months) by the borrower in accordance with the modified contractual terms.

Troubled debt restructured loans totaled $4,349,000 at December 31, 2015 and represented five credit relationships in which economic concessions were granted to borrowers to better align the terms of their loans with their current ability to pay. Troubled debt restructured balances are down slightly from $4,557,000 at December 31, 2014, primarily reflecting monthly payments received on account. As of December 31, 2015, 88% of all restructured loans were performing in accordance with the terms of the restructure. The specified


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reserve required for these TDRs, whether collateral dependent or not, was $76,000, representing 2% of the total loan loss reserve and 100% of the total specified reserve. There are no commitments to lend additional amounts to borrowers with loans that are classified as troubled debt restructurings as of December 31, 2015.

Table 7 Summary of Impaired Loans

The following schedule summarizes impaired and non-performing loans(in thousands) at December 31,

     
 2015 2014 2013 2012 2011
Impaired loans $4,872  $5,828  $10,924  $12,056  $7,400 
Loans accounted for on a nonaccrual basis $721  $1,061  $3,015  $7,111  $1,852 
Accruing loans, which are contractually past due
                         
90 days or more as to interest or principal payments  0   0   0   0   0 
Total non-performing loans  721   1,061   3,015   7,111   1,852 
OREO and other repossessed assets  193   2,255   48   186   47 
Total non-performing assets $914  $3,316  $3,063  $7,297  $1,899 
Non-performing loans to allowance for loan losses  18.7%   25.7%   69.4%   176.0%   49.0% 
Non-performing loans to total assets  0.2%   0.3%   0.9%   2.4%   0.6% 
Non-performing assets to total assets  0.3%   1.0%   1.0%   2.4%   0.7% 

Non-performing assets include nonaccrual loans as well as other real estate owned and other repossessed assets. Non-performing loans are comprised of loans on nonaccrual status along with loans that are contractually past due 90 days or more but have not been classified as nonaccrual. At December 31, 2015, Commercial Bancshares had $721,000 in non-performing loans, or 0.24% of gross loans, compared to $1,061,000 in non-performing loans or 0.38% of gross loans at December 31, 2014. At December 31, 2015, non-performing loans by loan portfolio category were as follows: $538,000 in commercial business loans; $116,000 in commercial real estate loans; $52,000 in consumer loans and $15,000 in residential mortgage loans. Management evaluated non-performing loans at December 31, 2015 and believes they have charged off, written down or established adequate loss reserves on all identified problem loans.

Investment Securities

Commercial Bancshares’ securities portfolio has been structured in such a way as to maintain a prudent level of liquidity while also providing an acceptable rate of return. Investment securities include securities that may be sold to effectively manage interest rate risk exposure, prepayment risk and other factors such as liquidity requirements. While Commercial Bancshares’ focus is to generate interest revenue primarily through loan growth, the investment portfolio serves an important role in the overall context of balance sheet management in terms of balancing capital utilization and liquidity. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment, liquidity and credit considerations along with Commercial Bancshares’ level of pledgeable collateral for potential borrowings. The portfolio’s scheduled maturities represent a significant source of liquidity.


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Table 8 Carrying Value of Investment Securities

For the years ended December 31,

   
(In thousands) 2015 2014 2013
Securities available for sale               
US. Government agency securities $2,518  $1,965  $1,940 
State and political subdivisions  4,232   6,596   8,819 
Mortgage-backed securities  1,961   2,466   3,182 
Other investment securities  2,209   2,209   2,259 
Total securities available for sale $10,920  $13,236  $16,200 
Securities held to maturity
               
State and political subdivisions  666   0   0 
Total investment securities $11,586  $13,236  $16,200 

Securities that Commercial Bancshares has the ability and positive intent to hold to maturity are classified as investment securities held to maturity. Held to maturity investment securities are carried at amortized cost. Securities that may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or for other factors, are classified as available for sale and are carried at fair value. Unrealized gains and losses on these securities are reported, net of applicable taxes, as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity. Total investment securities decreased 12.5% or $1,650,000 to $11,586,000 at December 31, 2015 from $13,236,000 at December 31, 2014. Declines in the fair value of individual available for sale securities below their cost that are other-than-temporary result in write downs of the individual securities to their fair values. At December 31, 2015, the investment portfolio consisted primarily of U.S. government agencies, state and political subdivisions securities and mortgage-backed securities. The decline in investment securities during 2015 was predominantly due to the call of municipal and U.S. government agency securities of $2,773,000 and $459,000 in principal pay downs and prepayments of mortgage-backed securities, partially offset with purchases of U.S. government agency and municipal securities totaling $1,780,000.

Table 9 Maturity Schedule of Investment Securities

Maturity schedule (by contractual maturity or if applicable, earliest call date) of Commercial Bancshares’ investment securities, by carrying value, and the related weighted average yield at December 31, 2015:

          
 Maturing in
One Year or Less		 Maturing After
One Year Through
Five Years		 Maturing After
Five Years Through
Ten Years		 Maturing After
Ten Years		 Total
(In thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
U.S. government agency securities $517   0.75%  $2,001   1.02%  $0   0.00%  $0   0.00%  $2,518   0.96% 
State and political subdivisions  2,716   6.10%   1,328   5.88%   188   6.64%   0   0.00%   4,232   6.05% 
Mortgage-backed securities  5   2.52%   189   4.72%   743   5.35%   1,024   2.32%   1,961   3.69% 
Total securities available for sale $3,238   5.23%  $3,518   3.05%  $931   5.61%  $1,024   2.32%  $8,711   4.05% 
State and political subdivisions,
HTM		  666   3.72%   0   0.00%   0   0.00%   0   0.00%   666   3.72% 
Total investment securities $3,904   4.97%  $3,518   3.05%  $931   5.61%  $1,024   2.32%  $9,377   4.03% 

The weighted average interest rates are based on coupon rates for investment and mortgage-backed securities purchased at par value and on effective interest rates considering amortization or accretion if the investment and mortgage-backed securities were purchased at a premium or discount. The weighted average yield on tax-exempt obligations has been determined on a tax equivalent basis. Other investment securities consisting of Federal Home Loan Bank stock that bears no stated maturity or yield, is not included in this


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analysis. Maturities are reported based on stated maturities and do not reflect principal prepayment assumptions. Yields are based on amortized cost balances.

Cash and Cash Equivalents

Cash equivalents and federal funds sold include working cash funds, due from banks, interest-bearing deposits in other banks, items in process of collection and federal funds sold. Cash equivalents and federal funds sold totaled $18,895,000 at December 31, 2015 compared to $27,151,000 at December 31, 2014. Management believes the current level of cash and cash equivalents is sufficient to meet Commercial Bancshares’ liquidity and performance needs. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and corresponding liquidity sources and uses. Management believes Commercial Bancshares’ liquidity needs in the near term will be satisfied by the current level of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that will mature within one year, allowing Commercial Bancshares to meet cash obligations as they come due.

Premises and Equipment

Premises and equipment decreased 6.4% or $390,000 to $5,678,000 at December 31, 2015 from $6,068,000 at December 31, 2014, largely reflecting depreciation expense, offset with capital purchases of $193,000. Capital purchases in 2015 primarily consisted of $116,000 in repair and renovation costs at three branch locations and $77,000 in computers and computer equipment. Capital purchases in 2014 primarily consisted of $427,000 to upgrade servers and core software, $226,000 for new ATMs at each branch and $192,000 in renovation costs to expand a branch’s drive-through facilities.

Other Assets

Other assets, including accrued interest receivable, bank-owned life insurance, OREO and other repossessed assets, assets classified as held for sale and other assets decreased $3,190,000 to $11,859,000 at December 31, 2015 from $15,049,000 at December 31, 2014. The decrease in other assets was primarily due to a decrease of $2,062,000 in OREO and other repossessed assets and a decrease of $1,178,000 in assets classified as held for sale. The decrease in assets classified as held for sale is due to the sale of a branch property during first quarter 2015 that was valued at $1,178,000 and classified as assets held for sale at year-end 2014.

Other real estate owned acquired through partial or total satisfaction of non-performing loans is included in other assets and recorded at fair value less anticipated selling costs based upon the property’s appraised value at the date of transfer, with any difference between the fair value of the property less cost to sell, and the carrying value of the loan charged to the reserve for loan losses. Subsequent write downs that may be required are expensed as incurred. Gains and losses realized from the sale of other real estate owned, as well as valuation adjustments, are included in noninterest expense as well as expenses of operation. During the twelve months ended December 31, 2015, three properties with a total carrying value of $281,000 were transferred to OREO. Also during that time, capital improvement adjustments totaling $52,000 were made to an existing property in OREO. In addition, write-downs totaling $160,000 were taken against two existing properties held in OREO and were charged to income. During the twelve months ended December 31, 2015, two properties with a carrying value of $2,111,000 were sold at a loss of $25,000. At December 31, 2015, Commercial Bancshares held three properties in OREO with a carrying value of $70,000, compared to two properties with a carrying value of $2,220,000 at December 31, 2014.

Other repossessed assets, resulting from loans where Commercial Bancshares has received title or physical possession of the borrower’s assets, is included in other assets and is recorded at fair value, less estimated selling costs. At the time of repossession, the recorded amount of the loan is written down to the fair value of the equipment or vehicle by a charge to the reserve for loan losses. Gains and losses realized from the sale of other repossessed assets, as well as valuation adjustments, are included in noninterest expense as well as expenses of operation. During the twelve months ended December 31, 2015, additions to other repossessed assets totaled $159,000. During the same period, repossessed assets with a total carrying value of $70,000, sold at a loss of $8,000. Other repossessed assets at December 31, 2015 totaled $123,000 compared to $35,000 at December 31, 2014.


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Deposits and Borrowings

Total deposits decreased $2,145,000 or 0.7% to $296,626,000 at December 31, 2015 from $298,771,000 at December 31, 2014, largely due to the run off of higher costing certificates of deposits totaling $13,341,000, partially offset by increases in interest and noninterest-bearing deposits of $3,054,000 and $5,224,000, respectively. The decrease in time deposits is a result of Commercial Bancshares’ high liquidity position and from its strategy to lower overall funding costs, mainly by allowing higher-rate certificates of deposit to roll off or reprice at significantly lower interest rates. Many of those balances have been moved by the customer into interest or noninterest-bearing demand accounts or savings accounts.

Commercial Bank offers a broad selection of deposit accounts, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing checking accounts and money market accounts, savings accounts and certificates of deposits. Included in the certificates of deposit balances at December 31, 2015 was a total of $29,823,000 of reciprocal certificates of deposits offered under the Certificate Deposit Account Registry Service (“CDARS”), a program in which Commercial Bank participates. Under the CDARS program, participating banks are able to match customer’s deposits that would otherwise exceed the limits for FDIC insurance with certificates of deposits offered at other participating banks and thereby provide FDIC insurance to these excess deposits.

Commercial Bancshares also offers a variety of deposit accounts designed for businesses operating in its market areas. Business banking deposit products include commercial checking accounts, commercial money market accounts and checking accounts specifically designed for small businesses. Commercial Bancshares also offers bill paying and cash management services through its online banking system as well as a remote deposit capture product. Interest rates paid are competitively priced for each particular deposit product and structured to meet Commercial Bancshares’ funding requirements. Management believes that additional funds can be attracted and deposit growth can be realized through deposit pricing if Commercial Bancshares experiences increased loan demand or other liquidity needs.

Table 10 Large Time Deposits

Maturity of time deposits in amounts of $250,000 or more at December 31,

   
(In thousands) 2015 2014 2013
Three months or less $1,358  $1,053  $1,058 
Over three months through six months  302   1,115   250 
Over six months through twelve months  1,410   1,174   1,174 
Over twelve months  2,896   3,877   4,599 
Total $5,966  $7,219  $7,081 

Table 11 Average Deposits

Average deposit balances and average rates paid are summarized as follows for the years ended December 31,

         
 2015 2014 2013
(In thousands) Balance Rate % of
Total		 Balance Rate % of
Total		 Balance Rate % of
Total
Interest-bearing demand $117,025   0.08%   40%  $121,473   0.08%   43%  $120,020   0.08%   44% 
Savings deposit  27,769   0.03   9   25,750   0.03   9   23,453   0.03   9 
Time deposits  99,655   0.74   34   92,006   0.80   32   81,864   1.25   30 
Noninterest-bearing demand  49,652      17   45,034      16   45,051      17 
Total average deposits $294,101        100%  $284,263        100%  $270,388        100% 

Commercial Bancshares utilizes both short-term and long-term borrowings as an alternate funding source to deposits and can be used to fund Commercial Bancshares’ liquidity needs. Short-term borrowings, which include federal funds purchased, are borrowings from other banks that mature daily. FHLB advances are loans from Federal Home Loan Bank that can mature daily or have longer maturities for fixed or floating rates of interest. FHLB borrowings are generally used to provide additional funding for loan growth when it is in excess of deposit growth and to manage interest rate risk, but can also be used as an additional source of


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liquidity for Commercial Bancshares. Borrowed funds totaled $6,574,000 at December 31, 2015, an increase of $4,882,000 from borrowed funds of $1,692,000 at December 31, 2014. Commercial Bancshares’ borrowing capacity at FHLB totaled $31,197,000 of which $18,623,000 was available at December 31, 2015. Management believes Commercial Bancshares has adequate liquidity to meet its commitments for the foreseeable future.

Capital Resources

Shareholders’ equity increased $1,910,000 or 5.6% to $36,136,000 at December 31, 2015 from $34,226,000 at December 31, 2014. The increase in shareholders’ equity was primarily attributable to current earnings of $3,425,000 plus adjustments related to stock-based compensation expense, stock option accounting, deferred compensation plan activity and treasury stock activity of $357,000. Commercial Bancshares declared cash dividends of $0.880 per share for the year ended December 31, 2015, decreasing equity by $1,060,000. Included in shareholder’s equity is accumulated other comprehensive income which includes the net after-tax impact of unrealized gains or losses on investment securities classified as available for sale, which decreased $99,000 during 2015. Such unrealized gains or losses are generally due to changes in interest rates and represent the difference, net of applicable income tax effect, between the estimated fair value and amortized cost of investment securities. At December 31, 2014, the increase in shareholder’s equity represented current earnings of $3,296,000, plus adjustments related to stock-based compensation expense, stock option accounting, deferred compensation plan activity and treasury stock activity of $274,000, less dividends paid of $843,000.

During 2015, Commercial Bancshares returned 30.94% of earnings through dividends of $1,060,000 at $0.88 per share compared to a return on earnings of 25.59% through dividends of $843,000 at $0.71 per share during 2014. Average shareholders’ equity to average assets was 10.70% at December 31, 2015 compared to 10.29% at December 31, 2014.

Banking regulations have established minimum capital requirements for banks including risk-based capital ratios and leverage ratios. Regulations require all banks to have a minimum total risk-based capital ratio of 8.0%, with half of the capital composed of core capital. Minimum leverage ratios range from 3.0% to 5.0% of total assets. Conceptually, risk-based capital requirements assess the riskiness of a financial institution’s balance sheet and off-balance sheet commitments in relation to its capital. Core capital, or Tier 1 capital, includes common equity, perpetual preferred stock and minority interests that are held by others in consolidated subsidiaries minus intangible assets. Supplementary capital, or Tier 2 capital, includes core capital and such items as mandatory convertible securities, subordinated debt and the allowance for loans and lease losses, subject to certain limitations. Qualified Tier 2 capital can equal up to 100% of an institution’s Tier 1 capital with certain limitations in meeting the total risk-based capital requirements.

In July 2013, U.S. banking regulators adopted final rules related to standards on bank capital adequacy and liquidity (commonly referred to as “Basel III”). Under the new rules, Commercial Bank will be subject to new capital requirements that include: (i) Creation of a new required ratio for common equity Tier 1 (“CET 1”) capital; (ii) An increase to the minimum Tier 1 capital ratio; (iii) Changes to risk-weightings of certain assets for purposes of the risk-based capital ratios; (iv) Creation of an additional capital conservation buffer of 2.5% in excess of the required minimum capital ratios; and (v) Changes to what qualifies as capital for purposes of meeting these capital requirements.

The Tier 1 common capital ratio excludes any preferred shares or non-controlling interests when determining the calculation. This differs from the Tier 1 capital ratio which is based on the sum of its equity capital and disclosed reserves, and sometimes non-redeemable, non-cumulative preferred stock. Under Basel III, Commercial Bank will be required to maintain a minimum CET1 ratio of 4.5% of risk-weighted assets. At December 31, 2015, Commercial Bank’s CET1 ratio was 11.8%, exceeding the minimum regulatory requirement to be considered well capitalized. For further information regarding Basel III requirements, please see Note 16Regulatory Matters to the audited financial statements provided herewith.

Commercial Bank’s leverage and risk-based capital ratios at December 31, 2015 were 10.6% and 13.0%, respectively, compared to leverage and risk-based capital ratios of 10.1% and 13.1% at year-end 2014. Commercial Bank exceeded the minimum regulatory requirements to be considered well capitalized for both


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periods. Should it become necessary to raise capital to expand the activities of Commercial Bancshares, Commercial Bancshares believes there are sufficient un-issued shares to satisfy Commercial Bancshares’ objectives.

Table 12 Contractual Obligations and Commitments

Commercial Bancshares has certain obligations and commitments to make future payments under contract. The following table presents Commercial Bancshares’ contractual obligations and commitments(in thousands) at December 31, 2015:

     
Contractual obligations Payments Due by Period
 Total Less Than
One Year		 1 – 3
Years		 3 – 5
Years		 After
5 years
Time deposits and certificates of deposit $93,058  $45,968  $32,865  $10.567  $3,658 
Borrowed funds  6,574   5,000   0   0   1,574 
Total contractual obligations $99,632  $50,968  $32,866  $10,567  $5,231 

     
Other commitments Amount of Commitment — Expiration by Period
 Total Less Than
One Year		 1 – 3
Years		 3 – 5
Years		 After
5 years
Commitments to extend commercial credit $24,876  $17,902  $250  $425  $6,299 
Commitments to extend consumer credit  11,172   518   4,676   3,763   2,215 
Standby letters of credit  12   12   0   0   0 
Total other commitments $36,060  $18,432  $4,926  $4,188  $8,514 

Other obligations and commitments which are not included above include the deferred compensation plan, index plan reserve and split dollar life insurance. The timing of payments for these plans is unknown. See Note 1 for additional details.

Items listed under “Contractual obligations” represent standard bank financing activity under normal terms and practices. Such funds normally rollover or are replaced by like items depending on then-current financing needs. Items shown under “Other commitments” also represent standard bank activity, but for extending credit to bank customers. Commercial credits generally represent lines of credit or approved loans with drawable funds still available under the contract terms. On an on-going basis, about half of these amounts are expected to be drawn. Consumer credits generally represent amounts drawable under revolving home equity lines or credit card programs. Such amounts are usually deemed less likely to be drawn upon in total as consumers tend not to draw down all amounts on such lines. Utilization rates tend to be fairly constant over time. Standby letters of credit represent guarantees to finance specific projects whose primary source of financing come from other sources. In the unlikely event of the other source’s failure to provide sufficient financing, Commercial Bank would be called upon to fill the need. Commercial Bancshares is also continually engaged in the process of approving new loans in a bidding competition with other banks. Management and Board committees approve the terms of these potential new loans with conditions and/or counter terms made to the applicant customers. Customers may accept the terms, make a counter proposal, or accept terms from a competitor. These loans are not yet under contract, but offers have been tendered and would be required to be funded if accepted. Such agreements represent approximately $8,852,000 at December 31, 2015, in varying maturity terms.

Liquidity

Liquidity is the ability to satisfy demands for deposit withdrawals, lending commitments and other corporate needs. Commercial Bancshares’ liquidity, primarily represented by cash equivalents and federal funds sold, is a result of its operating, investing and financing activities which are summarized in the Consolidated Statements of Cash Flows. Primary sources of funds are deposits, prepayments and maturities of outstanding loans and securities. While scheduled payments from the amortization of loans and securities are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and industry competition. Funds are primarily used to meet ongoing commitments, satisfy operational expenses, payout maturing certificates of deposit and savings withdrawals and fund loan demand, with excess funds being invested in short-term, interest-earning assets.


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Commercial Bancshares’ liquidity ratio at December 31, 2015 was 5.74% compared to 8.71% and 6.39% at December 31, 2014 and 2013, respectively. Another measure of liquidity is the relationship of net loans to deposits and borrowed funds with lower ratios indicating greater liquidity. At December 31, 2015 the ratio of net loans to deposits and borrowed funds was 96.66% compared to 91.53% and 93.24% at December 31, 2014 and 2013, respectively. The decrease in Commercial Bancshares’ liquidity from year-end 2014 was primarily the result of loan growth as well as a slight decline in deposits. Core deposits may increase Commercial Bancshares’ need for liquidity as certificates of deposit mature or are withdrawn before maturity and as non-maturity deposits, such as checking and savings account balances, are withdrawn. To the extent Commercial Bancshares is unable to obtain sufficient liquidity through core deposits, Commercial Bancshares may meet its liquidity needs through other sources such as non-core deposits, FHLB advances and other wholesale debt instruments.

As presented in the accompanying Consolidated Statements of Cash Flows, the sources of liquidity vary between periods. Commercial Bancshares’ cash equivalents and federal funds sold totaled $18,895,000 at December 31, 2015, compared to $27,151,000 at December 31, 2014 and $18,119,000 at December 31, 2013. The following highlights Commercial Bancshares’ primary sources of funds and the primary uses of funds for the years ended December 31, 2015, 2014 and 2013.

In 2015, Commercial Bancshares’ primary sources of funds included $10,000,000 in Federal Home Loan Bank advances, $4,271,000 in net cash provided by operating activities, $3,232,000 in pay downs and maturities of investment securities, $2,136,000 in proceeds from the sale of OREO and other repossessed assets and $1,244,000 in proceeds from the disposition of premises and equipment. The primary uses of funds during 2015 included $18,252,000 to fund loan growth, the repayment of $5,118,000 in Federal Home Loan Bank advances, a decrease of $2,145,000 in net deposits, $1,780,000 in investment security purchases, cash dividends of $1,060,000 and treasury stock purchases of $736,000. The combined effect of the above activity resulted in a decrease of $8,256,000 in cash equivalents and federal funds sold for the year ended December 31, 2015.

In 2014, Commercial Bancshares’ primary sources of funds included an increase of $17,463,000 in net deposits, $10,500,000 in Federal Home Loan Bank advances, $2,750,000 in pay downs and maturities of investment securities and $2,562,000 in net cash provided by operating activities. The primary uses of funds during 2014 included $11,777,000 to fund loan growth, the repayment of $10,616,000 in Federal Home Loan Bank advances, the repayment of $1,757,000 in federal funds purchased, capital expenditures of $853,000 and cash dividends of $843,000. The combined effect of the above activity resulted in an increase of $9,032,000 in cash equivalents and federal funds sold for the year ended December 31, 2014.

In 2013, Commercial Bancshares’ primary sources of funds included an increase of $12,869,000 in net deposits, $9,000,000 in Federal Home Loan Bank advances, $4,278,000 in net cash provided by operating activities, $2,335,000 in pay downs and maturities of investment securities and $1,757,000 in federal funds purchased. The primary uses of funds during 2013 included $23,005,000 to fund loan growth, the repayment of $9,114,000 in Federal Home Loan Bank advances, $2,000,000 in investment security purchases and cash dividends of $718,000. The combined effect of the above activity resulted in a decrease of $4,785,000 in cash equivalents and federal funds sold for the year ended December 31, 2013.

Commercial Bancshares’ liquidity is monitored and closely managed by the Asset-Liability Management Committee (“ALCO”). Management believes that its sources and levels of liquidity are adequate to meet the needs of Commercial Bancshares.

Comparison of Results of Operations for the Three Years Ended December 31, 2015

Net interest income can be analyzed by segregating the volume and rate components of interest income and interest expense. The table below illustrates the volume and rate changes in net interest income on a tax-equivalent basis. For purposes of this table, changes in interest income and interest expense are allocated to volume and rate categories based upon the respective percentage changes in average balances and average rates. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.


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Table 13 Volume and Rate Analysis(a)

      
At December 31,
(Dollars in thousands)		 2015 Compared to 2014 2014 Compared to 2013
 Total Volume Rate Total Volume Rate
Increase (decrease) in
                              
Interest Income
                              
Federal Funds Sold $18  $17  $1  $(6)  $(8)  $2 
Taxable investment securities  (19)   3   (22)   (36)   (11)   (25) 
Tax-exempt investment securities  (80)   (75)   (5)   (102)   (107)   5 
Loans  128   278   (150)   542   1,075   (533) 
Total interest income  47   223   (176)   398   949   (551) 
Interest Expense
                              
Interest-bearing deposits  (2)   (3)   1   (3)   0   (3) 
Savings Deposits  1   1   0   0   1   (1) 
Time deposits  0   56   (56)   (290)   110   (400) 
Borrowed funds  (7)   (18)   11   (1)   7   (8) 
Total interest expense  (8)   36   (44)   (294)   118   (412) 
Net interest income $55  $187  $(132)  $692  $831  $(139) 

(a)This table shows the components of the change in net interest income by volume and rate on a tax equivalent basis utilizing a federal tax rate of 34 percent.

Commercial Bancshares generates a significant amount of its revenue, cash flows and net income from interest income and net interest income. The ability to properly manage net interest income under changing market environments is crucial to the success of Commercial Bancshares. Managing credit risk also has a significant influence on the operating results of Commercial Bancshares. While the overall economy expanded during 2015 based on GDP and certain other measures, Commercial Bancshares has continued to focus a significant amount of effort to reduce its non-performing assets that had built up following the recession of 2009. This continued effort over the last few years has led to a substantial decline in non-performing assets when compared with its peak during 2012. Improving credit quality is the primary driver of the decrease in the allowance for loan losses and related provision expense. While Commercial Bancshares continues to operate in a challenging economic and business environment, 2016 will include a focus on further reducing non-performing assets while also maintaining a focus on quality originations, delivering high performance and creating value for its customers and shareholders.

Commercial Bancshares reported net income of $3,425,000 for 2015, an increase of $129,000 or 3.9% from $3,296,000 at December 31, 2014, compared to an increase of $241,000 or 7.9% from net income of $3,055,000 in 2013. Basic and diluted net income per common share was $2.86 and $2.80, respectively, compared to basic and diluted net income per common share of $2.78 and $2.73 in 2014 and $2.60 and $2.57 in 2013. The more significant components of Commercial Bancshares’ results of operations are included below.

Net Interest Income

Net interest income, the major source of Commercial Bancshares’ operating revenue, is the difference between income on earning assets and the cost of funds supporting those assets. Significant categories of earning assets are loans and securities while deposits and borrowings represent the major portion of interest-bearing liabilities. The table following this discussion represents the major components of interest-earning assets and interest-bearing liabilities on a tax equivalent basis. To compare the tax-exempt asset yields to taxable yields, amounts in the table are adjusted to pretax equivalents based on the marginal corporate federal tax rate of 34%.

The two most common metrics used to analyze net interest income are net interest spread and net interest margin. Net interest spread represents the difference between the taxable equivalent yields on earning assets and the rates paid on interest-bearing liabilities. Net interest margin represents the percentage of taxable equivalent net interest income to average earning assets. Net interest margin will exceed net interest spread


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because of the existence of noninterest-bearing sources of funds, principally demand deposits, which are available to fund earning assets. Changes in net interest income and margin result from the interaction between the volume and composition of earning assets, their related yields and the associated cost and composition of interest-bearing liabilities. Accordingly, portfolio size, composition and the related yields earned and the average rates paid have a significant impact on net interest spread and margin.

Net interest income, on a tax equivalent basis, increased $55,000 or 0.4% to $13,817,000 at December 31, 2015 from $13,762,000 in 2014, compared to an increase of $692,000 or 5.3% from net interest income of $13,070,000 in 2013. On a tax equivalent basis, net interest margin, expressed as a percentage of average earning assets, was 4.46% for the year ended December 31, 2015, compared to 4.62% in 2014 and 4.63% in 2013. Net interest spread, which is the average yield on interest-earning assets minus the average rate paid on interest-bearing liabilities, was 4.39% for the year ended December 31, 2015, compared to 4.56% in 2014 and 4.53% in 2013. The decrease in Commercial Bancshares’ net interest margin in 2015 was largely due to a decrease in the average rates earned on loans due to the rate pressure from the maturity and repricing of existing loans in the portfolio, lessened slightly by an increase in average loan balances between periods of $6,145,000 or 2.3%. Additionally, the markets in which Commercial Bancshares competes remain competitive for high quality loans, which also places downward pressure on the yield in the loan portfolio. Also contributing to the decrease in Commercial Bancshares’ net interest income is primarily the result of disproportionately high average balances at the Federal Reserve Bank. Deposits invested at the Federal Reserve Bank bore interest at only 25 basis points during 2015.

Commercial Bancshares’ net interest margin remained relatively stable between 2014 and 2013, primarily due to an increase in average loan balances as well as lower average rates paid on deposits. Economic conditions in the primary markets where Commercial Bancshares operates through its wholly-owned subsidiary demonstrated modest improvement throughout 2013 and 2014. This economic stabilization led to the increase in loan demand, particularly in the commercial real estate portfolio. In addition, the stabilization in the national and regional economies also had a positive impact on Commercial Bancshares’ asset quality.

Interest income results from interest earned on earning assets, which primarily includes loans and investment securities. Interest income is affected by volume (average balance), the composition of earning assets and the related rates earned on those assets. Interest and fee income, on a fully tax equivalent basis, increased $47,000 or 0.3% to $14,691,000 at December 31, 2015, up from $14,644,000 in 2014. Average net loans, representing 89.06% and 90.52% of average interest-earning assets during 2015 and 2014, respectively, increased $6,145,000 or 2.3%, while the average tax equivalent yield decreased 7 basis points. Average investment securities, representing 4.47% and 5.04% of average interest-earning assets during 2015 and 2014, respectively, decreased $1,165,000 or 7.8%, while the average tax equivalent yield decreased 33 basis points. Average federal funds sold, representing 6.47% and 4.44% of average interest-earning assets during 2015 and 2014, respectively, increased $6,809,000 or 51.5%, while the average yield earned remained unchanged.

Interest and fee income, on a fully tax equivalent basis, increased $398,000 or 2.8% to $14,644,000 for the year ended December 31, 2014, up from $14,246,000 in 2013. Average net loans, representing 90.52% and 88.04% of average interest-earning assets during 2014 and 2013, respectively, increased $21,252,000 or 8.6%, while the average tax equivalent yield decreased 22 basis points. The increase in interest and fee income between periods was largely driven by a 10.6% increase in average commercial loan balances, reflecting Commercial Bancshares’ continued strategic focus on commercial lending within its local markets. The increase in loan volume between periods more than offset the loss of income due to lower yields on Commercial Bancshares’ average earning assets. Average investment securities, representing 5.04% and 6.08% of average interest-earning assets during 2014 and 2013, respectively, decreased $2,142,000 or 12.5%, while the tax equivalent yield decreased 24 basis points. The decrease in investment securities was largely due to calls, pay downs and maturities of state and political subdivisions and mortgage-backed securities. Average federal funds sold, representing 4.44% and 5.88% of average interest-earning assets during 2014 and 2013, respectively, decreased $3,370,000 or 20.3%, while the average yield earned remained relatively unchanged.

The overall interest rate environment at year-end 2015, as measured by the Treasury yield curve, remains at very low levels when compared with historical trends. Compared with year-end 2014, yields for six and twelve-month treasury maturities increased 37 and 40 basis points, respectively. Three and five-year maturities


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increased 21 and 11 points, respectively, while yields on longer-term maturities increased 10 and 26 points for the ten and thirty-year maturity periods, respectively. On December 17, 2015, the short-term federal funds target interest rate was raised to be between 0.25% and 0.50%, previously unchanged since December 2008. Between 2014 and 2013, the six and twelve-month maturities increased 2 and 12 points, respectively. Three-year maturities increased 32 points while the five-year maturities decreased 10 points. Yields on longer-term maturities decreased 87 and 121 points for the ten and thirty-year maturity periods, respectively.

Similar to the short-term federal funds target rate, the prime interest rate was raised to 3.50% on December 17, 2015, previously unchanged since December 2008. Commercial Bancshares uses the prime interest rate as part of its pricing model primarily on variable rate commercial real estate loans. The prime interest rate can have a significant impact on Commercial Bancshares’ interest income on loans that re-price based on changes to this rate. Commercial Bancshares’ variable interest rate loans contain provisions that limit the amount of increase or decrease in the interest rate during the life of a loan. This will limit the increase or decrease in interest income on loans that have interest rates tied to the prime interest rate. For 2015, the average yield earned on loans was 5.10%, which exceeded the prime interest rate of 3.50% at year-end. Predicting the direction and timing of future interest rates is uncertain.

The following table presents Commercial Bancshares’ (i) average assets, liabilities, and shareholders’ equity, (ii) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (iii) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (iv) interest rate spread and (v) net interest margin.

Table 14 Distribution of Assets, Liabilities and Shareholders’ Equity

For the years ended December 31, 2015, 2014 and 2013

         
 2015 2014 2013
(In thousands) Average
Balance		 Interest
Income/
Expense		 Yield/
Rate
 Average
Balance		 Interest
Income/
Expense		 Yield/
Rate		 Average
Balance		 Interest
Income/
Expense		 Yield/
Rate
Federal funds sold $20,034  $51   0.25%  $13,225  $33   0.25%  $16,595  $39   0.24% 
Investment securities:
                                             
Taxable securities(1)  7,134   186   2.61   7,035   205   2.91   7,359   241   3.27 
Tax-exempt securities(1)  6,706   392   5.85   7,970   472   5.92   9,788   574   5.86 
Loans(2)(3)  275,749   14,062   5.10   269,604   13,934   5.17   248,352   13,392   5.39 
Earning Assets  309,623   14,691   4.74%   297,834   14,644   4.92%   282,094   14,246   5.05% 
Other assets  23,766         24,457         23,410       
Total assets $333,389        $322,291        $305,504       
Interest-bearing demand deposits $117,025  $93   0.08%  $121,473  $95   0.08%  $120,020  $98   0.08% 
Savings deposits  27,769   9   0.03   25,750   8   0.03   23,453   8   0.03 
Time deposits  99,655   736   0.74   92,006   736   0.80   81,864   1,026   1.25 
Borrowed funds  1,996   36   1.80   3,326   43   1.29   2,888   44   1.52 
Interest-bearing liabilities  246,445   874   0.35%   242,555   882   0.36%   228,225   1,176   0.52% 
Noninterest-bearing demand deposits  49,652             45,034             45,051           
Other liabilities  1,624             1,547             1,573           
Shareholders’ equity  35,668         33,155         30,655       
Total liabilities and shareholders’ equity $333,389        $322,291        $305,504       
Net interest income    $13,817        $13,762        $13,070    
Interest rate spread            4.39%             4.56%             4.53% 
Net interest margin        4.46%         4.62%         4.63% 

(1)Average yields on all securities have been computed based on amortized cost. Income on tax-exempt securities has been computed on a taxable-equivalent basis using a 34% federal tax rate and a 20% disallowance of interest expense deductibility under TEFRA rules. The amount of such adjustment was $135,000, $163,000 and $201,000 for 2015, 2014 and 2013, respectively.

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(2)Average balance is net of deferred loan fees of $713,000, $570,000, and $475,000 for 2015, 2014 and 2013, respectively.
(3)Average loan balances include nonaccruing loans.

Interest expense results from incurring interest on interest-bearing liabilities, primarily made up of interest-bearing deposits, federal funds purchased and other borrowed funds. Interest expense is affected by volume, composition of interest-bearing liabilities and the related rates paid on those liabilities. Interest expense decreased $8,000 or 0.9% to $874,000 for the year ended December 31, 2015, down from $882,000 in 2014. Average interest-bearing demand deposits, representing 47.49% and 50.08% of average interest-bearing liabilities during 2015 and 2014, respectively, decreased $4,448,000 or 3.7%, while the average rate paid remained unchanged between periods. Average time deposits, representing 40.44% and 37.93% of average interest-bearing liabilities during 2015 and 2014, respectively, increased $7,649,000 or 8.3%, while the average rate paid decreased 6 basis points. The increase in average time deposits between periods was largely driven by an increase in large certificates of deposit balances, primarily in Certificates of Deposit Account Registry Service deposits or (“CDARS”). Commercial Bancshares has continued to aggressively reprice higher-rate maturing time deposits downward to lower market rates or to allow them to mature without renewal. Average borrowed funds, representing 0.81% and 1.37% of average interest-bearing liabilities during 2015 and 2014, respectively, decreased $1,330,000 or 40.0%, while the average rate paid increased 51 basis points.

Interest expense decreased $294,000 or 25.0% to $882,000 for the year ended December 31, 2014, down from $1,176,000 in 2013. Average interest-bearing demand deposits, representing 50.08% and 52.59% of average interest-bearing liabilities during 2014 and 2013, respectively, increased $1,453,000 or 1.2%, with no change in the average rate paid. Average time deposits, representing 37.93% and 35.87% of average interest-bearing liabilities during 2014 and 2013, respectively, increased $10,142,000 or 12.4%, while the average rate paid decreased 45 basis points. The increase in average time deposits between periods was largely driven by an increase in large certificates of deposit balances, primarily in CDARS average balances. Average borrowed funds, representing 1.37% and 1.27% of average interest-bearing liabilities during 2014 and 2013, respectively, increased $438,000 or 15.2%, while the average rate paid decreased 23 basis points.

Provision for Loan Losses

Commercial Bancshares establishes an allowance for loan losses through charges to earnings, which are shown in the statements of operations as the provision for loan losses. Through the provision for loan losses, an allowance is maintained that reflects management’s best estimate of probable incurred loan losses related to specifically identified loans as well as the inherent risk of loss related to the remaining portfolio. In evaluating the allowance for loan losses, management considers various factors that include loan growth, the amount and composition of the loan portfolio, (including non-performing and potential problem loans), diversification, or conversely, concentrations by industry, geography or collateral within the portfolio, historical loan loss experience, current delinquency levels, the estimated value of the underlying collateral, prevailing economic conditions and other relevant factors. Loan charge-offs are recorded to this allowance when loans are deemed uncollectible, in whole or in part. Impacting the provision for loan losses in any accounting period are several factors including the amount of loan growth during the period, segregated by loan type, the level of charge-offs during the period, the changes in the amount of impaired loans, changes in risk ratings assigned to loans, specific loan impairments, credit quality, and ultimately, the results of management’s assessment of the inherent risks of the loan portfolio.

The provision for loan loss expense decreased to $188,000 in 2015, which resulted in an allowance for loan losses at December 31, 2015 of $3,861,000, representing 1.30% of the loan portfolio compared to a provision for loan loss expense of $309,000 in 2014 and an allowance for loan losses of $4,126,000 at the end of 2014, representing 1.48% of the loan portfolio. The loan loss provision expense charged against income for the twelve months ended December 31, 2013 was $531,000, which resulted in an allowance for loan losses at year-end 2013 of $4,343,000, representing 1.61% of the loan portfolio. The decrease in the provision for loan loss expense is attributable to a number of factors but was primarily the result of stabilization or improvement in key loan quality metrics, including a decrease in net charge-offs, strong reserve coverage of non-performing loans and significant improvement in loan grades which resulted in lower reserve percentages. Classified loans at December 31, 2015, totaled $4,399,000, a decrease of $1,633,000 or 27.1% from classified loans of


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$6,032,000 at December 31, 2014. Classified loans as of December 31, 2014 decreased $4,729,000 or 44.0% from classified loans of $10,761,000 at December 31, 2013.

Management considers the allowance for loan losses at December 31, 2015 adequate to cover loan losses based on its assessment of various factors affecting the loan portfolio, including the level of problem loans, overall delinquencies, business conditions, estimated collateral values and loss experience. A decline in local and national economic conditions, or other factors, could result in a material increase in the allowance for loan losses which could adversely affect Commercial Bancshares’ financial condition and results of operations. For further information relating to factors affecting the allowance for loan losses, see“Allowance for Loan Losses,” under Financial Condition.

Noninterest Income

Noninterest income consists primarily of fees and commissions earned on services that are provided to Commercial Bancshares’ banking customers, income generated from the leasing of office space, third-party mortgage referral fee income and to a lesser extent, net gains and losses on sales of OREO and other repossessed assets and other miscellaneous income. Noninterest income for the year ended December 31, 2015 was $2,046,000, a decrease of $85,000 or 4.0%, compared to noninterest income of $2,131,000 in 2014. The more significant items impacting noninterest income are included below:

Service and overdraft charges decreased $78,000 or 5.3%, primarily in overdraft fees reflecting a decline in the volume of insufficient funds (“NSF”) activity.
A decrease of $50,000 or 41.2% in rent income, largely due to lost income from the sale of a branch office during the four quarter of 2014. Commercial Bancshares previously leased office space at this location.
An increase of $49,000 or 20.4% in third-party mortgage referral fee income, largely due to increased mortgage production as a result of the escalated demand in home purchases and refinancing due in part to the sustained low interest rate environment.
A decrease of $42,000 in the gain on sale of bank premises and equipment primarily reflecting the sale of a drive-through branch during the first quarter of 2014.

Noninterest income for the year ended December 31, 2014 was $2,131,000, a decrease of $32,000 or 1.5%, compared to noninterest income of $2,163,000 in 2013. The more significant items impacting noninterest income are included below:

A decrease of $31,000 or 6.6% in overdraft charges, largely driven by a decline in the volume of insufficient (“NSF”) activity.
An increase of $40,000 or 25.2% in service charges and fees on deposit accounts, primarily reflecting an increase in minimum balance fees charged on deposit accounts.
An increase of $21,000 or 3.1% in ATM processing service revenue, due primarily to an increase in transaction volumes, including the impact from additional ATMs installed during 2014.
A decrease of $46,000 or 16.1% in third-party mortgage referral fee income, primarily due to a decline in residential mortgage production. Residential mortgage production fluctuates significantly based on both borrower demand and the interest rate environment.
A decrease of $11,000 or 4.4% in bank-owned life insurance income. The assets supporting these policies are administered by the life insurance carriers and the income received on these policies is dependent upon the returns the insurance carriers are able to earn on the underlying investments supporting the policies.

Noninterest Expense

Noninterest expense consists primarily of personnel, occupancy, equipment and other operating expenses. Noninterest expense for 2015 totaled $10,663,000, a decrease $31,000 or 0.3% from $10,694,000 in 2014. The more significant items impacting noninterest expense are included below:

An increase of $168,000 or 2.8% in salaries and employee benefits, largely due to an increase in

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benefit expenses. The increase in benefit expenses was largely driven by an increase of $86,000 or 19.4% in medical insurance plan expense. Also factoring into the increase in employee benefit expense during 2015 was an increase of $33,000 or 34.7% in employee compensation costs related to stock based compensation plans, and an increase in unemployment insurance of $15,000 or 105.1% reflecting an adjustment to the estimated insurance costs for the current year.
An increase of $71,000 or 16.2% in OREO and miscellaneous loan expense, largely due to increases in maintenance costs and property taxes associated with the sale of two large commercial real estate properties during the second and third quarters of 2015.
A decrease of $103,000 or 8.4% in premises and equipment expense, largely reflecting decreases in utilities, depreciation expense, building maintenance and equipment maintenance contracts due to the sale of a branch office which was classified as held for sale at year-end 2014 and closed during the first quarter of 2015. The decrease in premises and equipment expense was partially offset by an increase in computer depreciation expense reflecting capital purchases during the third and fourth quarters of 2015.
A decrease of $53,000 or 11.9% in professional fees, due primarily to decreased collection efforts as the overall credit quality of Commercial Bancshares’ loan portfolio continues to improve.
A decrease of $47,000 or 156.7% in the loss on sale of bank premises, largely reflecting a credit adjustment of $17,000 related to the estimated loss taken on the sale of a branch office which was classified as held for sale at the end of 2014 but closed during the first quarter of 2015.

Noninterest expense for 2014 totaled $10,694,000, an increase $519,000 or 5.1% from $10,175,000 in 2013. The more significant items impacting noninterest expense are included below:

An increase of $162,000 or 2.8% in salaries and employee benefits, largely due to a 3% planned increase in salaries and associated taxes, as well as slight increases in medical insurance plan expense and employee compensation costs.
An increase of $217,000 or 97.8% in OREO and miscellaneous loan expense, due primarily to realized holding losses or write downs on the valuation of OREO properties and other repossessed assets as well as an increase in maintenance costs and property taxes associated with these assets.
An increase of $58,000 or 15.0% in professional fees, primarily reflecting an increase in legal costs pertaining to OREO foreclosures and other problem loans.
Net loss on the sale of bank premises. In February 2014, Commercial Bancshares sold its drive-through branch for a gain of $41,000. In November 2014, Commercial Bancshares announced that its wholly-owned subsidiary bank would be combining the operations of two of its existing branches into one and had entered into an agreement to sell its Lincoln Street branch in the first quarter of 2015. A loss on the sale of $71,000, including costs to sell of approximately $22,000, was recorded at year-end 2014.

Income Tax Expense

The Commercial Bancshares’ pre-tax income for the year ended December 31, 2015, totaled $4,877,000, resulting in a tax provision of $1,452,000. Pre-tax income for 2014 and 2013 was $4,727,000 and $4,326,000, respectively, resulting in a tax provision of $1,431,000 and $1,127,000. Commercial Bancshares’ effective tax rate for 2015 was 29.77%, compared to 30.27% and 29.38% for 2014 and 2013, respectively. The difference between Commercial Bancshares’ effective tax rate and the statutory rate is primarily attributable to Commercial Bancshares’ tax-exempt income. Tax-exempt income includes income earned on certain state and political subdivisions securities that qualify for state and/or federal income tax exemption and Commercial Bancshares’ earnings on bank-owned life insurance policies, which are exempt from federal taxation. Further analysis of income taxes is presented in Note 12 of the“Notes to Consolidated Financial Statements.”


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LEGAL MATTERS

Vorys, Sater, Seymour and Pease LLP has rendered an opinion that the shares of First Defiance common stock to be issued to the Commercial BancsharesUnited Community shareholders in connection with the merger have been duly authorized and, if issued pursuant to the Merger Agreement,merger agreement, will be validly issued, fully paid andnon-assessable under the laws of the State of Ohio. VorysWachtell, Lipton, Rosen & Katz and ShumakerBarack Ferrazzano Kirschbaum & Nagelberg LLP have each delivered an opinion regarding the federal income tax consequences of the merger tofor United Community and First Defiance, Commercial Bancshares and the Commercial Bancshares shareholders.respectively.

EXPERTS

First Defiance’sThe consolidated financial statements includedof First Defiance as of December 31, 2018 and 2017 and for each of the three years in First Defiance’s Annual Report on Form 10-K for the yearsperiod ended December 31, 20152018 and 2014,the effectiveness of First Defiance’s internal control over financial reporting as of December 31, 2018 have been audited by Crowe Horwath LLP, an independent registered public accounting firm, as set forth in their report thereon includedappearing in suchits Annual Report.Report on Form 10-K for the year ended December 31, 2018 and incorporated in this joint proxy statement/prospectus by reference. Such consolidated financial statements arehave been so incorporated herein by reference in reliance upon suchthe report given on the authority of such firm given upon their authority as experts in auditingaccounting and accounting.auditing.

Commercial Bancshares’The consolidated financial statements of United Community as of December 31, 20152018 and 2014,2017 and for each of the three years in the three-year period ended December 31, 2015, included in this document, which is part2018 and the effectiveness of a registration statement,United Community’s internal control over financial reporting as of December 31, 2018 have been audited by Plante & Moran, PLLC,Crowe LLP, an independent registered public accounting firm, as set forth in their report preceding suchappearing in its Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated in this joint proxy statement/prospectus by reference. Such consolidated financial statements and are includedhave been so incorporated in reliance upon suchthe report given on the authority of such firm given upon their authority as experts in accounting and auditing.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCEWHERE YOU CAN FIND MORE INFORMATION

First Defiance has filed with the SEC a registration statement under the Securities Act of 1933 that registers the issuance of the shares of First Defiance common stock to be issued in connection with the merger. This joint proxy statement/prospectus is a part of that registration statement and constitutes the prospectus of First Defiance, in addition to being a proxy statement for First Defiance and United Community shareholders. The registration statement, including this joint proxy statement/prospectus and the attached exhibits and schedules and the information incorporated herein and therein by reference, contains additional relevant information about First Defiance and First Defiance common stock.

First Defiance and United Community also file reports, proxy statements, and other information with the SEC under the Securities Exchange Act of 1934. The SEC maintains an Internet website that contains reports, proxy statements, and other information about issuers, such as First Defiance and United Community, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by First Defiance with the SEC are also available at First Defiance’s website at www.fdef.com. The reports and other information filed by United Community with the SEC are available at United Community’s website at www.homesavings.com. The web addresses of the SEC, First Defiance and United Community are included as inactive textual references only. Except as specifically incorporated by reference into this proxy statement/prospectus, information on those websites is not part of this proxy statement/prospectus

The Securities and Exchange CommissionSEC allows First Defiance and United Community to incorporate certain information by reference into this joint proxy statement/prospectus. This means that First Defiance and United Community can disclose important business and financial information to you by referring you to another document filed separately with the Securities and Exchange Commission.SEC. The information incorporated by reference is deemed to be part of this joint proxy statement/prospectus, except for any information superseded by information contained directly in this joint proxy statement/prospectus. This joint proxy statement/prospectus incorporates by reference the documents listed below that First Defiance hasand United Community have previously filed with the SecuritiesSEC. They contain important information about the companies and Exchange Commission. We encourage you to read these documents together with this proxy statement/prospectus.their financial condition.

First Defiance SEC Filings (File No. 000-26850)

• 
FilingPeriod of Report or Date Filed

First Defiance’sAnnual Report on Form10-K

Year for the fiscal year ended December 31, 2015
Quarterly Reports on Form 10-QQuarters ended March 31, June 30, 2016
Current Reports on Form 8-KFiled on January 19, January 29, April 19, April 22, June 17, July 19, August 2, August 24, September 7, October 18 and           , 2016.
The description of First Defiance common stock set forth in the Registration Statement2018, filed with the SEC on Form 8-AFebruary 28, 2019;

•

First Defiance’sDefinitive Proxy Statement on September 25, 1995, including any amendmentSchedule 14A for First Defiance’s 2019 annual meeting of reportshareholders, filed with the SEC for the purpose of updating this description.
on March 8, 2019;

• 

First Defiance’s Quarterly Reports on Form10-Q for the quarterly period endedMarch 31, 2019, filed with the SEC on  May 7, 2019, and for the quarterly period endedJune 30, 2019, filed with the SEC on August 9, 2019; and

•

Current Reports on Form8-K filed with the SEC on January 4, 2019,January  22, 2019,February 6, 2019,March  6, 2019,April 22, 2019,May  3, 2019,May 23, 2019, May 31, 2019, July  23, 2019,July 30, 2019,September  9, 2019 andSeptember 10, 2019 (other than those portions of the documents deemed to be furnished and not filed).

United Community SEC Filings

•

United Community’sAnnual Report on Form10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 13, 2019;

•

United Community’sDefinitive Proxy Statement on Schedule 14A for United Community’s 2019 annual meeting of shareholders, filed with the SEC on March 22, 2019;

•

United Community’s Quarterly Reports on Form10-Q for the quarterly period endedMarch 31, 2019, filed with the SEC on  May 9, 2019, and for the quarterly period endedJune 30, 2019, filed with the SEC on August 8, 2019; and

•

United Community’s Current Reports on Form8-K filed with the SEC on January 23, 2019,February  27, 2019,April 17, 2019,May  6, 2019,July 23, 2019,September  9, 2019 andSeptember 10, 2019 (other than those portions of the documents deemed to be furnished and not filed).

In addition, this joint proxy statement/prospectus also incorporates by reference any documents subsequently filed by First Defiance or United Community with the Securities and Exchange Commission,SEC, pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, between the date of this joint proxy statement/prospectus and the date of the special meetingmeetings of the Commercial Bancshares shareholders.

Both First Defiance and Commercial Bancshares file annual, quarterlyUnited Community shareholders. These documents include periodic reports, such as Annual Reports on Form10-K, Quarterly Reports on Form10-Q and special reports,Current Reports on Form8-K, as well as proxy statements and other business and financial information with the Securities and Exchange Commission. You may obtain the information First Defiance hasstatements.

Documents incorporated by reference and any other materialsare available from First


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Defiance and Commercial Bancshares file withUnited Community without charge. You can obtain documents incorporated by reference in this joint proxy statement/prospectus by requesting them in writing or by telephone from the Securitiesappropriate company at the following address and Exchange Commission without charge by following the instructions in the section entitled “Where You Can Find More Information” beginning on page 1. Following the merger, phone number:

First Defiance Financial Corp.
Attention: Investor Relations
601 Clinton Street
Defiance, Ohio 43512-3272
(419)782-5015		United Community Financial Corp.
Attention: Investor Relations
275 West Federal Street
Youngstown, Ohio 44503
(330)742-0500

First Defiance shareholders and United Community shareholders requesting documents must do so by [                ] to receive them before their respective special meetings. You will continuenot be charged for any of these documents that you request. If you request any incorporated documents from First Defiance or United Community, First Defiance and United Community, respectively, will mail them to be regulatedyou by the information, reporting and proxy statement requirements of the Securities Exchange Act of 1934, as amended.first-class mail, or another equally prompt means, within one business day after receiving your request.

Neither First Defiance nor Commercial BancsharesUnited Community has authorized anyone to give any information or make any representation about the merger or its companies that is different from, or in addition to, that contained in this documentjoint proxy statement/prospectus or in any of the materials that have been incorporated into this document.joint proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this documentjoint proxy statement/prospectus does not extend to you. The information contained in this documentjoint proxy statement/prospectus speaks only as of the date of this documentjoint proxy statement/prospectus unless the information specifically indicates that another date applies.

INDEX TO COMMERCIAL BANCSHARES FINANCIAL INFORMATION

The following consolidated financial statements of Commercial Bancshares and notes thereto, together with the related reports of Commercial Bancshares’ independent registered public accounting firm appear on the pages specified below:ANNEX A

EXECUTION VERSION

Unaudited Interim Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015119
Consolidated Statements of Income for the Six Months Ended June 30, 2016 and 2015120
Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2016 and 2015121
Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2016 and 2015 (unaudited)122
Notes to Unaudited Interim Consolidated Financial Statements124
Audited Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm143
Consolidated Balance Sheets as of December 31, 2015 and 2014144
Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and 2013145
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013146
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013147
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013148
Notes to Audited Consolidated Financial Statements149

AGREEMENTAND PLANOF MERGER

BETWEEN

FIRST DEFIANCE FINANCIAL CORP.

AND

UNITED COMMUNITY FINANCIAL CORP.

SEPTEMBER 9, 2019


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)

  
 June 30,
2016		 December 31,
2015
   (Unaudited)   
ASSETS
          
Cash and cash equivalents $4,797  $4,753 
Federal funds sold  15,481   14,142 
Cash equivalents and federal funds sold  20,278   18,895 
Securities available for sale  8,426   8,711 
Securities held to maturity  666   666 
Other investment securities  2,196   2,209 
Total loans  297,872   296,933 
Allowance for loan losses  (3,853)   (3,861) 
Loans, net  294,019   293,072 
Premises and equipment, net  5,436   5,678 
Accrued interest receivable  1,186   1,302 
Bank-owned life insurance  8,031   9,145 
Other real estate owned and other repossessed assets  34   193 
Other assets  1,742   1,219 
Total assets $342,014  $341,090 
LIABILITIES
          
Deposits
          
Noninterest-bearing demand $51,356  $55,574 
Interest-bearing demand  114,970   118,919 
Savings and time deposits less than $250,000  123,725   114,203 
Savings and time deposits $250,000 and greater  10,885   7,930 
Total deposits  300,936   296,626 
FHLB advances  1,514   6,574 
Accrued interest payable  84   45 
Other liabilities  1,264   1,709 
Total liabilities  303,798   304,954 
SHAREHOLDERS’ EQUITY
          
Common stock, no par value; 4,000,000 shares authorized, 1,209,788 shares issued and 1,198,063 outstanding in 2016 1,209,788 shares issued and 1,186,018 outstanding in 2015  12,981   12,815 
Retained earnings  27,004   25,349 
Unearned compensation  (191)   (268) 
Deferred compensation plan shares; at cost, 66,584 shares in 2016 and 62,067 shares in 2015  (1,345)   (1,206) 
Treasury stock; 11,978 shares in 2016 and 23,770 shares in 2015  (362)   (711) 
Accumulated other comprehensive income  129   157 
Total shareholders’ equity  38,216   36,136 
Total liabilities and shareholders’ equity $342,014  $341,090 

 

See notes to the consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands, except per share data)

    
 Three Months Ended
June 30,		 Six Months Ended
June 30,
   2016 2015 2016 2015
Interest income
                    
Interest and fees on loans $3,667  $3,570  $7,282  $6,973 
Interest on investment securities:
                    
Taxable  43   48   86   96 
Tax exempt  48   70   97   136 
Federal funds sold  25   16   38   31 
Total interest income  3,783   3,704   7,503   7,236 
Interest expense
                    
Interest on deposits  219   210   422   427 
Interest on borrowings  8   9   21   18 
Total interest expense  227   219   443   445 
Net interest income  3,556   3,485   7,060   6,791 
Provision for (recovery of) loan losses  (5)   57   17   53 
Net interest income after provision for (recovery of) loan losses  3,561   3,428   7,043   6,738 
Noninterest income
                    
Service fees and overdraft charges  358   349   701   682 
Income from death benefit recognized on bank-owned life insurance  0   0   677   0 
Loss on security sales, net  0   0   (8)   0 
Loss on repossessed asset sales, net  (19)   (32)   (32)   (32) 
Other income  181   146   313   322 
Total noninterest income  520   463   1,651   972 
Noninterest expense
                    
Salaries and employee benefits  1,572   1,483   3,073   2,936 
Premises and equipment  271   274   539   597 
Other real estate owned and miscellaneous loan expense  40   219   95   413 
Professional fees  113   97   214   206 
Data processing  41   47   76   98 
Software maintenance  114   118   225   228 
Advertising and promotional  57   62   131   131 
FDIC deposit insurance  30   60   74   120 
Franchise tax  63   60   136   124 
Other operating expense  313   297   644   556 
Total noninterest expense  2,614   2,717   5,207   5,409 
Income before income taxes  1,467   1,174   3,487   2,301 
Income tax expense  469   353   893   707 
Net income $998  $821  $2,594  $1,594 
Basic earnings per common share $0.84  $0.68  $2.19  $1.33 
Diluted earnings per common share $0.83  $0.67  $2.15  $1.31 



See notes to the consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)

  
 Three Months Ended
June 30,
   2016 2015
Net Income $998  $821 
Unrealized holding loss on securities:
          
Net securities loss during the period  (21)   (91) 
Tax effect  (7)   (31) 
Other comprehensive loss, net of tax  (14)   (60) 
Comprehensive income, net of tax $984  $761 

  
 Six Months Ended
June 30,
   2016 2015
Net Income $2,594  $1,594 
Unrealized holding loss on available for sale securities  (51)   (90) 
Less reclassification adjustment for losses later recognized in income  8   0 
Net securities loss during the period  (43)   (90) 
Tax effect  (15)   (30) 
Other comprehensive loss, net of tax  (28)   (60) 
Comprehensive income, net of tax $2,566  $1,534 



See notes to the consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollar amounts in thousands, except per share data)

  
 Six Months Ended
June 30,
   2016 2015
Balance at beginning of period $36,136  $34,226 
Net income  2,594   1,594 
Other comprehensive loss  (28)   (60) 
Stock-based compensation expense  105   67 
Issuance of common stock for deferred compensation plan  0   97 
Issuance of treasury stock for deferred compensation plan  68   0 
Purchase of treasury stock  (454)   0 
Issuance of common stock under stock option plan  0   27 
Issuance of treasury stock under stock option plan  395   0 
Cash dividends ($0.50 per share in 2016 and $0.38 per share in 2015)  (600)   (455) 
Balance at end of period $38,216  $35,496 



See notes to the consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  
 Six Months Ended
June 30,
   2016 2015
   ($ in thousands)
Cash flows from operating activities
          
Net income $2,594  $1,594 
Adjustments  795   19 
Net cash from operating activities  3,389   1,613 
Cash flows from investing activities
          
Securities available for sale:
          
Purchases  0   (1,040) 
Maturities, calls and repayments  221   237 
Proceeds from sales  8   0 
Securities held to maturity:
          
Purchases  0   (740) 
Net change in loans  (962)   1,099 
Proceeds from sale of OREO and other repossessed assets  123   1,214 
Proceeds from the disposition of premises and equipment  0   1,237 
Bank premises and equipment expenditures  (55)   (41) 
Net cash provided by (used in) investing activities  (665)   1,966 
Cash flows from financing activities
          
Net change in deposits  4,310   (11,074) 
FHLB advances  7,000   0 
Repayment of FHLB advances  (12,060)   (59) 
Cash dividends paid  (600)   (455) 
Purchase of treasury stock  (454)   0 
Issuance of treasury stock under stock option plan  395   0 
Issuance of treasury stock for deferred compensation plan  68   0 
Issuance of common stock under stock option plan  0   27 
Issuance of common stock for deferred compensation plan  0   97 
Net cash (used in) financing activities  (1,341)   (11,464) 
Net change in cash equivalents and federal funds sold  1,383   (7,885) 
Cash equivalents and federal funds sold at beginning of period  18,895   27,151 
Cash equivalents and federal funds sold at end of period $20,278  $19,266 
Supplemental disclosures
          
Cash paid for interest $404  $428 
Cash paid for income taxes  1,086   570 
Non-cash transfer of loans to foreclosed/repossessed assets  38   207 



See notes to the consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements include the accounts of Commercial Bancshares, Inc. (the “Corporation”) and its wholly owned subsidiaries, Commercial Financial and Insurance Agency, LTD (“Commercial Financial”) and The Commercial Savings Bank (the “Bank”). All significant intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the Corporation’s financial position at June 30, 2016, and the results of operations and changes in cash flows for the periods presented have been made.

Certain information and footnote disclosures typically included in financial statements prepared in accordance with U.S. generally accepted principles have been omitted. The Annual Report for the year ended December 31, 2015, contains consolidated financial statements and related footnote disclosures, which should be read in conjunction with the accompanying consolidated financial statements. The results of operations for the period ended June 30, 2016 are not necessarily indicative of the operating results for the full year or any future interim period.

Recent Accounting Pronouncements:  In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Corporation is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Consolidated Financial Statements.


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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 EARNINGS PER SHARE

Weighted average shares used in determining basic and diluted earnings per share for the three months ended June 30, 2016 and 2015.

  
 2016 2015
Weighted average shares outstanding during the period  1,188,232   1,198,667 
Dilutive effect of stock options  17,916   21,546 
Weighted average shares considering dilutive effect  1,206,148   1,220,213 
Anti-dilutive stock options not considered in computing diluted earnings per share  0   0 

Weighted average shares used in determining basic and diluted earnings per share for the six months ended June 30, 2016 and 2015.

  
 2016 2015
Weighted average shares outstanding during the period  1,186,509   1,197,501 
Dilutive effect of stock options  17,137   22,530 
Weighted average shares considering dilutive effect  1,203,646   1,220,031 
Anti-dilutive stock options not considered in computing diluted earnings per share  0   0 

NOTE 3 INVESTMENT SECURITIES

The amortized cost and estimated fair value(in thousands) of investment securities at the dates indicated are presented in the following table.

Securities available for sale

    
June 30, 2016 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
U.S. government Agency securities $2,507  $1  $0  $2,508 
State and political subdivisions  4,102   82   0   4,184 
Mortgage-backed securities  1,622   112   0   1,734 
Total securities available for sale $8,231  $195  $0  $8,426 

    
December 31, 2015
U.S. government Agency securities $2,519  $1  $(2)  $2,518 
State and political subdivisions  4,114   118   0   4,232 
Mortgage-backed securities  1,840   121   0   1,961 
Total securities available for sale $8,473  $240  $(2)  $8,711 

Securities held to maturity

    
June 30, 2016 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
State and political subdivisions $666  $0  $0  $666 

    
December 31, 2015
State and political subdivisions $666  $0  $0  $666 

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 INVESTMENT SECURITIES  – (continued)

The estimated fair values of investment securities at June 30, 2016, by contractual maturity are shown below. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

      
 Available for sale Held to maturity Total
(Dollar amount in thousands) Amortized
Cost		 Estimated
Fair
Value		 Amortized
Cost		 Estimated
Fair
Value		 Amortized
Cost		 Estimated
Fair
Value
Due less than one year $1,441  $1,476  $0  $0  $1,442  $1,476 
Due after one year through five years  4,333   4,364   0   0   4,333   4,364 
Due after five years through ten years  835   852   666   666   1,501   1,518 
Due after ten years  0   0   0   0   0   0 
Mortgage-backed securities  1,622   1,734   0   0   1,622   1,734 
Total investment securities $8,231  $8,426  $666  $666  $8,898  $9,092 

At June 30, 2016 and December 31, 2015, securities with a carrying value of $7,734,000 and $7,999,000, respectively, were pledged to secure public deposits and other deposits and liabilities as required or permitted by law.

Gross unrealized losses on securities and the estimated fair value of the related securities aggregated by security category and length of time the individual securities have been in continuous loss positions at June 30, 2016 and December 31, 2015.

The Corporation did not have any securities in a loss position at June 30, 2016.

    
 Less Than Twelve Months More Than Twelve Months
December 31, 2015 Gross
Unrealized
Losses		 Estimated
Fair
Value		 Gross
Unrealized
Losses		 Estimated
Fair
Value
U.S. government Agency securities $(2)  $517  $0  $0 
State and political subdivisions  0   0   0   0 
Mortgage-backed securities  0   0   0   0 
Total securities available for sale $(2)  $517  $0  $0 

At December 31, 2015, the Corporation held one security with an estimated fair value of $517,000 and an unrealized loss of $2,000 in a continuous loss position for less than twelve months. There were no securities in a continuous unrealized loss position for more than twelve months.

The unrealized loss that existed at December 31, 2015 was primarily due to the changes in market interest rates subsequent to purchase. The Corporation does not consider these investments to be other than temporarily impaired since the decline in market value is primarily attributable to changes in interest rates and not credit quality. In addition, the Corporation does not intend to sell and does not believe that it is more likely than not that the Corporation will be required to sell the security until there is a full recovery of the unrealized loss, which may be at maturity.


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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 ALLOWANCE FOR LOAN LOSSES

The following tables provide information on the activity in the allowance for loan losses by portfolio segment for the periods indicated.

    
 Commercial Real Estate Consumer Total
   (Dollar amounts in thousands)
For the Three Months Ended June 30, 2016
                    
Beginning balance – April 1, 2016 $3,129  $306  $427  $3,862 
Charge-offs  (4)   0   (9)   (13) 
Recoveries  5   1   3   9 
Net  1   1   (6)   (4) 
Provision (recovery of)  (22)   0   17   (5) 
Ending Balance – June 30, 2016 $3,108  $307  $438  $3,853 

    
 Commercial Real Estate Consumer Total
   (Dollar amounts in thousands)
For the Three Months Ended June 30, 2015
                    
Beginning balance – April 1, 2015 $3,340  $266  $499  $4,105 
Charge-offs  (20)   0   (83)   (103) 
Recoveries  24   0   13   37 
Net  4   0   (70)   (66) 
Provision  43   14   0   57 
Ending Balance – June 30, 2015 $3,387  $280  $429  $4,096 

    
 Commercial Real Estate Consumer Total
   (Dollar amounts in thousands)
For the Six Months Ended June 30, 2016
                    
Beginning balance – January 1, 2016 $3,122  $299  $440  $3,861 
Charge-offs  (22)   0   (27)   (49) 
Recoveries  15   2   7   24 
Net  (7)   2   (20)   (25) 
Provision (recovery of)  (7)   6   18   17 
Ending Balance – June 30, 2016 $3,108  $307  $438  $3,853 

    
 Commercial Real Estate Consumer Total
   (Dollar amounts in thousands)
For the Six Months Ended June 30, 2015
                    
Beginning balance – January 1, 2015 $3,340  $277  $509  $4,126 
Charge-offs  (20)   (13)   (99)   (132) 
Recoveries  30   0   19   49 
Net 10  (13)   (80)   (83)      
Provision  37   16   0   53 
Ending Balance – June 30, 2015 $3,387  $280  $429  $4,096 

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 ALLOWANCE FOR LOAN LOSSES  – (continued)

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans(in thousands) by portfolio segment at June 30, 2016 and December 31, 2015.

      
 Collectively Evaluated Individually Evaluated Total
   Allowance
for Loan
Losses		 Recorded
Investment
in Loans		 Allowance
for Loan
Losses		 Recorded
Investment
in Loans		 Allowance
for Loan
Losses		 Recorded
Investment
in Loans
June 30, 2016
                              
Commercial $3,041  $237,943  $67  $4,818  $3,107  $242,761 
Real estate  307   25,033   0   0   308   25,033 
Consumer  438   30,078   0   0   438   30,078 
Total $3,786  $293,054  $67  $4,818  $3,853  $297,872 
December 31, 2015
                              
Commercial $3,046  $238,044  $76  $4,872  $3,122  $242,916 
Real estate  299   23,944   0   0   299   23,944 
Consumer  440   30,073   0   0   440   30,073 
Total $3,785  $292,061  $76  $4,872  $3,861  $296,933 

NOTE 5 CREDIT QUALITY INDICATORS

To facilitate the monitoring of credit quality within the loan portfolio and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses, the Corporation utilizes the following categories of credit grades: pass, special mention, substandard, doubtful and loss. The four categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass ratings, which are assigned to those borrowers that do not have identified potential or well-defined weaknesses and for which there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on at least a quarterly basis. Loans are graded on a scale of 1 through 9, with a grade of 5 or below classified as “Pass” rated credits.

Following is a description of the general characteristics of risk grades 6 through 9:

6 – Special MentionSpecial mention credits have a level of potential weakness such that they warrant management’s closer attention than those on watch. These credits, opposed to watch credits, require correction or additional financial information for further analysis and verification of repayment capacity. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not considered adversely classified assets. Such credits, do however, warrant consideration of additional reserve.
7 – SubstandardSubstandard loans are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Corporation will sustain loss if the deficiencies are not corrected.
8 – DoubtfulLoans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
9 – LossLoans are considered uncollectible and of such little value that continuing to carry them as assets on the institution’s financial statements is not feasible. Accordingly, the Bank does not carry loans classified as loss on the books, instead these loans are charged off.

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 CREDIT QUALITY INDICATORS  – (continued)

The Corporation’s strategy for credit risk management includes ongoing credit examinations and management reviews of loans exhibiting deterioration of credit quality. A deteriorating credit indicates an elevated likelihood of delinquency. When a loan becomes delinquent, its credit grade is reviewed and changed accordingly. Each downgrade to a classified credit results in a higher percentage of reserve to reflect the increased likelihood of loss for similarly graded credits. Further deterioration could result in a certain credit being deemed impaired, resulting in a collateral valuation for purposes of establishing a specific reserve which reflects the possible extent of such loss for that credit.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed at June 30, 2016 and December 31, 2015.

Commercial Credit Exposure(Dollar amounts in thousands)
Credit risk profile by credit worthiness category

          
Credit Grade Commercial
Operating		 Commercial
Agricultural		 Commercial
Real Estate
1-4 Family		 Commercial
Real Estate
Other		 Total
Commercial
 06/30/16 12/31/15 06/30/16 12/31/15 06/30/16 12/31/15 06/30/16 12/31/15 06/30/16 12/31/15
Pass $30,279  $33,221  $42,529  $43,461  $48,083  $46,453  $117,836  $115,517  $238,727  $238,652 
6  0   0   0   0   0   0   0   0   0   0 
7  116   662   822   898   33   124   3,063   2,580   4,034   4,264 
8  0   0   0   0   0   0   0   0   0   0 
Total $30,395  $33,883  $43,351  $44,359  $48,116  $46,577  $120,899  $118,097  $242,761  $242,916 

Real Estate Credit Exposure(dollar amounts in thousands)
Credit risk by credit worthiness category

      
Credit Grade Real Estate
Construction		 Real Estate
Other		 Total
Real Estate
 06/30/16 12/31/15 06/30/16 12/31/15 06/30/16 12/31/15
Pass $6,354  $5,583  $18,679  $18,345  $25,033  $23,928 
6  0   0   0   0   0   0 
7  0   0   0   16   0   16 
8  0   0   0   0   0   0 
Total $6,354  $5,583  $18,679  $18,361  $25,033  $23,944 

Consumer Credit Exposure(dollar amounts in thousands)
Credit risk by credit worthiness category

        
Credit Grade Consumer
Equity		 Consumer
Auto		 Consumer
Other		 Total
Consumer
 06/30/16 12/31/15 06/30/16 12/31/15 06/30/16 12/31/15 06/30/16 12/31/15
Pass $17,893  $17,956  $4,506  $4,637  $7,650  $7,361  $30,049  $29,954 
6  0   0   0   0   0   0   0   0 
7  5   94   0   4   24   21   29   119 
8  0   0   0   0   0   0   0   0 
Total $17,898  $18,050  $4,506  $4,641  $7,674  $7,382  $30,078  $30,073 

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 SUMMARY OF IMPAIRED LOANS

Loans evaluated for impairment include loans classified as troubled debt restructurings and non-performing multi-family, commercial and construction loans. The following tables set forth certain information regarding the Corporation’s impaired loans, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary at June 30, 2016 and December 31, 2015.

   
(Dollar amounts in thousands)
June 30, 2016		 Recorded
Investment		 Unpaid
Principal
Balance		 Related
Allowance
With no related allowance recorded:
               
Commercial operating $119  $119  $0 
Commercial real estate, other  3,011   3,386   0 
Subtotal $3,130  $3,505  $0 
With an allowance recorded:
               
Commercial operating  115   115   2 
Commercial real estate, 1-4 family  1,384   1,384   64 
Commercial real estate, other  189   189   1 
Subtotal $1,688  $1,688  $67 
Total $4,818  $5,193  $67 

   
(Dollar amounts in thousands)
December 31, 2015		 Recorded
Investment		 Unpaid
Principal
Balance		 Related
Allowance
With no related allowance recorded:
               
Commercial operating $675  $932  $0 
Commercial real estate, other  2,483   2,601   0 
Subtotal $3,158  $3,533  $0 
With an allowance recorded:
               
Commercial operating  118   118   2 
Commercial real estate, 1-4 family  1,402   1,402   73 
Commercial real estate, other  194   194   1 
Subtotal $1,714  $1,714  $76 
Total $4,872  $5,247  $76 

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35), when it is probable the Corporation will be unable to collect all contractual principal and interest payments due in accordance with the original or modified terms of the loan agreement. To determine specific valuation allowances, impaired loans are measured based on the estimated fair value of the collateral less the estimated costs to sell if the loan is considered collateral dependent. Impaired loans not considered to be collateral dependent are measured based on the present value of expected future cash flows.


TABLE OF CONTENTS

COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 SUMMARY OF IMPAIRED LOANS  – (continued)

The following tables present the average recorded investment in impaired loans and the amount of interest income recognized on a cash basis for impaired loans after impairment by portfolio segment and class for the periods indicated.(All dollar amounts in thousands)

      
 No Related
Allowance Recorded		 With Related
Allowance Recorded		 Total
   Average
Recorded
Investment		 Total
Interest
Income
Recognized		 Average
Recorded
Investment		 Total
Interest
Income
Recognized		 Average
Recorded
Investment		 Total
Interest
Income
Recognized
Three Months Ended June 30, 2016
                              
Commercial:
                              
Operating $123  $1  $115  $2  $238  $3 
Real estate, 1-4 family  0   0   1,387   17   1,387   17 
Real estate, other  3,013   81   189   3   3,202   84 
Total $3,136  $82  $1,691  $22  $4,827  $104 
Three Months Ended June 30, 2015
                              
Commercial:
                              
Operating $0  $0  $794  $2  $794  $2 
Real estate, 1-4 family  0   0   1,583   17   1,583   17 
Real estate, other  2,100   33   1,463   22   3,563   55 
Total $2,100  $33  $3,840  $41  $5,940  $74 

      
 No Related
Allowance Recorded		 With Related
Allowance Recorded		 Total
   Average
Recorded
Investment		 Total
Interest
Income
Recognized		 Average
Recorded
Investment		 Total
Interest
Income
Recognized		 Average
Recorded
Investment		 Total
Interest
Income
Recognized
Six Months Ended June 30, 2016
                              
Commercial:
                              
Operating $127  $3  $116  $3  $243  $6 
Real estate, 1-4 family  0   0   1,391   34   1,391   34 
Real estate, other  3,013   111   191   6   3,204   117 
Total $3,139  $114  $1,698  $43  $4,838  $157 
Six Months Ended June 30, 2015
                              
Commercial:
                              
Operating $0  $0  $795  $4  $795  $4 
Real estate, 1-4 family  0   0   1,592   35   1,592   35 
Real estate, other  2,094   54   1,466   44   3,560   98 
Total $2,094  $54  $3,853  $83  $5,947  $137 

The categories of nonaccrual loans and impaired loans overlap, although they are not identical. The Corporation considerers all circumstances regarding the loan and borrower on an individual basis when determining whether an impaired loan should be placed on nonaccrual status, such as the financial strength of the borrower, the collateral value, reasons for delay, payment record, the amount past due and the number of days past due. At June 30, 2016, the Corporation had impaired loans totaling $4,818,000, down slightly from impaired loans of $4,872,000 at December 31, 2015. The specified reserve related to impaired loans totaled $67,000 at June 30, 2016, compared to $76,000 at December 31, 2015.


TABLE OF CONTENTS

COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 TROUBLED DEBT RESTRUCTURINGS

Under U.S. generally accepted accounting principles (“GAAP”), the Corporation is required to account for certain loan modifications or restructurings as “troubled debt restructurings” or “troubled debt restructured loans.” In general, the modification or restructuring of a debt constitutes a troubled debt restructuring if the Corporation for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that the Corporation would not otherwise consider. Debt restructuring or loan modifications do not necessarily always constitute a troubled debt restructuring and troubled debt restructurings do not necessarily result in nonaccrual loans. Troubled debt restructured loans are classified as non-performing loans unless they have been performing in accordance with modified terms for a period of at least six months. The Corporation had troubled debt restructured loans at June 30, 2016 and December 31, 2015 totaling $4,330,000 and $4,349,000, respectively, of which $3,793,000 and $3,811,000, respectively, were on accruing status.

There have been no financing receivables modified as troubled debt restructurings during the three and six months ended June 30, 2016 and 2015. During the three and six months ended June 30, 2016 and 2015, respectively, there were no financing receivables previously modified as troubled debt restructurings which defaulted within twelve months of the modification.

There were no commitments to lend additional funds to borrowers that were classified as troubled debt restructurings as of June 30, 2016.

NOTE 8 AGE ANALYSIS OF PAST DUE FINANCING RECEIVABLES

The following table presents the aging of the recorded investment in loans by past due category and class of loans at June 30, 2016 and December 31, 2015(dollar amounts in thousands).

       
June 30, 2016 30 – 59
Days
Past Due		 60 – 89
Days
Past Due		 > 90
Days
Past Due		 Total
Past Due		 Current Total
Financing
Receivables		 Recorded
Investment
> 90 Days
and Accruing
Commercial
                                   
Operating $0  $0  $0  $0  $30,395  $30,395  $0 
Agricultural  0   0   0   0   43,351   43,351   0 
Real estate, 1-4 family  33   0   0   33   48,083   48,116   0 
Real estate, other  0   0   563   563   120,336   120,899   0 
Real estate
                                   
Construction  0   0   0   0   6,354   6,354   0 
Other  0   0   0   0   18,679   18,679   0 
Consumer
                                   
Equity  28   0   0   28   17,870   17,898   0 
Auto  0   0   0   0   4,506   4,506   0 
Other  11   4   0   15   7,659   7,674   0 
Total $72  $4  $563  $639  $297,233  $297,872  $0 

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 AGE ANALYSIS OF PAST DUE FINANCING RECEIVABLES  – (continued)

       
December 31, 2015 30 – 59
Days
Past Due		 60 – 89
Days
Past Due		 > 90
Days
Past Due		 Total
Past Due		 Current Total
Financing
Receivables		 Recorded
Investment
> 90 Days
and Accruing
Commercial
                                   
Operating $0  $0  $538  $538  $33,345  $33,883  $0 
Agricultural  21   0   0   21   44,338   44,359   0 
Real estate, 1-4 family  0   0   19   19   46,558   46,577   0 
Real estate, other  37   0   68   105   117,992   118,097   0 
Real estate
                                   
Construction  0   0   0   0   5,583   5,583   0 
Other  0   0   15   15   18,346   18,361   0 
Consumer
                                   
Equity  35   12   0   47   18,003   18,050   0 
Auto  0   0   0   0   4,641   4,641   0 
Other  16   10   0   26   7,356   7,382   0 
Total $109  $22  $640  $771  $296,162  $296,933  $0 

NOTE 9 FINANCING RECEIVABLES ON NONACCRUAL STATUS

The following table summarizes loans(in thousands) on nonaccrual status at the dates indicated.

  
 June 30,
2016		 December 31,
2015
Commercial operating $0  $538 
Commercial real estate, 1-4 family  0   19 
Commercial real estate, other  590   97 
Real estate, other  0   15 
Consumer, equity  27   42 
Consumer, other  15   10 
Total $632  $721 

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS

The Corporation records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available for sale are carried at fair value on a recurring basis. Fair value measurements are also utilized to determine the initial value of certain assets and liabilities, to perform impairment assessments and for disclosure purposes. The Corporation uses quoted market prices and observable inputs to the maximum extent possible when measuring fair value. In the absence of quoted market prices, various valuation techniques are utilized to measure fair value. When possible, observable market data for identical or similar financial instruments are used in the valuation. When market data is not available, fair value is determined using valuation models that incorporate management’s estimates of the assumptions a market participant would use in pricing the asset or liability.


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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

Fair value measurements are classified within one of three levels based on the observability of the inputs used to determine fair value, as follows:

Level 1 — The valuation is based on quoted prices in active markets for identical instruments.
Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation.

State and political subdivisions

The Corporation obtains fair value measurements from a third party vendor that utilizes market valuation models maintained by a team of experienced evaluators and methodologists. Evaluators build internal yield curves, which are adjusted throughout the day based on trades and other pertinent market information. The criteria used to generate these curves and to arrive at the current day’s evaluations are based primarily on factors such as:

Established trading spreads between similar issuers or credits.
Historical trading spreads over widely accepted market benchmarks.
New issue scales.
Market information from third party sources, such as reportable trades, broker-dealers, trustees/paying agents, issuers or from information prepared by an internal credit analysis department or by internally reviewing market sector correlations.

Evaluators apply this information to bond sectors and individual bond evaluations are then extrapolated. Within a given sector, evaluators have the ability to make daily spread adjustments for various attributes that include, but are not limited to, discounts, premiums, credit, alternative minimum tax (“AMT”), use of proceeds and callability. Analysts evaluate municipal securities backed by insurance, letters of credit, etc. When a municipal bond obtains insurance or other credit enhancements, a public rating is usually applied to the bond that is equal to the higher of (i) the published underlying rating or (ii) the rating of the bond insurer, guarantor, or other credit enhancing entity’s rating. Certain insured bonds with no published underlying ratings may receive an internal credit assessment. Evaluators may use internal credit ratings as an input in the evaluation process. The weight placed on internal credit ratings in the evaluation process may vary from one municipal security to another depending on the availability of other market data.

Multiple quality control evaluation processes review available market, credit and deal level information to support the evaluation of securities, such as:

Explanations required for all high yield municipal security evaluations adjusted on a per security basis.
Explanations required for all high grade municipal security evaluation adjustments that break an internal tolerance level.

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

Daily review of market information and data changes (including ratings) that may have an impact on evaluations.
Review of unchanged evaluations and other applicable data.
Daily review of category adjustments to confirm directional moves are tracking daily market movements.
Daily reviews by managers of tolerance reports and of evaluator checklists to confirm processes are being followed.
Monthly management reviews of evaluator work samples (tolerance reports, client challenges and other evaluation-related matters).

U.S. government and federal agencies and mortgage-backed securities

For agency/CMOs, depending upon the characteristics of a given tranche, a volatility-driven, multi-dimensional spread table based, single cash flow stream model or an option-adjusted spread (“OAS”) model is used. If call information is available, the pricing model computes both a yield to call and a yield to maturity to derive an evaluated price for the bond by assuming the most probable scenario. Alternatively, the evaluator may utilize market conventions if different from model-generated assumptions.

A team of experienced fixed income evaluators and methodologists closely monitor the structured product markets, interest rate movements, new issue information and other pertinent data. Evaluations of tranches (volatile and non-volatile) are based on the interactive data model’s interpretation of accepted market modeling, trading and pricing conventions. The Interactive data model determines tranche evaluations in four steps:

1Cash flows are generated with the deal files to determine principal and interest payments along with an average life.
2Spreads/yields are determined for non-volatile fixed and floating-rate issues:
For agency/GSE CMOs, the model takes the average life for each tranche and matches it to the yield of the nearest point on either the swap curve or the “I” Treasury curve. It then uses that benchmark yield as the base yield.
Floating-rate issues are evaluated by a discount margin (“DM”) calculation. The DM measures the difference between the yield of the issue (at an assumed speed and current index) and the current value of the index over which the security resets.
3Spreads are based on tranche characteristics such as average life, tranche type, tranche volatility, underlying collateral and the performance of the collateral and prevailing market conditions. Floating rate issues take life caps into account.
4The appropriate tranche spread or DM is applied to the corresponding benchmark. This value is then used to discount the cash flows to generate an evaluated price.

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The following table presents information about the Corporation’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, and the valuation techniques used by the Corporation to determine those fair values.

    
(In thousands)
June 30, 2016		 Fair Value Measurements Using
 Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Balance
Assets
                    
U.S. government Agency securities $0  $2,508  $0  $2,508 
State and political subdivisions, AFS  0   4,184   0   4,184 
State and political subdivisions, HTM  0   0   666   666 
Mortgage-backed securities  0   1,734   0   1,734 
Total Assets $0  $8,426  $666  $9,092 
Liabilities $0  $0  $0  $0 

(In thousands)
December 31, 2015		Quoted
Prices in
Active
Markets
for Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Assets
U.S. government Agency securities$0$2,518$0$2,518
State and political subdivisions, AFS04,23204,232
State and political subdivisions, HTM00666666
Mortgage-backed securities01,96101,961
Total Assets$0$8,711$666$9,377
Liabilities$0$0$0$0

Securities characterized as having Level 2 inputs generally consist of obligations of U.S. government and federal agencies, government-sponsored organizations and obligations of state and political subdivisions. There were no transfers in or out of Levels 1, 2 and 3 for the six months ended June 30, 2016.

The Corporation also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. These assets consist primarily of impaired loans and other real estate owned (“OREO”).


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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2016 and December 31, 2015.

    
(In thousands) Fair Value Fair Value Measurements Using
 Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
June 30, 2016
                    
Impaired loans $4,751  $0  $0  $4,751 
Real estate acquired through foreclosure and other repossessed assets  34   0   0   34 
December 31, 2015
                    
Impaired loans $4,796  $0  $0  $4,796 
Real estate acquired through foreclosure and other repossessed assets  193   0   0   193 

The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. The Corporation determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be further discounted based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are subject to nonrecurring fair value adjustments to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. Included in the impaired balance at June 30, 2016 were troubled debt restructured loans totaling $4,330,000, with specified reserves of $67,000.

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, based on the current appraised value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed and current and past offers for the other real estate under evaluation. Due to the nature of the valuation inputs, foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by the Bank’s credit risk department and are selected from the list of approved appraisers maintained by management. Appraisals are sometimes further discounted based on management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized in noninterest expense. Additionally, any operating costs incurred after acquisition are also expensed.


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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The following tables present the fair value measurements of financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2016 and December 31, 2015.

     
(In thousands)
June 30, 2016		 Carrying
Amount		 Estimated
Fair Value		 Quoted
Prices
In Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
                         
Cash equivalents and federal funds sold $20,278  $20,278  $20,278  $0  $0 
Securities available for sale  8,426   8,426   0   8,426   0 
Securities held to maturity  666   666   0   0   666 
Other investment securities  2,196   2,196   0   0   2,196 
Loans, net of allowance for loan loss  294,019   309,930   0   0   309,930 
Accrued interest receivable  1,186   1,186   0   0   1,186 
Financial Liabilities:
                         
Noninterest bearing deposits $(51,356)  $(51,356)  $(51,356)  $0  $0 
Interest bearing deposits  (145,438)   (145,438)   0   (145,438)   0 
Time deposits  (104,142)   (103,884)   0   (103,884)   0 
FHLB advances  (1,514)   (1,364)   0   (1,364)   0 
Accrued interest payable  (84)   (84)   0   0   (84) 

     
(In thousands)
December 31, 2015		 Carrying
Amount		 Estimated
Fair Value		 Quoted
Prices
In Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
                         
Cash equivalents and federal funds sold $18,895  $18,895  $18,895  $0  $0 
Securities available for sale  8,711   8,711   0   8,711   0 
Securities held to maturity  666   666   0   0   666 
Other investment securities  2,209   2,209   0   0   2,209 
Loans, net of allowance for loan loss  293,072   306,704   0   0   306,704 
Accrued interest receivable  1,302   1,302   0   0   1,302 
Financial Liabilities:
                         
Noninterest bearing deposits $(55,574)  $(55,574)  $(55,574)  $0  $0 
Interest bearing deposits  (147,994)   (147,994)   0   (147,994)   0 
Time deposits  (93,058)   (92,370)   0   (92,370)   0 
FHLB advances  (6,574)   (5,893)   0   (5,893)   0 
Accrued interest payable  (45)   (45)   0   0   (45) 

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The following describes the valuation methodologies used by management to measure financial assets and liabilities at fair value on a recurring basis as recognized in the Corporation’s accompanying balance sheets as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

•Cash equivalents and federal funds sold — The carrying value of cash, amounts due from banks and federal funds sold assumed to approximate fair value.

•Investment securities — Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy.
•Other investment securities — principally consists of investments in Federal Home Loan Bank stock, which has limited marketability and is carried at cost.
•Loans — The loan portfolio includes adjustable and fixed rate loans, the fair value of which is estimated using discounted cash flow analyses. To calculate discounted cash flows, the loans are aggregated into pools of similar types and expected repayment terms. The expected cash flows are based on historical prepayment experiences and estimated credit losses for non-performing loans and are discounted using current rates at which similar loans would be made to borrowers with similar credit ratings and similar remaining maturities. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
•Accrued interest receivable — The carrying value of accrued interest receivable approximates fair value due to the short-term duration.
•Noninterest -bearing deposits — The fair value of noninterest-bearing demand deposits, which have no stated maturity, are considered equal to their carrying amount, representing the amount payable on demand.
•Interest-bearing deposits — The fair value of demand, money market and savings deposits, which have no stated maturity, are considered equal to their carrying amount, representing the amount payable on demand.
•Time deposits — The fair value for fixed rate time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for time deposits with similar terms and similar remaining maturities.
•FHLB advances — The fair value of long-term debt is estimated using a discounted cash flow calculation which utilizes the interest rates currently offered for borrowings of similar remaining maturities.
•Accrued interest payable — The carrying value of accrued interest payable approximates fair value due to the short-term duration.
•Other financial instruments — The fair value of other financial instruments, including loan commitments and unused letters of credit, is based on discounted cash flow analysis and is not material.

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COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

In April 2015, the Corporation purchased a state and political subdivision bond which was determined to be a Level 3 asset. Changes in Level 3 assets measured at fair value on a recurring basis for the six months ended June 30, 2016 are as follows:

 
 State and
Political
Subdivision
Bonds
   (In thousands)
June 30, 2016
     
Beginning balance – January 1, 2016 $666,000 
Purchases  0 
Principal payments  0 
Ending balance – June 30, 2016 $666,000 

The fair value of the municipal bond at June 30, 2016 was determined primarily based on Level 3 inputs. The Corporation estimates the fair value of this investment based on the par value of the security.

Both observable and unobservable inputs may be used to determine the fair value positions classified as Level 3 assets and liabilities.

There were no unrealized gains or losses for the Level 3 assets held by the Corporation at June 30, 2016, as the book value of the asset approximates fair value.

NOTE 11 STOCK-BASED COMPENSATION

The Corporation has two share-based compensation plans in existence; the 1997 Stock Option Plan (expired but having outstanding options that may still be executed) and the 2009 Incentive Stock Option Plan, which is described below.

The Corporation’s 2009 Incentive Stock Option Plan, which was shareholder approved, permitted the grant of stock options to its selected key employees. No more than 150,000 shares of the Corporation’s common stock may be issued under the plan. The shares that may be issued may be authorized but unissued shares or treasury shares. The plan permits the grant of incentive awards in the form of stock options, restricted shares and certain other stock-based awards on a periodic basis at the discretion of the board. At June 30, 2016, the remaining shares available for issuance under the plan totaled 28,850.

The fair value of each option award is estimated on the date of grant using a Black Scholes option valuation model that uses the assumptions noted in the table below. Expected volatilities are based on several factors including historical volatility of the Corporation’s common stock, implied volatility determined from traded options and other factors. The Corporation uses historical data to estimate option exercises and employee terminations to estimate the expected life of options. The risk-free interest rate for the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is based on the Corporation’s expected dividend yield over the life of the options.


TABLE OF CONTENTS

COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 STOCK-BASED COMPENSATION  – (continued)

The Corporation did not grant any stock options during the first six months of 2016. The fair value of options granted in 2015 was determined using the following weighted-average assumptions as of the date of grant.

 
 2015
Dividend yield  3.16% 
Risk-free interest rate  1.94% 
Expected volatility  22.29% 
Weighted average expected life  8 years 
Weighted average per share fair value of options $4.47 

Intrinsic value represents the amount by which the fair market value of the Corporation’s stock, $34.00 at June 30, 2016, exceeds the exercise price of the stock options. At June 30, 2016, the aggregate intrinsic value of stock options outstanding and exercisable was $730,000 and $497,000, respectively, compared to an aggregate intrinsic value of $871,000 and $736,000 at December 31, 2015.

The following table summarizes stock option activity for the six months ended June 30, 2016.

  
Stock Options Number
Of
Options		 Weighted
Average
Exercise
Price
Outstanding options at January 1, 2016  83,550  $20.18 
Granted  0   0.00 
Exercised  (24,150)   16.43 
Forfeited  0   0.00 
Expired  0   0.00 
Outstanding options at June 30, 2016  59,400  $21.71 
Exercisable at June 30, 2016  30,349  $17.64 

The fair value of options granted is amortized as compensation expense, recognized on a straight-line basis over the vesting period of the respective stock option grant. Compensation expense related to employees is included in personnel expense while compensation expense related to directors is included in other operating expense. The Corporation recognized compensation expense of $14,000 and $28,000 for the three and six months ended June 30, 2016, respectively, related to the awards of nonrestricted stock options, compared to $10,000 and $19,000 for the three and six months ended June 30, 2015. At June 30, 2016, the Corporation had $74,000 of unrecognized compensation expense related to nonrestricted stock options. This remaining cost is expected to be recognized over a weighted average vesting period of approximately 22.0 months.


TABLE OF CONTENTS

COMMERCIAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 STOCK-BASED COMPENSATION  – (continued)

The following is a summary of outstanding and exercisable stock options at June 30, 2016.

   
Exercise Price Number
Of Shares
Outstanding		 Weighted
Average
Remaining
Contractual Life		 Number
Of Shares
Exercisable
$12.30  4,900   3.12 years   4,900 
$13.25  3,900   4.12 years   3,900 
$17.40  5,800   5.12 years   5,800 
$19.28  9,950   6.03 years   9,950 
$21.35  6,950   7.11 years   3,632 
$24.47  9,500   8.13 years   2,167 
$27.40  18,400   9.13 years   0 
Total  59,400   7.00 years   30,349 

The following table summarizes information about the Corporation’s nonvested stock option activity for the six months ended June 30, 2016.

  
Nonvested Options Number
Of
Options		 Weighted
Average
Price
Nonvested options at January 1, 2016  29,051  $25.97 
Granted  0   0.00 
Vested  0   0.00 
Forfeited  0   0.00 
Nonvested options at June 30, 2016  29,051  $25.97 

The fair value of restricted stock is equal to the fair market value of the Corporation’s common stock on the date of grant. Restricted stock awards are recorded as unearned compensation, a component of shareholders’ equity, and amortized to compensation expense over the vesting period. The Corporation recognized compensation expense of $39,000 and $77,000 for the three and six months ended June 30, 2016, respectively, related to restricted stock grants compared to $24,000 and $48,000 for the same periods in 2015. At June 30, 2016, the Corporation had approximately $191,000 of unrecognized compensation expense related to restricted stock awards. This remaining cost is expected to be recognized over a weighted average vesting period of approximately 22.3 months.

The following table summarizes restricted stock activity for the six months ended June 30, 2016.

  
Restricted Stock Nonvested
Number of
Shares		 Weighted
Average
Grant Date
Fair Value
Nonvested balance at January 1, 2016  18,700  $24.60 
Granted  0   0.00 
Vested  0   0.00 
Forfeited/expired  0   0.00 
Nonvested balance at June 30, 2016  18,700  $24.60 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Commercial Bancshares, Inc.
Upper Sandusky, Ohio

We have audited the accompanying consolidated balance sheets of Commercial Bancshares, Inc. (the “Corporation”) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2015. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Commercial Bancshares, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

[GRAPHIC MISSING]

Auburn Hills, MI
March 25, 2016


TABLE OF CONTENTS

COMMERCIAL BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
(Dollar amounts in thousands)

  
 2015 2014
ASSETS
          
Cash and cash equivalents $4,753  $4,994 
Federal funds sold  14,142   22,157 
Cash equivalents and federal funds sold  18,895   27,151 
Securities available for sale  8,711   11,027 
Securities held to maturity  666   0 
Other investment securities  2,209   2,209 
Total loans  296,933   279,151 
Allowance for loan losses  (3,861)   (4,126) 
Loans, net  293,072   275,025 
Premises and equipment, net  5,678   6,068 
Accrued interest receivable  1,302   1,334 
Bank-owned life insurance  9,145   8,908 
Other real estate owned and other repossessed assets  193   2,255 
Assets classified as held for sale  0   1,178 
Other assets  1,219   1,374 
Total assets $341,090  $336,529 
LIABILITIES
          
Deposits
          
Noninterest-bearing demand $55,574  $50,350 
Interest-bearing demand  118,919   115,865 
Savings and time deposits less than $250,000  114,203   124,689 
Savings and time deposits $250,000 and greater  7,930   7,867 
Total deposits  296,626   298,771 
FHLB advances  6,574   1,692 
Accrued interest payable  45   51 
Other liabilities  1,709   1,789 
Total liabilities  304,954   302,303 
SHAREHOLDERS’ EQUITY
          
Common stock, no par value; 4,000,000 shares authorized, 1,209,788 shares issued and 1,186,018 outstanding in 2015 1,193,248 shares issued and 1,193,078 outstanding in 2014  12,815   12,177 
Retained earnings  25,349   22,987 
Unearned compensation  (268)   (168) 
Deferred compensation plan shares; at cost, 62,067 shares in 2015 and 55,360 shares in 2014  (1,206)   (1,022) 
Treasury stock; 23,770 shares in 2015 and 170 shares in 2014  (711)   (4) 
Accumulated other comprehensive income  157   256 
Total shareholders’ equity  36,136   34,226 
Total liabilities and shareholders’ equity $341,090  $336,529 



See accompanying notes to consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2015, 2014 and 2013
(Dollar amounts in thousands, except per share data)

   
 2015 2014 2013
Interest income
               
Interest and fees on loans $14,058  $13,930  $13,383 
Interest on investment securities:
               
Taxable  186   205   241 
Tax-exempt  261   313   382 
Federal funds sold  51   33   39 
Total interest income  14,556   14,481   14,045 
Interest expense
               
Interest on deposits  838   839   1,132 
Interest on borrowings  36   43   44 
Total interest expense  874   882   1,176 
Net interest income  13,682   13,599   12,869 
Provision for loan losses  188   309   531 
Net interest income after provision for loan loss  13,494   13,290   12,338 
Noninterest income
               
Service fees and overdraft charges  1,399   1,477   1,453 
Gain on sale of bank premises, net  17   0   0 
Other income  630   654   710 
Total noninterest income  2,046   2,131   2,163 
Noninterest expenses
               
Salaries and employee benefits  6,085   5,917   5,755 
Premises and equipment  1,124   1,227   1,245 
Other real estate owned and miscellaneous loan expense  510   439   222 
Professional fees  392   445   387 
Data processing  197   194   194 
Software maintenance  444   415   424 
Advertising and promotional  242   242   244 
FDIC deposit insurance  246   228   273 
Franchise tax  238   341   246 
Loss on sale of bank premises, net  0   30   0 
Losses on repossessed asset sales, net  33   33   33 
Other operating expense  1,152   1,183   1,152 
Total noninterest expense  10,663   10,694   10,175 
Income before income taxes  4,877   4,727   4,326 
Income tax expense  1,452   1,431   1,271 
Net income $3,425  $3,296  $3,055 
Basic earnings per common share $2.86  $2.78  $2.60 
Diluted earnings per common share $2.80  $2.73  $2.57 



See accompanying notes to consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2015, 2014 and 2013
(Dollar amounts in thousands)

   
 2015 2014 2013
Net income $3,425  $3,296  $3,055 
Unrealized holding loss on securities:
               
Net securities loss during period  (149)   (136)   (476) 
Tax effect  (50)   (47)   (162) 
Other comprehensive loss, net of tax  (99)   (89)   (314) 
Comprehensive income, net of tax $3,326  $3,207  $2,741 



See accompanying notes to consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2015, 2014 and 2013
(Dollar amounts in thousands)

        
        
 Outstanding
Shares		 Common
Stock		 Retained
Earnings		 Unearned
Compensation		 Accumulated
Other
Comprehensive
Income (Loss)		 Deferred
Compensation
Plan Shares		 Treasury
Stock		 Total
Shareholders’
Equity
Balance at January 1, 2013  1,169,840  $11,721  $8,331  $(77)  $659  $(787)  $(459)  $29,388 
Net income       0   3,055   0   0   0   0   3,055 
Other comprehensive loss       0   0   0   (314)   0   0   (314) 
Cash dividends ($0.61 per
share)		       0   (718)   0   0   0   0   (718) 
Shares acquired: deferred compensation; 6,572 shares       64   0   0   0   (64)   0   0 
Shares divested: deferred compensation; 621 shares       (11)   0   0   0   11   0   0 
Restricted shares awarded  6,750   0   (41)   (144)   0   0   185   0 
Stock-based compensation expense  34   0   62   0   0   0   96      
Issuance of treasury stock under stock option plans  900   0   (13)   0   0   0   25   12 
Issuance of treasury stock for deferred compensation plan  3,578   70   (28)   0   0   (70)   97   69 
Balance at December 31, 2013  1,181,068  $11,878  $20,586  $(159)  $345  $(910)  $(152)  $31,588 
Net income       0   3,296   0   0   0   0   3,296 
Other comprehensive loss       0   0   0   (89)   0   0   (89) 
Cash dividends ($0.71 per
share)		       0   (843)   0   0   0   0   (43) 
Shares acquired: deferred compensation; 5,848 shares       73   0   0   0   (73)   0   0 
Issuance of common stock for deferred compensation plan  1,660   40   0   0   0   0   0   40 
Shares divested: deferred compensation; 1,265 shares       (23)   1   0   0   23   0   1 
Restricted shares awarded  3,950   97   0   (97)   0   0   0   0 
Stock-based compensation expense       39   0   88   0   0   0   127 
Issuance of common stock under stock option plans  1,000   12   0   0   0   0   0   12 
Issuance of treasury stock under stock option plans  2,575   0   (37)   0   0   0   70   33 
Issuance of treasury stock for deferred compensation plan  2,825   61   (16)   0   0   (62)   78   61 
Balance at December 31, 2014  1,193,078  $12,177  $22,987  $(168)  $256  $(1,022)  $(4)  $34,226 
Balance at January 1, 2015  1,193,078  $12,177  $22,987  $(168)  $256  $(1,022)  $(4)  $34,226 
Net income       0   3,425   0   0   0   0   3,425 
Other comprehensive loss       0   0   0   (99)   0   0   (99) 
Cash dividends ($0.88 per
share)		       0   (1,060)   0   0   0   0   (1,060) 
Shares acquired: deferred compensation; 7,290 shares       53   0   0   0   (53)   0   0 
Issuance of common stock for deferred compensation plan  5,315   285   0   0   0   (142)   0   143 
Shares divested: deferred compensation; 583 shares       (11)   0   0   0   11   0   0 
Restricted shares awarded  8,000   219   0   (219)   0   0   0   0 
Stock-based compensation expense (restricted)       0   0   119   0   0   0   119 
Stock-based compensation expense (nonrestricted)       45   0   0   0   0   0   45 
Purchase of treasury stock  (24,486)   0   0   0   0   0   (736)   (736) 
Issuance of common stock under stock option plans  2,000   93   0   0   0   0   0   93 
Issuance of common stock under stock option plans-APIC  1,225   (46)   0   0   0   0   0   (46) 
Issuance of treasury stock under stock option plans  886   0   (3)   0   0   0   29   26 
Balance at December 31, 2015  1,186,018  $12,815  $25,349  $(268)  $157  $(1,206)  $(711)  $36,136 



See accompanying notes to consolidated financial statements.


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COMMERCIAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2015, 2014 and 2013
(Dollar amounts in thousands)

   
 2015 2014 2013
Cash flows from operating activities
               
Net income $3,425  $3,296  $3,055 
Adjustments to reconcile net income to net cash from operating activities
               
Depreciation  587   580   597 
Provision for loan losses  188   309   531 
Deferred tax benefit (expense)  (144)   (12)   (251) 
Loss on sale of repossessed assets, net  33   33   33 
FHLB stock dividends  0   50   0 
Net amortization on securities  50   29   20 
Increased cash value of Bank-owned life insurance  (237)   (238)   (249) 
Stock-based compensation expense  164   127   96 
Gain/(loss) on sale of bank premises, net  (17)   30   0 
Changes in:
               
Interest receivable  32   (136)   (17) 
Interest payable  (6)   (5)   (37) 
Other assets and liabilities  196   (1,501)   500 
Net cash provided by operating activities  4,271   2,562   4,278 
Cash flows from investing activities
               
Securities available for sale:
               
Purchases  (1,040)   0   (2,000) 
Maturities, calls and repayments  3,232   2,750   2,335 
Securities held to maturity:
               
Purchases  (740)   0   0 
Net change in loans  (18,252)   (11,777)   (23,005) 
Proceeds from sale of OREO and other repossessed assets  2,136   113   293 
Proceeds from the disposition of premises and equipment  1,173   1,344   8 
Bank premises and equipment expenditures  (193)   (853)   (569) 
Net cash (used in) investing activities  (13,684)   (8,423)   (22,938) 
Cash flows from financing activities
               
Net change in deposits  (2,145)   17,463   12,869 
Increase (decrease) in federal funds purchased  0   (1,757)   1,757 
FHLB advances  10,000   10,500   9,000 
Repayments of FHLB advances  (5,118)   (10,616)   (9,114) 
Cash dividends paid  (1,060)   (843)   (718) 
Treasury stock purchases  (736)   0   0 
Issuance of treasury stock under stock option plans  26   33   12 
Issuance of treasury stock for deferred compensation plan  0   61   69 
Issuance of common stock for stock option plans  47   12   0 
Issuance of common stock for deferred compensation plan  143   40   0 
Net cash provided by financing activities  1,157   14,893   13,875 
Net change in cash equivalents and federal funds sold  (8,256)   9,032   (4,785) 
Cash equivalents and federal funds sold at beginning of year  27,151   18,119   22,904 
Cash equivalents and federal funds sold at end of year $18,895  $27,151  $18,119 
Supplemental disclosures:
               
Cash paid for interest $880  $887  $1,213 
Cash paid for income taxes  1,310   1,630   1,430 
Non-cash transfer of loans to foreclosed/repossessed assets  281   2,383   191 



See accompanying notes to consolidated financial statements.


TABLE OF CONTENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:  The consolidated financial statements include the accounts of Commercial Bancshares, Inc. (the “Corporation”) and its wholly owned subsidiaries, Commercial Financial and Insurance Agency, LTD (“Commercial Financial”) and The Commercial Savings Bank (the “Bank). All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations:  Commercial Bancshares, Inc. is a financial holding corporation whose banking subsidiary, The Commercial Savings Bank, is engaged in the business of commercial and retail banking, with operations conducted through its main office and branches located in Upper Sandusky, Ohio and neighboring communities in Wyandot, Marion and Hancock counties. These market areas provide the source of substantially all of the Corporation’s deposit and loan activities. The Corporation’s primary deposit products are checking, savings and term certificate accounts, and its primary lending products are residential mortgage, commercial and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions and federal funds sold.

Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. The most significant of these estimates relate to the determination of the allowance for loan losses, valuation of other real estate owned and the fair value of investment securities. Due to potential changes in conditions, it is at least reasonably possible that change in estimates will occur in the near term and that such changes could be material to the amounts reported in the Corporation’s financial statements.

Cash and Cash Equivalents:  Cash and cash equivalents include cash, interest-bearing and noninterest-bearing demand deposits with banks, and federal funds sold.

Cash and Due from Banks:  Federal Reserve Board regulations require the Bank to maintain reserve balances on deposits with the Federal Reserve Bank of Cleveland. The required ending reserve balance was $5,064,000 and $5,237,000 on December 31, 2015 and 2014, respectively.

Investment Securities:  Securities are classified as available for sale and held to maturity. Available for sale investment securities are carried at fair value, with unrealized holding gains and losses reported separately in shareholders’ equity, net of tax. Held to maturity investments are carried at amortized cost. Purchase premiums and discounts are recognized using the effective interest method over the period to maturity or call and are included in interest income. Realized gains and losses on sales are determined using the amortized cost of the specific security sold. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Securities are written down to fair value when a decline in fair value is considered other-than-temporary.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. When evaluating investment securities consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. In analyzing an issuer’s financial condition, the Corporation may consider whether the securities are issued by the federal government or its agencies, or U.S. government sponsored enterprises, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the


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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but the entity does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

Other Investment Securities:  The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to own a certain amount of stock-based on the level of borrowings and other factors, and may invest in additional amounts.

Loans Receivable:  Loans are reported at the principal balance outstanding, net of deferred loan fees and costs, allowance for loan losses, and charge-offs. Interest income is reported on the accrual method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days. When a loan is placed on nonaccrual status, all unpaid interest is reversed from interest income. Payments received on such loans are reported as principal reductions until qualifying for return to accrual status. Accrual is resumed when all contractually due payments are brought current and future payments are reasonably assured.

A loan is impaired when based on current information and events it is probable the Corporation will be unable to collect the scheduled payment of principal and interest when due under the contractual terms of the loan agreement. Impairment is evaluated in total for smaller-balance loans of similar nature such as real estate mortgages and installment loans, and on an individual basis for commercial loans that are graded substandard or below. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis. If a loan is impaired, a portion of the allowance may be allocated so that the loan is reported, net, using either the present value of estimated future cash flows discounted at the loan’s effective interest rate, the loan’s observable market value or at the fair value of collateral if repayment is expected solely from the collateral.

Allowance for Loan Losses:  The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and decreased by charge-offs, minus recoveries. Management estimates the allowance balance required based on past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors

Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loans should be reported as a troubled debt restructuring (“TDR”). A loan is a TDR when the Corporation, for economic or legal reasons related to the borrower’s financial difficulties,


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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

grants a concession to the borrower by modifying or renewing a loan that the Corporation would not otherwise consider. To make this determination, the Corporation must determine whether (a) the borrower is experiencing financial difficulties and (b) the Corporation granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties.

Premises and Equipment:  Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is calculated using the straight-line method based on the estimated useful lives of the assets. Buildings and related components are depreciated using useful lives ranging from 5 to 39 years. Furniture, fixtures and equipment are depreciated using useful lives of 3 to 10 years.

Bank-Owned Life Insurance:  Bank-owned life insurance policies are stated at the current cash surrender value of the policy, or the policy death proceeds less any obligation to provide a death benefit to an insured’s beneficiaries if that value is less than the cash surrender value. Increases in the asset value are recorded as earnings in other income.

Income Taxes:  Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability or balance sheet method. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Long-Term Assets:  Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts.

Benefit Plans:  Profit-sharing and 401(k) plan contributions are determined by a formula based on employee deferrals with additional contributions at the discretion of the Board of Directors.

Directors and executive officers of the Corporation are permitted to defer compensation paid for service to the Corporation under the Corporation’s Deferred Compensation Plan. Deferred compensation costs are expensed over the individual’s service period. Shares of the Corporation’s common stock that are held in trust for the benefit of deferred compensation plan participants may be available to the Corporation’s creditors in certain circumstances. Such shares acquired by the trustee are reported as a reduction to shareholders’ equity, with a corresponding increase to common stock. In addition to the Corporation’s stock, cash is also held in trust for the benefit of deferred compensation plan participants.

Stock Compensation:  The Corporation recognizes expense for stock-based compensation using the fair value method of accounting. The Corporation uses a Black Scholes option-pricing model to estimate the grant date fair value of stock options granted. The fair value of the restricted stock awards is the closing market price of the Corporation’s stock on the date of grant. Compensation is then recognized over the required service period, generally defined as the vesting period for stock option awards and as the unvested period for nonvested (restricted) stock awards.

Treasury Stock:  Common shares repurchased are recorded at cost. Cost of shares reissued is determined using the weighted average cost.

Financial Instruments:  Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer-financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.


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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Fair Values of Financial Instruments:  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on-and-off balance sheet financial instruments does not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments.

Comprehensive Income:  Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income are components of comprehensive income. The only item in accumulated other comprehensive income is net unrealized gains and losses on available for sale securities, reported net of tax.

Loss Contingencies:  Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements.

Earnings Per Share:  Basic earnings per share (“EPS”), is calculated by dividing net income by the weighted average number of common shares outstanding. The computation of diluted EPS assumes the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. The dilutive effect of stock options is considered in earnings per share calculations, if dilutive, using the treasury stock method.

Industry Segments:  While the Corporation’s chief decision makers monitor the revenue streams of various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

NOTE 2 INVESTMENT SECURITIES

The amortized cost and estimated fair value(in thousands)of investment securities at the dates indicated are presented in the following table:

    
 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair Value
Securities available for sale
                    
December 31, 2015
                    
U.S. government agency securities $2,519  $1  $(2)  $2,518 
State and political subdivisions  4,114   118   0   4,232 
Mortgage-backed securities  1,840   121   0   1,961 
Total securities available for sale $8,473  $240  $(2)  $8,711 
December 31, 2014
                    
U.S. government agency securities $2,000  $0  $(35)  $1,965 
State and political subdivisions  6,337   259   0   6,596 
Mortgage-backed securities  2,303   163   0   2,466 
Total securities available for sale $10,640  $422  $(35)  $11,027 

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NOTE 2 INVESTMENT SECURITIES  – (continued)

    
 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair Value
Securities held to maturity
                    
December 31, 2015
                    
State and political subdivisions $666  $0  $0  $666 
December 31, 2014
                    
State and political subdivisions $0  $0  $0  $0 

The estimated fair values of investment securities (in thousands) at December 31, 2015, by contractual maturity are shown below. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

      
 Available for sale Held-to-maturity Total
   Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Amortized Cost Estimated
Fair Value
Due less than one year $644  $662  $0  $0  $644  $662 
Due after one year through five years  4,287   4,362   0   0   4,287   4,362 
Due after five years through ten years  1,702   1,726   666   666   2,368   2,392 
Due after ten years  0   0   0   0   0   0 
Mortgage-backed securities  1,840   1,961   0   0   1,840   1,961 
Total investment securities $8,473  $8,711  $666  $666  $9,139  $9,377 

At year-end 2015 and 2014 securities with a carrying value of $7,999,000 and $8,958,000, respectively, were pledged to secure public deposits and other deposits and liabilities as required or permitted by law.

Gross unrealized losses on securities and the estimated fair value of the related securities aggregated by security category and length of time the individual securities have been in continuous loss positions at December 31, 2015 and 2014 are as follows:

    
 Less Than Twelve Months Over Twelve Months
(In thousands)
December 31, 2015		 Gross Unrealized Losses Fair
Value		 Gross Unrealized Losses Fair
Value
U.S. government agency securities $(2)  $517  $0  $0 
State and political subdivisions  0   0   0   0 
Mortgage-backed securities  0   0   0   0 
Total securities available for sale $(2)  $517  $0  $0 

    
 Less Than Twelve Months Over Twelve Months
(In thousands)
December 31, 2014		 Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair
Value
U.S. government agency securities $0  $0  $(35)  $1,965 
State and political subdivisions  0   0   0   0 
Mortgage-backed securities  0   0   0   0 
Total securities available for sale $0  $0  $(35)  $1,965 

At December 31, 2015 the Corporation held one security with an estimated fair value of $517,000 and an unrealized loss of $2,000 in a continuous unrealized loss position for less than twelve months. There were no securities in a continuous loss position for more than twelve months. At December 31, 2014 the Corporation


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NOTE 2 INVESTMENT SECURITIES  – (continued)

held one security with an estimated fair value of $1,965,000 and an unrealized loss of $35,000 in a continuous unrealized loss position for more than twelve months. There were no securities in a continuous loss position for less than twelve months.

The unrealized losses that exist are primarily due to the change in market interest rates subsequent to purchase. The Corporation does not consider this investment to be other than temporarily impaired at December 31, 2015 and 2014 since the decline in market value is primarily attributable to changes in interest rates and not credit quality. In addition, the Corporation does not intend to sell and does not believe that it is more likely than not that the Corporation will be required to sell this investment until there is a full recovery of the unrealized loss, which may be at maturity. As a result, management does not believe that the investment security in an unrealized loss position at December 31, 2015 represents an other-than-temporary impairment.

Other investment securities are carried at cost and consist principally of stock in the Federal Home Loan Bank of Cincinnati.

NOTE 3 ALLOWANCE FOR LOAN LOSSES

The following tables provide information on the activity in the allowance for loan losses by portfolio segment for the periods indicated:

    
December 31, 2015 Commercial Real Estate Consumer Total
   (In thousands)
Beginning balance – January 1, 2015 $3,340  $277  $509  $4,126 
Charge-offs  (357)   (17)   (160)   (534) 
Recoveries  49   0   32   81 
Net  (308)   (17)   (128)   (453) 
Provision  90   39   59   188 
Ending balance – December 31, 2015 $3,122  $299  $440  $3,861 

    
December 31, 2014 Commercial Real Estate Consumer Total
   (In thousands)
Beginning balance – January 1, 2014 $3,517  $235  $591  $4,343 
Charge-offs  (430)   (32)   (140)   (602) 
Recoveries  37   8   31   76 
Net  (393)   (24)   (109)   (526) 
Provision  216   66   27   309 
Ending Balance – December 31, 2014 $3,340  $277  $509  $4,126 

    
December 31, 2013 Commercial Real Estate Consumer Total
   (In thousands)
Beginning balance – January 1, 2013 $3,175  $284  $582  $4,041 
Charge-offs  (79)   (90)   (171)   (340) 
Recoveries  52   8   51   111 
Net  (27)   (82)   (120)   (229) 
Provision  369   33   129   531 
Ending Balance – December 31, 2013 $3,517  $235  $591  $4,343 

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NOTE 3 ALLOWANCE FOR LOAN LOSSES  – (continued)

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment at December 31, 2015, 2014 and 2013.

      
 Collectively Evaluated Individually Evaluated Total
(In thousands) Allowance
for loan
losses		 Recorded
investment in
loans		 Allowance
for loan
losses		 Recorded
investment in
loans		 Allowance
for loan
losses		 Recorded
investment in
loans
December 31, 2015
                              
Commercial $3,046  $238,044  $76  $4,872  $3,122  $242,916 
Real estate  299   23,944   0   0   299   23,944 
Consumer  440   30,073   0   0   440   30,073 
Total $3,785  $292,061  $76  $4,872  $3,861  $296,933 

      
 Collectively Evaluated Individually Evaluated Total
   Allowance
for loan
losses		 Recorded
investment
in loans		 Allowance
for loan
losses		 Recorded
investment
in loans		 Allowance
for loan
losses		 Recorded
investment
in loans
December 31, 2014
                              
Commercial $3,038  $219,680  $302  $5,828  $3,340  $225,508 
Real estate  277   22,183   0   0   277   22,183 
Consumer  509   31,460   0   0   509   31,460 
Total $3,824  $273,323  $302  $5,828  $4,126  $279,151 
December 31, 2013
                              
Commercial $2,993  $205,374  $524  $10,924  $3,517  $216,298 
Real estate  235   18,806   0   0   235   18,806 
Consumer  591   34,864   0   0   591   34,864 
Total $3,819  $259,044  $524  $10,924  $4,343  $269,968 

NOTE 4 CREDIT QUALITY INDICATORS

To facilitate the monitoring of credit quality within the loan portfolio and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses, the Corporation utilizes the following categories of credit grades: pass, special mention, substandard, doubtful and loss. The four categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass ratings, which are assigned to those borrowers that do not have identified potential or well-defined weaknesses and for which there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on at least a quarterly basis. Loans are graded on a scale of 1 through 9, with a grade of 5 or below classified as “Pass” rated credits. Following is a description of the general characteristics of risk grades 6 through 9:

6 — Special MentionSpecial mention credits have a level of potential weakness such that they warrant management’s closer attention than those on watch. These credits, opposed to watch credits, require correction or additional financial information for further analysis and verification of repayment capacity. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not considered adversely classified assets. Such credits do however, warrant consideration of additional reserve.

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NOTE 4 CREDIT QUALITY INDICATORS  – (continued)

7 — SubstandardSubstandard loans are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain loss if the deficiencies are not corrected.
8 — DoubtfulLoans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
9 — LossLoans are considered uncollectible and of such little value that continuing to carry them as assets on the institution’s financial statements is not feasible. Accordingly, the Bank does not carry loans classified as loss on the books, instead, these loans are charged off.

The Corporation’s strategy for credit risk management includes ongoing credit examinations and management reviews of loans exhibiting deterioration of credit quality. A deteriorating credit indicates an elevated likelihood of delinquency. When a loan becomes delinquent, its credit grade is reviewed and changed accordingly. Each downgrade to a classified credit results in a higher percentage of reserve to reflect the increased likelihood of loss for similarly graded credits. Further deterioration could result in a certain credit being deemed impaired, resulting in a collateral valuation for purposes of establishing a specific reserve which reflects the possible extent of such loss for that credit.

The following tables present the risk category of loans by class of loans based on the most recent analysis performed at December 31, 2015 and 2014.

Commercial Credit Exposure(In thousands)
Credit risk profile by credit worthiness category

          
Credit
Grade		 Commercial
Operating		 Commercial
Agricultural		 Commercial Real
Estate 1-4 Family		 Commercial Real
Estate Other		 Total
 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14
Pass $33,221  $32,933  $43,461  $45,863  $46,453  $39,683  $115,517  $101,222  $238,652  $219,701 
6  0   0   0   0   0   0   0   0   0   0 
7  662   956   898   159   124   793   2,580   3,899   4,264   5,807 
8  0   0   0   0   0   0   0   0   0   0 
Total $33,883  $33,889  $44,359  $46,022  $46,577  $40,476  $118,097  $105,121  $242,916  $225,508 

Real Estate Credit Exposure(In thousands)
Credit risk by credit worthiness category

      
Credit Grade Real Estate Construction Real Estate Other Total
 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14
Pass $5,583  $4,214  $18,345  $17,951  $23,928  $22,165 
6  0   0   0   0   0   0 
7  0   0   16   18   16   18 
8  0   0   0   0   0   0 
Total $5,583  $4,214  $18,361  $17,969  $23,944  $22,183 

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NOTE 4 CREDIT QUALITY INDICATORS  – (continued)

Consumer Credit Exposure(In thousands)
Credit risk by credit worthiness category

        
Credit
Grade		 Consumer Equity Consumer Auto Consumer Other Total
 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14
Pass $17,956  $17,987  $4,637  $4,650  $7,361  $8,616  $29,954  $31,253 
6  0   0   0   0   0   0   0   0 
7  94   199   4   0   21   8   119   207 
8  0   0   0   0   0   0   0   0 
Total $18,050  $18,186  $4,641  $4,650  $7,382  $8,624  $30,073  $31,460 

NOTE 5 SUMMARY OF IMPAIRED LOANS

Loans evaluated for impairment include loans classified as troubled debt restructurings and non-performing multi-family, commercial and construction loans. The following tables set forth certain information regarding the Corporation’s impaired loans, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary at December 31, 2015, 2014 and 2013.

   
December 31, 2015 Recorded
Investment		 Unpaid
Principal
Balance		 Related
Allowance
   (In thousands)
With no related allowance recorded:
               
Commercial operating $675  $932  $0 
Commercial real estate, 1-4 family  0   0   0 
Commercial real estate, other  2,483   2,601   0 
Subtotal $3,158  $3,533  $0 
With an allowance recorded:
               
Commercial operating $118  $118  $2 
Commercial real estate, 1-4 family  1,402   1,402   73 
Commercial real estate, other  194   194   1 
Subtotal $1,714  $1,714  $76 
Total $4,872  $5,247  $76 

   
December 31, 2014 Recorded
Investment		 Unpaid Principal Balance Related Allowance
   (In thousands)
With no related allowance recorded:
               
Commercial operating $0  $0  $0 
Commercial real estate, 1-4 family  0   0   0 
Commercial real estate, other  1,942   1,942   0 
Subtotal $1,942  $1,942  $0 
With an allowance recorded:
               
Commercial operating $797  $919  $128 
Commercial real estate, 1-4 family  1,614   1,614   132 
Commercial real estate, other  1,475   1,475   42 
Subtotal $3,886  $4,008  $302 
Total $5,828  $5,950  $302 

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NOTE 5 SUMMARY OF IMPAIRED LOANS  – (continued)

   
December 31, 2013 Recorded
Investment		 Unpaid
Principal
Balance		 Related
Allowance
   (In thousands)
With no related allowance recorded:
               
Commercial operating $66  $66  $0 
Commercial real estate, 1-4 family  54   54   0 
Commercial real estate, other  6,876   6,876   0 
Subtotal $6,996  $6,996  $0 
With an allowance recorded:
               
Commercial operating $967  $967  $111 
Commercial real estate, 1-4 family  1,679   1,679   232 
Commercial real estate, other  1,282   1,282   181 
Subtotal $3,928  $3,928  $524 
Total $10,924  $10,924  $524 

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35), when based on current information and events, it is probable the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.

Impaired loans with no related allowance recorded at December 31, 2015, increased 62.6% or $1,216,000 from December 31, 2014, compared to a decrease of 72.2% or $5,054,000 from year-end 2013. Impaired loans with a specified reserve recorded at December 31, 2015, decreased 55.9% or $2,172,000 from December 31, 2014, compared to a decrease of 1.1% or $42,000 from year-end 2013. Total impaired loans at December 31, 2015, decreased 16.4% or $956,000 from December 31, 2014, compared to a decrease of 46.7% or $5,096,000 from December 31, 2013. The decrease in impaired loans during 2015 was primarily due to the write-down of specified reserves on two loans as well as monthly payments received on account. The decrease in impaired loans during 2014 was largely due to an upgrade and removal from TDR status of one commercial credit of $2,108,000 and the transfer of foreclosed property from three loans to OREO, in the amount of $2,220,000. The specified reserve related to impaired loans totaled $76,000 at December 31, 2015, compared to specified reserves of $302,000 and $524,000 at December 31, 2014 and 2013, respectively.

The following tables present the average recorded investment in impaired loans and the amount of interest income recognized on a cash basis for impaired loans after impairment by portfolio segment and class for the periods indicated.

      
 No Related
Allowance Recorded		 With Related
Allowance Recorded		 Total
(In thousands) Average
Recorded
Investment		 Total Interest
Income
Recognized		 Average
Recorded
Investment		 Total Interest
Income
Recognized		 Average
Recorded
Investment		 Total Interest
Income
Recognized
December 31, 2015
                              
Commercial:
                              
Operating $773  $0  $121  $7  $894  $7 
Real estate, 1-4 family  0   0   1,416   60   1,416   60 
Real estate, other  3,027   192   199   12   3,226   204 
Total $3,800  $192  $1,736  $79  $5,536  $271 

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NOTE 5 SUMMARY OF IMPAIRED LOANS  – (continued)

      
 No Related
Allowance Recorded		 With Related
Allowance Recorded		 Total
(In thousands) Average
Recorded
Investment		 Total Interest
Income
Recognized		 Average
Recorded
Investment		 Total Interest
Income
Recognized		 Average
Recorded
Investment		 Total Interest
Income
Recognized
December 31, 2014
                              
Commercial:
                              
Operating $0  $0  $821  $8  $821  $8 
Real estate, 1-4 family  0   0   1,649   68   1,649   68 
Real estate, other  3,610   158   1,526   94   5,136   252 
Total $3,610  $158  $3,996  $170  $7,606  $328 
December 31, 2013
                              
Commercial:
                              
Operating $66  $3  $990  $8  $1,056  $11 
Real estate, 1-4 family  54   2   1,696   63   1,750   65 
Real estate, other  6,125   145   1,300   14   7,425   159 
Total $6,245  $150  $3,986  $85  $10,231  $235 

NOTE 6 TROUBLED DEBT RESTRUCTURINGS

A modification of a loan constitutes a troubled debt restructured loan when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of concessions when modifying a loan. Concessionary modifications may include, but are not limited to, delays in required payments of principal and interest for a specified period, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession has been granted when, as a result of the restructuring, the Corporation does not expect to collect all amounts due, including interest at the original stated rate.

When the Corporation modifies a loan, it evaluates any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or uses the current fair value of the collateral, less selling costs for collateral dependent loans. If the Corporation determines the value of the modified loan is less than the recorded investment of the loan (net of previous charge-offs and deferred loan fees or costs), impairment is recognized through a reserve for loan and lease losses estimate or a charge-off to the reserve for loan and lease losses. In periods subsequent to the modification, the Corporation evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes the impairment through the reserve for loan and lease losses.

There were no financing receivables modified as troubled debt restructurings during the twelve months ended December 31, 2015 and 2014.

There were no commitments to lend additional funds to borrowers classified as troubled debt restructurings at December 31, 2015.


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NOTE 7 AGE ANALYSIS OF PAST DUE FINANCING RECEIVABLES

The following tables present the aging of the recorded investment in loans by past due category and class of loans at December 31, 2015 and 2014.

       
(In thousands)
December 31, 2015		 30 – 59
Days Past
Due		 60 – 89
Days Past
Due		 > 90 Days
Past Due		 Total
Past Due		 Current Total
Financing
Receivables		 Recorded
Investment
> 90 Days
and Accruing
Commercial
                                   
Operating $0  $0  $538  $538  $33,345  $33,883  $0 
Agricultural  21   0   0   21   44,338   44,359   0 
Real estate, 1-4 fam  0   0   19   19   46,558   46,577   0 
Real estate, other  37   0   68   105   117,992   118,097   0 
Real Estate
                                   
Construction  0   0   0   0   5,583   5,583   0 
Other  0   0   15   15   18,346   18,361   0 
Consumer
                                   
Equity  35   12   0   47   18,003   18,050   0 
Auto  0   0   0   0   4,641   4,641   0 
Other  16   10   0   26   7,356   7,382   0 
Total $109  $22  $640  $771  $296,162  $296,933  $0 

       
(In thousands)
December 31, 2014
 30 – 59
Days Past Due		 60 – 89
Days Past Due		 > 90 Days
Past Due		 Total
Past Due		 Current Total
Financing
Receivables		 Recorded
Investment
> 90 Days
and Accruing
Commercial
                                   
Operating $0  $0  $673  $673  $33,216  $33,889  $0 
Agricultural  0   0   0   0   46,022   46,022   0 
Real estate, 1-4 fam  0   0   0   0   40,476   40,476   0 
Real estate, other  33   0   36   69   105,052   105,121   0 
Real Estate
                                   
Construction  0   0   0   0   4,214   4,214   0 
Other  20   14   0   34   17,935   17,969   0 
Consumer
                                   
Equity  0   40   33   73   18,113   18,186   0 
Auto  0   0   0   0   4,650   4,650   0 
Other  15   0   8   23   8,601   8,624   0 
Total $68  $54  $750  $872  $278,279  $279,151  $0 

NOTE 8 FINANCING RECEIVABLES ON NONACCRUAL STATUS

The following table summarizes loans(in thousands)on nonaccrual status by class of loan at December 31, 2015 and 2014.

  
 December 31,
2015		 December 31,
2014
Commercial operating $538  $673 
Commercial real estate, 1-4 family  19   179 
Commercial real estate, other  97   69 
Real estate, other  15   18 
Consumer, equity  42   99 
Consumer, other  10   23 
Total $721  $1,061 

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NOTE 9 PREMISES AND EQUIPMENT

Major classifications of premises and equipment, stated at cost, at December 31, 2015 and 2014 as follows:

  
 2015 2014
   (In thousands)
Land $924  $916 
Buildings  7,342   7,244 
Furniture and equipment  4,528   4,941 
Construction in process  9   4 
    12,803   13,105 
Less accumulated depreciation  7,125   7,037 
Premises and equipment, net $5,678  $6,068 

Depreciation expense charged to operations was $587,000, $580,000, and $597,000 for the years ended December 31, 2015, 2014 and 2013, respectively. In the fourth quarter of 2014, the Corporation entered into an agreement to sell one of its full-service banking offices. No loans or deposits were sold in connection with this transaction. The sale closed in the first quarter of 2015 and at that time all personnel as well as all loan and deposit accounts were merged into an existing branch office in that marketplace. The branch’s book value of $1,178,000, net of costs to sell of $22,000 and the accrued loss on the sale of $59,000, was transferred to assets held for sale at year-end 2014. The estimated costs to sell and loss on the sale were charged against income in 2014.

NOTE 10 TIME DEPOSITS

Time deposits in denominations of $250,000 or more totaled $5,966,000 and $7,219,000 at December 31, 2015 and 2014, respectively.

At December 31, 2015 the scheduled maturities of time deposits were as follows:

 
 (In thousands)
Due during the year ending December 31,
     
2016 $45,168 
2017  18,473 
2018  14,392 
2019  7,235 
2020  3,332 
Thereafter  4,458 
   $93,058 

NOTE 11 FHLB ADVANCES

At December 31, advances from the Federal Home Loan Bank were as follows:

   
 Interest
Rate at December 31,		 2015 2014
      (In thousands)
FHLB variable rate advance, with monthly interest payments; due March 2016  0.45%  $5,000  $0 
FHLB fixed rate advance, with monthly principal and interest payments; due July 2027  2.14%  $1,574  $1,692 

At December 31, 2015 and 2014, as a member of the Federal Home Loan Bank system, the Bank had the ability to obtain up to $18,623,000 and $15,497,000, respectively, in additional borrowings based on FHLB stock owned by the Bank and certain loans pledged to the Federal Home Loan Bank. At December 31, 2015, the Bank had approximately $46,795,000 of one-to-four family residential real estate and commercial real estate loans pledged as collateral for borrowings, compared to $45,283,000 at December 31, 2014.


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NOTE 12 INCOME TAXES

The provision for income taxes (in thousands) consists of:

   
 2015 2014 2013
Current provision $1,596  $1,443  $1,522 
Deferred provision (benefit)  (144)   (12)   (251) 
Total income tax expense $1,452  $1,431  $1,271 

Year-end deferred tax assets and liabilities (in thousands) consist of:

  
 2015 2014
Items giving rise to deferred tax assets
          
Allowance for loan losses in excess of tax reserve $980  $1,070 
Deferred compensation  397   346 
Restricted stock awards  65   39 
Nonaccrual loan interest  36   27 
Deferred loan fees and costs  100   49 
Accrued expenses and other  4   11 
Total  1,582   1,542 
Items giving rise to deferred tax liabilities
          
Depreciation  (264)   (333) 
FHLB stock dividend  (309)   (309) 
Unrealized gain on securities available for sale  (81)   (132) 
Prepaid expenses and other  (12)   (47) 
Total  (666)   (821) 
Net deferred tax asset $916  $721 

Income tax expense attributable to continuing operations (in thousands) is reconciled between the financial statement provision and amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes as follows:

   
 2015 2014 2013
Tax at statutory rates $1,658  $1,607  $1,471 
Increase (decrease) in tax resulting from:
               
Tax-exempt income  (161)   (179)   (199) 
Other  (45)   3   (1) 
Total income tax expense $1,452  $1,431  $1,271 

The Corporation had no reportable income tax expense pertaining to security gains for 2015, 2014 or 2013.

NOTE 13 STOCK-BASED COMPENSATION

The Corporation has two share-based compensation plans in existence: the 1997 Stock Option Plan (expired but having outstanding options that may still be executed) and the 2009 Incentive Stock Option Plan, which is described below.

The Corporation’s 2009 Incentive Stock Option Plan, which was stockholder approved, permitted the grant of share options to its selected key employees. No more than 150,000 shares of the Corporation’s common stock may be issued under the plan. The shares that may be issued may be authorized but unissued shares or treasury shares. The plan permits the grant of incentive awards in the form of stock options,


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NOTE 13 STOCK-BASED COMPENSATION  – (continued)

restricted shares and certain other stock-based awards on a periodic basis at the discretion of the board. At December 31, 2015, the remaining shares available for issuance under the plan totaled 28,850.

Stock options are generally granted with an exercise price, and restricted stock awards are valued, equal to the market price of the Corporation’s stock at the date of grant; stock option awards generally have an expiration period of ten years.

The fair value of each option award was estimated on the date of grant using a Black Scholes option valuation model that uses the assumptions noted in the table below. Expected volatilities are based on several factors including historical volatility of the Corporation’s common stock, implied volatility determined from traded options and other factors. The Corporation uses historical data to estimate option exercises and employee terminations to estimate the expected life of options. The risk-free interest rate for the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is based on the Corporation’s expected dividend yield over the life of the options.

The fair value of options granted in 2015, 2014 and 2013 was determined using the following weighted-average assumptions as of the date of grant.

   
 2015 2014 2013
Dividend yield  3.16%   3.15%   3.17% 
Risk-free interest rate  1.94%   2.04%   2.00% 
Expected volatility  22.29%   22.59%   23.00% 
Weighted average expected life  8 years   8 years   8 years 
Weighted average per share fair value of options $4.47  $4.11  $3.63 

In the third quarter of 2015, 18,400 stock options were granted, subject to a three-year vesting period with one third of the options vesting each year on the anniversary date of the grant.

Intrinsic value represents the amount by which the fair market value of the Corporation’s stock, $30.61 at December 31, 2015, exceeds the exercise price of the stock options. At December 31, 2015, the aggregate intrinsic value of stock options outstanding and exercisable was $871,000 and $736,000, respectively, compared to an aggregate intrinsic value of $654,000 and $539,000 at December 31, 2014.

Following is a summary of option activity for the years ended December 31, 2015, 2014 and 2013.

      
 2015 2014 2013
   Shares Weighted
Average
Exercise
Price		 Shares Weighted
Average
Exercise
Price		 Shares Weighted
Average
Exercise
Price
Outstanding at beginning of year  69,375  $18.08   62,550  $16.63   54,630  $15.83 
Granted  18,400   27.40   11,000   24.47   9,950   21.35 
Exercised  (4,225)   17.04   (3,575)   12.85   (900)   12.30 
Expired  0   0   0   0   (1,130)   22.75 
Forfeited  0   0   (600)   15.79   0   0 
Outstanding at year-end  83,550  $20.18   69,375  $18.08   62,550  $16.63 
Options exercisable at year-end  54,499  $17.10   46,775  $15.99   39,201  $14.69 
Weighted average fair value of options granted during the year $4.47     $4.11     $3.63    

The fair value of options granted is amortized as compensation expense, recognized on a straight-line basis over the vesting period of the respective stock option grant. Compensation expense related to employees is included in personnel expense while compensation expense related to directors is included in other operating expense. The Corporation recognized compensation expense of $47,000 for the year ended December 31, 2015, related to the awards of nonrestricted stock options compared to $39,000 and $34,000 for


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NOTE 13 STOCK-BASED COMPENSATION  – (continued)

the same periods in 2014 and 2013, respectively. At December 31, 2015, the Corporation had $102,000 of unrecognized compensation expense related to nonrestricted stock options. This remaining cost is expected to be recognized over a weighted average vesting period of approximately 26.5 months. The fair value of stock options vesting during 2015 was $256,000, compared to $225,000 and $204,000 during 2014 and 2013, respectively.

The following is a summary of outstanding and exercisable stock options at December 31, 2015:

   
Exercise Price Number
Of Shares
Outstanding		 Weighted
Average
Remaining
Contractual
Life		 Number
Of Shares
Exercisable
$12.30  11,900   3.62 years   11,900 
13.25  8,300   4.62 years   8,300 
17.40  9,800   5.62 years   9,800 
19.28  14,200   6.53 years   14,200 
21.35  9,950   7.61 years   6,632 
24.47  11,000   8.63 years   3,667 
27.40  18,400   9.62 years   0 
Total  83,550   6.90 years   54,499 

The following table summarizes information about the Corporation’s nonvested stock option activity for the year ended December 31, 2015:

  
Nonvested Options Number
Of Options		 Weighted
Average
Price
Nonvested options at January 1, 2015  22,600  $22.41 
Granted  18,400   27.40 
Vested  (11,949)   21.45 
Forfeited/expired  0   0.00 
Nonvested options at December 31, 2015  29,051  $25.97 

In the third quarter of 2015, the Corporation granted 8,000 shares of restricted stock awards with a total grant date fair value of $219,000. The fair value of restricted stock is equal to the fair market value of the Corporation’s common stock on the date of grant. Restricted stock awards are recorded as unearned compensation, a component of shareholders’ equity, and amortized to compensation expense over the vesting period. The Corporation recognized compensation expense of $119,000 for the year ended December 31, 2015, related to restricted stock grants, compared to $88,000 and $62,000 for the same periods in 2014 and 2013, respectively. At December 31, 2015 the Corporation had $268,000 of unrecognized compensation expense relating to restricted stock awards. This remaining cost is expected to be recognized over a weighted average vesting period of approximately 26.2 months.

The following table summarizes restricted stock activity for the year ended December 31, 2015.

  
Restricted Stock Nonvested
Number
of Shares		 Weighted
Average
Grant Date
Fair Value
Nonvested balance at January 1, 2015  12,900  $21.95 
Granted  8,000   27.40 
Vested  (2,200)   19.28 
Forfeited  0   0.00 
Nonvested balance at December 31, 2015  18,700  $24.60 

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NOTE 14 BENEFIT PLANS

The Corporation maintains a 401(k) plan covering substantially all employees who have attained the age of twenty-one and have completed thirty days of service with the Corporation. This is a salary deferral plan, which calls for matching contributions by the Corporation based on a percentage (50%) of each participant’s voluntary contribution (limited to a maximum of six percent (6%) of a covered employee’s annual compensation). In addition to the Corporation’s required matching contribution, a contribution to the plan may be made at the discretion of the Board of Directors. The Corporation’s matching and discretionary contributions were $106,000, $103,000 and $106,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

At December 31, 2015, the Corporation has agreements with two former executive officers and one current executive officer to provide postretirement benefits including split dollar life insurance arrangements and deferred compensation. The Corporation’s future obligations under the agreements have been provided for through the single purchase of split dollar life insurance policies on the executives. The Corporation has a liability recorded for the present value of the future benefits of approximately $368,000 and $348,000 at December 31, 2015 and 2014, respectively. The Corporation recognized expense in connection with these benefits of $24,000, $23,000 and $22,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

The Corporation has deferred director fee arrangements with certain directors and executive officers. The amounts deferred under the arrangements are invested in the Corporation’s common stock and are maintained in a rabbi trust. The Corporation had 62,067 and 55,360 shares in the plan with a related obligation of $1,206,000 and $1,022,000 established within stockholders’ equity as of December 31, 2015 and 2014, respectively.

NOTE 15 COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. The financial instruments include commitments to extend credit in the form of unused lines of credit and standby letters of credit.

These financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit, if deemed necessary by the Corporation, is based on management’s credit evaluation of the counter-party. Collateral held varies, but may include accounts receivables, inventories, premises and equipment, residential real estate and income producing commercial properties.

Standby letters of credit are irrevocable conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily used to support clients’ business trade transactions and may require payment of a fee. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Management assesses the borrower’s credit to determine the necessary collateral. Since the conditions requiring the Bank to fund letters of credit may not occur, the Corporation expects its liquidity requirements to be less than the total outstanding commitments.


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NOTE 15 COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES  – (continued)

The following is a summary of commitments to extend credit (in thousands) at year-end:

  
 2015 2014
Commitments to extend commercial credit $24,876  $25,398 
Commitments to extend consumer credit  11,172   11,293 
Standby letters of credit  12   47 
   $36,060  $36,738 

          
Fixed rate $10,959  $9,223 
Variable rate  25,101   27,515 
   $36,060  $36,738 

At year-end 2015, the fixed rate commitments had a range of interest rates from 2.18% to 25.00%, with a weighted average term to maturity of 33.7 months. At year-end 2014, the fixed rate commitments had a range of interest rates from 2.18% to 25.00%, with a weighted average term to maturity of 38.3 months.

NOTE 16 REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements will initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the banks must meet specific capital guidelines that involve quantitative measures of the banks’ assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators regarding components, risk weighting and other factors.

In measuring the adequacy of capital, assets are generally weighted for risk. Certain assets, such as cash and U.S. government securities, have a risk weighting of 0%. Others, such as commercial and consumer loans, are risk weighted at 100%. Risk weightings are also assigned for off-balance sheet items such as loan commitments. The various items are multiplied by the appropriate risk-weighting to determine risk-adjusted assets for the capital calculations. For the leverage ratio, average quarterly assets are used and are not risk-weighted.

If an institution fails to remain well-capitalized, it will be subject to a series of restrictions that increase as the capital condition worsens. For instance, federal law generally prohibits a depository institution from making any capital distribution, including the payment of a dividend or paying any management fee to its holding company, if the depository institution would be undercapitalized as a result. Undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to limitations, and are required to submit a capital restoration plan for approval, which must be guaranteed by the institution’s parent holding company. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator.

In December 2010, the Basel Committee on Banking Supervision issued final rules to global regulatory standards on bank capital adequacy and liquidity (commonly referred to as “Basel III”) previously agreed on by the Group of Governors and Heads of Supervision (the oversight body of the Basel Committee). U.S. federal banking agencies adopted final rules during 2013 to bring U.S. banking organizations into compliance with Basel III. The new rules were effective for the Bank beginning January 1, 2015, subject to a phase-in period for certain provisions extending through January 1, 2019. Under the new rules the Bank will be subject to new capital requirements that include:

Creation of a new required ratio for common equity Tier 1 (“CET 1”) capital.
An increase to the minimum Tier 1 capital ratio.

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NOTE 16 REGULATORY MATTERS  – (continued)

Changes to risk-weightings of certain assets for purposes of the risk-based capital ratios.
Creation of an additional capital conservation buffer in excess of the required minimum capital ratios.
Changes to what qualifies as capital for purposes of meeting these capital requirements.

Under the new rules, the Bank will be required to maintain additional levels of Tier 1 common equity over the minimum risk-based capital levels before it may pay dividends or pay discretionary bonuses. Under Basel III, the Bank will be required to maintain a minimum CET1 ratio of 4.5% of risk-weighted assets. CET1 consists of common stock, related surplus and retained earnings less certain deductions that primarily include goodwill, other intangible assets and deferred tax assets. These deductions to CET1 will be phased-in over a four-year period beginning at 40% on January 1, 2015 and an additional 20% per year thereafter. The minimum Tier 1 capital ratio increased to 6% from 4%, while the total capital ratio and leverage ratio remained unchanged at 8% and 4%, respectively. Changes to risk-weighted assets include: (i) 150% risk weighting for non-residential mortgage loans past due more than 90 days or classified as nonaccrual; (ii) 150% risk weighting (from 100%) for certain high volatility commercial real estate acquisition, development and construction loans; (iii) a 20% (from 0%) credit conversion factor for the unused portion of commitments with an original maturity of one year or less (except those unconditionally cancellable by the Bank); and, (iv) a 250% (from 100%) risk weighting for mortgage servicing and deferred tax assets that are not deducted from CET1.

In order to avoid restrictions on distributions, including dividend payments and discretionary bonus payments to its executives, the Bank will be required to maintain a capital conservation buffer of an additional 2.5% of risk-weighted assets once fully phased in. The capital conservation buffer is designed to create incentives for banking organizations to conserve capital during periods of economic stress. The addition of the capital conservation buffer effectively results in minimum ratios of 7%, 8.5% and 10.5% for CET1, Tier 1 capital and total capital, respectively, in order to avoid restrictions on distributions and discretionary bonus payments to executives. The capital conservation buffer is set to be phased in over a four year period beginning in 2016 by increments of 0.625% annually until reaching 2.5%. The capital conservation buffer does not apply to the Tier 1 leverage ratio.

Under the new capital rules, the effects of certain accumulated other comprehensive income items included in capital (primarily unrealized gains and losses on available for sale investment securities) are not excluded; however, banks with less than $250 billion in assets were permitted to make a one-time permanent election to continue excluding these items comparable to their prior treatment. The Bank made this election in order to avoid potentially significant fluctuations in its capital levels which can occur from the impact of changing market interest rates on the fair value of the Corporation’s investment securities portfolio.

Consistent with the objective of operating a sound financial organization, the Corporation’s goal is to maintain capital ratios well above the regulatory minimum requirements. At December 31, 2015 actual capital levels and the new regulatory minimum required levels for the Bank were as follows:

      
(In thousands)
December 31, 2015		 Actual Minimum Required
For Capital
Adequacy Purposes		 Minimum Required
To Be Well
Capitalized
 Amount Ratio Amount Ratio Amount Ratio
Common equity Tier 1 risk-based capital(1) $35,381   11.8%  $13,511   4.5%  $19,516   6.5% 
Tier 1 risk-based capital(1) $35,381   11.8%  $18,015   6.0%  $24,020   8.0% 
Total risk-based capital(1) $39,135   13.0%  $24,020   8.0%  $30,025   10.0% 
Tier 1 leverage capital(2) $35,381   10.6%  $13,383   4.0%  $16,729   5.0% 

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NOTE 16 REGULATORY MATTERS  – (continued)

At December 31, 2014 actual capital levels and minimum required levels for the Bank were as follows:(Minimum required levels in effect at year-end 2014)

      
(In thousands)
December 31, 2014(3)		 Actual Minimum Required
For Capital
Adequacy Purposes		 Minimum Required
To Be Well
Capitalized
 Amount Ratio Amount Ratio Amount Ratio
Tier 1 risk-based capital(1) $33,154   11.8%  $11,216   4.0%  $16,824   6.0% 
Total risk-based capital(1) $36,667   13.1%  $22,431   8.0%  $28,039   10.0% 
Tier 1 leverage capital(2) $33,154   10.1%  $13,169   4.0%  $16,461   5.0% 

(1)Common equity Tier 1 risk-based, Tier 1 risk-based, and Total risk-based capital ratios are computed by dividing a bank’s common equity Tier 1 capital, Tier 1 capital or Total capital, as defined by regulation, by a risk-weighted sum of the bank’s assets, with the risk weighting determined by general standards established by regulation. The safest assets (e.g. government obligations) are assigned a weighting of 0% with riskier assets receiving higher ratings (e.g. ordinary commercial loans are assigned a weighting of 100%).
(2)Tier 1 leverage capital ratio is computed by dividing a bank’s Tier 1 capital, as defined by regulation, by its total quarterly average assets.
(3)Common equity Tier 1 risk-based capital: not applicable in 2014.

Based on the most recent notifications from its regulators at December 31, 2015 and 2014, the Bank was categorized as “well-capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since its latest notification that management believes would affect the Bank’s “well-capitalized” status.

Dividend payments to the holding company by its subsidiaries are subject to regulatory review and statutory limitations and, in some instances, regulatory approval. Dividends paid by the Bank are the primary source of funds available to the Corporation for payment of dividends to shareholders and for other working capital needs. Ohio law prohibits the Bank, without the prior approval of the Ohio Division of Financial Institutions, from paying dividends in an amount greater than the lesser of its undivided profits or the total of its net income for that year, combined with its retained net income from the preceding two years. The payment of dividends by any financial institution or its holding company is also affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be under-capitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines at year-end 2015. The amount of dividends available to the Corporation from the Bank at December 31, 2015, was approximately $15,115,000.

NOTE 17 RELATED PARTY TRANSACTIONS

At December 31, 2015 and 2014, the Corporation had loan commitments outstanding to executive officers, directors, significant stockholders and their affiliates (related parties). In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features. Such loans are summarized below.

 
 2015
   (In thousands)
Aggregate balance – January 1 $2,006 
New loans and advances  0 
Change in status  0 
Payments  (139) 
Ending balance $1,867 

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NOTE 17 RELATED PARTY TRANSACTIONS  – (continued)

Deposit accounts of directors and executive officers of the Corporation totaled $5,337,000 and $5,260,000 at December 31, 2015 and 2014, respectively.

NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS

The Corporation records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available for sale, trading securities, mortgage loans held for sale and derivative instruments are carried at fair value on a recurring basis. Fair value measurements are also utilized to determine the initial value of certain assets and liabilities, to perform impairment assessments and for disclosure purposes. The Corporation uses quoted market prices and observable inputs to the maximum extent possible when measuring fair value. In the absence of quoted market prices, various valuation techniques are utilized to measure fair value. When possible, observable market data for identical or similar financial instruments are used in the valuation. When market data is not available, fair value is determined using valuation models that incorporate management’s estimates of the assumptions a market participant would use in pricing the asset or liability.

Fair value measurements are classified within one of three levels based on the observability of the inputs used to determine fair value, as follows:

Level 1 — The valuation is based on quoted prices in active markets for identical instruments.
Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 — The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation.

State and political subdivisions

The Corporation obtains fair value measurements from a third party vendor that utilizes market valuation models maintained by a team of experienced evaluators and methodologists. Evaluators build internal yield curves, which are adjusted throughout the day based on trades and other pertinent market information. The criteria used to generate these curves and to arrive at the current day’s evaluations are based primarily on factors such as:

Established trading spreads between similar issuers or credits.
Historical trading spreads over widely accepted market benchmarks.
New issue scales.
Market information from third party sources, such as reportable trades, broker-dealers, trustees/paying agents, issuers or from information prepared by an internal credit analysis department or by internally reviewing market sector correlations.

Evaluators apply this information to bond sectors, and individual bond evaluations are then extrapolated. Within a given sector, evaluators have the ability to make daily spread adjustments for various attributes that include, but are not limited to, discounts, premiums, credit, alternative minimum tax (AMT), use of proceeds and callability. Analysts evaluate municipal securities backed by insurance, letters of credit, etc. When a


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NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

municipal bond obtains insurance or other credit enhancements, a public rating is usually applied to the bond that is equal to the higher of (i) the published underlying rating or (ii) the rating of the bond insurer, guarantor, or other credit enhancing entity’s rating. Certain insured bonds with no published underlying ratings may receive an internal credit assessment. Evaluators may use internal credit ratings as an input in the evaluation process. The weight placed on internal credit ratings in the evaluation process may vary from one municipal security to another depending on the availability of other market data.

Multiple quality control evaluation processes review available market, credit and deal level information to support the evaluation of securities, such as:

Explanations required for all high yield municipal security evaluations adjusted on a per security basis.
Explanations required for all high grade municipal security evaluation adjustments that break an internal tolerance level.
Daily review of market information and data changes (including ratings) that may have an impact on evaluations.
Review of unchanged evaluations and other applicable data.
Daily review of category adjustments to confirm directional moves are tracking daily market movements.
Daily reviews by managers of tolerance reports and of evaluator checklists to confirm processes are being followed.
Monthly management reviews of evaluator work samples (tolerance reports, client challenges and other evaluation-related matters).

U.S. government and federal agencies and mortgage-backed securities

For agency/CMOs, depending upon the characteristics of a given tranche, a volatility-driven, multi-dimensional spread table based, single cash flow stream model or an option-adjusted spread (OAS) model is used. If call information is available, the pricing model computes both a yield to call and a yield to maturity to derive an evaluated price for the bond by assuming the most probable scenario. Alternatively, the evaluator may utilize market conventions if different from model-generated assumptions.

A team of experienced fixed income evaluators and methodologists closely monitor the structured product markets, interest rate movements, new issue information and other pertinent data. Evaluations of tranches (volatile and non-volatile) are based on the interactive data model’s interpretation of accepted market modeling, trading and pricing conventions. The Interactive data model determines tranche evaluations in four steps:

1Cash flows are generated with the deal files to determine principal and interest payments along with an average life.
2Spreads/yields are determined for non-volatile fixed and floating-rate issues:
For agency/GSE CMOs, the model takes the average life for each tranche and matches it to the yield of the nearest point on either the swap curve or the “I” Treasury curve. It then uses that benchmark yield as the base yield.
Floating-rate issues are evaluated by a discount margin (DM) calculation. The DM measures the difference between the yield of the issue (at an assumed speed and current index) and the current value of the index over which the security resets.

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NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

3Spreads are based on tranche characteristics such as average life, tranche type, tranche volatility, underlying collateral and the performance of the collateral and prevailing market conditions. Floating-rate issues take life caps into account.
4The appropriate tranche spread or DM is applied to the corresponding benchmark. This value is then used to discount the cash flows to generate an evaluated price.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2015 and 2014:

    
(In thousands) Fair Value Measurements Using Balance
 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
December 31, 2015
                    
Assets
                    
U.S. government agency securities $0  $2,518  $0  $2,518 
State and political subdivisions, AFS  0   4,232   0   4,232 
State and political subdivisions, HTM  0   0   666   666 
Mortgage-backed securities  0   1,961   0   1,961 
Total Assets $0  $8,711  $666  $9,377 
Liabilities $0  $0  $0  $0 
December 31, 2014
                    
Assets
                    
U.S. government agency securities $0  $1,965  $0  $1,965 
State and political subdivisions  0   6,596   0   6,596 
Mortgage-backed securities  0   2,466   0   2,466 
Total Assets $0  $11,027  $0  $11,027 
Liabilities $0  $0  $0  $0 

Securities characterized as having Level 2 inputs generally consist of obligations of U.S. government and federal agencies, government-sponsored organizations and obligations of state and political subdivisions. There were no transfers in or out of Levels 1 and 2 for the year ended December 31, 2015.

The Corporation also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. These assets consist primarily of impaired loans and other real estate owned (“OREO”).


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NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2015 and 2014:

    
(In thousands) Fair Value Fair Value Measurements Using
 Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
December 31, 2015
                    
Impaired loans $4,796  $0  $0  $4,796 
Real estate acquired through foreclosure  193   0   0   193 
December 31, 2014
                    
Impaired loans $5,526  $0  $0  $5,526 
Real estate acquired through foreclosure  2,255   0   0   2,255 

The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. The Corporation determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be further discounted based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are subject to non-recurring fair value adjustments to reflect: (1) partial write-downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. Included in the impaired balance at December 31, 2015 were troubled debt restructured loans with a balance of $4,349,000 and with specified reserves of $76,000.

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, based on the current appraised value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less costs to sell. Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed and current and past offers for the other real estate under evaluation. Due to the nature of the valuation inputs, foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by the Bank’s credit risk department and are selected from the list of approved appraisers maintained by management. Appraisals are sometimes further discounted based on management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized in noninterest expense. Additionally, any operating costs incurred after acquisition are also expensed.


TABLE OF CONTENTS

NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The following tables present the fair value measurements of financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2015 and 2014:

     
(In thousands)
December 31, 2015		 Carrying
Amount		 Estimated
Fair Value		 Fair Value Measurements Using
 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
                         
Cash equivalents and federal funds sold $18,895  $18,895  $18,895  $0  $0 
Securities available for sale  8,711   8,711   0   8,711   0 
Securities held to maturity  666��  666   0   0   666 
Other investment securities  2,209   2,209   0   0   2,209 
Loans, net of allowance for loan loss  293,072   306,704   0   0   306,704 
Accrued interest receivable  1,302   1,302   0   0   1,302 
Financial Liabilities:
                         
Noninterest-bearing deposits $(55,574)  $(55,574)  $(55,574)  $0  $0 
Interest-bearing deposits  (147,994)   (147,994)   0   (147,994)   0 
Time deposits  (93,058)   (92,370)   0   (92,370)   0 
FHLB advances  (6,574)   (5,893)   0   (5,893)   0 
Accrued interest payable  (45)   (45)   0   0   (45) 

     
(In thousands)
December 31, 2014		 Carrying
Amount		 Estimated
Fair Value		 Fair Value Measurements Using
 Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Financial Assets:
                         
Cash equivalents and federal funds sold $27,151  $27,151  $27,151  $0  $0 
Securities available for sale  11,027   11,027   0   11,027   0 
Other investment securities  2,209   2,209   0   0   2,209 
Loans, net of allowance for loan loss  275,025   291,274   0   0   291,274 
Accrued interest receivable  1,334   1,334   0   0   1,334 
Financial Liabilities:
                         
Noninterest-bearing deposits $(50,350)  $(50,350)  $(50,350)  $0  $0 
Interest-bearing deposits  (142,022)   (142,022)   0   (142,022)   0 
Time deposits  (106,399)   (106,283)   0   (106,283)   0 
FHLB advances  (1,692)   (1,374)   0   (1,374)   0 
Accrued interest payable  (51)   (51)   0   0   (51) 

The following describes the valuation methodologies used by management to measure financial assets and liabilities at fair value on a recurring basis as recognized in the Corporation’s accompanying balance sheets as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

•Cash equivalents and federal funds sold — The carrying value of cash, amounts due from banks and federal funds sold assumed to approximate fair value.
•Investment securities — Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then

TABLE OF CONTENTS

NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy.
•Other investment securities — principally consists of investments in Federal Home Loan Bank stock, which has limited marketability and is carried at cost.
•Loans — The loan portfolio includes adjustable and fixed rate loans, the fair value of which is estimated using discounted cash flow analyses. To calculate discounted cash flows, the loans are aggregated into pools of similar types and expected repayment terms. The expected cash flows are based on historical prepayment experiences and estimated credit losses for non-performing loans and are discounted using current rates at which similar loans would be made to borrowers with similar credit ratings and similar remaining maturities. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
•Accrued interest receivable — The carrying value of accrued interest receivable approximates fair value due to the short-term duration.
•Noninterest-bearing deposits — The fair value of noninterest-bearing demand deposits, which have no stated maturity, are considered equal to their carrying amount, representing the amount payable on demand.
•Interest-bearing deposits — The fair value of demand, money market and savings deposits, which have no stated maturity, are considered equal to their carrying amount, representing the amount payable on demand.
•Time deposits — The fair value for fixed rate time deposits is estimated using a discounted cash flow calculation that applies interest rates currently being offered for time deposits with similar terms and similar remaining maturities.
•FHLB advances — The fair value of long-term debt is estimated using a discounted cash flow calculation which utilizes the interest rates currently offered for borrowings of similar remaining maturities.
•Accrued interest payable — The carrying value of accrued interest payable approximates fair value due to the short-term duration.
•Other financial instruments — The fair value of other financial instruments, including loan commitments and unused letters of credit, is based on discounted cash flow analysis and is not material.

In 2015, the Corporation purchased a municipal bond which was determined to be a Level 3 asset. Changes in Level 3 assets measured at fair value on a recurring basis for the year ended December 31, 2015 are as follows:

 
December 31, 2015 Municipal Bonds
   (In thousands)
Beginning balance – January 1, 2014 $0 
Purchases  740,000 
Principal payments  74,000 
Ending balance – December 31, 2015 $666,000 

TABLE OF CONTENTS

NOTE 18 FAIR VALUES AND MEASUREMENTS OF FINANCIAL INSTRUMENTS  – (continued)

The fair value of the municipal bond at December 31, 2015 was determined primarily based on level 3 inputs. The Corporation estimates the fair value of this investment based on the par value of the security.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities.

There was no unrealized gain or loss for the Level 3 assets held by the Corporation at December 31, 2015, as the book value of the asset approximates fair value.

NOTE 19 EARNINGS PER SHARE

Weighted average shares used in determining basic and diluted earnings per share for the year ended December 31, 2015, 2014 and 2013:

   
 2015 2014 2013
Weighted average shares outstanding during the period  1,198,532   1,186,439   1,175,220 
Dilutive effect of stock options  23,888   19,908   13,169 
Weighted average shares considering dilutive effect  1,222,420   1,206,347   1,188,389 
Anti-dilutive stock options not considered in computing diluted earnings per share  0   1,000   10,950 

NOTE 20 PARENT CORPORATION STATEMENTS

The following are condensed financial statements of Commercial Bancshares, Inc.

CONDENSED BALANCE SHEETS
December 31, 2015 and 2014
(In thousands)

  
 2015 2014
ASSETS
          
Cash on deposit with subsidiary $96  $407 
Investment in common stock of subsidiaries  35,547   33,415 
Other assets  564   500 
Total assets $36,207  $34,322 
LIABILITIES AND SHAREHOLDERS’ EQUITY
          
Liabilities $71  $96 
Shareholders’ equity  36,136   34,226 
Total liabilities and shareholders’ equity $36,207  $34,322 

TABLE OF CONTENTS

NOTE 20 PARENT CORPORATION STATEMENTS  – (continued)

CONDENSED STATEMENTS OF INCOME
Years ended December 31, 2015, 2014 and 2013
(In thousands)

   
 2015 2014 2013
INCOME
               
Dividends from Bank subsidiary $1,310  $843  $718 
Total income  1,310   843   718 
EXPENSES
               
Professional fees  33   48   35 
Other  117   96   102 
Total expenses  150   144   137 
Tax benefit  (51)   (49)   (46) 
Income before equity in undistributed earnings of subsidiaries  1,211   748   627 
Equity in undistributed earnings of subsidiaries  2,214   2,548   2,428 
NET INCOME $3,425  $3,296  $3,055 

CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 2015, 2014 and 2013
(In thousands)

   
 2015 2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income $3,425  $3,296  $3,055 
Adjustments to reconcile net income to net cash from operating activities
               
Equity in undistributed earnings of subsidiaries  (2,214)   (2,548)   (2,428) 
Stock-based compensation  164   127   96 
Other  (339)   (20)   (39) 
Net cash provided by operating activities  1,036   855   684 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Downstream cash to subsidiary  (17)   0   0 
Capital Infusion from subsidiary  250   0   0 
Net cash provided by investing activities  233   0   0 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Treasury stock issued for deferred compensation plan  0   61   69 
Treasury stock issued under stock option plans  26   33   12 
Common stock issued for deferred compensation plan  143   40   0 
Common stock issued for stock option plans  47   12   0 
Purchase treasury stock  (736)   0   0 
Cash dividends paid  (1,060)   (843)   (718) 
Net cash used in financing activities  (1,580)   (697)   (637) 
Net change in cash  (311)   158   47 
Cash at beginning of period  407   249   202 
Cash at end of period $96  $407  $249 

TABLE OF CONTENTS

NOTE 21 QUARTERLY INFORMATION(Unaudited)

The following quarterly information(in thousands, except per share data) is provided for the three-month periods ending as follows:

    
2015 March 31, June 30, September 30, December 31,
Total interest income $3,532  $3,704  $3,654  $3,666 
Total interest expense  225   219   214   216 
Net interest income $3,307  $3,485  $3,440  $3,450 
Provision for loan losses  (4)   57   86   49 
Net income $773  $821  $945  $886 
Basic earnings per common share  0.65   0.68   0.79   0.74 
Diluted earnings per common share  0.63   0.67   0.77   0.73 

    
2014 March 31, June 30, September 30, December 31,
Total interest income $3,504  $3,569  $3,715  $3,693 
Total interest expense  224   215   215   228 
Net interest income $3,280  $3,354  $3,500  $3,465 
Provision for loan losses  151   110   26   22 
Net income $759  $865  $859  $813 
Basic earnings per common share  0.64   0.73   0.72   0.69 
Diluted earnings per common share  0.63   0.72   0.71   0.67 

TABLE OF CONTENTS

ANNEX A

Execution Version

AGREEMENT AND PLAN OF MERGER

by and between

FIRST DEFIANCE FINANCIAL CORP.

and

COMMERCIAL BANCSHARES, INC.

Dated as of August 23, 2016

TABLE OF CONTENTS

TABLE OF CONTENTS

Page

ARTICLE I

Article 1 THE MERGER

   A-1 

Section 1.1

The MergerA-1

Section 1.2

Effective Time; ClosingA-2

Section 1.3

Effects of the MergerA-2

Section 1.4

Organizational Documents of the Surviving EntityA-2

Section 1.5

Bank MergerA-2

Section 1.6

Absence of ControlA-3

Section 1.7

Alternative StructureA-3

Article 2 CONVERSION OF SECURITIES IN THE MERGER

   A-1A-3 

1.2Section 2.1

ConsiderationA-3

ClosingSection 2.2

Cancellation of SharesA-3

Section 2.3

No Fractional SharesA-3

Section 2.4

Exchange of CertificatesA-4

Section 2.5

United Community Equity AwardsA-5

Article 3 REPRESENTATIONS AND WARRANTIES OF UNITED COMMUNITY

   A-1A-6 

1.3Section 3.1

Effective Time

United Community Organization   A-1A-6 

1.4Section 3.2

Effects of the Merger

United Community Subsidiary Organizations   A-1A-7 

1.5Section 3.3

Conversion of Commercial Bancshares Shares

Authorization; Enforceability   A-1A-7 

1.6Section 3.4

Dissenters Rights

No Conflict   A-4A-7 

1.7Section 3.5

First Defiance Shares

United Community Capitalization   A-4A-8 

1.8Section 3.6

Articles of Incorporation of Surviving Company

United Community Subsidiary Capitalization   A-4A-9 

1.9Section 3.7

Code of Regulations of Surviving Company

United Community SEC Reports; Financial Statements and Reports; Regulatory Filings   A-4A-9 

1.10Section 3.8

Tax Consequences

Books and Records   A-4A-11 

1.11Section 3.9

Bank Merger

Real Property   A-5A-11 

ARTICLE IISection 3.10

EXCHANGE OF SHARES

Loans; Loan Loss Reserve   A-5A-12 

2.1Section 3.11

First Defiance to Make Shares and Cash Available

Taxes   A-5A-12 

2.2Section 3.12

Exchange of Commercial Bancshares Certificates; Election Forms

Employee Benefits   A-5A-13 

ARTICLE IIISection 3.13

REPRESENTATIONS AND WARRANTIES OF COMMERCIAL BANCSHARES

Compliance with Legal Requirements   A-7A-15 

3.1Section 3.14

Corporate Organization

Legal Proceedings; Orders   A-7A-15 

3.2Section 3.15

Capitalization

Absence of Certain Changes and Events   A-8A-16 

3.3Section 3.16

Authority; No Violation

Material Contracts   A-9A-16 

3.4Section 3.17

Consents and Approvals

No Defaults   A-9A-17 

3.5Section 3.18

Reports

Insurance   A-10A-17 

3.6Section 3.19

Financial Statements

Compliance with Environmental Laws   A-11A-18 

3.7Section 3.20

Broker’s Fees

Transactions with Affiliates   A-12A-18 

3.8Section 3.21

Absence of Certain Changes or Events

Brokerage Commissions   A-12A-18 

3.9Section 3.22

Legal Proceedings

Approval Delays   A-12A-18 

3.10Section 3.23

Taxes and Tax Returns

Labor Matters   A-12A-18 

3.11Section 3.24

Employees and Employee Benefit Plans

Intellectual Property   A-14A-19 

3.12Section 3.25

Compliance with Applicable Law

Investments   A-16A-19 

3.13Section 3.26

Certain Contracts

Information Provided to First Defiance   A-17A-20 

3.14Section 3.27

Agreements with Regulatory Agencies

State Takeover Laws   A-18A-20 

3.15Section 3.28

Risk Management Instruments

Tax-Free Reorganization   A-19A-20 

3.16Section 3.29

Environmental Matters

No Other Representations or Warranties   A-19A-20 

3.17

Investment Securities

A-19

3.18

Real Property

A-19

3.19

Intellectual Property

A-20

3.20

Related Party Transactions

A-20

3.21

State Takeover Laws

A-21

3.22

Reorganization

A-21

3.23

Opinion

A-21

3.24

Commercial Bancshares Information

A-21

A-i

TABLE OF CONTENTS

Page

3.25

Loan Portfolio

A-21

3.26

Insurance

A-22

3.27

No Investment Adviser Subsidiary

A-22

3.28

Books and Records

A-23

3.29

Prohibited Payments

A-23

3.30

Absence of Undisclosed Liabilities

A-23

ARTICLE IV

Article 4 REPRESENTATIONS AND WARRANTIES OF FIRST DEFIANCE

   A-23A-21 

Section 4.1

First Defiance OrganizationA-21

Corporate OrganizationSection 4.2

First Defiance Subsidiary OrganizationsA-21

A-i

Section 4.3

Authorization; EnforceabilityA-21

Section 4.4

No ConflictA-22

Section 4.5

First Defiance CapitalizationA-23

Section 4.6

First Defiance Subsidiary CapitalizationA-23

Section 4.7

First Defiance SEC Reports; Financial Statements and Reports; Regulatory FilingsA-24

Section 4.8

Books and RecordsA-25

Section 4.9

Real PropertyA-25

Section 4.10

Loans; Loan Loss ReserveA-26

Section 4.11

TaxesA-27

Section 4.12

Employee BenefitsA-28

Section 4.13

Compliance with Legal RequirementsA-29

Section 4.14

Legal Proceedings; OrdersA-30

Section 4.15

Absence of Certain Changes and EventsA-30

Section 4.16

Material ContractsA-30

Section 4.17

No DefaultsA-31

Section 4.18

InsuranceA-32

Section 4.19

Compliance with Environmental LawsA-32

Section 4.20

Transactions with AffiliatesA-32

Section 4.21

Brokerage CommissionsA-33

Section 4.22

Approval DelaysA-33

Section 4.23

Labor MattersA-33

Section 4.24

Intellectual PropertyA-33

Section 4.25

InvestmentsA-33

Section 4.26

Information Provided to United CommunityA-34

Section 4.27

State Takeover LawsA-34

Section 4.28

Tax-Free ReorganizationA-34

Section 4.29

No Other Representations or WarrantiesA-35

Article 5 UNITED COMMUNITY’S COVENANTS

   A-23A-35 

4.2Section 5.1

Access and InvestigationA-35

CapitalizationSection 5.2

Operation of United Community and United Community SubsidiariesA-36

Section 5.3

Notice of ChangesA-38

Section 5.4

Operating FunctionsA-38

Article 6 FIRST DEFIANCE’S COVENANTS

   A-24A-39 

4.3Section 6.1

Access and InvestigationA-39

Authority; No ViolationSection 6.2

Operation of First Defiance and First Defiance SubsidiariesA-39

Section 6.3

Notice of ChangesA-42

Section 6.4

Operating FunctionsA-42

Section 6.5

IndemnificationA-42

Section 6.6

Authorization and Reservation of First Defiance Common StockA-43

Section 6.7

Stock Exchange ListingA-43

Section 6.8

Assumption of Debt InstrumentsA-43

Article 7 COVENANTS OF ALL PARTIES

   A-25A-43 

4.4Section 7.1

Regulatory ApprovalsA-43

ConsentsSection 7.2

SEC RegistrationA-44

Section 7.3

Approvals of First Defiance Shareholders and ApprovalsUnited Community ShareholdersA-45

Section 7.4

PublicityA-46

Section 7.5

Reasonable Best Efforts; CooperationA-46

Section 7.6

ReorganizationA-46

Section 7.7

Employees and Employee BenefitsA-47

A-ii

Section 7.8

Section 16 MattersA-48

Section 7.9

United Community Acquisition ProposalsA-49

Section 7.10

First Defiance Acquisition ProposalsA-50

Section 7.11

Restructuring EffortsA-52

Section 7.12

Takeover StatutesA-52

Section 7.13

Shareholder LitigationA-52

Section 7.14

Corporate GovernanceA-52

Section 7.15

Commitments to the CommunityA-53

Section 7.16

DividendsA-53

Article 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF FIRST DEFIANCE

   A-25A-53 

4.5Section 8.1

Accuracy of Representations and WarrantiesA-53

SEC FilingsSection 8.2

Performance by United CommunityA-54

Section 8.3

Shareholder ApprovalsA-54

Section 8.4

Regulatory ApprovalsA-54

Section 8.5

Registration StatementA-54

Section 8.6

Officers’ CertificateA-54

Section 8.7

Tax OpinionA-54

Section 8.8

Stock Exchange ListingA-54

Section 8.9

No Material Adverse EffectA-54

Section 8.10

No Legal RestraintA-54

Article 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UNITED COMMUNITY

   A-26A-54 

4.6Section 9.1

Accuracy of Representations and WarrantiesA-55

Section 9.2

Performance by First DefianceA-55

Section 9.3

Shareholder ApprovalsA-55

Section 9.4

Regulatory ApprovalsA-55

Section 9.5

Registration StatementA-55

Section 9.6

Officers’ CertificateA-55

Section 9.7

Tax OpinionA-55

Section 9.8

Stock Exchange ListingA-55

Section 9.9

No Material Adverse EffectA-55

Section 9.10

No Legal RestraintA-55

Article 10 TERMINATION

A-56

Section 10.1

Termination of AgreementA-56

Section 10.2

Effect of Termination or AbandonmentA-57

Article 11 MISCELLANEOUS

A-59

Section 11.1

SurvivalA-59

Section 11.2

Governing Law; JurisdictionA-59

Section 11.3

Waiver of Jury TrialA-59

Section 11.4

Cumulative Remedies; Specific PerformanceA-59

Section 11.5

ExpensesA-60

Section 11.6

Assignments, Successors and No Third Party RightsA-60

Section 11.7

ModificationA-60

Section 11.8

Extension of Time; WaiverA-60

Section 11.9

NoticesA-60

Section 11.10

Entire AgreementA-61

Section 11.11

SeverabilityA-61

Section 11.12

CounterpartsA-62

Section 11.13

Confidential Supervisory InformationA-62

Article 12 DEFINITIONS

A-62

Section 12.1

DefinitionsA-62

Section 12.2

Principles of ConstructionA-68

A-iii

INDEX OF DEFINED TERMS

Acceptable Confidentiality Agreement

A-49

Affiliate

A-62

Agreement

A-1

Bank Merger

A-2

Bank Merger Agreement

A-2

Bank Merger Certificates

A-2

Business Day

A-62

Capitalization Date

A-8

Chosen Courts

A-59

Closing

A-2

Closing Date

A-2

Code

A-1

Confidentiality Agreement

A-35

Contemplated Transactions

A-62

Contract

A-62

Control, Controlling or Controlled

A-62

Conversion Fund

A-4

Covered Employees

A-47

CRA

A-62

Deposit Insurance Fund

A-62

Derivative Transactions

A-63

DOL

A-63

Effective Time

A-2

Environment

A-63

Environmental Laws

A-63

ERISA

A-63

Exchange Act

A-63

Exchange Agent

A-4

Exchange Ratio

A-3

FDIC

A-63

Federal Reserve

A-63

First Defiance

A-1

First Defiance Acquisition Proposal

A-51

First Defiance Articles of Incorporation

A-63

First Defiance Benefit Plan

A-63

First Defiance Board

A-63

First Defiance Bylaws

A-    

First Defiance Capital Stock

A-63

First Defiance Common Stock

A-64

First Defiance Common Stock Price

A-64

First Defiance Disclosure Schedules

A-21

First Defiance Employees

A-41

First Defiance Equity Award

A-64

First Defiance ERISA Affiliate

A-64

First Defiance Evaluation Date

A-25

First Defiance Financial Statements

   A-26A-24 

4.7

Broker’s FeesFirst Defiance Investment Securities

   A-26A-34 

4.8

Absence of Certain Changes or EventsFirst Defiance Loans

   A-26 

4.9

Legal ProceedingsFirst Defiance Material Contract

   A-27A-30 

4.10

Taxes and Tax ReturnsFirst Defiance Material Policies

   A-27A-32 

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4.11

Compliance with Applicable LawFirst Defiance Meeting

   A-27A-45 

4.12

Certain ContractsFirst Defiance Permitted Exceptions

   A-28A-26 

4.13

Agreements with Regulatory AgenciesFirst Defiance Preferred Stock

   A-28A-64 

4.14

Information TechnologyFirst Defiance SEC Reports

   A-28A-64 

4.15

Related Party TransactionsFirst Defiance Stock Issuance

   A-28A-64 

4.16

State Takeover LawsFirst Defiance Stock Option

   A-28A-5 

4.17

Reorganization

A-29

4.18

First Defiance Information

A-29

4.19

Financing

A-29

ARTICLE V

COVENANTS RELATING TO CONDUCT OF BUSINESS

A-29

5.1

Conduct of Business Prior to the Effective Time

A-29

5.2

Commercial Bancshares Forbearances

A-29

5.3

First Defiance Forbearances

A-32

5.4

Tax Treatment

A-33

ARTICLE VI

ADDITIONAL AGREEMENTS

A-33

6.1

Regulatory Matters

A-33

6.2

Access to Information

A-34

6.3

Commercial Bancshares ShareholderStockholder Approval

   A-35A-64 

6.4First Defiance Superior Proposal

A-51

Environmental Assessments and TitleFirst Federal

A-2

GAAP

A-64

Hazardous Materials

A-64

Home Savings

A-2

Indemnified Party

A-42

Internal Control Over Financial Reporting

A-10

IRS

A-64

IRS Guidelines

A-20

Joint Proxy Statement

A-64

Knowledge

A-64

Legal Requirement

A-64

Letter of Transmittal

A-4

Lien

A-65

Material Adverse Effect

A-65

Merger

A-2

Merger Consideration

A-3

Nasdaq Rules

A-65

New Plans

A-47

OGCL

A-65

Ohio Certificate of Merger

A-2

Old Plans

A-47

Order

A-65

Ordinary Course of Business

A-65

OREO

A-65

Outstanding Cardinal Shares

A-    

PBGC

A-66

Person

A-66

Previously Disclosed

A-66

Proceeding

A-66

Registration Statement

A-66

Regulatory Authority

A-66

Representative

A-66

Representatives

A-49

Requisite Regulatory Approvals

A-66

SEC

A-66

Securities Act

A-66

Severance Plans

A-48

Subsidiary

A-66

Succession Date

A-53

Tax

A-66

Tax Return

A-67

Termination Date

A-56

Termination Fee

A-58

Transition Date

A-67

A-v

U.S.

A-68

United Community

A-1

United Community Acquisition Proposal

A-49

United Community Articles of Incorporation

A-67

United Community Benefit Plan

A-67

United Community Board

A-67

United Community Bylaws

A-    

United Community Capital Stock

A-67

United Community Common Stock

A-67

United Community Disclosure Schedules

A-6

United Community Employees

A-37

United Community Equity Award

A-67

United Community ERISA Affiliate

A-67

United Community Evaluation Date

A-10

United Community Financial Statements

A-10

United Community Investment Securities

A-19

United Community Loans

A-12

United Community Material Contract

A-16

United Community Material Policies

   A-36A-18 

6.5

Stock Exchange ListingUnited Community Meeting

   A-37A-45 

6.6

Employee MattersUnited Community Permitted Exceptions

   A-37A-11 

6.7

Indemnification; Directors’ and Officers’ InsuranceUnited Community Preferred Stock

   A-38A-67 

6.8

Additional AgreementsUnited Community PSU Award

   A-39A-6 

6.9

Advice of ChangesUnited Community Restricted Stock Award

   A-39A-5 

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Page

6.10

Additional DirectorUnited Community SEC Reports

   A-39A-68 

6.11

Acquisition ProposalsUnited Community Stock Certificates

   A-39A-4 

6.12

Public AnnouncementsUnited Community Stock Option

   A-40A-5 

6.13

Change of MethodUnited Community Stock Plans

   A-40A-67 

6.15

Takeover StatutesUnited Community Stockholder Approval

   A-41A-68 

6.16

Exemption from Liability Under Section 16(b)United Community Superior Proposal

   A-41A-50 

6.17

Litigation and ClaimsWillful Breach

   A-41

6.18

No Control of Other Party’s Business

A-41

ARTICLE VII

CONDITIONS PRECEDENT

A-42

7.1

Conditions to Each Party’s Obligation to Effect the Merger

A-42

7.2

Conditions to Obligations of First Defiance

A-42

7.3

Conditions to Obligations of Commercial Bancshares

A-43

ARTICLE VIII

TERMINATION AND AMENDMENT

A-44

8.1

Termination

A-44

8.2

Effect of Termination

A-45

ARTICLE IX

GENERAL PROVISIONS

A-46

9.1

Nonsurvival of Representations, Warranties and Agreements

A-46

9.2

Amendment

A-46

9.3

Extension; Waiver

A-46

9.4

Expenses

A-46

9.5

Notices

A-47

9.6

Interpretation

A-47

9.7

Counterparts

A-48

9.8

Entire Agreement

A-48

9.9

Governing Law; Jurisdiction

A-48

9.10

Waiver of Jury Trial

A-48

9.11

Assignment; Third-Party Beneficiaries

A-49

9.12

Specific Performance

A-49

9.13

Severability

A-49

9.14

Delivery by Facsimile or Electronic Transmission

A-49
Exhibits
Exhibit A — Bank Merger AgreementEx A-1
Exhibit B — Voting AgreementEx B-1A-57 

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INDEX OF DEFINED TERMS

Acquisition ProposalA-39
Adverse Recommendation ChangeA-35
Aggregate Cash ConsiderationA-3
Aggregate Share ConsiderationA-3
AgreementA-1
Bank MergerA-5
Bank Merger AgreementA-5
Bank Merger CertificatesA-5
BHC ActA-7
Cash ConsiderationA-2
Cash ElectionA-2
Cash Election SharesA-2
Certificate of MergerA-1
ClosingA-1
Closing DateA-1
CodeA-1
Commercial BancsharesA-1
Commercial Bancshares 401(k) PlanA-37
Commercial Bancshares ArticlesA-8
Commercial Bancshares Benefit PlansA-14
Commercial Bancshares Code of RegulationsA-8
Commercial Bancshares ContractA-17
Commercial Bancshares Disclosure ScheduleA-7
Commercial Bancshares ERISA AffiliateA-14
Commercial Bancshares Indemnified PartiesA-38
Commercial Bancshares InsidersA-41
Commercial Bancshares Leased PropertiesA-20
Commercial Bancshares MeetingA-35
Commercial Bancshares Qualified PlansA-14
Commercial Bancshares Real PropertyA-20
Commercial Bancshares Regulatory AgreementA-19
Commercial Bancshares ReportsA-10
Commercial Bancshares ShareA-1
Commercial Bancshares Stock OptionA-3
Commercial Bancshares SubsidiaryA-8
Commercial BankA-5
Confidentiality AgreementsA-35
Continuing EmployeesA-37
Dissenting ShareholderA-4

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Dissenting SharesA-4
Effective TimeA-1
Election DeadlineA-5
Election FormA-5
Election PeriodA-5
Enforceability ExceptionsA-9
Environmental LawsA-19
ERISAA-14
Exception SharesA-2
Exchange ActA-10
Exchange AgentA-5
Exchange FundA-5
Exchange RatioA-2
FDICA-8
Federal Banking AgenciesA-17
Federal Reserve BoardA-9
First DefianceA-1
First Defiance 401(k) PlanA-37
First Defiance ArticlesA-4
First Defiance Code of RegulationsA-4
First Defiance ContractA-28
First Defiance Disclosure ScheduleA-23
First Defiance Regulatory AgreementA-28
First Defiance ReportsA-26
First Defiance Restricted Stock Unit AwardA-24
First Defiance SharesA-2
First Defiance Stock OptionsA-24
First Defiance Stock PlansA-24
First Defiance SubsidiaryA-24
First FederalA-5
GAAPA-7
Governmental EntityA-10
HOLAA-23
HSR ActA-10
Intellectual PropertyA-20
IRSA-13
LiensA-9
LoansA-21
Material Adverse EffectA-7
MergerA-1

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Merger ConsiderationA-2
Multiemployer PlanA-15
Multiple Employer PlanA-15
NASDAQA-3
New CertificatesA-4
New PlansA-37
Non-Election SharesA-2
OCCA-9
ODFIA-9
OGCLA-1
Ohio CourtsA-48
Ohio SecretaryA-1
Old CertificateA-3
PBGCA-15
Permitted EncumbrancesA-20
Phase IA-32
Premium CapA-39
Proxy StatementA-10
Regulatory AgenciesA-10
RepresentativesA-39
Requisite Commercial Bancshares VoteA-9
Requisite Regulatory ApprovalsA-42
S-4A-10
Sarbanes-Oxley ActA-11
SECA-10
Securities ActA-10
Shortfall NumberA-2
SROA-10
Stock ConsiderationA-2
Stock Conversion NumberA-2
Stock ElectionA-2
Stock Election NumberA-2
Stock Election SharesA-2
Stock Proportion NumberA-2
SubsidiaryA-8
Surviving CompanyA-1
Takeover StatutesA-21
TaxA-13
Tax ReturnA-14
TaxesA-13

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Termination DateA-44
Termination FeeA-45
Total ConsiderationA-3
Total Shareholders’ EquityA-44
VEBAA-16
Volcker RuleA-17
Voting AgreementA-21

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AGREEMENT AND PLAN OF MERGER

AGREEMENT THIS AGREEMENTAND PLAN PLANOF MERGER, dated MERGER (together with all exhibits and schedules, this “Agreement”) is entered into as of August 23, 2016 (this “Agreement”),September 9, 2019, by and between First Defiance Financial Corp., an Ohio corporation (“First Defiance”), and Commercial Bancshares, Inc.United Community Financial Corp., an Ohio corporation (“Commercial BancsharesUnited Community”).

WITNESSETH:RECITALS

WHEREAS, the BoardsA. The board of Directorsdirectors of First Defiance and Commercial Bancshares havehas unanimously (i) determined that it isthis Agreement and the Merger and other transactions contemplated hereby are in the best interests of their respective companiesFirst Defiance and theirFirst Defiance’s shareholders, to consummateand (ii) approved the strategic business combination transaction provided for herein, pursuant to which Commercial Bancshares will,execution, delivery and performance by First Defiance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger.

B. The board of directors of United Community has unanimously (i) determined that this Agreement and the Merger and other transactions contemplated hereby are in the best interests of United Community and United Community’s shareholders, and (ii) approved the execution, delivery and performance by United Community of this Agreement and the consummation of the transactions contemplated hereby, including the Merger.

C. The board of directors of First Defiance, subject to the terms and conditions set forth herein, merge with and into First Defiance (the “Merger”), soof this Agreement, has resolved to recommend that First Defiance isDefiance’s shareholders adopt this Agreement and to submit this Agreement to First Defiance’s shareholders for adoption.

D. The board of directors of United Community, subject to the surviving company (hereinafter sometimes referredterms of this Agreement, has resolved to in such capacityrecommend that United Community’s shareholders adopt this Agreement and to submit this Agreement to United Community’s shareholders for adoption.

E. Concurrently with the execution and delivery of this Agreement, each of Donald P. Hileman and Gary M. Small has entered into an employment agreement, which will be effective as of and subject to the “Surviving Company”) inoccurrence of the Merger;Effective Time.

WHEREAS, for federal income tax purposes, it is intendedF. The parties intend that the Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement is intended to be and hereby is adopted as a plan“plan of reorganization withinreorganization” for purposes of Sections 354 and 361 of the meaning of Treasury Regulation Sections 1.368-2(g) and 1.368-3(a); andCode.

WHEREAS, theG. The parties desire to make certain representations, warranties and agreements in connection with the Merger and the other transactions contemplated by this Agreement and the parties also agree to prescribe certain prescribed conditions to the Merger.Merger and other transactions.

NOW, THEREFORE, inAGREEMENTS

In consideration of the foregoing premises and the following mutual promises, covenants representations, warranties and agreements, contained herein, and intending to be legally bound hereby, the parties hereby agree as follows:

ARTICLE I
1

THE MERGER

Section1.1The Merger.  Subject to Provided that this Agreement shall not prior thereto have been terminated in accordance with its express terms, upon the terms and subject to the conditions of this Agreement and in accordance with the Ohio General Corporation Law (the “applicable provisions of the OGCL,”), at the Effective Time, Commercial Bancshares will mergeUnited Community shall be

merged with and into First Defiance.Defiance pursuant to the provisions of, and with the effects provided in, the OGCL (the “Merger”), and the separate corporate existence of United Community shall cease and First Defiance will be the surviving entity (the “Surviving Company in the Merger, and will continue its corporate existence under the laws of the State of Ohio. Upon consummation of the Merger, the separate corporate existence of Commercial Bancshares will terminate.Entity”).

Section 1.2Effective Time; Closing..  Subject to the terms and conditions of

(a) Provided that this Agreement shall not prior thereto have been terminated in accordance with its express terms, the closing of the Merger (the “Closing”) will take placeshall occur through the mail or at a place that is mutually agreeableacceptable to First Defiance and United Community, or if they fail to agree, at the offices of Barack Ferrazzano Kirschbaum & Nagelberg LLP, located at 200 West Madison Street, Suite 3900, Chicago, Illinois 60606, at 10:00 a.m., local time, and placeon the date that is three (3) Business Days after the satisfaction or valid waiver (subject to applicable law) of the latest to occur of the conditions set forth inArticle VII hereof8 andArticle 9 (other than those conditions that by their nature can onlyare to be satisfied or waived at the Closing, but subject to the satisfaction or valid waiver thereof). The date on which the Closing occurs is referred toof those conditions) or at such other time and place as First Defiance and United Community may agree in this Agreement as thewriting (the “Closing Date.”

1.3Effective Time). Subject to the termsprovisions ofArticle 10, failure to consummate the Merger on the date and conditionstime and at the place determined pursuant to thisSection 1.2 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement.

(b) The parties hereto agree to file on or before the Closing Date First Defiance will file a certificate of merger (the “Certificate of Merger”) with the Ohio Secretary of State (the “Ohio SecretaryCertificate of Merger”). The Merger willshall become effective at 11:59 p.m. Eastern Time on the Closing Date or at such other time as of the dateFirst Defiance and time specifiedUnited Community may agree and specify in the Ohio Certificate of Merger (such date and time, the(the “Effective Time”).

1.4Section 1.3Effects of the Merger. At and after the Effective Time, the effects of the Merger will haveshall be as provided in this Agreement, the effects set forth inOhio Certificate of Merger and the applicable provisions of the OGCL. Without limiting the generality of the foregoing, at the Effective Time, all of the property, rights, privileges, powers and franchises of United Community shall be vested in the Surviving Entity, and all debts, liabilities and duties of United Community shall become the debts, liabilities and duties of the Surviving Entity.

Section 1.4Organizational Documents of the Surviving Entity.

(a) At the Effective Time, the articles of incorporation of First Defiance, as in effect immediately prior to the Effective Time, shall be amended as set forth inExhibit A attached hereto and, as so amended, shall be the articles of incorporation of the Surviving Entity and until thereafter amended in accordance with the provisions thereof and applicable Legal Requirements.

(b) At the Effective Time, the code of regulations of First Defiance, as in effect immediately prior to the Effective Time, shall be amended as set forth inExhibit B attached hereto and, as so amended, shall be code of regulations of the Surviving Entity until thereafter amended in accordance with the provisions thereof and applicable Legal Requirements.

Section1.5ConversionBank Merger. Immediately following the Merger or at such later time as First Defiance and United Community may mutually agree, Home Savings Bank (“Home Savings”), an Ohio state-chartered bank and a direct, wholly-owned Subsidiary of Commercial Bancshares SharesUnited Community, will merge (the “Bank Merger”) with and into First Federal Bank of the Midwest (“First Federal”), a federal savings bank and a direct, wholly-owned Subsidiary of First Defiance, which immediately prior to the Bank Merger will have converted into an Ohio state-chartered bank. First Federal shall be the surviving entity in the Bank Merger and, following the Bank Merger, the separate corporate existence of Home Savings shall cease. The Bank Merger shall be implemented pursuant to an agreement and plan of merger, in a form to be mutually agreed upon by the parties (the “Bank Merger Agreement”). First Defiance shall cause First Federal, and United Community shall cause Home Savings, to execute such certificates of merger and articles of merger (the “Bank Merger Certificates”) and such other agreements, documents and certificates as are necessary to make the Bank Merger effective

immediately following the Effective Time or at such later time as First Defiance and United Community may mutually agree.

Section 1.6Absence of Control. Subject to any specific provisions of this Agreement, it is the intent of the parties to this Agreement that neither First Defiance nor United Community by reason of this Agreement shall be deemed (until consummation of the Contemplated Transactions) to control, directly or indirectly, the other party or any of its respective Subsidiaries and shall not exercise, or be deemed to exercise, directly or indirectly, a controlling influence over the management or policies of such other party or any of its respective Subsidiaries.

Section 1.7Alternative Structure. Notwithstanding anything to the contrary contained in this Agreement, before the Effective Time, the parties may mutually agree to change the method of effecting the Contemplated Transactions if and to the extent that they deem such a change to be desirable;provided, that: (a) any such change shall not affect the U.S. federal income tax consequences of the Merger to holders of United Community Common Stock; and (b) no such change shall (i) alter or change the amount or kind of the consideration to be issued to holders of United Community Common Stock as consideration in the Merger, (ii) materially impede or delay consummation of the Merger, or (iii) require the approval of the shareholders of First Defiance or United Community unless such approval is obtained. If the parties agree to make such a change, they shall execute appropriate documents to reflect the change.

ARTICLE 2

CONVERSION OF SECURITIES IN THE MERGER

Section 2.1Consideration. At the Effective Time, by virtue of the Merger and without any action on the part of First Defiance, Commercial BancsharesUnited Community, or the holder of any shares of United Community Common Stock and subject toSection 2.3, the following securities:

(a) Subject to Sections 1.6 and 2.2, each shareshares of the common stock, without par value, of Commercial BancsharesFirst Defiance Common Stock issued and outstanding immediately prior to the Effective Time (“Commercial Bancshares Share”), except for Commercial Bancshares Shares ownedshall remain issued and outstanding following the Effective Time and shall be unchanged by Commercial Bancshares as treasury stock or otherwise owned by Commercial Bancshares or First Defiance (in each case other than Commercial Bancshares Shares (i) held in any Commercial Bancshares Benefit Plans or related trust accounts, managed accounts, mutual fundsthe Merger, and the like, or otherwise held in a fiduciary or agency capacity and (ii) held, directly or indirectly, in respectshares of debts previously contracted (collectively, the


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“Exception Shares”)) and Dissenting Shares, will be converted, in accordance with the procedures set forth in this Agreement, into the right to receive, without interest the following (collectively, the “Merger Consideration”):

(i) $51.00 in cash (the “Cash Consideration”) for each Commercial Bancshares Share with respect to which an election to receive cash has been effectively made and not revoked or lost pursuant to Section 1.6 (a “Cash Election”) (such Commercial Bancshares Shares collectively, “Cash Election Shares”); or

(ii) 1.1808 First Defiance Shares (the “Exchange Ratio,” and such First Defiance Shares, the “United Community Common Stock Consideration”) for each Commercial Bancshares Share with respect to which an election to receive shares, $.01 par value per share, of First Defiance common stock (“First Defiance Shares”) has been effectively made and not revoked or lost pursuant to Section 1.6 (a “Stock Election”) (such Commercial Bancshares Shares collectively, “Stock Election Shares”); or

(iii) for each Commercial Bancshares Share, other than Commercial Bancshares Shares as to which a Cash Election or a Stock Election has been effectively made and not revoked (collectively, the “Non-Election Shares”), the right to receive from First Defiance such Cash Consideration or Stock Consideration as is determined in accordance with Section 1.5(b).

(b) (i) Notwithstanding any other provision contained in this Agreement (other than Section 1.5(c)), the total number of Commercial Bancshares Shares to be converted into the Stock Consideration pursuant to Section 1.5(a) and 1.5(b)(iii) (the “Stock Conversion Number”) will equal the product obtained by multiplying (x) the number of Commercial Bancshares Shares issued and outstanding immediately prior to the Effective Time, by (y) 0.80 (the “Stock Proportion Number”), with such product rounded up to the nearest whole share. All of the other Commercial Bancshares Shares (except for Commercial Bancshares Shares owned directly by Commercial Bancshares or First Defiance and Dissenting Shares) will be converted into the Cash Consideration.

(ii) As soon as practicable on or within not more than five business days after the Closing Date, First Defiance will cause the Exchange Agent to effect the allocation among holders of Commercial Bancshares Shares of rights to receive the Cash Consideration and the Stock Consideration as follows:

(1) If the aggregate number of Commercial Bancshares Shares with respect to which Stock Elections are made (the “Stock Election Number”) exceeds the Stock Conversion Number, then all Cash Election Shares and all Non-Election Shares of each holder thereofof record of such shares, will be converted into the right to receive the Cash Consideration,receive: (a) 0.3715 fully paid and nonassessable shares of First Defiance Common Stock Election Shares of each holder thereof will be converted into the right to receive the Stock Consideration in respect of that number of Stock Election Shares equal to the product obtained(the “Exchange Ratio”), multiplied by multiplying (x)(b) the number of shares of United Community Common Stock Election Shares held by such holder of record (such product, the “Merger Consideration”);

Notwithstanding anything in thisSection 2.1 to the contrary, at the Effective Time and by (y)virtue of the Merger, each share of United Community Common Stock held in United Community’s treasury and each share of United Community Common Stock owned directly or indirectly by First Defiance (other than shares held in a fraction, the numeratorfiduciary capacity or in connection with debts previously contracted) will be canceled and no shares of which is theFirst Defiance Common Stock Conversion Number and the denominator of which is the Stock Election Number, with the remaining number of such holder’s Stock Election Shares being converted into the right to receive the Cash Consideration; andor other consideration will be issued or paid in exchange therefor.

(2) IfSection 2.2Cancellation of Shares. At the Effective Time, the shares of United Community Common Stock Election Number is less thanwill no longer be outstanding and will automatically be canceled and will cease to exist. Certificates that represented United Community Common Stock before the Stock Conversion Number (the amount by which the Stock Conversion Number exceeds the Stock Election Number being referredEffective Time will be deemed for all purposes to herein as the “Shortfall Number”), then all Stock Election Shares shall be converted into the right to receive the Stock Consideration and the Non-Election Shares and Cash Election Shares shall be treated in the following manner:

(A) If the Shortfall Number is less than or equal torepresent the number of Non-Election Shares, then all Cash Election Shares shall be converted into the right to receive the Cash Consideration and the Non-Election Sharesshares of each holder thereof shall convert into the right to receive the Stock Consideration in respect of that number of Non-Election Shares equal to the product obtained by multiplying (x) the number of Non-Election Shares held by such holder by (y) a fraction, the numerator of which is the Shortfall Number and the


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denominator of which is the total number of Non-Election Shares, with the remaining number of such holder’s Non-Election Shares being converted into the right to receive the Cash Consideration; or

(B) If the Shortfall Number exceeds the number of Non-Election Shares, then all Non-Election Shares shall be converted into the right to receive the Stock Consideration, and Cash Election Shares of each holder thereof shall convert into the right to receive the Stock Consideration in respect of that number of Cash Election Shares equal to the product obtained by multiplying (x) the number of Cash Election Shares held by such holder by (y) a fraction, the numerator of which is the amount by which (1) the Shortfall Number exceeds (2) the total number of Non-Election Shares and the denominator of which is the total number of Cash Election Shares, with the remaining number of such holder’s Cash Election Shares being converted into the right to receive the Cash Consideration.

(c) Notwithstanding anything in this Agreement to the contrary, to preserve the status of the Merger as a “reorganization” within the meaning of Section 368(a) of the Code, if the aggregate value of the First Defiance Shares to be issued in connection with the Merger (for the avoidance of doubt, excluding the value of fractional shares for whichCommon Stock and cash is to be paid pursuant to Section 1.5(d)), based upon the closing price of the First Defiance Shares as reported on The NASDAQ Stock Market (the “NASDAQ”) on the trading day immediately preceding the Effective Time (the “Aggregate Share Consideration”), would be less than 40% of the sum of (i) the Aggregate Cash Consideration and (ii) the Aggregate Share Consideration (collectively, the “Total Consideration”), then First Defiance shall increase the Stock Consideration and decrease the Cash Consideration proportionately and to the minimum extent necessary for the Aggregate Share Consideration to be equal to 40% of the Total Consideration (calculated using such increased Stock Consideration and decreased Cash Consideration). For purposes of this Agreement, the “Aggregate Cash Consideration” shall be the sum of (i) the total amount of Cash Consideration paid pursuant to Section 1.5(a)(i) and/or 1.5(b); (ii) cash paid in lieu of fractional shares into which they were converted pursuant to thisArticle 2.

Section 2.3No Fractional Shares. Notwithstanding anything to the contrary contained in this Agreement, no fractional shares of First Defiance Shares pursuant to Section 1.5(d); and (iii) cash paid to holders of Dissenting Shares.

(d) No certificate or scrip representing a fractional First Defiance ShareCommon Stock shall be issued as Merger Consideration in the Merger. Each holder of Commercial Bancshares SharesUnited Community Common Stock who would otherwise be entitled to receive a fractional share of First Defiance ShareCommon Stock pursuant to thisArticle 2 shall instead be entitled to receive an amount ofin cash equal(without interest) rounded to the product obtainednearest whole cent, determined by multiplying (i)the First Defiance Common Stock Price as of the third trading day prior to the Closing Date by the fractional share of First Defiance Share interestCommon Stock to which such former holder would otherwise be entitled (after taking into account all Commercial Bancshares Sharesshares of United Community Common Stock held at the Effective Time by such holder) would otherwise be entitled by (ii) $51.00.

(e) Any treasury shares held by Commercial Bancshares and any Commercial Bancshares Shares owned by First Defiance for its own account will be cancelled and retired at the Effective Time, and no consideration will be issued in exchange.

(f) Each option to acquire a Commercial Bancshares Share (each a “Commercial Bancshares Stock Option”) that is exercisableholder immediately prior to the Effective Time or will become exercisable as a resultTime).

Section 2.4Exchange of the Merger being a “change of control” underCertificates.

(a) The parties to this Agreement agree: (i) that Computershare Trust Company, NA shall serve, pursuant to the terms of an exchange agent agreement mutually acceptable to the Commercial Bancshares 2009 Stock Incentive Plan willparties, as the exchange agent for purposes of this Agreement (the “Exchange Agent”); and (ii) to execute and deliver the exchange agent agreement at or prior to the Effective Time. First Defiance shall be terminated immediatelysolely responsible for the payment of any fees and expenses of the Exchange Agent.

(b) At or prior to the Effective Time, First Defiance shall authorize the issuance of and entitled to receive, in lieu of each Commercial Bancshares Share that would otherwise have been issuable upon exercise thereof, an amount in cash equalshall make available to the excess, if any, of $51.00 overExchange Agent, for the exercise price of such Commercial Bancshares Stock Option.

(g) Allbenefit of the Commercial Bancshares Shares converted into the right to receiveholders of United Community Common Stock for exchange in accordance with thisArticle 2: (i) a sufficient number of shares of First Defiance Common Stock for payment of the Merger Consideration pursuant to this Article I will no longer be outstandingSection 2.1, and will automatically be cancelled and cease to exist as(ii) sufficient cash for payment of the Effective Time, and each certificate (each, an “Old Certificate,” it being understood thatcash in lieu of any reference herein to “Old Certificate” shall be deemed to include reference to book-entry account statements relating to the ownershipfractional shares of Commercial Bancshares Shares) previously representing any such Commercial Bancshares Shares will thereafter represent only the right to receive the Merger Consideration described in this Section 1.5. Old Certificates previously representing Commercial Bancshares Shares that are to receive the Stock Consideration will be exchanged for certificates or, at First Defiance’s option, evidence of shares in book entry form (collectively, referred to


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herein as “New Certificates”), representing whole First Defiance Shares as set forthCommon Stock in accordance withSection 1.5(a) (together 2.3.Such amount of cash and shares of First Defiance Common Stock, together with any dividends or distributions with respect thereto paid after the Effective Time, are referred to in thisArticle 2 as the “Conversion Fund.”

(c) As promptly as practicable following the Effective Time (and in any event within five (5) Business Days after the Closing Date), First Defiance shall cause the Exchange Agent to mail to each holder of record of one or more certificates representing shares of United Community Common Stock (“United Community Stock Certificates”) a letter of transmittal (“Letter of Transmittal”), in a form to be agreed by the parties, which specifies, among other things, that delivery shall be effected, and risk of loss and title to United Community Stock Certificates shall pass, only upon delivery of such certificates to the Exchange Agent, together with instructions for use in effecting the surrender of United Community Stock Certificates pursuant to this Agreement.

(d) Upon proper surrender of a United Community Stock Certificate for exchange to the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, the holder of such United Community Stock Certificate shall be entitled to receive in exchange therefor his, her or its Merger Consideration plus cash in lieu of any fractional shares of First Defiance Common Stock in accordance withSection 2.3deliverable in respect of the shares of United Community Common Stock represented by such United Community Stock Certificate; thereupon such United Community Stock Certificate shall forthwith be cancelled. No interest will be paid or accrued on any portion of the Merger Consideration deliverable upon surrender of a United Community Stock Certificate.

(e) After the Effective Time, there shall be no transfers on the stock transfer books of United Community of Outstanding United Community Shares.

(f) No dividends or other distributions declared with respect to First Defiance Common Stock and payable to the holders of record thereof after the Effective Time shall be paid to the holder of any unsurrendered United Community Stock Certificate until the holder thereof shall surrender such United Community Stock Certificate in accordance with thisArticle 2.Promptly after the surrender of a United Community Stock Certificate in accordance with thisArticle 2, the record holder thereof shall be entitled to receive any such dividends or other distributions, without interest thereon, which theretofore had become payable with respect to shares of First Defiance Common Stock into which the shares of United Community Common Stock represented by such United Community Stock Certificate were converted at the Effective Time pursuant toSection 2.1. No holder of an unsurrendered United Community Stock Certificate shall be entitled, until the surrender of such United Community Stock Certificate, to vote the shares of First Defiance Common Stock into which such holder’s United Community Common Stock shall have been converted.

(g) Any portion of the Conversion Fund that remains unclaimed by the shareholders of United Community twelve (12) months after the Effective Time shall be paid to the Surviving Entity, or its successors in

interest. Any shareholders of United Community who have not theretofore complied with thisArticle 2 shall thereafter look only to the Surviving Entity, or its successors in interest, for issuance of First Defiance Common Stock pursuant to the Merger Consideration and the payment of cash in lieu of any fractional shares deliverable in respect of such shareholders’ shares of United Community Common Stock, as well as any accrued and unpaid dividends or distributions on shares of such First Defiance Common Stock. Notwithstanding the foregoing, none of the Surviving Entity, the Exchange Agent or any other person shall be liable to any former holder of shares of United Community Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.

(h) In the event any United Community Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such United Community Stock Certificate to be lost, stolen or destroyed and, if required by the Surviving Entity, the posting by such person of a bond in such amount as the Exchange Agent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such United Community Stock Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed United Community Stock Certificate, and in accordance with thisArticle 2, shares of First Defiance Common Stock pursuant to the Merger Consideration and cash in lieu of any fractional shares issueddeliverable in consideration therefor) upon the surrender of such Old Certificates in accordance with Section 2.2, without any interest thereon.respect thereof pursuant to this Agreement.

(i) If, between the date of this Agreement and the Effective Time, the outstanding Commercial Bancshares Shares orshares of First Defiance Shares are increased, decreased,Common Stock shall have been changed into or exchanged for a different number or kind of shares or securities inor into a different class by reason of any such case as a result of a reorganization, recapitalization, reclassification, stock dividend, stocksubdivision, reclassification, recapitalization, reorganization, split, reverse stock split,combination or other similar change in capitalization,exchange of shares, or there shall be any extraordinary dividend or distribution, an appropriate and proportionate adjustment shall be made to the Merger Consideration shall be adjusted appropriately to giveprovide the holders of Commercial Bancshares SharesUnited Community Common Stock the same economic effect as contemplated by this Agreement prior to such event; provided that nothing contained in this sentence shall be construed toor permit First Defiance or Commercial Bancshares to take any action with respect to its securities or otherwise that is prohibited by the terms of this Agreement.

(h) Notwithstanding anything inSection 2.5United Community Equity Awards.

(a) Subject to the provisions of this Agreement, to the contrary, at the Effective Time, all Commercial Bancshares Sharesby virtue of the Merger and without any action on the part of the holders thereof, each option granted by United Community to purchase shares of United Community Common Stock under a United Community Stock Plan or otherwise, whether vested or unvested (a “United Community Stock Option”), that are owned by Commercial Bancshares or First Defiance (in each case other than the Exception Shares) or by any direct or indirect Commercial Bancshares Subsidiaryis outstanding and unexercised immediately prior to the Effective Time willshall fully vest and be converted into a fully vested option (an “First Defiance Stock Option”) to purchase (i) the number of whole shares of First Defiance Common Stock (rounded down to the nearest whole share) that is equal to the number of shares of United Community Common Stock subject to such United Community Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio, (ii) at an exercise price per share of First Defiance Common Stock (rounded up to the nearest whole cent) equal to the exercise price for each share of United Community Common Stock subject to such United Community Stock Option immediately prior to the Effective Time divided by the Exchange Ratio, subject to the terms and conditions of the United Community Stock Plan, if any, pursuant to which such United Community Stock Option was granted and/or any associated award agreement. It is intended that the conversion of United Community Stock Options under thisSection 2.5(a)shall comply with Sections 409A and 424 of the Code, to the extent applicable, and thisSection 2.5(a) shall be construed consistent with such intent. Except as otherwise provided in thisSection 2.5(a), each such First Defiance Stock Option shall continue to have, and shall be subject to, the same terms and conditions as applied to the corresponding United Community Stock Option immediately prior to the Effective Time.

(b) Subject to the provisions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each award of shares of United Community Common Stock subject to vesting, repurchase or other lapse restriction granted under a United Community Stock Plan or otherwise, whether vested or unvested (a “United Community Restricted Stock Award”) that is outstanding

immediately prior to the Effective Time shall fully vest and be cancelled and ceaseconverted automatically into the right to exist,receive the Merger Consideration in respect of each share of United Community Common Stock underlying such United Community Restricted Stock Award. First Defiance shall issue the consideration described in thisSection 2.5(b) (together with any accrued but unpaid dividends or dividend equivalents corresponding to the United Community Restricted Stock Award, which shall vest pursuant to thisSection 2.5(b)), less applicable tax withholdings, within five (5) Business Days following the Closing Date.

(c) Subject to the provisions of this Agreement, at the Effective Time, by virtue of the Merger and nowithout any action on the part of the holders thereof, each performance-vesting restricted stock unit granted under a United Community Stock Plan or otherwise, whether vested or unvested, that is outstanding immediately prior to the Effective Time (a “United Community PSU Award”) shall fully vest (with any performance-based vesting condition applicable to such United Community PSU Award to be measured consistent with the terms of the applicable award agreement applicable upon a change in control for such United Community PSU Award, as determined by the United Community Board or its compensation committee prior to the Effective Time) and shall be cancelled and converted automatically into the right to receive the Merger Consideration in respect of each share of United Community Common Stock underlying such United Community PSU Award;provided,that the United Community Board or its compensation committee shall exclude any costs or expenses related to the Merger, if any, from the performance metrics applicable to the United Community PSU Awards when determining actual United Community performance through the Effective Date. First Defiance shall issue the consideration will be delivereddescribed in exchange therefor.thisSection 2.5(c) (together with any accrued but unpaid dividends or dividend equivalents corresponding to the United Community PSU Award, which shall vest pursuant to thisSection 2.5(c)), less applicable tax withholdings, within five (5) Business Days following the Closing Date.

(d) At or prior to the Effective Time, the United Community Board or its compensation committee, as applicable, shall adopt resolutions approving the provisions of thisSection 2.5.

(e) First Defiance shall take all corporate action necessary to issue a sufficient number of shares of First Defiance Common Stock with respect to the settlement of United Community Equity Awards contemplated by thisSection 2.5. Effective as of the Effective Time, First Defiance shall file a registration statement on FormS-8 (or any successor or other appropriate form, including a FormS-1 or FormS-3 in the case of awards held by former employees and service providers of United Community) with respect to the shares of First Defiance Common Stock subject to First Defiance Stock Options issued pursuant to thisSection 2.5 and shall maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such awards remain outstanding.

1.6ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF UNITED COMMUNITY

Except (a) as disclosed in the disclosure schedules delivered by United Community to First Defiance concurrently herewith (the “United Community Disclosure Schedules”) (provided that the mere inclusion of an item in the United Community Disclosure Schedules as an exception to a representation or warranty shall not be deemed an admission by United Community that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect on United Community) or (b) as disclosed in any United Community Reports filed with or furnished to the SEC by United Community after January 1, 2017 and prior to the date hereof (but disregarding risk factor disclosures contained under the heading “Risk Factors,” or disclosures of risks set forth in any “forward-looking statements” disclaimer or any other statements that are similarlynon-specific or cautionary, predictive or forward-looking in nature), United Community hereby represents and warrants to First Defiance as follows:

Section 3.1Dissenters RightsUnited Community Organization. United Community: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio; (b) is in good standing in each other

jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary; (c) is registered with the Federal Reserve as a financial holding company under the Bank Holding Company Act of 1956, as amended; and (d) has full power and authority, corporate and otherwise, to operate as a financial holding company and to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted, except in the case of clauses (b) and (d), as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community. United Community has Previously Disclosed to First Defiance true and complete copies of the United Community Articles of Incorporation and United Community Code of Regulations and all amendments thereto, in each case in effect as of the date of this Agreement. United Community has no “Significant Subsidiary” as set forth in Rule1-02 or RegulationS-X promulgated under the Exchange Act other than the Subsidiaries listed on Exhibit 21 to United Community’s Annual Report on Form10-K for the fiscal year ended December 31, 2018.

Section 3.2United Community Subsidiary Organizations.  Notwithstanding anything Home Savings is an Ohio state bank duly organized, validly existing and in good standing under the laws of the state of Ohio. Each United Community Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is also in good standing in each other jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary, except where the failure to be so qualified and in good standing would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community. Each Subsidiary of United Community has full power and authority, corporate and otherwise, to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community. The deposit accounts of Home Savings are insured by the FDIC through the Deposit Insurance Fund to the fullest extent permitted by applicable Legal Requirements, and all premiums and assessments required to be paid in connection therewith have been paid when due. United Community has Previously Disclosed to First Defiance true and complete copies of the charter (or similar organizational documents) and code of regulations of each Subsidiary of United Community and all amendments thereto, each as in effect as of the date of this Agreement.

Section 3.3Authorization; Enforceability. United Community has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution and delivery of this Agreement and the consummation of the Contemplated Transactions have been duly and validly authorized by the United Community Board. The United Community Board has determined that the Merger, on substantially the terms and conditions set forth in this Agreement, is advisable and in the best interests of United Community and its shareholders, and that this Agreement and the Contemplated Transactions are in the best interests of United Community and its shareholders. The United Community Board has directed the Merger, on substantially the terms and conditions set forth in this Agreement, be submitted to the contrary, any issuedUnited Community’s shareholders for consideration at a duly held meeting of such shareholders and outstanding Commercial Bancshares Shares held by a person (a “Dissenting Shareholder”) who has not votedresolved to recommend that United Community’s shareholders vote in favor of or consented to, the adoption of this Agreement and the Contemplated Transactions. The execution, delivery and performance of this Agreement by United Community, and the consummation by it of its obligations under this Agreement and the Contemplated Transactions, have been authorized by all necessary corporate action, subject to the United Community Shareholder Approval and the approval of the Bank Merger Agreement by United Community as Home Savings’s sole shareholder. This Agreement has been duly and validly executed by United Community, and assuming the due authorization, execution and delivery by First Defiance, this Agreement constitutes a legal, valid and binding obligation of United Community enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other Legal Requirements affecting creditors’ rights generally and subject to general principles of equity.

Section 3.4No Conflict.

(a) Neither the execution nor delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time):

(i) contravene, conflict with or result in a violation of any provision of the articles of incorporation, certificate of formation, charter, code of regulations, bylaws or operating agreement (or similar organizational documents), each as in effect on the date hereof, or any currently effective resolution adopted by the United Community Board, shareholders, manager or members of, United Community or any of its Subsidiaries; (ii) assuming receipt of the Requisite Regulatory Approvals, contravene, conflict with or result in a violation of, or give any Regulatory Authority or other Person the valid and enforceable right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which United Community or any of its Subsidiaries, or any of their respective assets that are owned or used by them, may be subject, except for any contravention, conflict or violation that is permissible by virtue of obtaining the Requisite Regulatory Approvals; (iii) contravene, conflict with or result in a violation or breach of any provision of, or give any Person the right to declare a default (or event which with the giving of notice or lapse of time, or both, would become a default) or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any United Community Material Contract; or (iv) result in the creation of any Lien other than any United Community Permitted Exception upon or with respect to any of the assets owned or used by United Community or its Subsidiaries, except in the case of clauses (iii) and (iv), as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community.

(b) Except for (i) the filing of applications, filings and notices, as applicable, with the Nasdaq Global Select Market, (ii) the Requisite Regulatory Approvals, (iii) the filing with the SEC of the Joint Proxy Statement, and of the Registration Statement and declaration by the SEC of the effectiveness of the Registration Statement, (iv) the filing of the Ohio Certificate of Merger with the Ohio Secretary of State pursuant to the OGCL, and the filing of the Bank Merger Certificates, (v) such filings and approvals as are required to be made or obtained under the securities orblue-sky laws of various states in connection with the issuance of the shares of First Defiance Common Stock pursuant to this Agreement and (vi) the approval of the listing of such First Defiance Common Stock on the Nasdaq Global Select Market, no consents or approvals of or filings or registrations with any Regulatory Authority are necessary in connection with (A) the execution and delivery by United Community of this Agreement or (B) the consummation by United Community of the Merger and the other Contemplated Transactions (including the Bank Merger).

Section 3.5United Community Capitalization.

(a) The authorized capital stock of United Community currently consists exclusively of: (i) 499,000,000 shares of United Community Common Stock, of which, as of September 6, 2019 (the “Capitalization Date”), 48,086,439 shares were issued and outstanding (excluding shares held in treasury) and 6,052,471 shares were held in the treasury of United Community; and (ii) 1,000,000 shares of United Community Preferred Stock, of which no shares were designated and outstanding as of the Capitalization Date. United Community does not have outstanding any bonds, debentures, notes or other debt obligations having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) with the shareholders of United Community on any matter. All of the issued and outstanding shares of United Community Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights.

(b) As of the Capitalization Date, no shares of United Community Capital Stock were reserved for issuance except for: (i) 163,232 shares of United Community Common Stock subject to outstanding United Community Stock Options; (ii) 135,502 shares of United Community Common Stock subject to outstanding United Community Restricted Stock Awards; (iii) 241,887 shares (assuming satisfaction of performance goals at the target level) or 246,262 shares (assuming satisfaction of performance goals at the maximum level) of United Community Common Stock subject to outstanding United Community PSU Awards; and (iv) 386,811 shares of United Community Common Stock reserved for issuance pursuant to future awards under United Community Stock Plans.

(c) Other than awards under United Community Stock Plans that are outstanding as of the date of this Agreement, no equity-based awards were outstanding as of the Capitalization Date. Since the Capitalization Date

through the date hereof, United Community has not: (i) issued or repurchased any shares of United Community Common Stock or United Community Preferred Stock or other equity securities of United Community, other than in connection with the exercise or settlement of United Community Equity Awards that were outstanding on the Capitalization Date, in each case in accordance with the terms of the relevant United Community Stock Plan or award agreement; or (ii) issued or awarded any options, stock appreciation rights, restricted shares, restricted stock units, deferred equity units, awards based on the value of United Community Common Stock or any other equity-based awards. From the Capitalization Date through the date of this Agreement, neither United Community nor any of its Subsidiaries has: (A) accelerated the vesting of or lapsing of restrictions with respect to any stock-based compensation awards or long-term incentive compensation awards or (B) adopted or materially amended any United Community Stock Plan.

(d) None of the shares of United Community Common Stock were issued in violation of any federal or state securities laws or any other applicable Legal Requirement. As of the date of this Agreement there are: (i) other than outstanding United Community Equity Awards, no outstanding subscriptions, Contracts, conversion privileges, options, warrants, calls or other rights obligating United Community or any of its Subsidiaries to issue, sell or otherwise dispose of, or to purchase, redeem or otherwise acquire, any shares of capital stock of United Community or any of its Subsidiaries; and (ii) no contractual obligations of United Community or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of United Community Common Stock or any equity security of United Community or its Subsidiaries or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of United Community or its Subsidiaries. Except as permitted by this Agreement, since the Capitalization Date, no shares of United Community Common Stock have been purchased, redeemed or otherwise acquired, directly or indirectly, by United Community or any of its Subsidiaries and no dividends or other distributions payable in any equity securities of United Community or any of its Subsidiaries have been declared, set aside, made or paid to the shareholders of United Community. Other than its Subsidiaries, United Community does not own, nor has any Contract to acquire, any equity interests or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

Section 3.6United Community Subsidiary Capitalization. All of the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of United Community are owned by United Community, directly or indirectly, free and clear of any Liens other than United Community Permitted Exceptions, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (except, with respect to Subsidiaries that are depositary institutions, as provided under 12 U.S.C. § 55 or any comparable provision of applicable state law) and free of preemptive rights, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community. No Subsidiary of United Community has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary.

Section 3.7United Community SEC Reports; Financial Statements and Reports; Regulatory Filings.

(a) Since January 1, 2017, United Community has timely filed all United Community SEC Reports, and all such United Community SEC Reports have complied as to form in all material respects, as of their respective filing dates or effective dates, as the case may be, or, if amended or supplemented, as of the date of the most recent amendment or supplement thereto, with all applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder. As of their respective filing dates or effective dates, as the case may be, or, if amended or supplemented, as of the date of the most recent amendment or supplement thereto, none of the United Community SEC Reports contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of the date hereof, there are no outstanding comments from or unresolved issues raised by the SEC with respect to any

of the United Community SEC Reports. No Subsidiary of United Community is required to file periodic reports with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.

(b) The financial statements presented (or incorporated by reference) in the United Community SEC Reports (including the related notes, where applicable) have been prepared in conformity with GAAP, except in each case as indicated in such statements or the notes thereto, and comply in all material respects with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. Taken together, the financial statements presented in the United Community SEC Reports (collectively, the “United Community Financial Statements”) are complete and correct in all material respects and fairly and accurately present in all material respects the respective financial position, assets, liabilities and results of operations of United Community and its Subsidiaries at the respective dates of and for the periods referred to in United Community Financial Statements, subject to normalyear-end audit adjustments in the case of unaudited United Community Financial Statements. As of the date hereof, Crowe LLP has not resigned (or informed United Community that it intends to resign) or been dismissed as independent registered public accountants of United Community.

(c) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, neither United Community nor any of its Subsidiaries has any liability (whether absolute, accrued, contingent or otherwise and whether due or to become due) required by GAAP to be included on a consolidated balance sheet of United Community, except for those liabilities that are reflected or reserved against on the consolidated balance sheet of United Community included in its Quarterly Report on Form10-Q for the fiscal quarter ended June 30, 2019 (including any notes thereto) and for liabilities incurred in the Ordinary Course of Business since June 30, 2019, or in connection with this Agreement and the Contemplated Transactions.

(d) United Community is in compliance in all material respects with all of the provisions of the Sarbanes-Oxley Act of 2002 that are applicable to it or any of its Subsidiaries. United Community maintains a system of disclosure controls and procedures as defined in Rule13a-15 and15d-15 under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by United Community in reports that United Community is required to file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to United Community’s management to allow timely decisions regarding required disclosures. As of June 30, 2019, to the Knowledge of United Community, such controls and procedures were effective, in all material respects, to provide such reasonable assurance.

(e) United Community and its consolidated Subsidiaries have established and maintained a system of internal control over financial reporting (within the meaning of Rule13a-15 and Rule15d-15 under the Exchange Act) (“Internal Control Over Financial Reporting”). United Community’s certifying officers have evaluated the effectiveness of United Community’s Internal Control Over Financial Reporting as of the end of the period covered by the most recently filed quarterly report on Form10-Q of United Community under the Exchange Act (the “United Community Evaluation Date”). United Community presented in such quarterly report the conclusions of the certifying officers about the effectiveness of United Community’s Internal Control Over Financial Reporting based on their evaluations as of the United Community Evaluation Date. Since the United Community Evaluation Date, there have been no changes in United Community’s Internal Control Over Financial Reporting that have materially affected, or are reasonably likely to materially affect, United Community’s Internal Control Over Financial Reporting. United Community has devised and maintains a system of internal accounting controls designed to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(f) United Community and each of its Subsidiaries has filed all forms, reports and documents required to be filed since January 1, 2017, with all applicable federal or state banking authorities except to the extent failure would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community. Such forms, reports and documents complied as to form in all material respects with applicable Legal Requirements.

(g) Subject toSection 11.13, except for normal examinations conducted by a Regulatory Authority in the Ordinary Course of Business of United Community and its Subsidiaries, no Regulatory Authority has initiated since January 1, 2017, or has pending any proceeding, enforcement action or, to the Knowledge of United Community, investigation into the business, disclosures or operations of United Community or its Subsidiaries. Subject toSection 11.13, except for normal examinations conducted by a Regulatory Authority in the Ordinary Course of Business of United Community and its Subsidiaries, since January 1, 2017, no Regulatory Authority has resolved any proceeding, enforcement action or, to the Knowledge of United Community, investigation into the business, disclosures or operations of United Community or its Subsidiaries. Subject toSection 11.13, (i) there is no unresolved violation, criticism or exception by any Regulatory Authority with respect to, any report or statement relating to any examination or inspection of United Community or its Subsidiaries and (ii) since January 1, 2017, there have been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Authority with respect to the business, operations, policies or procedures of United Community or its Subsidiaries (other than normal examinations conducted by a Regulatory Authority in United Community’s Ordinary Course of Business), in each case except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community. To the Knowledge of United Community, there has not been any event or occurrence since January 1, 2017 that would result in a determination that Home Savings is not an eligible depository institution as defined in 12 C.F.R. § 303.2(r).

Section 3.8Books and Records. The books of account, minute books, stock record books and other records of United Community and its Subsidiaries have been maintained in all material respects in accordance with United Community’s business practices and all applicable Legal Requirements, including the maintenance of an adequate system of internal controls required by such Legal Requirements.

Section 3.9Real Property.

(a) Except as set forth on Section 3.9 of the United Community Disclosure Schedules or as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, as of the date of this Agreement, United Community or one of its Subsidiaries has good and marketable title to all the real property reflected in the latest balance sheet included in the United Community SEC Reports as being owned by United Community or one of its Subsidiaries or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business) free and clear of all Liens, except: (i) as noted in the most recent United Community Financial Statements; (ii) statutory liens for Taxes not yet delinquent or being contested in good faith by appropriate Proceedings and for which appropriate reserves have been established and reflected in the United Community Financial Statements; (iii) pledges or liens required to be granted in connection with the acceptance of government deposits, granted in connection with repurchase or reverse repurchase agreements or otherwise incurred in the Ordinary Course of Business; (iv) easements, rights of way, and other similar encumbrances that do not materially affect the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties; and (v) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purposes for which they are held (collectively, the “United Community Permitted Exceptions”).

(b) Except as set forth on Section 3.9 of the United Community Disclosure Schedules or as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, as of the date of this Agreement, United Community or one of its Subsidiaries is the lessee of all leasehold estates reflected in the latest United Community Financial Statements included in the United

Community SEC Reports or acquired after the date thereof (except for leases that have expired by their terms since the date thereof), free and clear of all Liens, except for United Community Permitted Exceptions, and is in possession of the properties purported to be leased thereunder, and each such lease is valid without default thereunder by the lessee or, to the Knowledge of United Community, the lessor.

Section 3.10Loans; Loan Loss Reserve.

(a) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, each loan, loan agreement, note, lease or other borrowing agreement by Home Savings, any participation therein, and any guaranty, renewal or extension thereof (the “United Community Loans”) reflected as an asset on any of the United Community Financial Statements or reports filed with the Regulatory Authorities is evidenced by documentation that is customary and legally sufficient and constitutes, to the Knowledge of United Community, the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors rights generally or equitable principles or doctrines.

(b) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (i) all United Community Loans originated or purchased by Home Savings were made or purchased in accordance with the policies of the board of directors of Home Savings, (ii) Home Savings’s interest in all United Community Loans is free and clear of any Liens (other than blanket Liens by the Federal Home Loan Bank of Cincinnati) and (iii) Home Savings has complied in all material respects with all Legal Requirements relating to such United Community Loans. There has been no default on, or forgiveness or waiver of, in whole or in part, any United Community Loan made to an executive officer or director of Home Savings or an entity controlled by an executive officer or director during the three (3) years immediately preceding the date hereof.

(c)Section 3.10(c) of the United Community Disclosure Schedules lists, as of July 31, 2019, each United Community Loan that had an outstanding balance of at least $1,000,000: (i) under the terms of which the obligor is more than ninety (90) days delinquent in payment of principal or interest or in default of any other material provision as of the dates shown thereon or for which Home Savings has discontinued the accrual of interest; (ii) that has been classified as “substandard,” “doubtful,” “loss,” “other loans especially mentioned” or any comparable classifications by Home Savings; (iii) that has been listed on any “watch list” or similar internal report of Home Savings; or (iv) that represents an extension of credit to an executive officer or director of Home Savings or an entity controlled by an executive officer or director.

(d) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, Home Savings’s allowance for loan and lease losses reflected in the United Community Financial Statements (including footnotes thereto) was determined on the basis of Home Savings’s continuing review and evaluation of the portfolio of United Community Loans under the requirements of GAAP and Legal Requirements, was established in a manner consistent with Home Savings’s internal policies, and, in the reasonable judgment of Home Savings, was adequate under the requirements of GAAP and all Legal Requirements to provide for possible or specific losses, net of recoveries relating to United Community Loans previouslycharged-off, on outstanding United Community Loans.

Section 3.11Taxes. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect:

(a) United Community and each of its Subsidiaries have duly and timely filed all Tax Returns required to be filed by them on or before the Closing Date for all taxable or reporting periods ending on or before the Closing Date, and each such Tax Return is true, correct and complete in all material respects. United Community and each of its Subsidiaries have paid, or made adequate provision for the payment of, all Taxes (whether or not

reflected in Tax Returns as filed or to be filed) due and payable by United Community and each of its Subsidiaries, or claimed to be due and payable by any Regulatory Authority, and are not delinquent in the payment of any Tax, except such Taxes as are being contested in good faith and as to which adequate reserves have been provided.

(b) There is no claim or assessment pending or, to the Knowledge of United Community, threatened against United Community and its Subsidiaries for any Taxes that they owe. No audit, examination or investigation related to Taxes paid or payable by United Community and each of its Subsidiaries is presently being conducted or, to the Knowledge of United Community, threatened by any Regulatory Authority. Neither United Community nor its Subsidiaries are the beneficiary of any extension of time within which to file any Tax Return, and there are no liens for Taxes (other than Taxes not yet due and payable) upon any of United Community’s or its Subsidiaries’ assets. Neither United Community nor its Subsidiaries has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax that is currently in effect.

(c) Each of United Community and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third party.

(d) Neither United Community nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among United Community and its Subsidiaries).

(e) Neither United Community nor any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return for which the statute of limitations is open (other than a group the common parent of which was United Community) or (ii) has any liability for the Taxes of any person (other than United Community or any of its Subsidiaries) under Treasury RegulationSection 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

(f) Neither United Community nor any of its Subsidiaries has been, within the past two (2) years or otherwise as part of a “plan (or series of related transactions)” within the meaning of Section 355(e) of the Code of which the Merger is also a part, a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify fortax-free treatment under Section 355 of the Code.

(g) United Community and each of its Subsidiaries have delivered or Previously Disclosed to First Defiance true, correct and complete copies of all Tax Returns relating to income taxes and franchise taxes owed by United Community and its Subsidiaries with respect to the last three (3) fiscal years.

(h) To the Knowledge of United Community, United Community and each of its Subsidiaries have not engaged in any transaction that could affect the Tax liability for any Tax Returns not closed by applicable statute of limitations: (i) which is a “listed transaction” or (ii) a “significant purpose of which is the avoidance or evasion of U.S. federal income tax” within the meaning of Sections 6662, 6662A, 6011, 6111 or 6707A of the Code or of the regulations of the U.S. Department of the Treasury promulgated thereunder or pursuant to notices or other guidance published by the IRS (irrespective of the effective dates).

(i) United Community has not taken any action and is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section  368(a) of the Code.

Section 3.12Employee Benefits.

(a)Section 3.12(a) of the United Community Disclosure Schedules includes a complete and correct list of each material United Community Benefit Plan. United Community has Previously Disclosed to First Defiance

true and complete copies of the following with respect to each material United Community Benefit Plan (to the extent applicable): (i) copies of each United Community Benefit Plan (including a written description where no formal plan document exists), including any amendments thereto, and all related plan descriptions; (ii) the most recent annual report on U.S. Form 5500 filed with the IRS, including all schedules thereto and the most recent actuarial report or similar report from independent accountants; (iii) the most recent IRS determination or opinion letter received by United Community; and (iv) other material ancillary documents, including:

(i) all material contracts with third party administrators, actuaries, investment managers, consultants, insurers, and independent contractors, including any related trust agreements, insurance contracts or other funding vehicles; and

(ii) all material notices and other material communications to or from the IRS, the DOL or the PBGC within the six (6) years preceding the date of this Agreement relating to the United Community Benefit Plans.

(b) Except as provided by this Agreement, neither the execution and delivery of this Agreement nor the consummation of the Contemplated Transactions (whether alone or in connection with any other event) will cause a payment, vesting, increase or acceleration of benefits or benefit entitlements under any United Community Benefit Plan or any other increase in the liabilities of United Community or any Subsidiary under any United Community Benefit Plan as a result of the Contemplated Transactions. No United Community Benefit Plan provides for payment of any amount which, considered in the aggregate with amounts payable pursuant to all other United Community Benefit Plans, would result in any amount beingnon-deductible for federal income tax purposes by virtue of Section 280G of the Code.

(c) Neither United Community nor any of the United Community ERISA Affiliates sponsors, maintains, administers or contributes to, or has, in the six (6) years preceding the date of this Agreement, sponsored, maintained, administered or contributed to, or has or has had, in the six (6) years preceding the date of this Agreement, any liability with respect to, (i) any “multiemployer plan” (as defined in Section 3(37) of ERISA) or (ii) any “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA). With respect to any United Community Benefit Plan that is a “multiple employer plan” (as defined in Section 413(c) of the Code), except as would reasonably be expected to be, either individually or in the aggregate, material to United Community or its Subsidiaries, such United Community Benefit Plan complies in all material respects with the requirements of the Code and ERISA. Neither United Community nor any of the United Community ERISA Affiliates has any liabilities other than the payment and/or remittance of premiums and/or required contributions on behalf of enrolled individuals. Neither United Community nor any of the United Community ERISA Affiliates sponsors, maintains, administers or contributes to, or has in the six (6) years preceding the date of this Agreement sponsored, maintained, administered or contributed to, or has or has had, in the six (6) years preceding the date of this Agreement, any liability with respect to, any United Community Benefit Plan subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.

(d) Each United Community Benefit Plan that is intended to qualify under Section 401 and related provisions of the Code is the subject of a favorable determination letter from the IRS to the effect that it is so qualified under the Code and that its related funding instrument is tax exempt under Section 501 of the Code (or United Community and its Subsidiaries are otherwise relying on an opinion letter issued to the prototype sponsor), and, to the Knowledge of United Community, there are no facts or circumstances that would adversely affect the qualified status of any United Community Benefit Plan or thetax-exempt status of any related trust.

(e) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, each United Community Benefit Plan is and has been administered in all material respects in compliance with its terms and with all applicable Legal Requirements.

(f) Other than routine claims for benefits made in the Ordinary Course of Business, except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United

Community, there is no litigation, claim or assessment pending or, to the Knowledge of United Community, threatened by, on behalf of, or against any United Community Benefit Plan or against the administrators or trustees or other fiduciaries of any United Community Benefit Plan that alleges a violation of applicable state or federal law or violation of any United Community Benefit Plan document or related agreement.

(g) No United Community Benefit Plan fiduciary or any other person has, or has had, any material liability to any United Community Benefit Plan participant, beneficiary or any other person under any provisions of ERISA or any other applicable Legal Requirement by reason of any action or failure to act in connection with any United Community Benefit Plan, including any material liability by any reason of any payment of, or failure to pay, benefits or any other amounts or by reason of any credit or failure to give credit for any benefits or rights. To the Knowledge of United Community, no party in interest (as defined in Code Section 4975(e)(2)) of any United Community Benefit Plan has engaged in any nonexempt prohibited transaction (as described in Code Section 4975(c) or ERISA Section 406).

(h) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, all accrued contributions and other payments to be made by United Community or any Subsidiary to any United Community Benefit Plan through the date hereof have been made or reserves adequate for such purposes have been set aside therefor and reflected in the United Community Financial Statements to the extent required by GAAP.

(i) There are no obligations under any United Community Benefit Plans to provide health or other welfare benefits to retirees or other former employees, directors, consultants or their dependents (other than rights under Section 4980B of the Code or Section 601 of ERISA or comparable state laws).

(j) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (i) no condition exists, whether absolute or contingent, under any United Community Benefit Plan or otherwise with respect to any misclassification of a person performing services for United Community or any Subsidiary as an independent contractor rather than as an employee, and (ii) all individuals participating in United Community Benefit Plans are in fact eligible and authorized to participate in such United Community Benefit Plan.

Section 3.13Compliance with Legal Requirements. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, United Community and each of its Subsidiaries hold all licenses, certificates, permits, franchises and rights from all appropriate Regulatory Authorities necessary for the conduct of their respective businesses. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (a) United Community and each of its Subsidiaries is, and at all times since January 1, 2017, has been, in compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its respective businesses or the ownership or use of any of its respective assets and (b) subject toSection 11.13, neither United Community nor any of its Subsidiaries has received, at any time since January 1, 2017, any written notice from any Regulatory Authority regarding: (i) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement; or (ii) any actual, alleged, possible, or potential obligation on the part of United Community or any of its Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with a failure to comply with any Legal Requirement.

Section 3.14Legal Proceedings; Orders.

(a) Subject toSection 11.13and except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (i) since January 1, 2017, there have been, and currently are, no Proceedings or Orders pending, entered into or, to the Knowledge of United Community, threatened against or affecting United Community, any of its Subsidiaries or any of their respective assets, businesses, current or former directors or executive officers, or the Contemplated Transactions, that have

not been fully satisfied, settled or terminated and (ii) no officer, director, employee or agent of United Community or any of its Subsidiaries is subject to any Order that prohibits such officer, director, employee or agent from engaging in or continuing any conduct, activity or practice relating to the businesses of United Community or any of its Subsidiaries as currently conducted.

(b) Subject toSection 11.13and except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community neither United Community nor any of its Subsidiaries: (i) is subject to any cease and desist or other Order or enforcement action issued by; (ii) is a party to any written agreement, consent agreement or memorandum of understanding with; (iii) is a party to any commitment letter or similar undertaking to; (iv) is subject to any order or directive by; (v) is subject to any supervisory letter from; (vi) has been ordered to pay any civil money penalty, which has not been paid, by; or (vii) has adopted any policies, procedures or board resolutions at the request of; any Regulatory Authority that currently restricts the conduct of its business, in any manner relates to its capital adequacy, restricts its ability to pay dividends or interest or limits its credit or risk management policies, its management or its business. To the Knowledge of United Community, and subject toSection  11.13, none of the foregoing has been threatened by any Regulatory Authority.

Section 3.15Absence of Certain Changes and Events.

(a) Since December 31, 2018 through the date of this Agreement, there has not occurred any event or events that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on United Community.

(b) Since December 31, 2018 through the date of this Agreement, (i) except to the extent it relates to the events giving rise to and the discussion and negotiation of this Agreement and the Contemplated Transactions, United Community and its Subsidiaries have conducted their respective businesses only in the Ordinary Course of Business, and (ii) neither United Community nor any of its Subsidiaries has taken any action that, if taken after the date hereof, would constitute a breach of, or require the consent of First Defiance underSection 5.2(b) (other than any actions specified by clauses (i), (ii), (iii), (vii), (ix), (xv) or (xvi) (to the extent clause (xvi)  relates to the foregoing clauses)).

Section 3.16Material Contracts. Except for Contracts evidencing United Community Loans made by Home Savings in the Ordinary Course of Business or United Community Benefit Plans,Section 3.16 of the United Community Disclosure Schedules lists or describes the following with respect to United Community and each of its Subsidiaries (each such agreement or document, a “United Community Material Contract”) as of the date of this Agreement, true, complete and correct copies of each of which have been delivered or Previously Disclosed to First Defiance:

(a) all loan and credit agreements, conditional sales Contracts or other title retention agreements or security agreements relating to money borrowed by it in excess of $1,000,000, exclusive of deposit agreements with customers of Home Savings entered into in the Ordinary Course of Business, agreements for the purchase of federal funds and repurchase agreements and Federal Home Loan Bank of Cincinnati advances;

(b) each Contract that involves performance of services or delivery of goods or materials by it of an amount or value in excess of $1,000,000;

(c) each Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts by it in excess of $1,000,000;

(d) each lease, rental, license, installment and conditional sale agreement and other Contract affecting the ownership of, leasing of, title to or use of, any personal property (except personal property leases and installment and conditional sales agreements having aggregate annual payments of less than $250,000);

(e) each licensing agreement or other Contract with respect to material patents, trademarks, copyrights, or other material intellectual property, including agreements with current or former employees, consultants or contractors regarding the appropriation or the nondisclosure of any of its intellectual property;

(f) each collective bargaining agreement and other Contract to or with any labor union or other employee representative of a group of employees;

(g) each joint venture, partnership and other Contract (however named) involving a sharing of profits, losses, costs or liabilities by it with any other Person;

(h) each Contract containing covenants that in any way purport to restrict, in any material respect, the business activity of United Community or its Subsidiaries or limit, in any material respect, the ability of United Community or its subsidiaries to engage in any line of business or to compete with any Person;

(i) each Contract for capital expenditures in excess of $1,000,000;

(j) each Contract that is a “material contract” (as such term is defined in Item 601(b)(10) of RegulationS-K of the SEC);

(k) each Contract that grants any material right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of United Community and its Subsidiaries;

(l) each Contract that is a merger agreement, asset purchase agreement, stock purchase agreement, deposit assumption agreement, loss sharing agreement or other commitment to a Regulatory Agency in connection with the acquisition of a depositary institution, or similar agreement, that has indemnification, earnout or other obligations that continue in effect after the date of this Agreement that are material to United Community and its Subsidiaries, taken as a whole; and

(m) each amendment, supplement and modification in respect of any of the foregoing.

Section 3.17No Defaults. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community (a) each United Community Material Contract is in full force and effect and is valid and enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other Legal Requirements affecting creditors’ rights generally and subject to general principles of equity, (b) to the Knowledge of United Community, no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a violation or breach of, or give United Community, any of its Subsidiaries or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any United Community Material Contract, (c) except in the Ordinary Course of Business with respect to any United Community Loan, neither United Community nor any of its Subsidiaries has given to or received from any other Person, at any time since January 1, 2017, any notice or other communication (whether oral or written) regarding any actual, alleged, possible or potential violation or breach of, or default under, any United Community Material Contract, that has not been terminated or satisfied prior to the date of this Agreement and (d) other than in the Ordinary Course of Business, there are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate, any material amounts paid or payable to United Community or any of its Subsidiaries under current or completed United Community Material Contracts with any Person, and no such Person has made written demand for such renegotiation.

Section 3.18Insurance. United Community and each of its Subsidiaries is covered by valid and currently effective insurance policies issued in favor of United Community or one or more of its Subsidiaries that are customary and adequate for companies of similar size in the industries and locations in which United Community operates, except where the failure to have such policies would not be material to United Community and its

Subsidiaries, taken as a whole. United Community has Previously Disclosed to First Defiance copies of all material insurance policies issued in favor of United Community or any of its Subsidiaries, or pursuant to which United Community or any of its Subsidiaries is a named insured or otherwise a beneficiary, as well as any material historic incurrence-based policies still in force as of the date of this Agreement (such policies, the “United Community Material Policies”). With respect to each such United Community Material Policy, (a) such United Community Material Policy is in full force and effect and all premiums due thereon have been paid, (b) neither United Community nor any of its Subsidiaries is in breach or default, and has not taken any action or failed to take any action which (with or without notice or lapse of time or both) would constitute such a breach or default, or would permit termination or modification of, any such policy and (c) to the Knowledge of United Community, no insurer issuing any such United Community Material Policy has been declared insolvent or placed in receivership, conservatorship or liquidation, except, in each of the foregoing cases described in clauses(a),(b) or(c), as would not, individually or in the aggregate, be material to United Community and its Subsidiaries, taken as a whole. No written notice of cancellation or termination has been received by United Community with respect to any such United Community Material Policy.

Section 3.19Compliance with Environmental Laws. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (a) there are no actions, suits, investigations, liabilities, inquiries, Proceedings or Orders involving United Community or any of its Subsidiaries or any of their respective assets that are pending or, to the Knowledge of United Community, threatened, nor to the Knowledge of United Community, is there any factual basis for any of the foregoing, as a result of any asserted failure of United Community or any of its Subsidiaries of, or any predecessor thereof, to comply with any Environmental Law, (b) no environmental clearances or other governmental approvals relating to any Environmental Law are required for the conduct of the business of United Community or any of its Subsidiaries or the consummation of the Contemplated Transactions, (c) to the Knowledge of United Community, neither United Community nor any of its Subsidiaries is the owner of any interest in real estate on which any substances have been generated, used, stored, deposited, treated, recycled or disposed of, which substances if known to be present on, at or under such property, would require notification to any Regulatory Authority, clean up, removal or some other remedial action under any Environmental Law at such property or any impacted adjacent or down gradient property and (d) United Community and each Subsidiary of United Community has complied with all Environmental Laws applicable to it and its business operations.

Section 3.20Transactions with Affiliates. Since January 1, 2017, all transactions required to be disclosed by United Community pursuant to Item 404 of RegulationS-K promulgated under the Securities Act have been disclosed in the United Community SEC Reports. No transaction, or series of related transactions, is currently proposed by United Community or any of its Subsidiaries to which United Community or any of its Subsidiaries would be a participant that would be required to be disclosed under Item 404 of RegulationS-K promulgated under the Securities Act if consummated.

Section 3.21Brokerage Commissions. Except for fees payable to Sandler O’Neill & Partners, LP pursuant to an engagement letter that has been Previously Disclosed, none of United Community or its Subsidiaries, or any of their respective Representatives, has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

Section 3.22Approval Delays. To the Knowledge of United Community as of the date hereof, there is no reason attributable to United Community why the granting of any of the Requisite Regulatory Approvals would be denied or unduly delayed. Home Savings’s most recent CRA rating prior to the date hereof was “satisfactory” or better.

Section 3.23Labor Matters.

(a) There are no collective bargaining agreements or other labor union Contracts applicable to any employees of United Community or any of its Subsidiaries. There is no material labor dispute, strike, work

stoppage or lockout, or, to the Knowledge of United Community, threat thereof, by or with respect to any employees of United Community or any of its Subsidiaries, and there has been no material labor dispute, strike, work stoppage or lockout in the previous three (3) years. There are no organizational efforts with respect to the formation of a collective bargaining unit presently being made, or to the Knowledge of United Community, threatened, involving employees of United Community or any of its Subsidiaries. Neither United Community nor any of its Subsidiaries has engaged or is engaging in any unfair labor practice, United Community and its Subsidiaries are in compliance in all material respects with all applicable Legal Requirements respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and no Proceeding asserting that United Community or any of its Subsidiaries has committed an unfair labor practice (within the meaning of the National Labor Relations Act of 1935) or seeking to compel United Community or any of its Subsidiaries to bargain with any labor organization as to wages or conditions of employment is pending or, to the Knowledge of United Community, threatened with respect to United Community or any of its Subsidiaries before the National Labor Relations Board, the Equal Employment Opportunity Commission or any other Regulatory Authority.

(b) Neither United Community nor any of its Subsidiaries is a party to, or otherwise bound by, any consent decree with, or citation by, any Regulatory Authority relating to employees or employment practices. None of United Community, any of its Subsidiaries or any of its or their executive officers has received within the past three (3) years any written notice of intent by any Regulatory Authority responsible for the enforcement of labor or employment laws to conduct an investigation relating to United Community or any of its Subsidiaries and, to the Knowledge of United Community, no such investigation is in progress.

Section 3.24Intellectual Property. Each of United Community and its Subsidiaries has the right and authority, and the Surviving Entity and its Subsidiaries will have the right and authority from and after the Effective Time, in each case free from Liens other than United Community Permitted Exceptions, to use all patents, trademarks, copyrights, service marks, trade names or other intellectual property owned by United Community or its Subsidiaries as of the date hereof and as is necessary to enable them to conduct the businesses of United Community and its Subsidiaries in the manner presently conducted by them. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, to the Knowledge of United Community, such use does not conflict with, infringe on or violate any patent, trademark, copyright, service mark, trade name or any other intellectual property right of any Person.

Section 3.25Investments.

(a) United Community or its Subsidiaries have good and marketable title in all material respects to all investment and debt securities, mortgage-backed and related securities, marketable equity securities and securities purchased under agreements to resell that are owned by United Community or its Subsidiaries, other than, with respect to Home Savings, in a fiduciary or agency capacity (the “United Community Investment Securities”), free and clear of any Liens except for United Community Permitted Exceptions and except to the extent such United Community Investment Securities are pledged in the Ordinary Course of Business consistent with prudent banking practices to secure obligations of United Community or Home Savings. The United Community Investment Securities are valued on the books of United Community and Home Savings in accordance with GAAP in all material respects.

(b) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (i) all Derivative Transactions, whether entered into for the account of United Community or any of its Subsidiaries or for the account of a customer of United Community or any of its Subsidiaries, were entered into in the Ordinary Course of Business and in accordance with applicable Legal Requirements and policies of any Regulatory Authority and in accordance with the investment, securities, commodities, risk management and other policies, practices and procedures employed by United Community and its Subsidiaries, and with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of such Derivative

Transactions, and (ii) all of such Derivative Transactions are legal, valid and binding obligations of United Community or one of its Subsidiaries enforceable against it in accordance with their terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity), and are in full force and effect. United Community and its Subsidiaries have duly performed in all material respects their material obligations under the Derivative Transactions to the extent that such obligations to perform have accrued and, to the Knowledge of United Community, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder.

Section 3.26Information Provided to First Defiance. None of the information concerning United Community or any of its Subsidiaries that is provided or to be provided by United Community to First Defiance for inclusion or that is included in the Registration Statement or Joint Proxy Statement and any other documents to be filed with any Regulatory Authority in connection with the Contemplated Transactions will: (a) at the respective times such documents are filed and, in the case of the Registration Statement, when it becomes effective and, with respect to the Joint Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; or (b) in the case of the Joint Proxy Statement or any amendment thereof or supplement thereto, at the time of the United Community Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the meeting in connection with which the Joint Proxy Statement shall be mailed. Notwithstanding the foregoing, United Community shall have no responsibility for the truth or accuracy of any information with respect to First Defiance or any of its Subsidiaries or any of their Affiliates contained in the Registration Statement or the Joint Proxy Statement or in any document submitted to, or other communication with, any Regulatory Authority.

Section 3.27State Takeover Laws. The United Community Board has approved this Agreement and the Contemplated Transactions as required to render inapplicable to this Agreement and the Contemplated Transactions any applicable provisions of the takeover laws of any state, including any “moratorium,” “control share,” “fair price,” “takeover” or “interested shareholder” law (any such laws, “Takeover Statutes”).

Section 3.28Tax-Free Reorganization.As of the date hereof, United Community does not know of any reason: (i) why it would not be able to deliver to counsel to United Community and counsel to First Defiance, at the date of the legal opinions referred to inSections 8.7 and 9.7, certificates substantially in compliance with IRS published advance ruling guidelines, with reasonable or customary exceptions and modifications thereto (the “IRS Guidelines”), to enable counsel to First Defiance and counsel to United Community to deliver the legal opinions contemplated bySections 8.7 and9.7, respectively, and United Community hereby agrees to deliver such certificates effective as of the date of such opinions; or (ii) why counsel to United Community would not be able to deliver the opinion required bySection 9.7. United Community will deliver such certificates to counsel to United Community and counsel to First Defiance.

Section 3.29No Other Representations or Warranties. Except for the representations and warranties made by United Community in thisArticle 3, neither United Community nor any other Person makes any express or implied representation or warranty with respect to United Community, its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and United Community hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither United Community nor any other Person makes or has made any representation or warranty to First Defiance or any of its Affiliates or Representatives with respect to (i) any financial projection, forecast, estimate, budget or prospective information relating to United Community, any of its Subsidiaries or their respective businesses or (ii) except for the representations and warranties made by United Community in thisArticle 3, any oral or written information presented to First Defiance or any of its Affiliates or Representatives in the course of their due diligence investigation of United Community or the negotiation of this Agreement or in the course of the transactions contemplated hereby. United Community acknowledges and

agrees that neither First Defiance nor any other Person has made or is making any express or implied representation or warranty with respect to First Defiance, its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects other than those contained inArticle 4.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF FIRST DEFIANCE

Except (a) as disclosed in the disclosure schedules delivered by First Defiance to United Community concurrently herewith (the “First Defiance Disclosure Schedules”) (provided that the mere inclusion of an item in the First Defiance Disclosure Schedules as an exception to a representation or warranty shall not be deemed an admission by First Defiance that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect on First Defiance) or (b) as disclosed in any First Defiance Reports filed with or furnished to the SEC by First Defiance after January 1, 2017 and prior to the date hereof (but disregarding risk factor disclosures contained under the heading “Risk Factors,” or disclosures of risks set forth in any “forward-looking statements” disclaimer or any other statements that are similarlynon-specific or cautionary, predictive or forward-looking in nature), First Defiance hereby represents and warrants to United Community as follows:

Section 4.1First Defiance Organization. First Defiance: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio; (b) is also in good standing in each other jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary; (c) is a unitary thrift holding company registered under the Home Owners’ Loan Act of 1933, as amended; and (d) has full power and authority, corporate and otherwise, to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted, except, in the case of clauses (b) and (d), as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance. First Defiance has Previously Disclosed to United Community true and complete copies of the First Defiance Articles of Incorporation and First Defiance Code of Regulations and all amendments thereto in each case in effect as of the date of this Agreement. First Defiance has no “Significant Subsidiary” as set forth in Rule1-02 or RegulationS-X promulgated under the Exchange Act other than the Subsidiaries listed on Exhibit 21 to First Defiance’s Annual Report on Form10-K for the fiscal year ended December 31, 2018.

Section 4.2First Defiance Subsidiary Organizations. First Federal is a federally chartered savings association duly organized, validly existing and in good standing under the laws of the United States of America. Each First Defiance Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is also in good standing in each other jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary, except where the failure to be so qualified and in good standing would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance. Each Subsidiary of First Defiance has full power and authority, corporate and otherwise, to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance. The deposit accounts of First Federal are insured by the FDIC through the Deposit Insurance Fund to the fullest extent permitted by applicable Legal Requirements, and all premiums and assessments required to be paid in connection therewith have been paid when due. First Defiance has Previously Disclosed to United Community true and complete copies of the charter (or similar organizational documents) and code of regulations of each Subsidiary of First Defiance and all amendments thereto, each as in effect as of the date of this Agreement.

Section 4.3Authorization; Enforceability. First Defiance has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution and delivery of this Agreement and

the consummation of the Contemplated Transactions have been duly and validly authorized by the First Defiance Board. The First Defiance Board has determined that the Merger, on substantially the terms and conditions set forth in this Agreement, is advisable and in the best interests of First Defiance and its shareholders, and that this Agreement and Contemplated Transactions are in the best interests of First Defiance and its shareholders. The First Defiance Board has directed the Merger, on substantially the terms and conditions set forth in this Agreement, be submitted to First Defiance’s shareholders for consideration at a duly held meeting of such shareholders and has resolved to recommend that First Defiance’s shareholders vote in favor of the adoption of this Agreement and the Contemplated Transactions. The execution, delivery and performance of this Agreement by First Defiance, and the consummation by it of its obligations under this Agreement and the Contemplated Transactions, have been authorized by all necessary corporate action, subject to the First Defiance Shareholder Approval and the approval of the Bank Merger Agreement by First Defiance as First Federal’s sole shareholder. This Agreement has been duly and validly executed by First Defiance, and assuming the due authorization, execution and delivery by United Community, this Agreement constitutes a legal, valid and binding obligation of First Defiance enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other Legal Requirements affecting creditors’ rights generally and subject to general principles of equity.

Section 4.4No Conflict.

(a) Neither the execution nor delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) contravene, conflict with or result in a violation of any provision of the articles of incorporation, certificate of formation, charter, code of regulations, bylaws or operating agreement (or similar organizational documents), each as in effect on the date hereof, or any currently effective resolution adopted by the First Defiance Board, shareholders, manager or members of, First Defiance or any of its Subsidiaries; (ii) assuming receipt of the Requisite Regulatory Approvals, contravene, conflict with or result in a violation of, or give any Regulatory Authority or other Person the valid and enforceable right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which First Defiance or any of its Subsidiaries, or any of their respective assets that are owned or used by them, may be subject, except for any contravention, conflict or violation that is permissible by virtue of obtaining the Requisite Regulatory Approvals; (iii) contravene, conflict with or result in a violation or breach of any provision of, or give any Person the right to declare a default (or event which with the giving of notice or lapse of time, or both, would become a default) or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any First Defiance Material Contract; or (iv) result in the creation of any Lien other than any First Defiance Permitted Exception upon or with respect to any of the assets owned or used by First Defiance or its Subsidiaries, except in the case of clauses (iii) and (iv), as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance.

(b) Except for (i) the filing of applications, filings and notices, as applicable, with the Nasdaq Global Select Market, (ii) the Requisite Regulatory Approvals, (iii) the filing with the SEC of the Joint Proxy Statement, and of the Registration Statement and declaration by the SEC of the effectiveness of the Registration Statement, (iv) the filing of the Ohio Certificate of Merger with the Ohio Secretary of State pursuant to the OGCL, and the filing of the Bank Merger Certificates, (v) such filings and approvals as are required to be made or obtained under the securities orblue-sky laws of various states in connection with the issuance of the shares of First Defiance Common Stock pursuant to this Agreement and (vi) the approval of the listing of such First Defiance Common Stock on the Nasdaq Global Select Market, no consents or approvals of or filings or registrations with any Regulatory Authority are necessary in connection with (A) the execution and delivery by First Defiance of this Agreement or (B) the consummation by First Defiance of the Merger and the other Contemplated Transactions (including the Bank Merger).

Section 4.5First Defiance Capitalization.

(a) The authorized capital stock of First Defiance currently consists exclusively of: (i) 50,000,000 shares of First Defiance Common Stock, of which, as of the Capitalization Date, 25,371,086 shares were issued and outstanding, and 5,642,841 shares were held in the treasury of First Defiance; and (ii) 5,000,000 shares of First Defiance Preferred Stock, of which no shares were designated and outstanding as of the Capitalization Date. First Defiance does not have outstanding any bonds, debentures, notes or other debt obligations having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) with the shareholders of First Defiance on any matter. All of the issued and outstanding shares of First Defiance Capital Stock have been, and those shares of First Defiance Common Stock to be issued pursuant to the Merger will be, duly authorized and validly issued and fully paid, nonassessable and free of preemptive rights.

(b) As of the Capitalization Date, no shares of First Defiance Capital Stock were reserved for issuance except for: (i) 17,700 shares of First Defiance Common Stock subject to outstanding First Defiance Stock Options; (ii) 48,545 shares of First Defiance Common Stock subject to outstanding First Defiance restricted stock awards (which are included in the issued and outstanding shares set forth above); (iii) 107,496 shares (assuming satisfaction of performance goals at the target level) or 128,343 shares (assuming satisfaction of performance goals at the maximum level) of First Defiance Common Stock subject to outstanding First Defiance performance-based restricted stock unit awards; (iv) 31,803 shares of First Defiance Common Stock subject to outstanding First Defiance restricted stock unit awards (not based on performance); and (v) 800,343 shares of First Defiance Common Stock reserved for issuance pursuant to future awards under First Defiance Stock Plans.

(c) Other than awards under First Defiance Stock Plans that are outstanding as of the date of this Agreement, no equity-based awards were outstanding as of the Capitalization Date. Since the Capitalization Date through the date hereof, First Defiance has not: (i) issued or repurchased any shares of First Defiance Common Stock or First Defiance Preferred Stock or other equity securities of First Defiance, other than in connection with the exercise of First Defiance Equity Awards that were outstanding on the Capitalization Date or settlement thereof, in each case in accordance with the terms of the relevant First Defiance Stock Plan; or (ii) issued or awarded any options, stock appreciation rights, restricted shares, restricted stock units, deferred equity units, awards based on the value of First Defiance Common Stock or any other equity-based awards. From the Capitalization Date through the date of this Agreement, neither First Defiance nor any of its Subsidiaries has: (A) accelerated the vesting of or lapsing of restrictions with respect to any stock-based compensation awards or long-term incentive compensation awards; or (B) adopted or materially amended any First Defiance Stock Plan.

(d) None of the shares of First Defiance Common Stock were issued in violation of any federal or state securities laws or any other applicable Law Requirement. As of the date of this Agreement there are: (i) other than outstanding First Defiance Equity Awards, no outstanding subscriptions, Contracts, conversion privileges, options, warrants, calls or other rights obligating First Defiance or any of its Subsidiaries to issue, sell or otherwise dispose of, or to purchase, redeem or otherwise acquire, any shares of capital stock of First Defiance or any of its Subsidiaries; and (ii) no contractual obligations of First Defiance or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of First Defiance Common Stock or any equity security of First Defiance or its Subsidiaries or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of United Community or its Subsidiaries. Except as permitted by this Agreement, since the Capitalization Date, no shares of First Defiance Common Stock have been purchased, redeemed or otherwise acquired, directly or indirectly, by First Defiance or any of its Subsidiaries and no dividends or other distributions payable in any equity securities of First Defiance or any of its Subsidiaries have been declared, set aside, made or paid to the shareholders of First Defiance. Other than its Subsidiaries, First Defiance does not own, nor has any Contract to acquire, any equity interests or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

Section 4.6First Defiance Subsidiary Capitalization. All of the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of First Defiance are owned by First Defiance,

directly or indirectly, free and clear of any Liens other than First Defiance Permitted Exceptions, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (except, with respect to Subsidiaries that are depositary institutions, as provided under 12 U.S.C. § 55 or any comparable provision of applicable state law) and free of preemptive rights, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance. No Subsidiary of First Defiance has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary.

Section 4.7First Defiance SEC Reports; Financial Statements and Reports; Regulatory Filings.

(a) Since January 1, 2017, First Defiance has timely filed all First Defiance SEC Reports, and all such First Defiance SEC Reports have complied as to form in all material respects, as of their respective filing dates or effective dates, as the case may be, or, if amended or supplemented, as of the date of the most recent amendment or supplement thereto, with all applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder. As of their respective filing dates or effective dates, as the case may be, or, if amended or supplemented, as of the date of the most recent amendment or supplement thereto, none of the First Defiance SEC Reports contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of the date hereof, there are no outstanding comments from or unresolved issues raised by the SEC with respect to any of the First Defiance SEC Reports. No Subsidiary of First Defiance is required to file periodic reports with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.

(b) The financial statements presented (or incorporated by reference) in the First Defiance SEC Reports (including the related notes, where applicable) have been prepared in conformity with GAAP, except in each case as indicated in such statements or the notes thereto, and comply in all material respects with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. Taken together, the financial statements presented in the First Defiance SEC Reports (collectively, the “First Defiance Financial Statements”) are complete and correct in all material respects and fairly and accurately present in all material respects the respective financial position, assets, liabilities and results of operations of First Defiance and its Subsidiaries at the respective dates of and for the periods referred to in the First Defiance Financial Statements, subject to normalyear-end audit adjustments in the case of unaudited First Defiance Financial Statements. As of the date hereof, Crowe LLP has not resigned (or informed First Defiance that it intends to resign) or been dismissed as independent registered public accountants of First Defiance.

(c) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, neither First Defiance nor any of its Subsidiaries has any liability (whether absolute, accrued, contingent or otherwise and whether due or to become due) required by GAAP to be included on a consolidated balance sheet of First Defiance, except for those liabilities that are reflected or reserved against on the consolidated balance sheet of First Defiance included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019 (including any notes thereto) and for liabilities incurred in the Ordinary Course of Business since June 30, 2019, or in connection with this Agreement and the Contemplated Transactions.

(d) First Defiance is in compliance in all material respects with all of the provisions of the OGCL concerningSarbanes-Oxley Act of 2002 that are applicable to it or any of its Subsidiaries. First Defiance maintains a system of disclosure controls and procedures as defined in Rule13a-15 and15d-15 under the rightExchange Act that are designed to provide reasonable assurance that information required to be disclosed by First Defiance in reports that First Defiance is required to file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and

communicated to First Defiance’s management to allow timely decisions regarding required disclosures. As of holdersJune 30, 2019, to the Knowledge of Commercial Bancshares SharesFirst Defiance, such controls and procedures were effective, in all material respects, to require paymentprovide such reasonable assurance.

(e) First Defiance and its consolidated Subsidiaries have established and maintained a system of Internal Control Over Financial Reporting. First Defiance’s certifying officers have evaluated the effectiveness of First Defiance’s Internal Control Over Financial Reporting as of the fair cash valueend of such Commercial Bancshares Sharesthe period covered by the most recently filed quarterly report on Form10-Q of First Defiance under the Exchange Act (the “Dissenting SharesFirst Defiance Evaluation Date”),. First Defiance presented in such quarterly report the conclusions of the certifying officers about the effectiveness of First Defiance’s Internal Control Over Financial Reporting based on their evaluations as of the First Defiance Evaluation Date. Since the First Defiance Evaluation Date, there have been no changes in First Defiance’s Internal Control Over Financial Reporting that have materially affected, or are reasonably likely to materially affect, First Defiance’s Internal Control Over Financial Reporting. First Defiance has devised and maintains a system of internal accounting controls designed to provide reasonable assurances that: (i) transactions are executed in accordance with Sections 1701.84management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and 1701.85to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(f) First Defiance and each of its Subsidiaries has filed all forms, reports and documents required to be filed since January 1, 2017, with all applicable federal or state banking authorities except to the extent failure would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance. Such forms, reports and documents complied as to form in all material respects with applicable Legal Requirements.

(g) Subject toSection 11.13, except for normal examinations conducted by a Regulatory Authority in the Ordinary Course of Business of First Defiance and its Subsidiaries, no Regulatory Authority has initiated since January 1, 2017, or has pending any proceeding, enforcement action or, to the Knowledge of First Defiance, investigation into the business, disclosures or operations of First Defiance or its Subsidiaries. Subject toSection 11.13, except for normal examinations conducted by a Regulatory Authority in the Ordinary Course of Business of First Defiance and its Subsidiaries, since January 1, 2017, no Regulatory Authority has resolved any proceeding, enforcement action or, to the Knowledge of First Defiance, investigation into the business, disclosures or operations of First Defiance or its Subsidiaries. Subject toSection 11.13, (i) there is no unresolved violation, criticism or exception by any Regulatory Authority with respect to, any report or statement relating to any examination or inspection of First Defiance or its Subsidiaries and (ii) since January 1, 2017, there have been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Authority with respect to the business, operations, policies or procedures of First Defiance or its Subsidiaries (other than normal examinations conducted by a Regulatory Authority in First Defiance’s Ordinary Course of Business), in each case except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance. To the Knowledge of First Defiance, there has not been any event or occurrence since January 1, 2017 that would result in a determination that First Federal is not an eligible depository institution as defined in 12 C.F.R. § 303.2(r).

Section 4.8Books and Records. The books of account, minute books, stock record books and other records of First Defiance and its Subsidiaries have been maintained in all material respects in accordance with First Defiance’s business practices and all applicable Legal Requirements, including the maintenance of an adequate system of internal controls required by such Legal Requirements.

Section 4.9Real Property.

(a) Except as set forth on Section 4.9 of the OGCL,First Defiance Disclosure Schedules or as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First

Defiance, as of the date of this Agreement, First Defiance or one of its Subsidiaries has good and marketable title to all the real property reflected in the latest balance sheet included in the First Defiance SEC Reports as being owned by First Defiance or one of its Subsidiaries or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business) free and clear of all Liens, except: (i) as noted in the most recent First Defiance Financial Statements; (ii) statutory liens for Taxes not yet delinquent or being contested in good faith by appropriate Proceedings and for which appropriate reserves have been established and reflected in the First Defiance Financial Statements; (iii) pledges or liens required to be granted in connection with the acceptance of government deposits, granted in connection with repurchase or reverse repurchase agreements or otherwise incurred in the Ordinary Course of Business; (iv) easements, rights of way, and other similar encumbrances that do not materially affect the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties; and (v) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purposes for which they are held (collectively, the “First Defiance Permitted Exceptions”).

(b) Except as set forth on Section 4.9 of the First Defiance Disclosure Schedules or as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, as of the date of this Agreement, First Defiance or one of its Subsidiaries is the lessee of all leasehold estates reflected in the latest First Defiance Financial Statements included in the First Defiance SEC Reports or acquired after the date thereof (except for leases that have expired by their terms since the date thereof), free and clear of all Liens, except for First Defiance Permitted Exceptions, and is in possession of the properties purported to be leased thereunder, and each such lease is valid without default thereunder by the lessee or, to the Knowledge of First Defiance, the lessor.

Section 4.10Loans; Loan Loss Reserve.

(a) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, each loan, loan agreement, note, lease or other borrowing agreement by First Federal, any participation therein, and any guaranty, renewal or extension thereof (the “First Defiance Loans”) reflected as an asset on any of the First Defiance Financial Statements or reports filed with the Regulatory Authorities is evidenced by documentation that is customary and legally sufficient and constitutes, to the Knowledge of First Defiance, the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors rights generally or equitable principles or doctrines.

(b) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on United Community, (i) all First Defiance Loans originated or purchased by First Federal were made or purchased in accordance with the policies of the board of directors of First Federal and in the Ordinary Course of Business of First Federal, (ii) First Federal’s interest in all First Defiance Loans is free and clear of any Liens (other than blanket Liens by the Federal Home Loan Bank of Cincinnati) and (iii) First Federal has complied in all material respects with all Legal Requirements relating to such First Defiance Loans. There has been no default on, or forgiveness or waiver of, in whole or in part, any First Defiance Loan made to an executive officer or director of First Federal or an entity controlled by an executive officer or director during the three (3) years immediately preceding the date hereof.

(c)Section 4.10(c) of the First Defiance Disclosure Schedules lists, as of July 31, 2019, each First Defiance Loan that had an outstanding balance of at least $1,000,000 or more: (i) under the terms of which the obligor is more than ninety (90) days delinquent in payment of principal or interest or in default of any other material provision as of the dates shown thereon or for which First Federal has discontinued the accrual of interest; (ii) that has been classified as “substandard,” “doubtful,” “loss,” “other loans especially mentioned” or any comparable classifications by First Federal; (iii) that has been listed on any “watch list” or similar internal report of First Federal; or (iv) that represents an extension of credit to an executive officer or director of First Federal or an entity controlled by an executive officer or director.

(d) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, First Federal’s allowance for loan and lease losses reflected in the First Defiance Financial Statements (including footnotes thereto) was determined on the basis of First Federal’s continuing review and evaluation of the portfolio of First Defiance Loans under the requirements of GAAP and Legal Requirements, was established in a manner consistent with First Federal’s internal policies, and, in the reasonable judgment of First Federal, was adequate under the requirements of GAAP and all Legal Requirements to provide for possible or specific losses, net of recoveries relating to First Defiance Loans previouslycharged-off, on outstanding First Defiance Loans.

Section 4.11Taxes. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect:

(a) First Defiance and each of its Subsidiaries have duly and timely filed all Tax Returns required to be filed by them on or before the Closing Date for all taxable or reporting periods ending on or before the Closing Date, and each such Tax Return is true, correct and complete in all material respects. First Defiance and each of its Subsidiaries have paid, or made adequate provision for the payment of, all Taxes (whether or not reflected in Tax Returns as filed or to be filed) due and payable by First Defiance and each of its Subsidiaries, or claimed to be due and payable by any Regulatory Authority, and are not delinquent in the payment of any Tax, except such Taxes as are being contested in good faith and as to which adequate reserves have been provided.

(b) There is no claim or assessment pending or, to the Knowledge of First Defiance, threatened against First Defiance and its Subsidiaries for any Taxes that they owe. No audit, examination or investigation related to Taxes paid or payable by First Defiance and each of its Subsidiaries is presently being conducted or, to the Knowledge of First Defiance, threatened by any Regulatory Authority. Neither First Defiance nor its Subsidiaries are the beneficiary of any extension of time within which to file any Tax Return, and there are no liens for Taxes (other than Taxes not yet due and payable) upon any of First Defiance’s or its Subsidiaries’ assets. Neither First Defiance nor its Subsidiaries has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax that is currently in effect.

(c) Each of First Defiance and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third party.

(d) Neither First Defiance nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among First Defiance and its Subsidiaries).

(e) Neither First Defiance nor any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return for which the statute of limitations is open (other than a group the common parent of which was First Defiance) or (ii) has any liability for the Taxes of any person (other than First Defiance or any of its Subsidiaries) under Treasury RegulationSection 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

(f) Neither First Defiance nor any of its Subsidiaries has been, within the past two (2) years or otherwise as part of a “plan (or series of related transactions)” within the meaning of Section 355(e) of the Code of which the Merger is also a part, a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify fortax-free treatment under Section 355 of the Code.

(g) First Defiance and each of its Subsidiaries have delivered or Previously Disclosed to First Defiance true, correct and complete copies of all Tax Returns relating to income taxes and franchise taxes owed by First Defiance and its Subsidiaries with respect to the last three (3) fiscal years.

(h) To the Knowledge of First Defiance, First Defiance and each of its Subsidiaries have not engaged in any transaction that could affect the Tax liability for any Tax Returns not closed by applicable statute of limitations: (i) which is a “listed transaction” or (ii) a “significant purpose of which is the avoidance or evasion of U.S. federal income tax” within the meaning of Sections 6662, 6662A, 6011, 6111 or 6707A of the Code or of the regulations of the U.S. Department of the Treasury promulgated thereunder or pursuant to notices or other guidance published by the IRS (irrespective of the effective dates).

(i) First Defiance has not taken any action and is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 4.12Employee Benefits.

(a)Section 4.12(a) of the First Defiance Disclosure Schedules includes a complete and correct list of each material First Defiance Benefit Plan. First Defiance has Previously Disclosed to United Community true and complete copies of the following with respect to each material First Defiance Benefit Plan (to the extent applicable): (i) copies of each First Defiance Benefit Plan (including a written description where no formal plan document exists), including any amendments thereto, and all related plan descriptions; (ii) the most recent annual report on U.S. Form 5500 filed with the IRS, including all schedules thereto and the most recent actuarial report or similar report from independent accountants; (iii) the most recent IRS determination or opinion letter received by First Defiance; and (iv) other material ancillary documents, including:

(i) all material contracts with third party administrators, actuaries, investment managers, consultants, insurers, and independent contractors, including any related trust agreements, insurance contracts or other funding vehicles; and

(ii) all material notices and other material communications to or from the IRS, the DOL or the PBGC within the six (6) years preceding the date of this Agreement relating to the First Defiance Benefit Plans; and

(b) Except as set forth on Section 4.12(b) of the First Defiance Disclosure Schedules or as provided by this Agreement, neither the execution and delivery of this Agreement nor the consummation of the Contemplated Transactions (whether alone or in connection with any other event) will cause a payment, vesting, increase or acceleration of benefits or benefit entitlements under any First Defiance Benefit Plan or any other increase in the liabilities of First Defiance or any Subsidiary under any First Defiance Benefit Plan as a result of the Contemplated Transactions. No First Defiance Benefit Plan provides for payment of any amount which, considered in the aggregate with amounts payable pursuant to all other First Defiance Benefit Plans, would result in any amount beingnon-deductible for federal income tax purposes by virtue of Section 280G of the Code.

(c) Neither First Defiance nor any of the First Defiance ERISA Affiliates sponsors, maintains, administers or contributes to, or has, in the six (6) years preceding the date of this Agreement, sponsored, maintained, administered or contributed to, or has or has had, in the six (6) years preceding the date of this Agreement, any liability with respect to, (i) any “multiemployer plan” (as defined in Section 3(37) of ERISA) or (ii) any “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA). With respect to any First Defiance Benefit Plan that is a “multiple employer plan” (as defined in Section 413(c) of the Code), except as would reasonably be expected to be, either individually or in the aggregate, material to First Defiance or its Subsidiaries, such First Defiance Benefit Plan complies in all material respects with the requirements of the Code and ERISA. Neither First Defiance nor any of the First Defiance ERISA Affiliates has any liabilities other than the payment and/or remittance of premiums and/or required contributions on behalf of enrolled individuals. Neither First Defiance nor any of the First Defiance ERISA Affiliates sponsors, maintains, administers or contributes to, or has, in the six (6) years preceding the date of this Agreement, sponsored, maintained, administered or contributed to, or has or has had, in the six (6) years preceding the date of this Agreement, any

liability with respect to, any First Defiance Benefit Plan subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.

(d) Each First Defiance Benefit Plan that is intended to qualify under Section 401 and related provisions of the Code is the subject of a favorable determination letter from the IRS to the effect that it is so qualified under the Code and that its related funding instrument is tax exempt under Section 501 of the Code (or First Defiance and its Subsidiaries are otherwise relying on an opinion letter issued to the prototype sponsor), and, to the Knowledge of First Defiance, there are no facts or circumstances that would adversely affect the qualified status of any First Defiance Benefit Plan or thetax-exempt status of any related trust.

(e) Except as would not reasonably be convertedexpected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, each First Defiance Benefit Plan is and has been administered in all material respects in compliance with its terms and with all applicable Legal Requirements.

(f) Other than routine claims for benefits made in the Ordinary Course of Business, except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, there is no litigation, claim or assessment pending or, to the Knowledge of First Defiance’s, threatened by, on behalf of, or against any First Defiance Benefit Plan or against the administrators or trustees or other fiduciaries of any First Defiance Benefit Plan that alleges a violation of applicable state or federal law or violation of any First Defiance Benefit Plan document or related agreement.

(g) No First Defiance Benefit Plan fiduciary or any other person has, or has had, any material liability to any First Defiance Benefit Plan participant, beneficiary or any other person under any provisions of ERISA or any other applicable Legal Requirement by reason of any action or failure to act in connection with any First Defiance Benefit Plan, including any material liability by any reason of any payment of, or failure to pay, benefits or any other amounts or by reason of any credit or failure to give credit for any benefits or rights. To the Knowledge of First Defiance, no party in interest (as defined in Code Section 4975(e)(2)) of any First Defiance Benefit Plan has engaged in any nonexempt prohibited transaction (as described in Code Section 4975(c) or ERISA Section 406).

(h) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, all accrued contributions and other payments to be made by First Defiance or any Subsidiary to any First Defiance Benefit Plan through the date hereof have been made or reserves adequate for such purposes have been set aside therefor and reflected in the First Defiance Financial Statements to the extent required by GAAP.

(i) Except as set forth on Section 4.12(i) of the First Defiance Disclosure Schedules, there are no obligations under any First Defiance Benefit Plans to provide health or other welfare benefits to retirees or other former employees, directors, consultants or their dependents (other than rights under Section 4980B of the Code or Section 601 of ERISA or comparable state laws).

(j) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, (i) no condition exists, whether absolute or contingent, under any First Defiance Benefit Plan or otherwise with respect to any misclassification of a person performing services for First Defiance or any Subsidiary as an independent contractor rather than as an employee, and (ii) all individuals participating in First Defiance Benefit Plans are in fact eligible and authorized to participate in such First Defiance Benefit Plan.

Section 4.13Compliance with Legal Requirements. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, First Defiance and each of its Subsidiaries hold all licenses, certificates, permits, franchises and rights from all appropriate Regulatory Authorities necessary for the conduct of their respective businesses. Except as would not reasonably be expected

to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, (a) First Defiance and each of its Subsidiaries is, and at all times since January 1, 2017, has been, in compliance with each material Legal Requirement that is or was applicable to it or to the conduct or operation of its respective businesses or the ownership or use of any of its respective assets and (b) subject toSection 11.13, neither First Defiance nor any of its Subsidiaries has received, at any time since January 1, 2017, any written notice from any Regulatory Authority regarding: (i) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement; or (ii) any actual, alleged, possible, or potential obligation on the part of First Defiance or any of its Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with a failure to comply with any Legal Requirement.

Section 4.14Legal Proceedings; Orders.

(a) Subject toSection 11.13and except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, (i) since January 1, 2017, there have been, and currently are, no Proceedings or Orders pending, entered into or, to the Knowledge of First Defiance, threatened against or affecting First Defiance, any of its Subsidiaries or any of their respective assets, businesses, current or former directors or executive officers, or the Contemplated Transactions, that have not been fully satisfied, settled or terminated and (ii) no officer, director, employee or agent of First Defiance or any of its Subsidiaries is subject to any Order that prohibits such officer, director, employee or agent from engaging in or continuing any conduct, activity or practice relating to the businesses of First Defiance or any of its Subsidiaries as currently conducted.

(b) Subject toSection 11.13and except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, neither First Defiance nor any of its Subsidiaries: (i) is subject to any cease and desist or other Order or enforcement action issued by; (ii) is a party to any written agreement, consent agreement or memorandum of understanding with; (iii) is a party to any commitment letter or similar undertaking to; (iv) is subject to any order or directive by; (v) is subject to any supervisory letter from; (vi) has been ordered to pay any civil money penalty, which has not been paid, by; or (vii) has adopted any policies, procedures or board resolutions at the request of; any Regulatory Authority that currently restricts the conduct of its business, in any manner relates to its capital adequacy, restricts its ability to pay dividends or interest or limits its credit or risk management policies, its management or its business. To the Knowledge of First Defiance, and subject toSection  11.13, none of the foregoing has been threatened by any Regulatory Authority.

Section 4.15Absence of Certain Changes and Events.

(a) Since December 31, 2018 through the date of this Agreement, there has not occurred any event or events that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on First Defiance.

(b) Since December 31, 2018 through the date of this Agreement, (i) except to the extent it relates to the events giving rise to and the discussion and negotiation of this Agreement and the Contemplated Transactions, First Defiance and its Subsidiaries have conducted their respective businesses only in the Ordinary Course of Business, and (ii) neither First Defiance nor any of its Subsidiaries has taken any action that, if taken after the date hereof, would constitute a breach of, or require the consent of United Community underSection 6.2(b) (other than any actions specified by clauses (i), (ii), (iii), (vii), (ix), (xv) or (xiv) (to the extent clause (xvi) relates to the foregoing clauses)).

Section 4.16Material Contracts. Except for Contracts evidencing First Defiance Loans made by First Federal in the Ordinary Course of Business or First Defiance Benefit Plans,Section 4.16 of the First Defiance Disclosure Schedules lists or describes the following with respect to First Defiance and each of its Subsidiaries (each such agreement or document, a “First Defiance Material Contract”) as of the date of this Agreement,

true, complete and correct copies of each of which have been delivered or Previously Disclosed to United Community:

(a) all loan and credit agreements, conditional sales Contracts or other title retention agreements or security agreements relating to money borrowed by it in excess of $1,000,000, exclusive of deposit agreements with customers of First Federal entered into in the Ordinary Course of Business, agreements for the purchase of federal funds and repurchase agreements and Federal Home Loan Bank of Cincinnati advances;

(b) each Contract that involves performance of services or delivery of goods or materials by it of an amount or value in excess of $1,000,000;

(c) each Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts by it in excess of $1,000,000;

(d) each lease, rental, license, installment and conditional sale agreement and other Contract affecting the ownership of, leasing of, title to or use of, any personal property (except personal property leases and installment and conditional sales agreements having aggregate annual payments of less than $250,000);

(e) each licensing agreement or other Contract with respect to material patents, trademarks, copyrights, or other material intellectual property, including agreements with current or former employees, consultants or contractors regarding the appropriation or the nondisclosure of any of its intellectual property;

(f) each collective bargaining agreement and other Contract to or with any labor union or other employee representative of a group of employees;

(g) each joint venture, partnership and other Contract (however named) involving a sharing of profits, losses, costs or liabilities by it with any other Person;

(h) each Contract containing covenants that in any way purport to restrict, in any material respect, the business activity of First Defiance or its Subsidiaries or limit, in any material respect, the ability of First Defiance or its subsidiaries to engage in any line of business or to compete with any Person;

(i) each Contract for capital expenditures in excess of $1,000,000;

(j) each Contract that is a “material contract” (as such term is defined in Item 601(b)(10) of RegulationS-K of the SEC);

(k) each Contract that grants any material right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties of First Defiance and its Subsidiaries;

(l) each Contract that is a merger agreement, asset purchase agreement, stock purchase agreement, deposit assumption agreement, loss sharing agreement or other commitment to a Regulatory Agency in connection with the acquisition of a depositary institution, or similar agreement, that has indemnification, earnout or other obligations that continue in effect after the date of this Agreement that are material to First Defiance and its Subsidiaries, taken as a whole; and

(m) each amendment, supplement and modification in respect of any of the foregoing.

Section 4.17No Defaults. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance (a) each First Defiance Material Contract is in full force and effect and is valid and enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other Legal Requirements affecting creditors’ rights generally and

subject to general principles of equity, (b) to the Knowledge of First Defiance, no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a violation or breach of, or give First Defiance, any of its Subsidiaries or other Person the right to receivedeclare a default or exercise any remedy under, or to accelerate the considerationmaturity or performance of, or to cancel, terminate or modify, any First Defiance Material Contract, (c) except in the Ordinary Course of Business with respect to any First Defiance Loan, neither First Defiance nor any of its Subsidiaries has given to or received from any other Person, at any time since January 1, 2017, any notice or other communication (whether oral or written) regarding any actual, alleged, possible or potential violation or breach of, or default under, any First Defiance Material Contract, that has not been terminated or satisfied prior to the date of this Agreement And (d) other than in the Ordinary Course of Business, there are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate, any material amounts paid or payable to First Defiance or any of its Subsidiaries under current or completed First Defiance Material Contracts with any Person, and no such Person has made written demand for such renegotiation.

Section 4.18Insurance. First Defiance and each of its Subsidiaries is covered by valid and currently effective insurance policies issued in favor of First Defiance or one or more of its Subsidiaries that are customary and adequate for companies of similar size in the industries and locations in which First Defiance operates, except where the failure to have such policies would not be material to First Defiance and its Subsidiaries, taken as a whole. First Defiance has Previously Disclosed to United Community copies of all material insurance policies issued in favor of First Defiance or any of its Subsidiaries, or pursuant to which First Defiance or any of its Subsidiaries is a named insured or otherwise a beneficiary, as well as any material historic incurrence-based policies still in force as of the date of this Agreement (such policies, the “First Defiance Material Policies”). With respect to each such First Defiance Material Policy, (a) such First Defiance Material Policy is in full force and effect and all premiums due thereon have been paid, (b) neither First Defiance nor any of its Subsidiaries is in breach or default, and has not taken any action or failed to take any action which (with or without notice or lapse of time or both) would constitute such a breach or default, or would permit termination or modification of, any such policy and (c) to the Knowledge of First Defiance, no insurer issuing any such First Defiance Material Policy has been declared insolvent or placed in receivership, conservatorship or liquidation, except, in each of the foregoing cases described in clauses(a),(b) or(c), as would not, individually or in the aggregate, be material to First Defiance and its Subsidiaries, taken as a whole. No written notice of cancellation or termination has been received by First Defiance with respect to any such First Defiance Material Policy

Section 4.19Compliance with Environmental Laws. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, (a) there are no actions, suits, investigations, liabilities, inquiries, Proceedings or Orders involving First Defiance or any of its Subsidiaries or any of their respective assets that are pending or, to the Knowledge of First Defiance, threatened, nor to the Knowledge of First Defiance, is there any factual basis for any of the foregoing, as a result of any asserted failure of First Defiance or any of its Subsidiaries of, or any predecessor thereof, to comply with any Environmental Law,(b) no environmental clearances or other governmental approvals relating to any Environmental Law are required for the conduct of the business of First Defiance or any of its Subsidiaries or the consummation of the Contemplated Transactions, (c) to the Knowledge of First Defiance, neither First Defiance nor any of its Subsidiaries is the owner of any interest in real estate on which any substances have been generated, used, stored, deposited, treated, recycled or disposed of, which substances if known to be present on, at or under such property, would require notification to any Regulatory Authority, clean up, removal or some other remedial action under any Environmental Law at such property or any impacted adjacent or down gradient property and (d) First Defiance and each Subsidiary of First Defiance has complied with all Environmental Laws applicable to it and its business operations.

Section 4.20Transactions with Affiliates. Since January 1, 2017, all transactions required to be disclosed by First Defiance pursuant to Item 404 of RegulationS-K promulgated under the Securities Act have been disclosed in the First Defiance SEC Reports. No transaction, or series of related transactions, is currently proposed by First Defiance or any of its Subsidiaries to which First Defiance or any of its Subsidiaries would be

a participant that would be required to be disclosed under Item 404 of RegulationS-K promulgated under the Securities Act if consummated.

Section 4.21Brokerage Commissions. Except for fees payable to Keefe, Bruyette & Woods, Inc. pursuant to an engagement letter that has been Previously Disclosed, none of First Defiance or its Subsidiaries, or any of their respective Representatives, has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

Section 4.22Approval Delays. To the Knowledge of First Defiance as of the date hereof, there is no reason attributable to First Defiance why the granting of any of the Requisite Regulatory Approvals would be denied or unduly delayed. First Federal’s most recent CRA rating prior to the date hereof was “satisfactory” or better.

Section 1.5(a), but will become4.23Labor Matters.

(a) There are no collective bargaining agreements or other labor union Contracts applicable to any employees of First Defiance or any of its Subsidiaries. There is no material labor dispute, strike, work stoppage or lockout, or, to the Knowledge of First Defiance, threat thereof, by or with respect to any employees of First Defiance or any of its Subsidiaries, and there has been no material labor dispute, strike, work stoppage or lockout in the previous three (3) years. There are no material organizational efforts with respect to the formation of a collective bargaining unit presently being made, or to the Knowledge of First Defiance, threatened, involving employees of First Defiance or any of its Subsidiaries. Neither First Defiance nor any of its Subsidiaries has engaged or is engaging in any unfair labor practice, First Defiance and its Subsidiaries are in compliance in all material respects with all applicable Legal Requirements respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and no Proceeding asserting that First Defiance or any of its Subsidiaries has committed an unfair labor practice (within the meaning of the National Labor Relations Act of 1935) or seeking to compel First Defiance or any of its Subsidiaries to bargain with any labor organization as to wages or conditions of employment is pending or, to the Knowledge of First Defiance, threatened with respect to First Defiance or any of its Subsidiaries before the National Labor Relations Board, the Equal Employment Opportunity Commission or any other Regulatory Authority.

(b) Neither First Defiance nor any of its Subsidiaries is a party to, or otherwise bound by, any consent decree with, or citation by, any Regulatory Authority relating to employees or employment practices. None of First Defiance, any of its Subsidiaries or any of its or their executive officers has received within the past three (3) years any written notice of intent by any Regulatory Authority responsible for the enforcement of labor or employment laws to conduct an investigation relating to First Defiance or any of its Subsidiaries and, to the Knowledge of First Defiance, no such investigation is in progress.

Section 4.24Intellectual Property.Each of First Defiance and its Subsidiaries has the right and authority, and the Surviving Entity and its Subsidiaries will have the right and authority from and after the Effective Time, in each case free from Liens other than First Defiance Permitted Exceptions, to receiveuse all patents, trademarks, copyrights, service marks, trade names or other intellectual property owned by First Defiance or its Subsidiaries as of the date hereof and as is necessary to enable them to conduct the businesses of First Defiance and its Subsidiaries in the manner presently conducted by them. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, to the Knowledge of First Defiance, such considerationuse does not conflict with, infringe on or violate any patent, trademark, copyright, service mark, trade name or any other intellectual property right of any Person.

Section 4.25Investments.

(a) First Defiance or its Subsidiaries have good and marketable title in all material respects to all investment and debt securities, mortgage-backed and related securities, marketable equity securities and

securities purchased under agreements to resell that are owned by First Defiance or its Subsidiaries, other than, with respect to First Federal, in a fiduciary or agency capacity (the “First Defiance Investment Securities”), free and clear of any Liens except for First Defiance Permitted Exceptions and except to the extent such First Defiance Investment Securities are pledged in the Ordinary Course of Business consistent with prudent banking practices to secure obligations of First Defiance or First Federal. The First Defiance Investment Securities are valued on the books of First Defiance and First Federal in accordance with GAAP in all material respects.

(b) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, (i) all Derivative Transactions, whether entered into for the account of First Defiance or any of its Subsidiaries or for the account of a customer of First Defiance or any of its Subsidiaries, were entered into in the Ordinary Course of Business and in accordance with applicable Legal Requirements and policies of any Regulatory Authority and in accordance with the investment, securities, commodities, risk management and other policies, practices and procedures employed by First Defiance and its Subsidiaries, and with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of such Derivative Transactions and (ii) all of such Derivative Transactions are legal, valid and binding obligations of First Defiance or one of its Subsidiaries enforceable against it in accordance with their terms (except as may be determinedlimited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity), and are in full force and effect. First Defiance and its Subsidiaries have duly performed in all material respects their material obligations under the Derivative Transactions to the extent that such obligations to perform have accrued and, to the Knowledge of First Defiance, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder.

Section 4.26Information Provided to United Community. None of the information concerning First Defiance or any of its Subsidiaries that is provided or to be dueprovided by First Defiance to United Community for inclusion or that is included in the Registration Statement or Joint Proxy Statement and any other documents to be filed with any Regulatory Authority in connection with the Contemplated Transactions will: (a) at the respective times such Dissenting Shareholder pursuantdocuments are filed and, in the case of the Registration Statement, when it becomes effective and, with respect to the Joint Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; or (b) in the case of the Joint Proxy Statement or any amendment thereof or supplement thereto, at the time of the First Defiance Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the meeting in connection with which the Joint Proxy Statement shall be mailed. Notwithstanding the foregoing, First Defiance shall have no responsibility for the truth or accuracy of any information with respect to United Community or any of its Subsidiaries or any of their Affiliates contained in the Registration Statement or the Joint Proxy Statement or in any document submitted to, or other communication with, any Regulatory Authority.

Section 4.27State Takeover Laws.The First Defiance Board has approved this Agreement and the Contemplated Transactions as required to render inapplicable to the Agreement and the Contemplated Transactions any applicable provisions of the Takeover Statutes.

Section 4.28Tax-Free Reorganization.As of the date hereof, First Defiance does not know of any reason: (i) why it would not be able to deliver to counsel to First Defiance and counsel to United Community, at the date of the legal opinions referred to inSections 8.7 and9.7, certificates substantially in compliance with the IRS Guidelines, to enable counsel to First Defiance and counsel to United Community to deliver the legal opinions contemplated bySections 8.7 and9.7, respectively, and First Defiance hereby agrees to deliver such certificates effective as of the date of such opinions; or (ii) why counsel to First Defiance would not be able to deliver the opinion required bySection 8.7. First Defiance will deliver such certificates to counsel to First Defiance and counsel to United Community.

Section 4.29No Other Representations or Warranties.Except for the representations and warranties made by First Defiance in thisArticle 4, neither First Defiance nor any other Person makes any express or implied representation or warranty with respect to First Defiance, its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and First Defiance hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither First Defiance nor any other Person makes or has made any representation or warranty to United Community or any of its Affiliates or Representatives with respect to (i) any financial projection, forecast, estimate, budget or prospective information relating to First Defiance, any of its Subsidiaries or their respective businesses or (ii) except for the representations and warranties made by First Defiance in thisArticle 4, any oral or written information presented to United Community or any of its Affiliates or Representatives in the course of their due diligence investigation of First Defiance or the negotiation of this Agreement or in the course of the transactions contemplated hereby. First Defiance acknowledges and agrees that neither United Community nor any other Person has made or is making any express or implied representation or warranty with respect to United Community, its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects other than those contained inArticle 3.

ARTICLE 5

UNITED COMMUNITY’S COVENANTS

Section 5.1Access and Investigation.

(a) Subject to any applicable Legal Requirement, First Defiance and its Representatives shall, at all times during normal business hours and with reasonable advance notice, have such reasonable access to the facilities, operations, records and properties of United Community and each of its Subsidiaries in accordance with the provisions of thisSection 5.1(a) as shall be necessary for the purpose of determining United Community’s continued compliance with the terms and conditions of this Agreement and preparing for the integration of First Defiance and United Community following the Effective Time. First Defiance and its Representatives may, during such period, make or cause to be made such reasonable investigation of the operations, records and properties of United Community and each of its Subsidiaries and of their respective financial and legal conditions as First Defiance shall deem necessary or advisable to familiarize itself with such records, properties and other matters;provided,however, that such access or investigation shall not interfere materially with the normal operations of United Community or any of its Subsidiaries. United Community shall promptly provide First Defiance with copies of any management presentations regarding United Community’s financial statements that are provided in writing to the directors of United Community. Upon request, United Community and each of its Subsidiaries will furnish First Defiance or its Representatives attorneys’ responses to auditors’ requests for information regarding United Community or such Subsidiary, as the case may be, and such minutes of meetings of the board of directors or committees thereof, financial and operating data and other information reasonably requested by First Defiance (provided, such disclosure would not result in the waiver by United Community or any of its Subsidiaries of any claim of attorney-client privilege). No investigation by First Defiance or any of its Representatives shall affect the representations and warranties made by United Community in this Agreement. ThisSection 5.1(a)shall not require the disclosure of any information to First Defiance the disclosure of which, in United Community’s reasonable judgment: (i) would be prohibited by any applicable Legal Requirement; (ii) would result in the breach of any agreement with any third party in effect on the date of this Agreement; or (iii) relate to pending or threatened litigation or investigations, if disclosure might affect the confidential nature of, or any privilege relating to, the matters being discussed. If any of the restrictions in the preceding sentence shall apply, United Community and First Defiance will make appropriate alternative disclosure arrangements, including adopting additional specific procedures to protect the confidentiality of sensitive material and to ensure compliance with any applicable Legal Requirement.

(b) All information obtained by First Defiance in accordance with thisSection 5.1 shall be treated in confidence as provided in that certain letter agreement dated April 24, 2017, by and among First Defiance, First Federal, United Community and Home Savings (the “Confidentiality Agreement”).

Section 5.2Operation of United Community and United Community Subsidiaries.

(a) Except as set forth in Section 1701.85 of the OGCL. If such Dissenting Shareholder withdraws its demand for fair cash valueUnited Community Disclosure Schedules, as expressly contemplated by or fails to perfectpermitted by this Agreement, as required by applicable Legal Requirement, or otherwise loses its rights as a dissenting shareholder, in any case pursuant to the OGCL, each of such Dissenting Shareholder’s Commercial Bancshares Shares will be treated as though such Commercial Bancshares Shares had been converted into the right to receive the Stock Consideration and/or Cash Consideration as determined in First Defiance’s sole discretion. Commercial Bancshares will promptly notify First Defiance of each shareholder who asserts rights as a Dissenting Shareholder following receipt of such shareholder’s written demand delivered as provided in Section 1701.85 of the OGCL. Prior to the Effective Time, Commercial Bancshares will not, except with the prior written consent of First Defiance, voluntarilywhich shall not be unreasonably withheld, conditioned or delayed, during the period from the date of this Agreement to the earlier of the Closing Date or the termination of this Agreement pursuant to its terms, United Community shall, and shall cause each of its Subsidiaries to: (i) conduct its business in the Ordinary Course of Business in all material respects; (ii) use commercially reasonable efforts to maintain and preserve intact its business organization and advantageous business relationships; and (iii) take no action that is intended to or would reasonably be expected to adversely affect or materially delay the ability of United Community or First Defiance to obtain any of the Requisite Regulatory Approvals, to perform its covenants and agreements under this Agreement or to consummate the Contemplated Transactions.

(b) Except as set forth in the United Community Disclosure Schedules, as expressly contemplated by or permitted by this Agreement, as required by applicable Legal Requirement, or with the prior written consent of First Defiance, which shall not be unreasonably withheld, conditioned or delayed, during the period from the date of this Agreement to the earlier of the Closing Date or the termination of this Agreement pursuant to its terms, United Community will not, and will cause each of its Subsidiaries not to:

(i) other than pursuant to the terms of any Contract to which United Community is a party that is outstanding on the date of this Agreement: (A) issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of United Community Capital Stock or any security convertible into United Community Capital Stock except for issuances pursuant to the exercise or settlement of awards under United Community Stock Plans in accordance with their terms; (B) permit any additional shares of United Community Capital Stock to become subject to new grants, except for grants of equity awards or issuances of shares of United Community Capital Stock under United Community Benefit Plans in the Ordinary Course of Business; or (C) grant any registration rights with respect to shares of United Community Capital Stock;

(ii) (A) make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of United Community Capital Stock (other than dividends from its wholly owned Subsidiaries to it or another of its wholly owned Subsidiaries); provided, however, that United Community shall be permitted to continue paying its regular quarterly dividend of $0.08 per share of United Community Common Stock consistent with past practice; or (B) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of United Community Capital Stock (other than repurchases of shares of United Community Common Stock in the Ordinary Course of Business to satisfy obligations under United Community Benefit Plans or the acceptance of shares of United Community Common Stock as payment for the exercise price of stock options or for withholding Taxes incurred in connection with the exercise of stock options or for withholding Taxes incurred in connection with the exercise of stock options or the vesting or settlement of equity compensation awards in the Ordinary Course of Business);

(iii) in each case except for transactions in the Ordinary Course of Business, materially amend the terms of, waive any material rights under, terminate, knowingly violate the material terms of or enter into: (A) any United Community Material Contract (other than as permitted bySection 5.2(b)(ix)); or (B) any material restriction on the ability of United Community or its Subsidiaries to conduct its business as it is presently being conducted;

(iv) (A) enter into any new credit or new lending relationships greater than $15 million; or (B) make or issue a commitment (including a letter of credit) or renew or extend an existing commitment for any United Community Loan, or amend or modify in any material respect any United Community Loan (including in any manner that would result in any additional extension of credit or principal forgiveness or effect any uncompensated release of collateral), outside the Ordinary Course of Business or in excess of the dollar-threshold

limitations contained in United Community’s loan policy; with respect to clauses (A) and (B), without first giving First Defiance notice of such action at least three (3) business days in advance of such action (notwithstanding the provisions inSection 5.2(b), such lending activity described in thisSection 5.2(b)(iv) shall not require the consent of First Defiance);

(v) sell, transfer, mortgage, encumber, license, or otherwise dispose of any of its assets, deposits, business or properties to any other entity (other than to United Community or a wholly-owned United Community Subsidiary), except for sales, transfers, mortgages, encumbrances, licenses, or other dispositions in the Ordinary Course of Business and in a transaction that, together with other such transactions, is not material to United Community and its Subsidiaries, taken as a whole;

(vi) acquire (other than by way of foreclosures or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith, in each case in the Ordinary Course of Business) all or any portion of the assets, business, deposits or properties of any other entity (other than United Community or a wholly-owned United Community Subsidiary) except in the Ordinary Course of Business and in a transaction that, together with other such transactions, is not material to United Community and its Subsidiaries, taken as a whole;

(vii) amend its articles of incorporation or its code of regulations, or similar governing documents of any of its Subsidiaries;

(viii) implement or adopt any material change in its accounting principles, practices or methods, other than as may be required by GAAP or applicable regulatory accounting requirements;

(ix) except as permitted by this Agreement or as required by any applicable Legal Requirement or the terms of any United Community Benefit Plan existing as of the date hereof: (A) increase in any manner the compensation or benefits of any of the current or former directors, officers, employees, consultants, independent contractors or other service providers of United Community or its Subsidiaries (collectively, the “United CommunityEmployees”), other than increases in the Ordinary Course of Business; (B) become a party to, establish, materially amend, commence participation in, terminate or commit itself to the adoption of any stock option plan or other stock-based compensation plan, compensation, severance, pension, consulting,non-competition, change in control, retirement, profit-sharing, welfare benefit, or other employee benefit plan or agreement or employment agreement with or for the benefit of any United Community Employee (or newly hired employees), director or shareholder; (C) accelerate the vesting of or lapsing of restrictions with respect to any stock-based compensation or other long-term incentive compensation under any United Community Benefit Plans; (D) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any United Community Benefit Plan; or (E) materially change any actuarial assumptions used to calculate funding obligations with respect to any United Community Benefit Plan that is required by applicable Legal Requirements to be funded or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP or any applicable Legal Requirement;

(x) incur or guarantee any indebtedness for borrowed money other than in the Ordinary Course of Business;

(xi) enter into any material new line of business or materially change its lending, investment, underwriting, risk and asset liability management and other banking and operating policies, except as required by applicable Legal Requirements or requested by any Regulatory Authority;

(xii) settle any action, suit, claim or proceeding against it or any of its Subsidiaries, except for an action, suit, claim or proceeding that is settled in an amount and for consideration not in excess of $250,000and that would not impose any material restriction on the business of United Community or its Subsidiaries;

(xiii) make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility;

(xiv) make or change any material Tax elections, change or consent to any change in it or its Subsidiaries’ method of accounting for Tax purposes (except as required by applicable Tax law), settle or compromise any material Tax liability, claim or assessment, enter into any closing agreement, waive or extend any statute of limitations with respect to a material amount of Taxes, surrender any right to claim a refund for a material amount of Taxes, or file any material amended Tax Return;

(xv) hire any employee with an annual salary in excess of $200,000; or

(xvi) agree to take, make any payment,commitment to take, or settleadopt any resolutions of the United Community Board in support of, any of the actions prohibited by thisSection 5.2.

(c) For purposes of Section 5.2(b) (other than as set forth in Section 5.2(b)(iv)), First Defiance’s consent shall be deemed to have been given if United Community has made a written request to Donald P. Hileman and John Reisner for permission to take any action otherwise prohibited bySection 5.2(b) and has provided First Defiance with information sufficient for First Defiance to make an informed decision with respect to such request, and First Defiance has failed to respond to such request within five (5) Business Days after First Defiance’s receipt of such request.

Section 5.3Notice of Changes. United Community will give prompt notice to First Defiance of any fact, event or commitcircumstance known to it that: (a) is reasonably likely, individually or offertaken together with all other facts, events and circumstances known to settle,it, to result in a Material Adverse Effect on United Community; or (b) would cause or constitute a material breach of any rightsof United Community’s representations, warranties, covenants or agreements contained herein that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a Dissenting Shareholder asserted under condition inArticle 8;provided, however,that a failure to comply with thisSection 1701.85 5.3 shall not constitute a breach of this Agreement or the failure of any condition set forth inArticle 8 to be satisfied unless the underlying Material Adverse Effect or material breach would independently result in the failure of a condition set forth inArticle 8 to be satisfied.

Section 5.4Operating Functions. United Community and Home Savings shall cooperate with First Defiance and First Federal in connection with planning for the efficient and orderly combination of the OGCL.parties and the operation of Home Savings and First Federal, and in preparing for the consolidation of the banks’ appropriate operating functions to be effective on the Effective Date or such later date as the parties may mutually agree. Without limiting the foregoing, United Community shall provide office space and support services (and other reasonably requested support and assistance) in connection with the foregoing, and senior officers of United Community and First Defiance shall meet from time to time as United Community or First Defiance may reasonably request, to review the financial and operational affairs of United Community and Home Savings, and United Community shall give due consideration to First Defiance’s input on such matters, with the understanding that, notwithstanding any other provision contained in this Agreement: (a) neither First Defiance nor First Federal shall under any circumstance be permitted to exercise control of United Community, Home Savings or any of United Community’s other Subsidiaries prior to the Effective Time; (b) neither United Community nor any of its Subsidiaries shall be under any obligation to act in a manner that could reasonably be deemed to constitute anti-competitive behavior under federal or state antitrust laws; and (c) neither United Community nor any of its Subsidiaries shall be required to agree to or incur any material obligation or to terminate or amend any Contract, in each case that is not contingent upon the consummation of the Merger.

ARTICLE 6

FIRST DEFIANCE’S COVENANTS

1.7Section 6.1Access and Investigation.

(a) Subject to any applicable Legal Requirement, United Community and its Representatives shall, at all times during normal business hours and with reasonable advance notice, have such reasonable access to the facilities, operations, records and properties of First Defiance Sharesand each of its Subsidiaries in accordance with the provisions of thisSection 6.1(a) as shall be necessary for the purpose of determining First Defiance’s continued compliance with the terms and conditions of this Agreement and preparing for the integration of First Defiance and United Community following the Effective Time. United Community and its Representatives may, during such period, make or cause to be made such reasonable investigation of the operations, records and properties of First Defiance and each of its Subsidiaries and of their respective financial and legal conditions as United Community shall deem necessary or advisable to familiarize itself with such records, properties and other matters;provided,however, that such access or investigation shall not interfere materially with the normal operations of First Defiance or any of its Subsidiaries. First Defiance shall promptly provide United Community with copies of any management presentations regarding First Defiance’s financial statements that are provided in writing to the directors of First Defiance. Upon request, First Defiance and each of its Subsidiaries will furnish United Community or its Representatives attorneys’ responses to auditors’ requests for information regarding First Defiance or such Subsidiary, as the case may be, and such minutes of meetings of the board of directors or committees thereof, financial and operating data and other information reasonably requested by United Community (provided, such disclosure would not result in the waiver by First Defiance or any of its Subsidiaries of any claim of attorney-client privilege). No investigation by United Community or any of its Representatives shall affect the representations and warranties made by First Defiance in this Agreement. ThisSection 6.1(a) shall not require the disclosure of any information to United Community the disclosure of which, in First Defiance’s reasonable judgment: (i) would be prohibited by any applicable Legal Requirement; (ii) would result in the breach of any agreement with any third party in effect on the date of this Agreement; or (iii) relate to pending or threatened litigation or investigations, if disclosure might affect the confidential nature of, or any privilege relating to, the matters being discussed. If any of the restrictions in the preceding sentence shall apply, First Defiance and United Community will make appropriate alternative disclosure arrangements, including adopting additional specific procedures to protect the confidentiality of sensitive material and to ensure compliance with any applicable Legal Requirement.

(b) All information obtained by United Community in accordance with thisSection 6.1 shall be treated in confidence as provided in the Confidentiality Agreement.

Section 6.2Operation of First Defiance and First Defiance Subsidiaries.

(a) Except as set forth in the First Defiance Disclosure Schedules, as expressly contemplated by or permitted by this Agreement, as required by applicable Legal Requirement, or with the prior written consent of United Community, which shall not be unreasonably withheld, conditioned or delayed, during the period from the date of this Agreement to the earlier of the Closing Date or the termination of this Agreement pursuant to its terms, First Defiance shall, and shall cause each of its Subsidiaries to: (i) conduct its business in the Ordinary Course of Business in all material respects; (ii) use commercially reasonable efforts to maintain and preserve intact its business organization and advantageous business relationships; and (iii) take no action that is intended to or would reasonably be expected to adversely affect or materially delay the ability of United Community or First Defiance to obtain any of the Requisite Regulatory Approvals, to perform its covenants and agreements under this Agreement or to consummate the Contemplated Transactions.

(b) Except as set forth in the First Defiance Disclosure Schedules, as expressly contemplated by or permitted by this Agreement, as required by applicable Legal Requirement, or with the prior written consent of United Community, which shall not be unreasonably withheld, conditioned or delayed, during the period from

the date of this Agreement to the earlier of the Closing Date or the termination of this Agreement pursuant to its terms, First Defiance will not, and will cause each of its Subsidiaries not to:

(i) other than pursuant to the terms of any Contract to which First Defiance is a party that is outstanding on the date of this Agreement: (A) issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of First Defiance Capital Stock or any security convertible into First Defiance Capital Stock except for issuances pursuant to the exercise or settlement of awards under First Defiance Stock Plans in accordance with their terms; (B) permit any additional shares of First Defiance Capital Stock to become subject to new grants, except for grants of equity awards or issuances of shares of First Defiance Capital Stock under First Defiance Benefit Plans in the Ordinary Course of Business; or (C) grant any registration rights with respect to shares of First Defiance Capital Stock;

(ii) (A) make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of First Defiance Capital Stock (other than dividends from its wholly owned Subsidiaries to it or another of its wholly owned Subsidiaries); provided, however, that First Defiance shall be permitted to continue paying its regular quarterly dividend of $0.19 per share of First Defiance Common Stock consistent with past practice; or (B) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of First Defiance Capital Stock (other than repurchases of shares of First Defiance Common Stock in the Ordinary Course of Business to satisfy obligations under First Defiance Benefit Plans or the acceptance of shares of First Defiance Common Stock as payment for the exercise price of stock options or for withholding Taxes incurred in connection with the exercise of stock options or for withholding Taxes incurred in connection with the exercise of stock options or the vesting or settlement of equity compensation awards in the Ordinary Course of Business);

(iii) in each case except for transactions in the Ordinary Course of Business, materially amend the terms of, waive any material rights under, terminate, knowingly violate the material terms of or enter into: (A) any First Defiance Material Contract (other than as permitted bySection 6.2(b)(ix)); or (B) any material restriction on the ability of First Defiance or its Subsidiaries to conduct its business as it is presently being conducted;

(iv) (A) enter into any new credit or new lending relationships greater than $15 million; or (B) make or issue a commitment (including a letter of credit) or renew or extend an existing commitment for any First Defiance Loan, or amend or modify in any material respect any First Defiance Loan (including in any manner that would result in any additional extension of credit or principal forgiveness or effect any uncompensated release of collateral), outside the Ordinary Course of Business or in excess of the dollar-threshold limitations contained in First Defiance’s loan policy; with respect to clauses (A) and (B), without first giving United Community notice of such action at least three (3) business days in advance of such action (notwithstanding the provisions inSection 6.2(b), such lending activity described in thisSection 6.2(b)(iv) shall not require the consent of United Community);

(v) sell, transfer, mortgage, encumber, license, or otherwise dispose of any of its assets, deposits, business or properties to any other entity (other than to First Defiance or a wholly-owned First Defiance Subsidiary), except for sales, transfers, mortgages, encumbrances, licenses, or other dispositions in the Ordinary Course of Business and in a transaction that, together with other such transactions, is not material to First Defiance and its Subsidiaries, taken as a whole;

(vi) acquire (other than by way of foreclosures or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith, in each case in the Ordinary Course of Business) all or any portion of the assets, business, deposits or properties of any other entity (other than First Defiance or a wholly-owned First Defiance Subsidiary) except in the Ordinary Course of Business and in a transaction that, together with other such transactions, is not material to First Defiance and its Subsidiaries, taken as a whole;

(vii) amend its articles of incorporation or its code of regulations, or similar governing documents of any of its Subsidiaries;

(viii) implement or adopt any material change in its accounting principles, practices or methods, other than as may be required by GAAP or applicable regulatory accounting requirements;

(ix) except as permitted by this Agreement or as required by any applicable Legal Requirement or the terms of any First Defiance Benefit Plan existing as of the date hereof: (A) increase in any manner the compensation or benefits of any of the current or former directors, officers, employees, consultants, independent contractors or other service providers of First Defiance or its Subsidiaries (collectively, the “First Defiance Employees”), other than increases in the Ordinary Course of Business; (B) become a party to, establish, materially amend, commence participation in, terminate or commit itself to the adoption of any stock option plan or other stock-based compensation plan, compensation, severance, pension, consulting,non-competition, change in control, retirement, profit-sharing, welfare benefit, or other employee benefit plan or agreement or employment agreement with or for the benefit of any First Defiance Employee (or newly hired employees), director or shareholder; (C) accelerate the vesting of or lapsing of restrictions with respect to any stock-based compensation or other long-term incentive compensation under any First Defiance Benefit Plans, other than to accelerate such vesting or lapsing of outstanding First Defiance Equity Awards, effective as of the Effective Time, in the event that, in First Defiance’s sole discretion, it deems the Merger to constitute a change in control pursuant toSection 7.7(e); (D) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any First Defiance Benefit Plan; or (E) materially change any actuarial assumptions used to calculate funding obligations with respect to any First Defiance Benefit Plan that is required by applicable Legal Requirements to be funded or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP or any applicable Legal Requirement;

(x) incur or guarantee any indebtedness for borrowed money other than in the Ordinary Course of Business;

(xi) enter into any material new line of business or materially change its lending, investment, underwriting, risk and asset liability management and other banking and operating policies, except as required by applicable Legal Requirements or requested by any Regulatory Authority;

(xii) settle any action, suit, claim or proceeding against it or any of its Subsidiaries, except for an action, suit, claim or proceeding that is settled in an amount and for consideration not in excess of $250,000and that would not impose any material restriction on the business of First Defiance or its Subsidiaries;

(xiii) make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility;

(xiv) make or change any material Tax elections, change or consent to any change in it or its Subsidiaries’ method of accounting for Tax purposes (except as required by applicable Tax law), settle or compromise any material Tax liability, claim or assessment, enter into any closing agreement, waive or extend any statute of limitations with respect to a material amount of Taxes, surrender any right to claim a refund for a material amount of Taxes, or file any material amended Tax Return;

(xv) hire any employee with an annual salary in excess of $200,000; or

(xvi) agree to take, make any commitment to take, or adopt any resolutions of the First Defiance Board in support of, any of the actions prohibited by thisSection 6.2.  At

(c) For purposes ofSection 6.2(b)(other than as set forth in Section 6.2(b)(iv)), United Community’s consent shall be deemed to have been given if First Defiance has made a written request to Gary M. Small and

Jude J. Nohra for permission to take any action otherwise prohibited bySection 6.2(b) and has provided United Community with information sufficient for United Community to make an informed decision with respect to such request, and United Community has failed to respond to such request within five (5) Business Days after United Community’s receipt of such request.

Section 6.3Notice of Changes. First Defiance will give prompt notice to United Community of any fact, event or circumstance known to it that: (a) is reasonably likely, individually or taken together with all other facts, events and circumstances known to it, to result in a Material Adverse Effect on First Defiance; or (b) would cause or constitute a material breach of any of First Defiance’s representations, warranties, covenants or agreements contained herein that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition inArticle 9;provided, however,that a failure to comply with thisSection 6.3 shall not constitute a breach of this Agreement or the failure of any condition set forth inArticle 9 to be satisfied unless the underlying Material Adverse Effect or material breach would independently result in the failure of a condition set forth inArticle 9 to be satisfied.

Section 6.4Operating Functions. First Defiance and First Federal shall cooperate with United Community and Home Savings in connection with planning for the efficient and orderly combination of the parties and the operation of Home Savings and First Federal, and in preparing for the consolidation of the banks’ appropriate operating functions to be effective on the Effective Date or such later date as the parties may mutually agree. Without limiting the foregoing, First Defiance shall provide office space and support services (and other reasonably requested support and assistance) in connection with the foregoing, and senior officers of United Community and First Defiance shall meet from time to time as United Community or First Defiance may reasonably request, to review the financial and operational affairs of First Defiance and First Federal, and First Defiance shall give due consideration to United Community’s input on such matters, with the understanding that, notwithstanding any other provision contained in this Agreement: (a) neither United Community nor Home Savings shall under any circumstance be permitted to exercise control of First Defiance, First Federal or any of First Defiance’s other Subsidiaries prior to the Effective Time; (b) neither First Defiance nor any of its Subsidiaries shall be under any obligation to act in a manner that could reasonably be deemed to constitute anti-competitive behavior under federal or state antitrust laws; and (c) neither First Defiance nor any of its Subsidiaries shall be required to agree to or incur any material obligation or to terminate or amend any Contract, in each case that is not contingent upon the consummation of the Merger.

Section 6.5Indemnification.

(a) From and after the Effective Time, First Defiance shall indemnify, defend and hold harmless, to the fullest extent permitted under applicable Legal Requirements, each current or former director, officer or employee of United Community or any of its Subsidiaries or fiduciary of United Community or any of its Subsidiaries under any United Community Benefit Plans or any Person who is or was serving at the request of United Community or any of its Subsidiaries as a director, officer, trustee or employee of another Person (each, an “Indemnified Party”), and any Person who becomes an Indemnified Party between the date hereof and the Effective Time, against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, including the Contemplated Transactions, whether asserted or claimed prior to, at or after the Effective Time. To the extent permitted by applicable Legal Requirements, First Defiance shall also advance expenses incurred by an Indemnified Party in each such case, upon receipt of an undertaking from such Indemnified Party to repay such advanced expenses if it is determined by a final and nonappealable judgment of a court of competent jurisdiction that such Indemnified Party was not entitled to indemnification hereunder. The parties agree that all rights to elimination of liability, indemnification and advancement of expenses for acts or omissions occurring or alleged to have occurred at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, now existing in favor of the Indemnified Parties as provided in the United Community’s or its Subsidiaries’ respective articles of

incorporation, certificate of formation, charter, code of regulations, bylaws or operating agreement (or similar organizational documents) or in any indemnification agreement of United Community or its Subsidiary with any Indemnified Party in existence on the date of this Agreement and provided to First Defiance prior to the date of this Agreement shall survive the Contemplated Transactions, including the Merger, and shall continue in full force and effect in accordance with the terms thereof.

(b) For a period of six (6) years after the Effective Time, First Defiance shall maintain in effect United Community’s current directors’ and officers’ liability insurance covering each Person currently covered by United Community’s directors’ and officers’ liability insurance policy for acts or omissions occurring prior to the Effective Time;provided, that in no event shall First Defiance be required to expend annually in the aggregate an amount in excess of 300% of the amount of the current annual premiums paid by United Community as of the date hereof for such purpose and, if First Defiance is unable to maintain such policy (or substitute policy) as a result of this proviso, First Defiance shall obtain as much comparable insurance as is available and for as long a period of time as is available following the Effective Time by payment of such amount;provided further, that: (i) First Defiance may substitute therefor “tail” policies the terms of which, including coverage and amount, are no less favorable in any material respect to such directors and officers than United Community’s existing policies as of the date hereof; or (ii) United Community may obtain such extended reporting period coverage under United Community’s existing insurance programs (to be effective as of the Effective Time).

(c) If First Defiance or any of its successors or assigns shall: (i) consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger; or (ii) transfer all or substantially all its properties and assets to any Person; then, and in each such case, First Defiance shall cause proper provision to be made so that the successor and assign of First Defiance assumes the obligations set forth in thisSection 6.5.

(d) The provisions of thisSection 6.5shall survive consummation of the Merger and the Bank Merger and are intended to be for the benefit of, and will be enforceable by, each Indemnified Party, his or her heirs and his or her legal representatives.

Section 6.6Authorization and Reservation of First Defiance Common Stock. The First Defiance Board shall authorize and reserve the maximum number of shares of First Defiance Common Stock to be issued pursuant to this Agreement and take all other necessary corporate action to consummate the Contemplated Transactions.

Section 6.7Stock Exchange Listing. First Defiance shall use its reasonable best efforts to cause all shares of First Defiance Common Stock issuable or to be reserved for issuance under this Agreement to be approved for listing on the Nasdaq Global Select Market prior to the Closing Date.

Section 6.8Assumption of Debt Instruments. First Defiance agrees to execute and deliver, or cause to be executed and delivered, by or on behalf of the Surviving Entity, at or prior to the Effective Time, one or more supplemental indentures, guarantees, and other instruments required for the due assumption of United Community’s outstanding debt, subordinated debentures, guarantees, securities, and other agreements to the extent required by the terms of such debt, subordinated debentures, guarantees, securities, and other agreements.

ARTICLE 7

COVENANTS OF ALL PARTIES

Section 7.1Regulatory Approvals.

(a) First Defiance and United Community and their respective Subsidiaries will cooperate and use all reasonable best efforts to as promptly as possible prepare, file, effect and obtain all Requisite Regulatory

Approvals (and shall use reasonable best efforts to make such filings within 30 days of the date of this Agreement), and the parties will comply with the terms of such Requisite Regulatory Approvals. Each of First Defiance and United Community will have the right to review in advance, and to the extent practicable each will consult with the other, in each case subject to applicable Legal Requirements relating to the exchange of information, with respect to all substantive written information submitted to any Regulatory Authority in connection with the Requisite Regulatory Approvals. In exercising the foregoing right, each of the parties will act reasonably and as promptly as practicable. Each party agrees that it will consult with the other party with respect to obtaining all permits, consents, approvals and authorizations of all Regulatory Authorities necessary or advisable to consummate the Contemplated Transactions, and each party will keep the other party apprised of the status of material matters relating to completion of the Contemplated Transactions. First Defiance and United Community will, upon request, furnish the other party with all information concerning itself, its Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of such other party or any of its Subsidiaries with or to any Regulatory Authority in connection with the Contemplated Transactions.

(b) First Defiance and United Community shall use its reasonable best efforts to resolve any objection that may be asserted by any Regulatory Authority with respect to this Agreement or the transactions contemplated hereby. Notwithstanding the foregoing, nothing contained herein shall be deemed to require First Defiance or United Community or any of their respective Subsidiaries, and neither First Defiance nor United Community nor any of their respective Subsidiaries shall be permitted (without the written consent of the other party), to take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the Requisite Regulatory Approvals that would after the Effective Time, reasonably be expected to have a material adverse effect on the Surviving Entity and its Subsidiaries, taken as a whole, after giving effect to the Merger.

Section 7.2SEC Registration. As soon as practicable following the date of this Agreement, United Community and First Defiance shall prepare the Joint Proxy Statement and the Registration Statement, and First Defiance shall file with the SEC, as soon as practicable following the date of this Agreement (and in any event no later than thirty (30) days following the date of this Agreement) the Registration Statement, in which the Joint Proxy Statement will be included. First Defiance shall use its reasonable best efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and to keep the Registration Statement effective as long as is necessary to consummate the Merger and the Contemplated Transactions. First Defiance shall also take any action required to be taken under any applicable Legal Requirement in connection with the First Defiance Stock Issuance, and each party shall furnish all information concerning itself and its shareholders as may be reasonably requested in connection with any such action. First Defiance will advise United Community, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of First Defiance Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC to amend the Joint Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information, and United Community will advise First Defiance, promptly after it receives notice thereof, of any request by the SEC to amend the Joint Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information. The parties shall use reasonable best efforts to respond (with the assistance of the other party) as promptly as practicable to any comments of the SEC with respect thereto. If prior to the Effective Time any event occurs with respect to United Community, First Defiance or any Subsidiary of United Community or First Defiance, respectively, or any change occurs with respect to information supplied by or on behalf of United Community or First Defiance, respectively, for inclusion in the Joint Proxy Statement or the Registration Statement that, in each case, is required to be described in an amendment of, or a supplement to, the Joint Proxy Statement or the Registration Statement, United Community or First Defiance, as applicable, shall promptly notify the other of such event, and United Community or, First Defiance, as applicable, shall cooperate in the prompt filing with the SEC of any necessary amendment or supplement to the Joint Proxy Statement and the Registration Statement and, as required by applicable Legal Requirements, in disseminating

the information contained in such amendment or supplement to United Community’s shareholders and to First Defiance’s shareholders. Each of United Community and First Defiance will cause the Joint Proxy Statement to be filed with the SEC and mailed to the shareholders of United Community and First Defiance, respectively, as soon as reasonably practicable after the Registration Statement is declared effective under the Securities Act.

Section 7.3Approvals of First Defiance Shareholders and United Community Shareholders. Each of First Defiance and United Community shall call, give notice of, convene and hold a meeting of its respective shareholders (the “First Defiance Meeting” and the “United Community Meeting,” respectively) as soon as reasonably practicable after the Registration Statement is declared effective for the purpose of obtaining the First Defiance Shareholder Approval and the approval by First Defiance shareholders to amend the First Defiance Articles of Incorporation to the extent required by applicable Legal Requirements pursuant toSection 7.14(a) (in the case of First Defiance) and the United Community Shareholder Approval (in the case of United Community), respectively, in connection with this Agreement and the Merger and, if so desired and mutually agreed, upon other matters of the type customarily brought before a special meeting of shareholders to adopt or approve a merger agreement. Each of First Defiance Board and United Community Board shall use its reasonable best efforts to obtain from its respective shareholders the First Defiance Shareholder Approval and the approval to amend First Defiance Articles of Incorporation, in the case of First Defiance, and the United Community Shareholder Approval, in the case of United Community, including by communicating to its respective shareholders its recommendation (and including such recommendation in the Joint Proxy Statement) that they approve or adopt (as applicable) this Agreement and the Contemplated Transactions. However, subject toSections 7.9 and 7.10, if the First Defiance Board or United Community Board, after receiving the advice of its outside counsel, and, with respect to financial matters, its financial advisors, determines in good faith that it would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements to continue to recommend adoption or approval of this Agreement, then in submitting this Agreement, either the First Defiance Board or United Community Board (as applicable) may (but shall not be required to) submit this Agreement to its shareholders without recommendation (although the resolutions approving this Agreement as of the date hereof may not be rescinded or amended), in which event it may communicate the basis for its lack of a recommendation to its shareholders in the Joint Proxy Statement or an appropriate amendment or supplement thereto to the extent required by law; provided that neither the First Defiance Board or the United Community Board may take any actions under this sentence unless (i) it gives the other party at least three (3) Business Days’ prior written notice of its intention to take such action and a reasonable description of the event or circumstances giving rise to its determination to take such action (including, in the event such action is taken in response to a United Community Acquisition Proposal or First Defiance Acquisition Proposal, as applicable, the latest material terms and conditions of, and the identity of the third party making, any such United Community Acquisition Proposal or First Defiance Acquisition Proposal, or any amendment or modification thereof, or describe in reasonable detail such other event or circumstances) and (ii) at the end of such notice period, either the First Defiance Board or the United Community Board (as applicable) takes into account any amendment or modification to this Agreement proposed by the other party and after receiving the advice of its outside counsel, and, with respect to financial matters, its financial advisor, determines in good faith that it would nevertheless be reasonably likely to violate its fiduciary duties under applicable Legal Requirements to continue to recommend this Agreement. Any material amendment to any First Defiance Acquisition Proposal or United Community Acquisition Proposal, as applicable, will be deemed to be a new First Defiance Acquisition Proposal or United Community Acquisition Proposal for purposes of thisSection 7.3 and will require a new notice period as referred to in thisSection 7.3. First Defiance or United Community shall adjourn or postpone the First Defiance Meeting or the United Community Meeting, as the case may be, if, as of the time for which such meeting is originally scheduled there are insufficient shares of First Defiance Common Stock or United Community Common Stock, as the case may be, represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or if on the date of such meeting First Defiance or United Community, as applicable, has not received proxies representing a sufficient number of shares necessary to obtain the First Defiance Shareholder Approval or the United Community Shareholder Approval, and subject to the terms and conditions of this Agreement, First Defiance or United Community, as applicable, shall continue to use reasonable best efforts to solicit proxies from its shareholders in order to obtain the First Defiance Shareholder Approval or

United Community Shareholder Approval. Notwithstanding anything to the contrary herein, and subject to the obligation to adjourn or postpone such meeting as set forth in the immediately preceding sentence, unless this Agreement has been terminated in accordance with its terms, each of the First Defiance Meeting and United Community Meeting shall be convened and this Agreement shall be submitted to the shareholders of First Defiance at the First Defiance Meeting and the shareholders of United Community at the United Community Meeting for the purpose of voting on the approval or adoption (as applicable) of such proposals and the other matters contemplated hereby, and nothing contained herein shall be deemed to relieve either First Defiance or United Community of such obligation. First Defiance and United Community shall use their reasonable best efforts to cooperate to hold the United Community Meeting and the First Defiance Meeting on the same day and at the same time as soon as reasonably practicable after the date of this Agreement, and to set the same record date for each such meeting.

Section 7.4Publicity. Neither United Community nor First Defiance shall, and neither United Community nor First Defiance shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement or, except as otherwise specifically provided in this Agreement, any disclosure of nonpublic information to a third party, concerning, the Contemplated Transactions without the prior consent (which shall not be unreasonably withheld or delayed) of First Defiance, in the case of a proposed announcement, statement or disclosure by United Community, or United Community, in the case of a proposed announcement, statement or disclosure by First Defiance;provided, however, that either party may, without the prior consent of the other party (but after prior consultation with the other party to the extent practicable under the circumstances), issue or cause the publication of any press release or other public announcement to the extent required by applicable Legal Requirements or by the Nasdaq Rules.

Section 7.5Reasonable Best Efforts; Cooperation. Each of First Defiance and United Community agrees to exercise good faith and use its reasonable best efforts to satisfy the various covenants and conditions to Closing in this Agreement, and to consummate the Contemplated Transactions as promptly as practicable. Neither First Defiance nor United Community will intentionally take or intentionally permit to be taken any action that would be a breach of the terms or provisions of this Agreement. Between the date of this Agreement and the Closing Date, each of First Defiance and United Community will, and will cause each Subsidiary of First Defiance and United Community, respectively, and all of their respective Affiliates and Representatives to, cooperate with respect to all filings that any party is required by any applicable Legal Requirements to make in connection with the Contemplated Transactions. Subject to applicable Legal Requirements and the instructions of any Regulatory Authority, each party shall keep the other party reasonably apprised of the status of matters relating to the completion of the Contemplated Transactions, including promptly furnishing the other party with copies of notices or other written communications received by it or any of its Subsidiaries from any Regulatory Authority with respect to such transactions.

Section 7.6Reorganization.The parties intend that the Merger qualify as a “reorganization” within the meaning of Section 368(a) of the Code and that this Agreement constitute and be adopted as a “plan of reorganization” within the meaning of Treasury RegulationsSection 1.368-2(g) and for purposes of Sections 354 and 361 of the Code. From and after the date of this Agreement and until the Effective Time, each of United Community and First Defiance shall use its commercially reasonable efforts to cause the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken which action or failure to act could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code. Following the Effective Time, neither First Defiance nor any Affiliate of First Defiance shall knowingly take any action, cause any action to be taken, fail to take any action, or cause any action to fail to be taken, which action or failure to act could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 7.7Employees and Employee Benefits.

(a) All individuals who provide services to or are employed by United Community or any of its Subsidiaries immediately prior to the Closing (“Covered Employees”) shall automatically become employees of First Defiance as of the Closing. For a period of one (1) year following the Effective Time (or, if shorter, the period that such Covered Employee or First Defiance Employee holds the position held by such Covered Employee or First Defiance Employee as of immediately prior to the Effective Time), First Defiance shall provide, or shall cause to be provided, to each Covered Employee and First Defiance Employee base compensation that is no less favorable than the base compensation provided to such Covered Employee or First Defiance Employee, respectively, immediately prior to the Effective Time.

(b) Without limiting the generality ofSection 7.7(a)or the protections of any Covered Employee or First Defiance Employee contemplated by any other provision of thisSection 7.7: (i) from and after the Effective Time, unless otherwise mutually determined by United Community and First Defiance, the United Community Benefit Plans and First Defiance Benefit Plans in effect as of the date of this Agreement shall remain in effect with respect to employees of United Community and First Defiance (and their respective Subsidiaries), respectively, covered by such plans at the Effective Time who continue to be employed by the Surviving Entity or its Subsidiaries after the Effective Time until such time as the Surviving Entity shall, subject to applicable Legal Requirements and the terms of such plans, modify any existing plans or adopt new benefit plans with respect to employees of the Surviving Entity and its Subsidiaries (collectively, the “New Plans”); (ii) prior to the Effective Time, United Community and First Defiance shall cooperate in reviewing, evaluating and analyzing the United Community Benefit Plans and First Defiance Benefit Plans with a view toward developing appropriate New Plans for the employees covered thereby; and (iii) it is the intention of United Community and First Defiance, to the extent permitted by applicable Legal Requirements, to develop New Plans (including amending existing plans), as soon as reasonably practicable after the Effective Time, which, among other things, (x) treat similarly situated employees on a substantially equivalent basis, taking into account all relevant factors, including duties, geographic location, tenure, qualifications and abilities, and (y) do not discriminate between employees who were covered by United Community Benefit Plans, on the one hand, and those covered by First Defiance Benefit Plans on the other hand, at the Effective Time.

(c) For all purposes under the New Plans, each Covered Employee and each First Defiance ShareEmployee shall be credited with his or her years of service with United Community and First Defiance, their Subsidiaries and their respective predecessors, respectively, to the same extent as such Covered Employee or First Defiance Employee was entitled to credit for such service under any applicable United Community Benefit Plan or First Defiance Benefit Plan, respectively, in which such Covered Employee or First Defiance Employee participated or was eligible to participate immediately prior to the Transition Date;provided,however, that the foregoing shall not apply to the extent that its application would result in a duplication of benefits with respect to the same period of service.

(d) In addition, and without limiting the generality of the foregoing, as of the Transition Date: (i) each Covered Employee and First Defiance Employee shall be immediately eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan is similar in type to an applicable United Community Benefit Plan or First Defiance Benefit Plan, respectively, in which such Covered Employee or First Defiance Employee was participating immediately prior to the Transition Date (such United Community Benefit Plans and First Defiance Benefit Plans prior to the Transition Date collectively, the “Old Plans”); (ii) for purposes of each New Plan providing medical, dental, pharmaceutical, vision or similar benefits to any Covered Employee or First Defiance Employee, allpre-existing condition exclusions andactively-at-work requirements of such New Plan shall be waived for such Covered Employee or First Defiance Employee and his or her covered dependents, unless such conditions would not have been waived under the Old Plan in which such Covered Employee or First Defiance Employee, as applicable, participated or was eligible to participate immediately prior to the Transition Date; and (iii) any eligible expenses incurred by such Covered Employee or First Defiance Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the

Transition Date shall be taken into account under such New Plan to the extent such eligible expenses were incurred during the plan year of the New Plan in which the Transition Date occurs for purposes of satisfying all deductible, coinsurance and maximumout-of-pocket requirements applicable to such Covered Employee or First Defiance Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan.

(e) Notwithstanding any other provision of this Agreement to the contrary, from and following the Closing, First Defiance shall assume and honor the obligations of United Community and its Subsidiaries under all employment, severance, change in control, consulting, and other similar plans, programs, agreements, arrangements, policies and practices (“Severance Plans”) in accordance with their terms. First Defiance and United Community hereby agree that the Merger shall constitute or be deemed a “change in control” (or concept of similar import) for purposes of the United Community Benefit Plans, including Severance Plans and United Community Stock Plans, and that First Defiance may, in First Defiance’s sole discretion, deem the Merger a “change in control” (or concept of similar import) for purposes of the First Defiance Benefit Plans. With respect to a Covered Employee or First Defiance Employee who does not have contractual severance or termination protections and whose employment is terminated between the Closing Date and the first anniversary thereof, First Defiance shall provide severance protections consistent with the terms of a severance plan or policy to be developed by First Defiance and United Community between the date hereof and the Closing Date or, if no such plan or policy is adopted, First Defiance shall provide severance benefits on terms consistent with the Severance Plan applicable to such employee immediately prior to Closing or, if more favorable, the Severance Plan applicable to similarly situated employees of First Defiance (in the case of a Covered Employee) or United Community (in the case of an First Defiance Employee) immediately prior to Closing, determined without taking into account any reduction after the Closing in compensation paid to such Covered Employee.

(f) As mutually determined by the parties, First Defiance shall provide outplacement services to eligible Covered Employees and First Defiance Employees who are terminated following the Merger due to relocation or consolidation of operations.

(g) Nothing in this Agreement shall confer upon any employee, director or consultant of United Community, First Defiance or their respective Subsidiaries or Affiliates any right to continue in the employ or service of United Community, First Defiance or their respective Subsidiaries or Affiliates, or shall interfere with or restrict in any way the rights of the United Community, First Defiance or their respective Subsidiaries or Affiliates to discharge or terminate the services of any employee, director or consultant at any time for any reason whatsoever, with or without cause. Nothing in this Agreement shall be deemed to (i) establish, amend, or modify any United Community Benefit Plan, First Defiance Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement, or (ii) alter or limit the ability of the United Community, First Defiance or their respective Subsidiaries or Affiliates to amend, modify or terminate any United Community Benefit Plan, First Defiance Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement after the Effective Time. Without limitingSection 11.6, nothing in this Agreement, express or implied, is intended to or shall confer upon any current or former employee, director or other service provider (or any beneficiary of the foregoing) of United Community, First Defiance or their respective Subsidiaries or Affiliates, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 7.8Section 16 Matters. Prior to the Effective Time, the parties will each take such steps as may be necessary or appropriate to cause any disposition of shares of United Community Capital Stock or conversion of any derivative securities in respect of shares of United Community Capital Stock in connection with the consummation of the Contemplated Transactions to be exempt under Rule16b-3 promulgated under the Exchange Act.

Section 7.9United Community Acquisition Proposals.

(a) United Community agrees that it will not, and will cause its Subsidiaries and use its reasonable best efforts to cause its and their officers, directors, agents, advisors and representatives (collectively, “Representatives”) not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to any United Community Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any United Community Acquisition Proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any United Community Acquisition Proposal, except to notify a person that has made or, to the Knowledge of United Community, is making any inquiries with respect to, or is considering making, a United Community Acquisition Proposal of the existence of the provisions of thisSection 7.9(a); provided that, prior to obtaining the United Community Shareholder Approval, in the event United Community receives an unsolicited bona fide written United Community Acquisition Proposal after the date of this Agreement and United Community Board concludes in good faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors) that such United Community Acquisition Proposal constitutes or would be reasonably likely to result in a Superior Proposal, it may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions to the extent that United Community Board concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisor) that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements;provided, further, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, United Community shall have provided such information to First Defiance and entered into a confidentiality agreement with such third party on terms no less favorable to it than the Confidentiality Agreement (an “Acceptable Confidentiality Agreement”), which confidentiality agreement shall not provide such third party with any exclusive right to negotiate with United Community. United Community will, and will use its reasonable best efforts to cause its Representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of this Agreement with any person other than First Defiance with respect to any United Community Acquisition Proposal. United Community will promptly (within twenty-four (24) hours) advise First Defiance following receipt of any United Community Acquisition Proposal or any inquiry which could reasonably be expected to lead to a United Community Acquisition Proposal, and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or United Community Acquisition Proposal), and will keep First Defiance reasonably apprised (and in any event within twenty-four (24) hours) of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or United Community Acquisition Proposal. United Community shall (A) withdraw and terminate access that was granted to any person (other than the parties to this Agreement and their respective affiliates and Representatives) to any “data room” (virtual or physical) that was established in connection with a United Community Acquisition Proposal prior to the date of this Agreement and (B) use its reasonable best efforts to enforce and not waive or amend any existing confidentiality or standstill agreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof, unless solely in the case of this clause (B) the United Community Board of Directors determines in good faith that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements, in which event United Community may waive or amend such confidentiality or standstill agreement solely to the extent necessary to permit a third party to make, on a confidential basis to the Board of Directors, a United Community Acquisition Proposal. During the term of this Agreement, United Community shall not, and shall cause its Subsidiaries and its and their Representatives not to on its behalf, enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement relating to a United Community Acquisition Proposal (other than an Acceptable Confidentiality Agreement). As used in this Agreement, “UnitedCommunity Acquisition Proposal” shall mean other than the Contemplated Transactions, any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of United Community and its Subsidiaries or 25% or more of any class of equity or voting securities of United Community or of its Subsidiaries whose

assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 25% or more of any class of equity or voting securities of United Community or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving United Community or its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community. United Community shall use its reasonable best efforts, subject to applicable Legal Requirements, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any confidential information provided to any person (other than First Defiance and its affiliates) pursuant to any such confidentiality, standstill or similar agreement. As used in this Agreement, “United Community Superior Proposal” shall mean a bona fide written United Community Acquisition Proposal that the United Community Board concludes in good faith to be more favorable to its shareholders than the Merger and the other Contemplated Transactions, (i) after receiving the advice of its financial advisors (who shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel) financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable Legal Requirements; provided, that for purposes of the definition of “United Community Superior Proposal,” the reference to “25%” in the definition of United Community Acquisition Proposal shall be deemed to be references to “a majority.”

(b) Nothing contained in this Agreement shall prevent United Community or the United Community Board from complying with Rules14d-9 and14e-2 under the Exchange Act or Item 1012(a) of RegulationM-A with respect to a United Community Acquisition Proposal or from making any legally required disclosure to United Community’s shareholders; provided that such Rules will in no way eliminate or modify the effect that any action pursuant to such Rules would otherwise have under this Agreement.

Section 7.10First Defiance Acquisition Proposals.

(a) First Defiance agrees that it will not, and will cause its Subsidiaries and use its reasonable best efforts to cause its and their Representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to any First Defiance Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any First Defiance Acquisition Proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any First Defiance Acquisition Proposal, except to notify a person that has made or, to the Knowledge of First Defiance, is making any inquiries with respect to, or is considering making, an First Defiance Acquisition Proposal of the existence of the provisions of thisSection 7.10(c); provided that, prior to obtaining the First Defiance Shareholder Approval, in the event First Defiance receives an unsolicited bona fide written First Defiance Acquisition Proposal after the date of this Agreement and First Defiance Board concludes in good faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors) that such First Defiance Acquisition Proposal constitutes or would be reasonably likely to result in a Superior Proposal, it may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions to the extent that First Defiance Board concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisor) that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements; provided, further, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, First Defiance shall have provided such information to United Community and entered into an Acceptable Confidentiality Agreement with such third party, which confidentiality agreement shall not provide such third party with any exclusive right to negotiate with First Defiance. First Defiance will, and will use its reasonable best efforts to cause its Representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the

date of this Agreement with any person other than United Community with respect to any First Defiance Acquisition Proposal. First Defiance will promptly (within twenty-four (24) hours) advise United Community following receipt of any First Defiance Acquisition Proposal or any inquiry which could reasonably be expected to lead to an First Defiance Acquisition Proposal, and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or First Defiance Acquisition Proposal), and will keep United Community reasonably apprised (and in any event within twenty-four (24) hours) of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or First Defiance Acquisition Proposal. First Defiance shall (A) withdraw and terminate access that was granted to any person (other than the parties to this Agreement and their respective affiliates and Representatives) to any “data room” (virtual or physical) that was established in connection with an First Defiance Acquisition Proposal prior to the date of this Agreement and (B) use its reasonable best efforts to enforce and not waive or amend any existing confidentiality or standstill agreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof, unless solely in the case of this clause (B) the First Defiance Board of Directors determines in good faith that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements, in which event First Defiance may waive or amend such confidentiality or standstill agreement solely to the extent necessary to permit a third party to make, on a confidential basis to the Board of Directors, an First Defiance Acquisition Proposal. During the term of this Agreement, First Defiance shall not, and shall cause its Subsidiaries and its and their Representatives not to on its behalf, enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement with respect to an First Defiance Acquisition Proposal (other than an Acceptable Confidentiality Agreement). As used in this Agreement, “First Defiance Acquisition Proposal” shall mean, other than the Contemplated Transactions, any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of First Defiance and its Subsidiaries or 25% or more of any class of equity or voting securities of First Defiance or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 25% or more of any class of equity or voting securities of First Defiance or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving First Defiance or its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance. First Defiance shall use its reasonable best efforts, subject to applicable Legal Requirements, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any confidential information provided to any person (other than United Community and its affiliates) pursuant to any such confidentiality, standstill or similar agreement. As used in this Agreement, “First Defiance Superior Proposal” shall mean a bona fide written First Defiance Acquisition Proposal that First Defiance Board concludes in good faith to be more favorable to its shareholders than the Merger and the other Contemplated Transactions, (i) after receiving the advice of its financial advisors (who shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel) financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable Legal Requirements; provided, that for purposes of the definition of “First Defiance Superior Proposal,” the reference to “25%” in the definition of First Defiance Acquisition Proposal shall be deemed to be references to “a majority.”

(b) Nothing contained in this Agreement shall prevent First Defiance or First Defiance Board from complying with Rules14d-9 and14e-2 under the Exchange Act or Item 1012(a) of RegulationM-A with respect to an First Defiance Acquisition Proposal or from making any legally required disclosure to First Defiance’s shareholders; provided that such Rules will in no way eliminate or modify the effect that any action pursuant to such Rules would otherwise have under this Agreement.

Section 7.11Restructuring Efforts. If either United Community or First Defiance shall have failed to obtain the United Community Shareholder Approval or the First Defiance Shareholder Approval at the duly convened United Community Meeting or First Defiance Meeting, as applicable, or any adjournment or postponement thereof, each of the parties to this Agreement shall in good faith use its reasonable best efforts to negotiate a restructuring of the Contemplated Transactions (it being understood that neither party shall have any obligation to alter or change any material terms, including the Exchange Ratio, the amount or kind of the consideration to be issued to holders of the capital stock of United Community as provided for in this Agreement, or any term that would adversely affect the tax treatment of the Contemplated Transactions, in a manner adverse to such party or its shareholders or shareholders (as applicable)) and/or resubmit this Agreement and/or the Contemplated Transactions (or as restructured pursuant to thisSection  7.11) to its respective shareholders for adoption.

Section 7.12Takeover Statutes. None of United Community, First Defiance or their respective boards of directors shall take any action that would cause any Takeover Statute to become applicable to this Agreement, the Merger, or any of the other Contemplated Transactions, and outstandingeach shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger and the other Contemplated Transactions from any applicable Takeover Statute now or hereafter in effect. If any Takeover Statute may become, or may purport to be, applicable to the Contemplated Transactions, each party to this Agreement and the members of their respective boards of directors will grant such approvals and take such actions as are necessary so that the Contemplated Transactions may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of any Takeover Statute on any of the Contemplated Transactions, including, if necessary, challenging the validity or applicability of any such Takeover Statute.

Section 7.13Shareholder Litigation. Each of United Community and First Defiance shall give the other the reasonable opportunity to consult concerning the defense of any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers relating to the Contemplated Transactions.

Section 7.14Corporate Governance.

(a) Prior to the Effective Time First Defiance shall take all actions necessary to adopt the articles of incorporation set forth inExhibit A effective as of and from and after the Effective Time, subject to the approval by First Defiance shareholders of such amendments to the First Defiance Articles of Incorporation to the extent required under applicable Legal Requirements and without limitation toSection 7.3.

(b) Prior to the Effective Time, First Defiance shall take all actions necessary to adopt the code of regulations set forth inExhibit B effective as of and from and after the Effective Time and to effect the requirements referenced therein.

(c) On or prior to the Effective Time, the First Defiance Board of Directors shall take such actions as are necessary to cause the number of directors that will comprise the full board of directors of the Surviving Entity and First Federal at the Effective Time to be thirteen (13), consisting of (i) the chief executive officer of First Defiance, the chairman of First Defiance and five other members of the First Defiance Board and/or First Federal Board as of immediately prior to the Effective Time, designated by First Defiance, and (ii) the chief executive officer of United Community, the chairman of United Community and four other members of the United Community Board and/or Home Savings Board as of immediately prior to the Effective Time, designated by United Community, to be effective at the Effective Time.

(d) On or prior to the Effective Time, the First Defiance Board shall take such actions as are necessary to cause (i) Donald P. Hileman to continue to serve as the Chief Executive Officer of the Surviving Entity and First Federal, (ii) Gary M. Small to become the President of the Surviving Entity and First Federal, (iii) John L. Bookmyer to continue to serve as Chairman of the Surviving Entity and First Federal and (iv) Richard J. Schiraldi shall become Vice Chairman of the Surviving Entity and First Federal. In accordance with the code

of regulations of the Surviving Entity, on a date during the period commencing January 1, 2021 and ending June 30, 2021 as determined by the board of directors of the Surviving Entity, or any such earlier date as of which Mr. Hileman ceases for any reason to serve in the position of Chief Executive Officer of the Surviving Entity or First Federal, as applicable (any such date, the “Succession Date”, (i) Mr. Small shall become Chief Executive Officer and President of the Surviving Entity and First Federal, (ii) Mr. Hileman shall become Executive Chairman of the Surviving Entity and First Federal and (iii) Mr. Schiraldi shall continue as Vice Chairman of the Surviving Entity and First Federal.

(e) On or prior to the Effective Time, First Defiance shall take all actions necessary to adopt amendments to its corporate governance guidelines effective as of and from and after the Effective Time that are consistent with the provisions of this Section 7.14 and are mutually agreed by United Community and First Defiance, including as set forth onSection 7.14(e) of the First Defiance Disclosure Schedules.

(f) As of and from the Effective Time, the headquarters of the Surviving Corporation will remain issuedbe located in Defiance, Ohio, and outstandingthe main office of First Federal will be located in Youngstown, Ohio.

(g) As of and from the Effective Time, the name of the Surviving Entity and the name of First Federal will each be a name to be mutually agreed upon by First Defiance and United Community prior to the Closing Date.

Section 7.15Commitments to the Community. Following the Effective Time, the Surviving Entity will maintain the level of philanthropic and community investment provided by each of First Defiance and United Community in their respective communities prior to the Effective Time.

Section 7.16Dividends. After the date of this Agreement, each of United Community and First Defiance shall coordinate with the other the declaration of any dividends in respect of the United Community Common Stock and the First Defiance Common Stock and the record dates and payment dates relating thereto, it being the intention of the parties to this Agreement that holders of United Community Common Stock shall not be affected byreceive two dividends, or fail to receive one dividend, in any quarter with respect to their shares of United Community Common Stock and any shares of First Defiance Common Stock any such holder receives in exchange therefor in the Merger.

1.8ARTICLE 8

CONDITIONS PRECEDENT TO OBLIGATIONS OF FIRST DEFIANCE

The obligations of First Defiance to consummate the Contemplated Transactions and to take the other actions required to be taken by First Defiance at the Closing are subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by First Defiance in whole or in part, subject to applicable Legal Requirements):

Section 8.1ArticlesAccuracy of IncorporationRepresentations and Warranties. For purposes of thisSection 8.1, the accuracy of the representations and warranties of United Community set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date (or such other date(s) as specified, to the extent any representation or warranty speaks as of a specific date). The representations and warranties set forth inSection 3.3andSection 3.5(a) shall be true and correct (except for inaccuracies which arede minimisin amount and effect). There shall not exist inaccuracies in the representations and warranties of United Community set forth in this Agreement (other than the representations set forth inSection 3.3 andSection 3.5(a)) such that the aggregate effect of such inaccuracies has, or is reasonably expected to have, a Material Adverse Effect on United Community;provided,that, for purposes of this sentence only, those representations and warranties which are qualified by references to “material” or “Material Adverse Effect” shall be deemed not to include such qualifications.

Section 8.2Performance by United Community. United Community shall have performed or complied in all material respects with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date.

Section 8.3Shareholder Approvals. Each of the United Community Shareholder Approval and the First Defiance Shareholder Approval shall have been obtained.

Section 8.4Regulatory Approvals. All Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated and there shall not be any action taken, or any Legal Requirement enacted, entered, enforced or deemed applicable to the Contemplated Transactions, by any Regulatory Authority, in connection with the grant of a Requisite Regulatory Approval, which shall have imposed a restriction or condition on, or requirement of, such approval that would, after the Effective Time, reasonably be expected to have a Material Adverse Effect on the Surviving CompanyEntity and its Subsidiaries, taken as a whole, after giving effect to the Merger.

Section 8.5Registration Statement. The Registration Statement shall have become effective under the Securities Act. No stop order shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement, and no Proceeding shall have been commenced or be pending or threatened for such purpose and not withdrawn.

Section 8.6Officers’ Certificate. First Defiance shall have received a certificate signed on behalf of United Community by an executive officer of United Community certifying as to the matters set forth inSections 8.1 and 8.2.

Section 8.7Tax Opinion. First Defiance shall have received a written opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP, tax counsel to First Defiance, in form and substance reasonably satisfactory to United Community and First Defiance, dated as of the Closing Date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 8.8Stock Exchange Listing. The shares of First Defiance Common Stock to be issued in the Merger shall have been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance.

Section 8.9No Material Adverse Effect. From the date of this Agreement to the Closing, there shall be and have been no change in the financial condition, assets or business of United Community or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on United Community.

Section 8.10No Legal Restraint. No order, injunction or decree issued by any court or Regulatory Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Regulatory Authority which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions.

ARTICLE 9

CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UNITED COMMUNITY

The obligations of United Community to consummate the Contemplated Transactions and to take the other actions required to be taken by United Community at the Closing are subject to the satisfaction, at or prior to the

Closing, of each of the following conditions (any of which may be waived by United Community, in whole or in part):

Section 9.1Accuracy of Representations and Warranties. For purposes of thisSection 9.1, the accuracy of the representations and warranties of First Defiance set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date (or such other date(s) as specified, to the extent any representation or warranty speaks as of a specific date). AtThe representations and warranties set forth inSection 4.3and Section 4.5(a) shall be true and correct (except for inaccuracies which aredeminimisin amount and effect). There shall not exist inaccuracies in the representations and warranties of First Defiance set forth in this Agreement (other than the representations set forth inSection 4.3 andSection 4.5(a)) such that the aggregate effect of such inaccuracies has, or is reasonably expected to have, a Material Adverse Effect on First Defiance;provided,that, for purposes of this sentence only, those representations and warranties which are qualified by references to “material” or “Material Adverse Effect” shall be deemed not to include such qualifications.

Section 9.2Performance by First Defiance. First Defiance shall have performed or complied in all material respects with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date.

Section 9.3Shareholder Approvals. Each of the United Community Shareholder Approval and the First Defiance Shareholder Approval shall have been obtained.

Section 9.4Regulatory Approvals. All Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated and there shall not be any action taken, or any Legal Requirement enacted, entered, enforced or deemed applicable to the Contemplated Transactions, by any Regulatory Authority, in connection with the grant of a Requisite Regulatory Approval, which shall have imposed a restriction or condition on, or requirement of, such approval that would, after the Effective Time, reasonably be expected to have a Material Adverse Effect on the Surviving Entity and its Subsidiaries, taken as a whole, after giving effect to the Merger.

Section 9.5Registration Statement. The Registration Statement shall have become effective under the Securities Act. No stop order shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement, and no Proceeding shall have been commenced or be pending or threatened for such purpose.

Section 9.6Officers’ Certificate. United Community shall have received a certificate signed on behalf of First Defiance by an executive officer of First Defiance certifying as to the matters set forth inSections 9.1 and9.2.

Section 9.7Tax Opinion. United Community shall have received a written opinion of Wachtell, Lipton, Rosen & Katz, tax counsel to United Community, in form and substance reasonably satisfactory to United Community and First Defiance, dated as of the Closing Date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 9.8Stock Exchange Listing. The shares of First Defiance Common Stock to be issued in the Merger shall have been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance.

Section 9.9No Material Adverse Effect. From the date of this Agreement to the Closing, there shall be and have been no change in the financial condition, assets or business of First Defiance or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on First Defiance.

Section 9.10No Legal Restraint. No order, injunction or decree issued by any court or Regulatory Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the

Merger, the Bank Merger or any of the other Contemplated Transactions shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Regulatory Authority which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions.

ARTICLE 10

TERMINATION

Section 10.1Termination of Agreement. This Agreement may be terminated only as set forth below, whether before or after approval of the matters presented in connection with the Merger by the shareholders of United Community or First Defiance:

(a) by mutual consent of First Defiance and United Community, each evidenced by appropriate written board resolutions;

(b) by First Defiance if United Community shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the Closing would otherwise occur would result in the failure of any of the conditions set forth inArticle 8 and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation and warranty or failing to perform;provided, that First Defiance is not then in material breach of any representation, warranty, covenant or other agreement contained herein;

(c) by United Community if First Defiance shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the Closing would otherwise occur would result in the failure of any of the conditions set forth inArticle 9 and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation and warranty or failing to perform,provided, that United Community is not then in material breach of any representation, warranty, covenant or other agreement contained herein;

(d) by First Defiance or United Community if: any Regulatory Authority that must grant a Requisite Regulatory Approval has denied approval of any of the Contemplated Transactions and such denial has become final and nonappealable;provided, however, that the right to terminate this Agreement under thisSection 10.1(d) shall not be available to a party whose failure (or the failure of any of its Affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any such event described above;

(e) by First Defiance or United Community if the Effective Time shall not have occurred at or before the date that is one (1) year following the Agreement date (the “Termination Date”);provided,however, that the right to terminate this Agreement under thisSection 10.1(e) shall not be available to any party to this Agreement whose failure to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the failure of the Effective Time to occur on or before such date;

(f) by First Defiance or United Community if any court of competent jurisdiction or other Regulatory Authority shall have issued a judgment, Order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting any of the Contemplated Transactions and such judgment, Order, injunction, rule, decree or other action shall have become final and nonappealable;provided, however, that the right to terminate this Agreement under thisSection 10.1(f) shall not be available to a party whose failure (or the failure of any of its Affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any such event described above;

(g) by United Community prior to such time as the First Defiance Shareholder Approval is obtained, if (i) First Defiance Board shall have (A) failed to recommend in the Joint Proxy Statement that the shareholders of First Defiance adopt this Agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to United Community, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting an First Defiance Acquisition Proposal that has been publicly disclosed within ten (10) Business Days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms hereof or (B) recommended or endorsed an First Defiance Acquisition Proposal or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after an First Defiance Acquisition Proposal is publicly announced or (ii) First Defiance or the First Defiance Board has breached its obligations underSection 7.3 or7.10 in any material respect; or

(h) by First Defiance prior to such time as the United Community Shareholder Approval is obtained, if (i) the United Community Board shall have (A) failed to recommend in the Joint Proxy Statement that the shareholders of United Community adopt this Agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to First Defiance, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting a United Community Acquisition Proposal that has been publicly disclosed within ten (10) Business Days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms hereof or (B) recommended or endorsed a United Community Acquisition Proposal or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after a United Community Acquisition Proposal is publicly announced, or (ii) United Community or the United Community Board has breached its obligations underSection 7.3or Section 7.9 in any material respect.

Section 10.2Effect of Termination or Abandonment.

(a) In the event of the termination of this Agreement and the abandonment of the Merger pursuant toSection 10.1, this Agreement shall become null and void, and there shall be no liability of one party to the other or any restrictions on the future activities on the part of any party to this Agreement, or its respective directors, officers or shareholders, except that: (i) the Confidentiality Agreement, thisSection 10.2 andArticle 11 shall survive such termination and abandonment; and (ii) notwithstanding anything to the contrary contained in this Agreement, neither First Defiance nor United Community shall be relieved or released from any liabilities or damages arising out of fraud or its Willful Breach of any provision of this Agreement occurring prior to termination. “Willful Breach” shall mean a material breach of, or material failure to perform any of the covenants or other agreements contained in, this Agreement, that is a consequence of an act or failure to act by the breaching ornon-performing party with actual knowledge that such party’s act or failure to act would, or would reasonably be expected to, result in or constitute such breach of or such failure of performance under this Agreement.

(b) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide United Community Acquisition Proposal shall have been made known to senior management of United Community or United Community Board or has been made directly to its shareholders generally or any person shall have publicly announced a United Community Acquisition Proposal (and not withdrawn such United Community Acquisition Proposal at least two (2) Business Days prior to the United Community Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the United Community Shareholder Approval having been obtained (and all other conditions set forth inArticle 9 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by First Defiance pursuant toSection 10.1(b) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, United Community enters into a definitive agreement or consummates a transaction with respect to a United Community Acquisition Proposal (whether or not the same United Community Acquisition Proposal as that referred to above), then

United Community shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay First Defiance, by wire transfer of same day funds, a fee equal to $18,400,000 (the “Termination Fee”); provided that for purposes of this Section 10.2(b), all references in the definition of United Community Acquisition Proposal to “25%” shall instead refer to “50%”.

(c) In the event that this Agreement is terminated by First Defiance pursuant toSection 10.1(h), then United Community shall pay First Defiance, by wire transfer of same day funds, the Termination Fee on the date of termination.

(d) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide First Defiance Acquisition Proposal shall have been made known to senior management of First Defiance or First Defiance Board or has been made directly to its shareholders generally or any person shall have publicly announced an First Defiance Acquisition Proposal (and not withdrawn such First Defiance Acquisition Proposal at least two (2) Business Days prior to the First Defiance Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the First Defiance Shareholder Approval having been obtained (and all other conditions set forth inArticle 8 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by United Community pursuant toSection 10.1(c) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, First Defiance enters into a definitive agreement or consummates a transaction with respect to an First Defiance Acquisition Proposal (whether or not the same First Defiance Acquisition Proposal as that referred to above), then First Defiance shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay United Community, by wire transfer of same day funds, the Termination Fee; provided that for purposes of thisSection 10.2(d), all references in the definition of First Defiance Acquisition Proposal to “25%” shall instead refer to “50%”.

(e) In the event that this Agreement is terminated by United Community pursuant toSection 10.1(g), then First Defiance shall pay United Community, by wire transfer of same day funds, the Termination Fee on the date of termination.

(f) Notwithstanding anything to the contrary herein, but without limiting the right of either party to recover liabilities or damages arising out of the other party’s fraud or Willful Breach of any provision of this Agreement, in the event that this Agreement is terminated as provided inSection 10.1 under circumstances where the Termination Fee is payable and paid in full, the maximum aggregate amount of monetary fees, liabilities or damages payable by a single party to this Agreement under thisSection 10.2 shall be equal to the Termination Fee, and neither United Community nor First Defiance shall be required to pay the Termination Fee on more than one occasion.

(g) Each of First Defiance and United Community acknowledges that the agreements contained in thisSection 10.2 are an integral part of the Contemplated Transactions, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if First Defiance or United Community fails promptly to pay the amount due pursuant to thisSection 10.2, and, in order to obtain such payment, the other party commences a suit which results in a judgment against thenon-paying party for the Termination Fee, suchnon-paying party shall pay the costs and expenses of the other party (including reasonable attorneys’ fees and expenses) in connection with such suit. In addition, if First Defiance or United Community, as the case may be, fails to pay the amounts payable pursuant to thisSection 10.2, then such party shall pay interest on such overdue amounts (for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full) at a rate per annum equal to the prime rate (as announced by JPMorgan Chase & Co. or any successor thereto) in effect on the date on which such payment was required to be made for the period commencing as of the date that such overdue amount was originally required to be paid. The amounts payable by First Defiance and United Community, as applicable, pursuant toSection 10.2, as applicable, constitute liquidated damages and not a penalty, and, except in the case of fraud or Willful Breach of this Agreement, shall be the sole monetary remedy of United Community and First

Defiance, as applicable, in the event of a termination of this Agreement specified in such section under circumstances where the Termination Fee is payable and is paid in full.

ARTICLE 11

MISCELLANEOUS

Section 11.1Survival. Except for covenants that are expressly to be performed after the Closing, none of the representations, warranties and covenants contained herein shall survive beyond the Closing.

Section 11.2Governing Law; Jurisdiction.

(a) All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the laws of the State of Ohio applicable to contracts made and performed entirely within such state, without giving effect to its principles of conflicts of laws.

(b) Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the courts of the State of Ohio (or, if such court determines that it lacks subject matter jurisdiction, any federal court sitting in the State of Ohio) (and any courts from which appeals may be taken) (the “Chosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance withSection 11.9.

Section 11.3Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BANK MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.3.

Section 11.4Cumulative Remedies; Specific Performance. All rights and remedies under this Agreement or otherwise afforded by applicable Legal Requirements to any party, shall be cumulative and not alternative. Without limiting the rights of a party hereto to pursue all other legal and equitable rights available to such party for another party’s failure to perform its obligations under this Agreement in accordance with its specific terms, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their respective obligations hereunder would be inadequate and irreparable damage would occur and that each party shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. Each of the parties hereby further waives any requirement under applicable Legal Requirements to post security as a prerequisite to obtaining equitable relief.

Section 11.5Expenses. Each party to this Agreement shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the Bank Merger Agreement and the transactions contemplated hereby and thereby, whether or not such transactions are consummated, including all fees and expenses of such party’s Representatives.

Section 11.6Assignments, Successors and No Third Party Rights. Neither party to this Agreement may assign any of its rights under this Agreement (whether by operation of law or otherwise) without the prior written consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement and every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except for (a) Section 6.5and (b) from and after the Effective Time, the Articles of Incorporation of First Defiance (the “First Defiance Articles”), as in effect at the Effective Time, will be the Articles of Incorporationrights of the Surviving Company until thereafter amendedholders of shares of United Community Common Stock to receive the Merger Consideration and the holders of United Community Equity Awards to receive the consideration set forth inSection 2.5, in each case in accordance with the terms of and subject to the conditions of this Agreement, nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance withSection 11.8 without notice or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

Section 11.7Modification. This Agreement may be amended, modified or supplemented by the parties at any time before or after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained;provided, however, that after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained, there may not be, without further approval of United Community’s and/or First Defiance’s shareholders, respectively, any amendment of this Agreement that requires further approval under applicable law.Legal Requirements. This Agreement may not be amended, modified or supplemented except by an instrument in writing signed on behalf of each of the parties.

1.9Section 11.8CodeExtension of Regulations of Surviving CompanyTime; Waiver. At any time prior to the Effective Time, the Codeparties may, to the extent permitted by applicable Legal Requirements: (a) extend the time for the performance of Regulationsany of the obligations or other acts of the other party; (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement; or (c) waive compliance with or amend, modify or supplement any of the agreements or conditions contained in this Agreement which are for the benefit of the waiving party. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Legal Requirements: (x) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (y) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (z) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 11.9Notices. All notices, consents, waivers and other communications under this Agreement shall be in writing (which shall include electronic mail) and shall be deemed to have been duly given if delivered by

hand or by nationally recognized overnight delivery service (receipt requested), mailed by registered or certified U.S. mail (return receipt requested) postage prepaid or electronic mail (if confirmed) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

If to First Defiance, to:

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

Electronic mail:    dhileman@first-fed.com

                                jreisner@first-fed.com

Attention:     Donald P. Hileman, President and Chief Executive Officer

                      John Reisner, General Counsel

with copies to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street

Suite 3900

Chicago, Illinois 60606

Electronic mail:     robert.fleetwood@bfkn.com

Attention:     Robert M. Fleetwood, Esq.

If to United Community, to:

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503-1203

Electronic mail:     gsmall@homesavings.com

                                jnohra@homesavings.com

Attention:     Gary M. Small, President and Chief Executive Officer

                      Jude J. Nohra, General Counsel

with copies to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Electronic mail:     EDHerlihy@wlrk.com

                                BCPrice@wlrk.com

Attention:     Edward D. Herlihy, Esq.

                     Brandon C. Price, Esq.

or to such other Person or place as United Community shall furnish to First Defiance or First Defiance shall furnish to United Community in writing. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand or electronic mail, when delivered (provided that the receipt of electronic mail is promptly confirmed); (b) if delivered by overnight delivery service, on the next Business Day after deposit with such service; and (c) if mailed in the manner provided in thisSection 11.9, five (5) Business Days after deposit with the U.S. Postal Service.

Section 11.10Entire Agreement. This Agreement, the schedules, the exhibits and any documents executed by the parties pursuant to this Agreement and referred to herein, together with the Confidentiality Agreement, constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, relating to such subject matter between the parties.

Section 11.11Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Legal Requirements, but if any provision of this

Agreement is held to be prohibited by or invalid under applicable Legal Requirements, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement unless the consummation of the Contemplated Transactions is adversely affected thereby.

Section 11.12Counterparts. This Agreement and any amendments thereto may be executed in any number of counterparts (including by facsimile or other electronic means), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart.

Section 11.13Confidential Supervisory Information.Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(c) and as identified in 12 C.F.R. § 309.5(g)(8)) of a Regulatory Authority by any party to this Agreement to the extent prohibited by applicable Legal Requirements. To the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.

ARTICLE 12

DEFINITIONS

Section 12.1Definitions. In addition to those terms defined throughout this Agreement, the following terms, when used herein, shall have the following meanings:

(a) “Affiliate” means, with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with, such specified Person.

(b) “Business Day” means any day except Saturday, Sunday and any day on which banks in Ohio are authorized or required by law or other government action to close.

(c) “Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (i) the Merger; (ii) the Bank Merger, (iii) the performance by First Defiance and United Community of their respective covenants and obligations under this Agreement; and (iv) First Defiance’s issuance of shares of First Defiance (theCommon Stock pursuant to the Registration Statement and cash in lieu of fractional shares of First Defiance Common Stock.

(d) “Contract” means any agreement, contract, obligation, promise or understanding (whether written or oral and whether express or implied) that is legally binding: (i) under which a Person has or may acquire any rights; (ii) under which such Person has or may become subject to any obligation or liability; or (iii) by which such Person or any of the assets owned or used by such Person is or may become bound.

(e) “Control,” “Controlling” or “Controlled” when used with respect to any specified Person, means the power to vote 25 percent (25%) or more of any class of voting securities of a Person, the power to control in any manner the election of a majority of the directors or partners of such Person, or the power to exercise a controlling influence over the management or policies of such Person.

(f) “CRA” means the Community Reinvestment Act, as amended.

(g) “Deposit Insurance Fund” means the fund that is maintained by the FDIC to allow it to make up for any shortfalls from a failed depository institution’s assets.

(h) “Derivative Transactions” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, prices, values, or other financial or nonfinancial assets, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

(i) “DOL” means the U.S. Department of Labor.

(j) “Environment” means surface or subsurface soil or strata, surface waters and sediments, navigable waters, groundwater, drinking water supply and ambient air.

(k) “Environmental Laws” means any federal, state or local law, statute, ordinance, rule, regulation, code, order, permit or other legally binding requirement applicable to the business or assets of United Community or any of its Subsidiaries that imposes liability or standards of conduct with respect to the Environment and/or Hazardous Materials.

(l) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations”), means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in effect immediately priorSection 3(9) of ERISA) that is treated as a single employer with First Defiance or any of its Subsidiaries for purposes of Section 414 of the Code.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the following: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “First Defiance SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by First Defiance with the SEC under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance Shareholder Approval” means (i) the adoption of this Agreement by the shareholders of First Defiance by the affirmative vote oftwo-thirds of the outstanding shares of First Defiance Common Stock, and (ii) the amendment to the Effective Time, will be theFirst Defiance Code of Regulations, ofby the Surviving Company until thereafter amended in accordance with applicable law.

1.10Tax Consequences.  It is intended that the Merger qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and that this Agreement is intended to be and is adopted as a “plan of reorganization” within the meaning of Treasury Regulation Sections 1.368-2(g) and 1.368-3(a).


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1.11Bank Merger.  Immediately following the Merger, or at such later time as First Defiance may determine in its sole discretion, The Commercial Savings Bank (“Commercial Bank”), an Ohio bank and a wholly owned Subsidiary of Commercial Bancshares, will merge (the “Bank Merger”) with and into First Federal Bank of the Midwest (“First Federal”), a federal savings bank and a wholly owned Subsidiary of First Defiance. First Federal will be the surviving entity in the Bank Merger and, following the Bank Merger, the separate corporate existence of Commercial Bank will cease. On the date of this Agreement, First Federal and Commercial Bank entered into the agreement and plan of merger attached hereto as Exhibit A (the “Bank Merger Agreement”). Prior to the Effective Time, Commercial Bancshares will cause Commercial Bank, and First Defiance will cause First Federal, to execute such certificates or articles of merger and such other documents and certificates as are necessary to effectuate the Bank Merger (“Bank Merger Certificates”).

ARTICLE II
EXCHANGE OF SHARES

2.1First Defiance to Make Shares and Cash Available.  At or prior to the Effective Time, First Defiance will deposit, or will cause to be deposited, with a bank or trust company designated by First Defiance (the “Exchange Agent”), for the benefit of the holders of Old Certificates, for exchange in accordance with this Article II, a sufficient amount of cash to be paid in exchange for Commercial Bancshares Shares that are to receive the Cash Consideration, and a sufficient numbershareholders of First Defiance Shares to be exchanged forby the Commercial Bancshares Shares that are to receiveaffirmative vote of a majority of the outstanding shares of First Defiance Common Stock.

(b) “First Defiance Stock Consideration (such cash and New Certificates, together with any dividends or disbursements,Issuance” means the “Exchange Fund”). The Exchange Fund will be held in trust for holdersissuance of Commercial Bancshares Shares until distributed to such holdersthe First Defiance Common Stock pursuant to this Agreement.

(c) “2.2GAAPExchange of Commercial Bancshares Certificates; Election Forms.” means generally accepted accounting principles in the U.S., consistently applied.

(a) Prior to(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the Election Period, the Exchange Agent will mail to each holder of record of Commercial Bancshares SharesU.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a form letter of transmittaljoint proxy statement/prospectus prepared by First Defiance and instructionsUnited Community for use in surrendering for exchangeconnection with the Old Certificates, together with an election form (“Election Form”). Holders of uncertificated Commercial Bancshares Shares shall be mailed an Election Form. The letter of transmittal will specify thatUnited Community Meeting and the risk of loss and title to the Old Certificates will pass only upon delivery of such certificates as specified in the letter of transmittal. Each Election Form will permit the holder (or in the case of nominee record holders, the beneficial owner through proper instructions and documentation) to (i) elect to receive the Stock Consideration with respect to the number of such holder’s Commercial Bancshares Shares specified in the Election Form, (ii) elect to receive the Cash Consideration with respect to the number of such holder’s Commercial Bancshares Shares specified in the Election Form, or (iii) indicate that such holder makes no election as to such holder’s Commercial Bancshares Shares. For purposes of this Agreement, the term “Election Period” will mean the period as First Defiance Meeting, all in accordance with the rules and Commercial Bancshares may agree, during which holders of Commercial Bancshares Shares may validly elect the form of consideration to be received for Commercial Bancshares Shares, occurring between (i) the date of mailingregulations of the S-4 and (ii)SEC.

(g) “Knowledge” means the third business day immediately preceding the Effective Time. Any election will have been properly made only if the Exchange Agent has actually received a properly completed Election Form accompanied by one or more Old Certificates, if such Commercial Bancshares Shares are certificated by 5:00 p.m. Eastern Time on the last dayactual knowledge of the Election Period (the “Election Deadline”). A submitted Election Form may be revoked or changed by written notice to the Exchange Agent only if such revocation or change is actually received by the Exchange Agent by the Election Deadline. Commercial Bancshares Shares as to which a holder does not submit a properly completed Election Form accompanied by, if applicable, Old Certificates, by the Election Deadline will be Non-Election Shares. The Exchange Agent will make all determinations as to when any election, modification or revocation has been received and whether any such election, modification or revocation has been properly made.

(b) All payments made upon the surrenderofficers of Old Certificates pursuant to this Agreement will be deemed to have been made in full satisfaction of all rights pertaining to the shares evidenced by such Old Certificates.


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(c) If any Old Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Old Certificate to be lost, stolen or destroyed and, if required by the Exchange Agent or First Defiance in their sole discretion,listed onSection 12.1 of the posting by such person of a bond in such amount as First Defiance may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Old Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Old Certificate the cash and/or First Defiance Shares (and cash in lieu of fractional First Defiance Share interests, if any) deliverable in respect thereof.

(d) Promptly, and not more than eight (8) business days following the Effective Time, the Exchange Agent will deliver to each holder of Commercial Bancshares Shares of record immediately prior to the Effective Time (other than Dissenting Shares) who has surrendered Old Certificates (and to all holders of uncertificated Commercial Bancshares Shares) and who has properly completed and submitted to First Defiance all documentation reasonably required by First Defiance the Merger Consideration, and any applicable dividends or distributions pursuant to subsection (f) below, to which such holder is entitled. For certificated Commercial Bancshares Shares, no payment will be made until the Old Certificate(s) representing such Commercial Bancshares Shares are surrenderedDisclosure Schedules or the procedure regarding lost, stolen or destroyed certificates set forth in officers of United Community listed onSection 2.2(c) has been completed. After the Effective Time and until surrendered, an Old Certificate will represent only the right to receive the Merger Consideration to which the holder is entitled pursuant to Section 1.5, and any applicable dividends or distributions pursuant to subsection (f) below. If any New Certificate representing First Defiance Shares is to be issued in a name other than that in which the Old Certificate(s) surrendered in exchange therefor are registered, it will be a condition  12.1of the issuance thereof thatUnited Community Disclosure Schedules, as the Old Certificate(s) so surrendered will be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such exchange will pay to the Exchange Agent in advancecontext requires.

(h) “Legal Requirement” means any transferfederal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any mortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or other similar Taxes required by reason of the issuance of a New Certificate representing First Defiance Shares in any name other than that of the registered holder of the Old Certificate(s) surrendered,encumbrance or required for any other reason, or will establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

(e) None of First Defiance, Commercial Bancshares, the Exchange Agent or the Surviving Company will be liable to any former holder of Commercial Bancshares Shares for any payment of the Merger Consideration, any cash in lieu of a fractional First Defiance Share interest or any dividends or distributions with respect to First Defiance Shares delivered to a public official if required by any applicable abandoned property, escheat or similar law.

(f) No dividends or other distributions declared after the Effective Time with respect to First Defiance Shares and payable to the holders of record thereof after the Effective Time shall be paid to the holder of any unsurrendered Old Certificate until it is surrendered by the holder thereof. Subject to the effect, if any, of applicable law, after the subsequent surrender and exchange of an Old Certificate, the record holder will be entitled to receive from First Defiance any dividends or other distributions, without any interest thereon, that became payable to the holders of record after the Effective Time with respect to any First Defiance Shares represented by such Old Certificate.

(g) After the Effective Time, there will be no further registration or transfer of Commercial Bancshares Shares on the stock transfer books of Commercial Bancshares. In the event that, after the Effective Time, Commercial Bancshares Shares (or the Old Certificates representing them) are presented for transfer, they will be cancelled and exchanged as provided in this Article II.

(h) First Defiance or the Exchange Agent will be entitled to deduct and withhold from the Merger Consideration such amounts as First Defiance or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any other provision of domestic or foreign tax law (whether national, federal, state, provincial, local or otherwise). To the extent that amounts are so withheld and paid over to the appropriate taxing authority by First Defiance or the Exchange Agent, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the Commercial Bancshares Shares.


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(i) Any portion of the Exchange Fund that remains unclaimed by the shareholders of Commercial Bancshares for one (1) year after the Effective Time shall be paid to the Surviving Company. Any former shareholders of Commercial Bancshares who have not exchanged their Old Certificates pursuant to this Article II may look only to the Surviving Company for payment of the Merger Consideration, cash in lieu of any fractional shares and any unpaid dividends and distributions on the First Defiance Shares deliverable in respect of each former Commercial Bancshares Share such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of First Defiance, Commercial Bancshares, the Surviving Company, the Exchange Agent or any other person will be liable to any former holder of Commercial Bancshares Shares for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.claim.

(j) The Surviving Company may from time to time waive one or more of the rights provided to it in this Article II to withhold certain payments, deliveries and distributions; and no such waiver will constitute a waiver of its rights thereafter to withhold any such payment, delivery or distribution in the case of any person.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMMERCIAL BANCSHARES

Except as disclosed in the disclosure schedule delivered by Commercial Bancshares to First Defiance concurrently herewith (the “Commercial Bancshares Disclosure Schedule”), Commercial Bancshares hereby represents and warrants to First Defiance the statements contained in this Article III; provided, that the mere inclusion of an item in the Commercial Bancshares Disclosure Schedule as an exception to a representation or warranty will not be deemed an admission by Commercial Bancshares that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect.

3.1Corporate Organization.

(a) Commercial Bancshares is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and is a financial holding company duly registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). Commercial Bancshares has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted in all material respects. Commercial Bancshares is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not, either individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on Commercial Bancshares. As used in this Agreement, the term “Material Adverse EffectExchange Act” means with respect to First Defiance, Commercial Bancshares or the Surviving Company,Securities Exchange Act of 1934, as the case may be, a material adverse effect on (i) the business, properties, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries, taken as a whole (provided, however, that, with respect to this clause (i), Material Adverse Effect will not be deemed to include the impact of (A) changes, after the date hereof, in U.S. generally accepted accounting principles (“amended.

(n) “GAAPFDIC”) or applicable regulatory accounting requirements, (B) changes, after the date hereof, in laws, rules or regulations of general applicability to companies in the industries in which such party and its Subsidiaries operate, or interpretations thereof by courts or Governmental Entities, (C) changes, after the date hereof, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market (including equity, credit and debt markets, as well as changes in interest rates) conditions affecting the financial services industry generally and not specifically relating to such party or its Subsidiaries, (D) failure, in and of itself, to meet earnings projections or internal financial forecasts, but not including the underlying causes thereof, (E) disclosure or consummation of the transactions contemplated hereby (including any effect on a party’s relationship with its customers or employees) or actions expressly required by this Agreement in contemplation of the transactions contemplated hereby, or (F) actions or omissions taken pursuant to the written consent of First Defiance, in the case of Commercial Bancshares, or Commercial Bancshares, in the case of First Defiance; except, with respect to subclauses (A), (B), or (C), to the extent that the effects of such change


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are materially disproportionately adverse to the business, properties, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate) or (ii) the ability of such party to timely consummate the transactions contemplated hereby. As used in this Agreement, the word “Subsidiary,” when used with respect to any party, means any corporation, partnership, limited liability company, bank or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes. True and complete copies of the Articles of Incorporation of Commercial Bancshares (the “Commercial Bancshares Articles”) and the Code of Regulations of Commercial Bancshares (the “Commercial Bancshares Code of Regulations”), as in effect as of the date of this Agreement, have previously been made available by Commercial Bancshares to First Defiance.

(b) Except, in the case of clauses (ii) and (iii) only, as would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares, each Subsidiary of Commercial Bancshares (a “Commercial Bancshares Subsidiary”) (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and, where such concept is recognized under applicable law, in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted. There are no restrictions on the ability of any Subsidiary of Commercial Bancshares to pay dividends or distributions, except, in the case of a Subsidiary that is a regulated entity, for restrictions on dividends or distributions generally applicable to all such regulated entities. The deposit accounts of each Subsidiary of Commercial Bancshares that is an insured depository institution are insured by the Federal Deposit Insurance Corporation (theCorporation.

(o) “FDICFederal Reserve”) through the Deposit Insurance Fund (as defined in Section 3(y) of the Federal Deposit Insurance Act of 1950) to the fullest extent permitted by law, all premiums and assessments required to be paid in connection therewith have been paid when due, and no proceedings for the termination of such insurance are pending or, to the knowledge of Commercial Bancshares, threatened. Section 3.1(b) of the Commercial Bancshares Disclosure Schedule sets forth a true and complete list of all Subsidiaries of Commercial Bancshares as of the date hereof.

3.2Capitalization.

(a) The authorized capital stock of Commercial Bancshares consists only of 4,000,000 Commercial Bancshares Shares, without par value. As of the date of this Agreement, no shares of capital stock or other voting securities of Commercial Bancshares are issued, reserved for issuance or outstanding, other than 1,209,788 Commercial Bancshares Shares issued and outstanding, 3,409 Commercial Bancshares Shares held in treasury, 51,084 Commercial Bancshares Shares reserved for issuance upon the exercise of outstanding Commercial Bancshares Stock Options, and 28,850 Commercial Bancshares Shares reserved for issuance upon the issuance of future awards pursuant to Commercial Bancshares’ 2009 Stock Incentive Plan. All of the issued and outstanding Commercial Bancshares Shares have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No bonds, debentures, notes or other indebtedness that have the right to vote on any matters on which shareholders of Commercial Bancshares may vote are issued or outstanding. No trust preferred or subordinated debt securities of Commercial Bancshares are issued or outstanding. Other than Commercial Bancshares Stock Options issued prior to the date of this Agreement, as of the date of this Agreement, there are no outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements obligating Commercial Bancshares to issue, transfer, sell, purchase, redeem or otherwise acquire any such securities.

(b) There are no voting trusts, shareholder agreements, proxies or other agreements in effect pursuant to which Commercial Bancshares or any of the Commercial Bancshares Subsidiaries has a contractual obligation with respect to the voting or transfer of Commercial Bancshares Shares or other equity interests of Commercial Bancshares. No equity-based awards (including any cash awards where the amount of payment is determined in whole or in part based on the price of any capital stock of Commercial Bancshares or any of its Subsidiaries) are outstanding.


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(c) Commercial Bancshares owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of the Commercial Bancshares Subsidiaries, free and clear of any liens, pledges, charges, encumbrances and security interests whatsoever (“Liens”), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (except, with respect to Commercial Bancshares Subsidiaries that are insured depository institutions, as provided under 12 U.S.C. §55 or any comparable provision of applicable state law) and free of preemptive rights, with no personal liability attaching to the ownership thereof. No Commercial Bancshares Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, rights, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary.

3.3Authority; No Violation.

(a) Commercial Bancshares has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger have been duly and validly approved by the Board of Directors of Commercial Bancshares. The Board of Directors of Commercial Bancshares has determined that the Merger, on the terms and conditions set forth in this Agreement, is in the best interests of Commercial Bancshares and has directed that this Agreement and the transactions contemplated hereby be submitted to Commercial Bancshares’ shareholders for adoption at a meeting of such shareholders and has adopted a resolution to the foregoing effect. Except for the adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding of Commercial Bancshares Shares (the “Requisite Commercial Bancshares Vote”), no other corporate proceedings on the part of Commercial Bancshares are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Commercial Bancshares and (assuming due authorization, execution and delivery by First Defiance) constitutes a valid and binding obligation of Commercial Bancshares, enforceable against Commercial Bancshares in accordance with its terms (except in all cases as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or similar laws of general applicability relating to or affecting insured depository institutions or their parent companies or the rights of creditors generally and subject to general principles of equity (the “Enforceability Exceptions”)).

(b) Subject to the receipt of the Requisite Commercial Bancshares Vote, neither the execution and delivery of this Agreement by Commercial Bancshares nor the consummation by Commercial Bancshares of the transactions contemplated hereby, nor compliance by Commercial Bancshares with any of the terms or provisions hereof, will (i) violate any provision of the Commercial Bancshares Articles or the Commercial Bancshares Code of Regulations or (ii) assuming that the consents, approvals and filings referred to in Section 3.4 are duly obtained and/or made, (x) violate any law, statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Commercial Bancshares or any of its Subsidiaries or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Commercial Bancshares or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Commercial Bancshares or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound, except (in the case of clause (ii) above) for such violations, conflicts, breaches, defaults, terminations, cancellations, accelerations or creations which, either individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect on Commercial Bancshares.

3.4Consents and Approvals.  Except for (i) the filing of applications, filings and notices, as applicable, with the NASDAQ, (ii) the filing of applications, filings and notices, as applicable, with means the Board of Governors of the Federal Reserve System (theSystem.

(p) “Federal ReserveFirst Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board”), means the Officeboard of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a single employer with First Defiance or any of its Subsidiaries for purposes of Section 414 of the ComptrollerCode.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the Currency (thefollowing: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “OCCFirst Defiance SEC Reports”), means the FDICannual, quarterly and the Ohio Division of Financial Institutions (the “ODFI”) in


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connection with the Mergerother reports, schedules, forms, statements and the Bank Merger,other documents (including exhibits and approval of such applications, filings and notices, (iii) the filing with the Securities and Exchange Commission (the “SEC”) of a proxy statement in definitive form relating to the meeting of Commercial Bancshares’ shareholders to be held in connection with this Agreement and the transactions contemplated hereby (including any amendmentsall other information incorporated therein) filed or supplements thereto, the “Proxy Statement”), and of the registration statement on Form S-4 in which the Proxy Statement will be included as a prospectus, to be filedfurnished by First Defiance with the SEC by under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance in connection withShareholder Approval” means (i) the transactions contemplated byadoption of this Agreement (the “S-4”) and declarationby the shareholders of effectivenessFirst Defiance by the affirmative vote oftwo-thirds of the S-4, (iv)outstanding shares of First Defiance Common Stock, and (ii) the filingamendment to the First Defiance Code of Regulations, by the shareholders of First Defiance by the affirmative vote of a majority of the Certificateoutstanding shares of Merger with the Ohio Secretary pursuant to the OGCL, (v) the filing of articles of combination with the OCC, (vi) the filing of any notices or other filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (theFirst Defiance Common Stock.

(b) “HSR ActFirst Defiance Stock Issuance”), if necessary or advisable, and (vii) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with means the issuance of the First Defiance SharesCommon Stock pursuant to this Agreement andAgreement.

(c) “GAAP” means generally accepted accounting principles in the approval ofU.S., consistently applied.

(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the listing of suchU.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a joint proxy statement/prospectus prepared by First Defiance Shares on the NASDAQ, no consents or approvals of or filings or registrations with any court or administrative agency or commission or other governmental authority or instrumentality or SRO (each a “Governmental Entity”) are necessaryand United Community for use in connection with (A) the executionUnited Community Meeting and delivery by Commercial Bancshares of this Agreement or (B) the consummation by Commercial BancsharesFirst Defiance Meeting, all in accordance with the rules and regulations of the Merger and the other transactions contemplated hereby (including the Bank Merger). As used in this Agreement,SEC.

(g) “SROKnowledge” means (i) any “self-regulatory organization” as defined in Section 3(a)(26)the actual knowledge of the Securities Exchange Actofficers of 1934,First Defiance listed onSection 12.1 of the First Defiance Disclosure Schedules or the officers of United Community listed onSection 12.1of the United Community Disclosure Schedules, as amended (thethe context requires.

(h) “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any mortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or other similar encumbrance or claim.

(j) “Exchange Act”) means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a single employer with First Defiance or any of its Subsidiaries for purposes of Section 414 of the Code.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the following: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “First Defiance SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by First Defiance with the SEC under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance Shareholder Approval” means (i) the adoption of this Agreement by the shareholders of First Defiance by the affirmative vote oftwo-thirds of the outstanding shares of First Defiance Common Stock, and (ii) the amendment to the First Defiance Code of Regulations, by the shareholders of First Defiance by the affirmative vote of a majority of the outstanding shares of First Defiance Common Stock.

(b) “First Defiance Stock Issuance” means the issuance of the First Defiance Common Stock pursuant to this Agreement.

(c) “GAAP” means generally accepted accounting principles in the U.S., consistently applied.

(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the U.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a joint proxy statement/prospectus prepared by First Defiance and United Community for use in connection with the United Community Meeting and the First Defiance Meeting, all in accordance with the rules and regulations of the SEC.

(g) “Knowledge” means the actual knowledge of the officers of First Defiance listed onSection 12.1 of the First Defiance Disclosure Schedules or the officers of United Community listed onSection 12.1of the United Community Disclosure Schedules, as the context requires.

(h) “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any mortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or other similar encumbrance or claim.

(j) “Material Adverse Effect” as used with respect to a party, means an event, circumstance, change, effect or occurrence which, individually or together with any other United Statesevent, circumstance, change, effect or foreign securities exchange, futures exchange, commodities exchangeoccurrence: (i) has a material adverse effect on the business, financial condition, assets, liabilities or contract market. Asresults of operations of such party and its Subsidiaries, taken as a whole; or (ii) materially impairs the date hereof, Commercial Bancshares is not awareability of any reason why the necessary regulatory approvals and consents will not be received in ordersuch party to permit consummation ofperform its obligations under this Agreement or to consummate the Merger and Bank Merger on a timely basis.

3.5Reports.

(a) Commercial Bancshares and each of its Subsidiaries have timely filed (or furnished, as applicable) all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file (or furnish, as applicable) since January 1, 2013 with (i) any state regulatory authority, (ii) the SEC, (iii)other Contemplated Transactions by the Federal Reserve Board, (iv) the FDIC, (v) the ODFI, (vi) any foreign regulatory authority and (vii) any SRO ((i) – (vii) and with the OCC, collectively, “Regulatory Agencies”), including any report, registration or statement required to be filed (or furnished, as applicable) pursuant to the laws, rules or regulations of the United States, any state, any foreign jurisdiction, or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file such report, registration or statement or to pay such fees and assessments, either individually orTermination Date;provided that, in the aggregate, would not reasonably be likely to havecase of clause (i) only, in determining whether a Material Adverse Effect on Commercial Bancshares. Excepthas occurred, there shall be excluded any effect to the extent attributable to or resulting from: (A) changes in Legal Requirements and the interpretation of such Legal Requirements by courts or governmental authorities; (B) changes in GAAP or regulatory accounting requirements; (C) changes or events generally affecting banks, bank holding companies or financial holding companies, or the economy or the financial, securities or credit markets, including changes in prevailing interest rates, liquidity and quality, currency exchange rates, price levels or trading volumes in the U.S. or foreign securities markets; (D) changes in national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States; (E) floods, hurricanes, tornados, earthquakes, fires or other natural disasters; (F) any failure by First Defiance or United Community, as applicable, to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for examinationsany period or any changes in the trading price or trading volume of Commercial BancsharesUnited Community Common Stock or the First Defiance Common Stock, as applicable (it being understood and agreed that the facts and circumstances giving rise to such failure or such changes that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect); (H) the effects of the public disclosure or pendency of this Agreement and the actions expressly permitted or required by this Agreement (other than, in the case of United Community, pursuant toSection 5.2(a) and, in the case of First Defiance,Section 6.2(a)) or that are taken at the written request of, or with the prior written consent of, the other party in contemplation of the Contemplated Transactions, including the costs and expenses associated therewith and the response or reaction of customers, vendors, licensors, investors or employees; and (I) any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers related to the Contemplated Transactions; except with respect to clauses (A), (B), (C), (D) and (E), to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of such party and its Subsidiaries, conductedtaken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate.

(k) “Nasdaq Rules” means the listing rules of the Nasdaq Global Select Market.

(l) “OGCL” means the Ohio General Corporation Law, as amended.

(m) “Order” means any award, decision, injunction, judgment, order, ruling, extraordinary supervisory letter, policy statement, memorandum of understanding, resolution, agreement, directive, subpoena or verdict entered, issued, made, rendered or required by any court, administrative or other governmental agency, including any Regulatory Authority, or by any arbitrator.

(n) “Ordinary Course of Business” shall include any action taken by a Regulatory AgencyPerson only if such action is consistent with the past practices of such Person and is similar in nature and magnitude to actions customarily taken in the ordinary course of the normalday-to-day operations of other Persons that are in the same line of business no Regulatory Agency has initiated or has pending any proceeding or,as such Person.

(o) “OREO” means real estate owned by a Person and designated as “other real estate owned.”

(p) “Outstanding United Community Shares” means the shares of United Community Common Stock issued and outstanding immediately prior to the knowledgeEffective Time.

(q) “PBGC” means the U.S. Pension Benefit Guaranty Corporation.

(r) “Person” means any individual, corporation (including anynon-profit corporation), general or limited partnership, limited liability company, foundation, joint venture, estate, trust, association, organization, labor union or other entity or Regulatory Authority.

(s) “Previously Disclosed” means information (i) set forth by United Community or First Defiance in the applicable paragraph of Commercial Bancshares,its Schedules, or any other paragraph of its Schedules (so long as it is reasonably clear from the context that the disclosure in such other paragraph of its Schedule is also applicable to the section of this Agreement in question), (ii) uploaded to and made available to First Defiance or United Community and its Representatives in the online data room hosted on behalf of United Community or First Defiance, as applicable, in connection with the Contemplated Transactions or (iii) filed by a party with the SEC and publicly available on EDGAR, in each case of (ii) and (iii) at least one day prior to the date hereof.

(t) “Proceeding” means any action, arbitration, audit, hearing, investigation, intolitigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator.

(u) “Registration Statement” means a registration statement on FormS-4 or other applicable form under the businessSecurities Act covering the shares of First Defiance Common Stock to be issued pursuant to this Agreement, which shall include the Joint Proxy Statement.

(v) “Regulatory Authority” means any federal, state or operations of Commercial Bancshareslocal governmental body, agency, court or authority that, under applicable Legal Requirements: (i) has supervisory, judicial, administrative, police, enforcement, taxing or other power or authority over United Community, First Defiance, or any of their respective Subsidiaries; (ii) is required to approve, or give its Subsidiaries since January 1, 2013, except where such proceedingsconsent to, the Contemplated Transactions; or investigation would not reasonably(iii) with which a filing must be likely to have, either individually ormade in the aggregate, a Material Adverse Effect on Commercial Bancshares. There is no unresolved violation, criticism, or exception by any Regulatory Agencyconnection therewith.

(w) “Representative” means with respect to a particular Person, any reportdirector, officer, manager, employee, agent, consultant, advisor or statement relatingother representative of such Person, including legal counsel, accountants and financial advisors.

(x) “Requisite Regulatory Approvals” means all necessary documentation, applications, notices, petitions, filings, permits, consents, approvals and authorizations from (i) the Federal Reserve, the FDIC and the Ohio Division of Financial Institutions and (ii) as set forth inSection 3.4(b) of the United Community Disclosure Schedules orSection 4.4(b) of the First Defiance Disclosure Schedules, in each case of (i) and (ii) that are necessary to any examinations or inspections of Commercial Bancshares or any of its Subsidiaries, which would reasonably be likely to have, either individually or inconsummate the aggregate, a Material Adverse Effect on Commercial Bancshares.Merger, Bank Merger and the other Contemplated Transactions.

(b) An accurate(y) “SEC” means the Securities and complete copy of each final registration statement, prospectus, report, schedule and definitive proxy statement filed with or furnished to the SEC by Commercial Bancshares or any of its Subsidiaries pursuant toExchange Commission.

(z) “Securities Act” means the Securities Act of 1933, as amended (theamended.

(aa) “Securities Act”), or the Exchange Act, as the case may be, since January 1, 2013 (the “Commercial Bancshares ReportsSubsidiary”) is publicly available. No such Commercial Bancshares Report, at the time filed, furnished or communicated (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information filed or furnished as


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of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. As of their respective dates, all Commercial Bancshares Reports filed or furnished under the Securities Act and the Exchange Act complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto. As of the date of this Agreement, no executive officer of Commercial Bancshares has failed in any respect to make the certification required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act. As of the date of this Agreement, there are no outstanding comments from or material unresolved issues raised by the SEC with respect to any of the Commercial Bancshares Reports.Person means an affiliate controlled by such Person directly or indirectly through one or more intermediaries.

(bb) “3.6TaxFinancial Statements.

(a) The financial statements of Commercial Bancshares and its Subsidiaries included (or incorporated by reference) in the Commercial Bancshares Reports” means any tax (including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of Commercial Bancshares and its Subsidiaries, (ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in shareholders’ equity and consolidated financial position of Commercial Bancshares and its Subsidiaries for the respective fiscal periodsany income tax, franchise tax, capital gains tax, value-added tax, sales tax, property tax, escheat tax, use tax, payroll tax, gift tax or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount)estate tax), (iii) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statementslevy, assessment, tariff, duty (including any customs duty), deficiency or in the notes thereto. The books and records of Commercial Bancshares and its Subsidiaries have been, since January 1, 2013, and are being, maintained in all material respects in accordance with GAAPother fee, and any other applicable legal and accounting requirements. Plante & Moran, PLLC has not resigned (or informed Commercial Bancshares that it intendsrelated charge or amount (including any fine, penalty, interest or addition to resign)tax), imposed, assessed or been dismissed as independent public accountants of Commercial Bancshares as a result ofcollected by or in connection with any disagreements with Commercial Bancshares on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

(b) Except as would not reasonably be likely to have, either individually or inunder the aggregate, a Material Adverse Effect on Commercial Bancshares, neither Commercial Bancshares nor any of its Subsidiaries has any liabilityauthority of any nature whatsoever (whether absolute, accrued, contingentRegulatory Authority or otherwise and whether duepayable pursuant to anytax-sharing agreement or to become due) required by GAAP to be included in the consolidated balance sheet of Commercial Bancshares, except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Commercial Bancshares included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 (including any notes thereto) and for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 2016, or in connection with this Agreement and the transactions contemplated hereby.

(c) The records, systems, controls, data and information of Commercial Bancshares and its Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership (subject to any data processing agreements) and direct control of Commercial Bancshares or its Subsidiaries or accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares. Commercial Bancshares (i) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material informationother Contract relating to Commercial Bancshares, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Commercial Bancshares by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and (ii) has disclosed, based on its most recent evaluation prior to the date hereof, to Commercial Bancshares’ outside auditors and the audit committee of Commercial Bancshares’ Board of Directors (x) any significant deficiencies and material weaknesses in the designsharing or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect


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Commercial Bancshares’ ability to record, process, summarize and report financial information, and (y) to the knowledge of Commercial Bancshares, any fraud, whether or not material, that involves management or other employees who have a significant role in Commercial Bancshares’ internal controls over financial reporting. These disclosures were made in writing by management to Commercial Bancshares’ auditor and audit committee and a copy has been previously made available to First Defiance. To the knowledge of Commercial Bancshares, there is no reason to believe that Commercial Bancshares’ outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.

(d) Since January 1, 2013, (i) neither Commercial Bancshares nor any of its Subsidiaries, nor, to the knowledge of Commercial Bancshares, any director, officer, auditor, accountant or representative of Commercial Bancshares or any of its Subsidiaries, has received or otherwise had or obtained knowledgepayment of any material complaint, allegation, assertionsuch tax, levy, assessment, tariff, duty, deficiency or claim, whether written or, to the knowledge of Commercial Bancshares, oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of Commercial Bancshares or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or written claim that Commercial Bancshares or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing Commercial Bancshares or any of its Subsidiaries, whether or not employed by Commercial Bancshares or any of its Subsidiaries, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by Commercial Bancshares or any of its officers, directors or employees to the Board of Directors of Commercial Bancshares or any committee thereof or, to the knowledge of Commercial Bancshares, to any director or officer of Commercial Bancshares.fee.

3.7Broker’s Fees.  Neither Commercial Bancshares nor any Commercial Bancshares Subsidiary nor any of their respective officers or directors has employed any broker, finder or financial advisor or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement other than Keefe, Bruyette & Woods, Inc.

3.8Absence of Certain Changes or Events.

(a) Since December 31, 2015, no event or events have occurred that have had or would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares.

(b) Since December 31, 2015, except with respect to the transactions contemplated hereby or as required or permitted by this Agreement, Commercial Bancshares and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.

3.9Legal Proceedings.

(a) Neither Commercial Bancshares nor any of its Subsidiaries is a party to any, and there are no pending or, to the knowledge of Commercial Bancshares, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Commercial Bancshares or any of its Subsidiaries (i) that would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares, or (ii) of a material nature challenging the validity or propriety of this Agreement.

(b) There is no injunction, order, judgment, decree, or regulatory restriction imposed upon Commercial Bancshares, any of its Subsidiaries or the assets of Commercial Bancshares or any of its Subsidiaries (or that, upon consummation of the Merger, would apply to First Defiance or any of its affiliates) that would reasonably be expected to be material to either Commercial Bancshares or any of its Subsidiaries.

3.10Taxes and Tax Returns.

(a) Each of Commercial Bancshares and its Subsidiaries has duly and timely filed (taking into account all applicable extensions) all material Tax Returns in all jurisdictions in which Tax Returns are


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required to be filed by it, and all such Tax Returns are true, correct, and complete in all material respects. Neither Commercial Bancshares nor any of its Subsidiaries is the beneficiary of any extension of time within which to file any material Tax Return. All material Taxes of Commercial Bancshares and its Subsidiaries (whether or not shown on any Tax Returns) that are due have been fully and timely paid. Each of Commercial Bancshares and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third party. Neither Commercial Bancshares nor any of its Subsidiaries has granted any extension or waiver of the limitation period applicable to any material Tax that remains in effect. The federal income Tax Returns of Commercial Bancshares and its Subsidiaries for all years up to and including December 31, 2011 have been examined by the Internal Revenue Service (the(cc) “IRS”) or are Tax Returns with respect to which the applicable period for assessment under applicable law, after giving effect to extensions or waivers, has expired. No deficiency with respect to any amount of Taxes has been proposed, asserted or assessed against Commercial Bancshares or any of its Subsidiaries. There are no pending or threatened (in writing) disputes, claims, audits, examinations or other proceedings regarding any Taxes of Commercial Bancshares and its Subsidiaries or the assets of Commercial Bancshares and its Subsidiaries. In the last six years, neither Commercial Bancshares nor any of its Subsidiaries has been informed in writing by any jurisdiction that the jurisdiction believes that Commercial Bancshares or any of its Subsidiaries was required to file any Tax Return that was not filed. Commercial Bancshares has made available to First Defiance true, correct, and complete copies of any private letter ruling requests, closing agreements or gain recognition agreements with respect to Taxes requested or executed in the last six years. There are no Liens for material Taxes (except Taxes not yet due and payable) on any of the assets of Commercial Bancshares or any of its Subsidiaries. Neither Commercial Bancshares nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Commercial Bancshares and its Subsidiaries). Neither Commercial Bancshares nor any of its Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Commercial Bancshares) or (B) has any liability for the Taxes of any person (other than Commercial Bancshares or any of its Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise. Neither Commercial Bancshares nor any of its Subsidiaries has been, within the past two years or otherwise as part of a “plan (or series of related transactions)” within the meaning of Section 355(e) of the Code of which the Merger is also a part, a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code. Neither Commercial Bancshares nor any of its Subsidiaries has participated in a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(1). At no time during the past five years has Commercial Bancshares been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. Commercial Bancshares has made available to First Defiance true and correct copies of the United States federal income Tax Returns filed by Commercial Bancshares and its Subsidiaries for each of the three (3) most-recent Tax years. The accruals and reserves for Taxes reflected in the financial statements of Commercial Bancshares’ included (or incorporated by reference) in the Commercial Bancshares Reports are adequate for the periods covered. Neither Commercial Bancshares for any of its Subsidiaries has agreed, nor is it required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise that will affect its liability for Taxes. Neither Commercial Bancshares nor any of its Subsidiaries has filed an election under Section 338(g) or 338(h)(10) of the Code. There are no joint ventures, partnerships, limited liability companies, or other arrangements or contracts to which Commercial Bancshares or any of its Subsidiaries is a party that could be treated as a partnership for Tax purposes. No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transactions contemplated by this Agreement.

(b) As used in this Agreement, the term “Tax” or “Taxes” means all federal, state, local, and foreign income, excise, gross receipts, ad valorem, profits, gains, property, capital, sales, transfer, use, license, payroll, employment, social security, severance, unemployment, withholding, duties, excise,


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windfall profits, intangibles, franchise, backup withholding, value added, alternative or add-on minimum, estimated and other taxes, charges, fees, levies or like assessments together with all penalties and additions to tax and interest thereon.

(c) As used in this Agreement, the term “Tax ReturnEnvironmental Laws” means any return, declaration, report, claim for refund, estimate,federal, state or information returnlocal law, statute, ordinance, rule, regulation, code, order, permit or statement relatingother legally binding requirement applicable to Taxes, includingthe business or assets of United Community or any scheduleof its Subsidiaries that imposes liability or attachment thereto, and including any amendment thereof, supplied standards of conduct with respect to the Environment and/or required to be supplied to a Governmental Entity.Hazardous Materials.

3.11Employees and Employee Benefit Plans.

(a) Section 3.11(a) of the Commercial Bancshares Disclosure Schedule lists all Commercial Bancshares Benefit Plans. For purposes of this Agreement,(l) “Commercial Bancshares Benefit PlansERISA” means all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“amended.

(m) “ERISAExchange Act”)), whether means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or not subject to ERISA, and all bonus,nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive deferred compensation, retiree medicalplan or life insurance, supplemental retirement, severancearrangement; (vi) other employee benefit plan, practice, policy or other benefit plans, programs or arrangements, and all retention, bonus, employment, termination or severance plans, programs or arrangements or other contracts or agreements,arrangement of any kind, whether written or unwritten, that are currently effectiveoral, and whether for the benefit of a single individual or weremore than one (1) individual; or (vii) change in effectcontrol agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time in the prior three years, to or with respect to which Commercial Bancshares or any Subsidiary or any trade or business of Commercial Bancshares or any of its Subsidiaries, whether or not incorporated, all of which together with Commercial Bancshares would be deemed a “single employer” within the meaning of Section 4001 of ERISA (a “Commercial Bancshares ERISA Affiliate”), is a party or has any current or future obligation or that are maintained, contributed to or sponsoredbeen made by Commercial BancsharesFirst Defiance or any of its Subsidiaries or any Commercial BancsharesFirst Defiance ERISA Affiliate for the benefit ofor under which any current or former employee, officer, director, agent or independent contractor of Commercial BancsharesFirst Defiance or any of its Subsidiaries or any Commercial Bancshares ERISA Affiliate.

(b) Commercial Bancsharesbeneficiary thereof is covered, is eligible for coverage or has made available topayment or other benefit rights, and for which First Defiance true and complete copies of each of the Commercial Bancshares Benefit Plans and the following related documents, to the extent applicable: (i) all summary plan descriptions, amendments, modifications or material supplements to any Commercial Bancshares Benefit Plan, (ii) the annual report (Form 5500), if any, filed with the IRS for the last two plan years, (iii) the most recently received IRS determination letter, if any, or IRS opinion letter relating to any such Commercial Bancshares Benefit Plan, and (iv) the most recently prepared actuarial report for each such Commercial Bancshares Benefit Plan (if applicable) for each of the last two years.

(c) Each Commercial Bancshares Benefit Plan has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable laws, including ERISA and the Code, except as would not result in any material liability. Neither Commercial Bancshares nor any of its Subsidiaries has withinor may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the prior three years, takenboard of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any material corrective actionoutstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or madeother equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a filing under any voluntary correction program of the IRS, Department of Laborsingle employer with First Defiance or any other Governmental Entity with respect to any Commercial Bancshares Benefit Plan, and neither Commercial Bancshares nor any of its Subsidiaries hasfor purposes of Section 414 of the Code.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the following: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “First Defiance SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by First Defiance with the SEC under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance Shareholder Approval” means (i) the adoption of this Agreement by the shareholders of First Defiance by the affirmative vote oftwo-thirds of the outstanding shares of First Defiance Common Stock, and (ii) the amendment to the First Defiance Code of Regulations, by the shareholders of First Defiance by the affirmative vote of a majority of the outstanding shares of First Defiance Common Stock.

(b) “First Defiance Stock Issuance” means the issuance of the First Defiance Common Stock pursuant to this Agreement.

(c) “GAAP” means generally accepted accounting principles in the U.S., consistently applied.

(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the U.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a joint proxy statement/prospectus prepared by First Defiance and United Community for use in connection with the United Community Meeting and the First Defiance Meeting, all in accordance with the rules and regulations of the SEC.

(g) “Knowledge” means the actual knowledge of the officers of First Defiance listed onSection 12.1 of the First Defiance Disclosure Schedules or the officers of United Community listed onSection 12.1of the United Community Disclosure Schedules, as the context requires.

(h) “Legal Requirement” means any material plan defect that would qualify for correction underfederal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any such program. There is no pending investigationmortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or enforcement action by the IRS, Department of Laborother similar encumbrance or any other Governmental Entityclaim.

(j) “Material Adverse Effect” as used with respect to a party, means an event, circumstance, change, effect or occurrence which, individually or together with any Commercial Bancshares Benefit Plan.

(d) Section 3.11(d) of the Commercial Bancshares Disclosure Schedule identifies each Commercial Bancshares Benefit Plan that is intended to be qualified under Section 401(a) of the Code (the “Commercial Bancshares Qualified Plans”). The IRSother event, circumstance, change, effect or occurrence: (i) has issued a favorable determination or opinion letter with respect to each Commercial Bancshares Qualified Plan and the related trust, which letter has not been revoked (nor has revocation been threatened), and, to the knowledge of Commercial Bancshares, there are no existing circumstances and no events have occurred that would have a material adverse effect on the qualified statusbusiness, financial condition, assets, liabilities or results of operations of such party and its Subsidiaries, taken as a whole; or (ii) materially impairs the ability of such party to perform its obligations under this Agreement or to consummate the Merger and the other Contemplated Transactions by the Termination Date;provided that, in the case of clause (i) only, in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent attributable to or resulting from: (A) changes in Legal Requirements and the interpretation of such Legal Requirements by courts or governmental authorities; (B) changes in GAAP or regulatory accounting requirements; (C) changes or events generally affecting banks, bank holding companies or financial holding companies, or the economy or the financial, securities or credit markets, including changes in prevailing interest rates, liquidity and quality, currency exchange rates, price levels or trading volumes in the U.S. or foreign securities markets; (D) changes in national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any Commercial Bancshares Qualified Planmilitary or terrorist attack upon or within the United States; (E) floods, hurricanes, tornados, earthquakes, fires or other natural disasters; (F) any failure by First Defiance or United Community, as applicable, to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period or any changes in the trading price or trading volume of United Community Common Stock or the related trustFirst Defiance Common Stock, as applicable (it being understood and agreed that the facts and circumstances giving rise to such failure or increasesuch changes that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect); (H) the effects of the public disclosure or pendency of this Agreement and the actions expressly permitted or required by this Agreement (other than, in the case of United Community, pursuant toSection 5.2(a) and, in the case of First Defiance,Section 6.2(a)) or that are taken at the written request of, or with the prior written consent of, the other party in contemplation of the Contemplated Transactions, including the costs relating thereto. All contributionsand expenses associated therewith and the response or reaction of customers, vendors, licensors, investors or employees; and (I) any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers related to the Commercial Bancshares Qualified Plans have been timely made.


TABLE OF CONTENTSContemplated Transactions; except with respect to clauses (A), (B), (C), (D) and (E), to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate.

(e) Each Commercial Bancshares Benefit Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1)(k) “Nasdaq Rules” means the listing rules of the Code) andNasdaq Global Select Market.

(l) “OGCL” means the Ohio General Corporation Law, as amended.

(m) “Order” means any award, thereunder,decision, injunction, judgment, order, ruling, extraordinary supervisory letter, policy statement, memorandum of understanding, resolution, agreement, directive, subpoena or verdict entered, issued, made, rendered or required by any court, administrative or other governmental agency, including any Regulatory Authority, or by any arbitrator.

(n) “Ordinary Course of Business” shall include any action taken by a Person only if such action is consistent with the past practices of such Person and is similar in each case that is subjectnature and magnitude to Section 409Aactions customarily taken in the ordinary course of the Code, hasnormalday-to-day operations of other Persons that are in the same line of business as such Person.

(o) “OREO” means real estate owned by a Person and designated as “other real estate owned.”

(p) “Outstanding United Community Shares” means the shares of United Community Common Stock issued and outstanding immediately prior to the Effective Time.

(q) “PBGC” means the U.S. Pension Benefit Guaranty Corporation.

(r) “Person” means any individual, corporation (including anynon-profit corporation), general or limited partnership, limited liability company, foundation, joint venture, estate, trust, association, organization, labor union or other entity or Regulatory Authority.

(s) “Previously Disclosed” means information (i) since January 1, 2005, been maintained and operated,set forth by United Community or First Defiance in all material respects, in good faith compliance with Section 409Athe applicable paragraph of the Code and IRS Notice 2005-1 and (ii) since January 1, 2009, been, in all material respects, in documentary and operational compliance with Section 409A of the Code.

(f) With respect to each Commercial Bancshares Benefit Planits Schedules, or any other ongoing, frozen or terminated “single employer plan” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by Commercial Bancshares, anyparagraph of its Subsidiaries or any Commercial Bancshares ERISA AffiliatesSchedules (so long as it is reasonably clear from the context that the disclosure in such other paragraph of its Schedule is subject to Title IV or Section 302 of ERISA or Section 412, 430 or 4971 of the Code: (i) no such plan is in “at-risk” status for purposes of Section 430 of the Code, (ii) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, (iii) all premiums required to be paidalso applicable to the Pension Benefit Guaranty Corporation (the “PBGC”) have been timely paid in full, (iv) no material liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is reasonably expected to be incurred by Commercial Bancshares or any of its Subsidiaries, (v) the PBGC has not instituted proceedings to terminate any such Commercial Bancshares Benefit Plan, (vi) to the knowledge of Commercial Bancshares, the most recent actuarial report for such Commercial Bancshares Benefit Plan is accurate in all material respects and (vii) there does not exist any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived.

(g) None of Commercial Bancshares and its Subsidiaries nor any Commercial Bancshares ERISA Affiliate has, at any time during the last six years, contributed to or been obligated to contribute to any plan that is a “multiemployer plan” within the meaning of Section 4001 (a) (3) of ERISA (a “Multiemployer Plan”) or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a “Multiple Employer Plan”), and none of Commercial Bancshares and its Subsidiaries nor any Commercial Bancshares ERISA Affiliate has incurred any material liability to a Multiemployer Plan or Multiple Employer Plan as a result of a complete or partial withdrawal (as those terms are defined in Part I of Subtitle E of Title IV of ERISA) from a Multiemployer Plan or Multiple Employer Plan that has not been satisfied in full.

(h) Except as described in Section 3.11(h) of the Commercial Bancshares Disclosure Schedule, neither Commercial Bancshares nor any of its Subsidiaries sponsors, has sponsored or has any obligation with respect to any employee benefit plan that provides for any post-employment or post-retirement health or medical or life insurance benefits for retired or former employees or beneficiaries or dependents thereof, except as required by Section 4980B of the Code.

(i) All material contributions required to be made to any Commercial Bancshares Benefit Plan by applicable law or by any plan document or other contractual undertaking, and all material premiums due or payable with respect to insurance policies funding any Commercial Bancshares Benefit Plan, for any period in the prior three years through the date hereof, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the books and records of Commercial Bancshares.

(j) There are no pending or, to the knowledge of Commercial Bancshares, threatened (in writing) claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations that have been asserted or instituted, and, to the knowledge of Commercial Bancshares, no set of circumstances exists that may reasonably be likely to give rise to a material claim or lawsuit, against the Commercial Bancshares Benefit Plans, any fiduciaries thereof with respect to their duties to the Commercial Bancshares Benefit Plans or the assets of any of the trusts under any of the Commercial Bancshares Benefit Plans that could in any case reasonably be likely to result in any material liability of Commercial Bancshares or any of its Subsidiaries to the PBGC, the IRS, the Department of Labor, any Multiemployer Plan, a Multiple Employer Plan, any participant in a Commercial Bancshares Benefit Plan, or any other party.


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(k) None of Commercial Bancshares and its Subsidiaries nor any Commercial Bancshares ERISA Affiliate nor, to the knowledge of Commercial Bancshares, any other person, including any fiduciary, has engaged in any “prohibited transaction” (as defined in Section 4975 of the Code or Section 406 of ERISA) which could subject any of the Commercial Bancshares Benefit Plans or their related trusts, Commercial Bancshares, any of its Subsidiaries, any Commercial Bancshares ERISA Affiliate or any person that Commercial Bancshares or any of its Subsidiaries has an obligation to indemnify to any material tax or material penalty imposed under Section 4975 of the Code or Section 502 of ERISA. Neither Commercial Bancshares nor any of its Subsidiaries has engaged in a transaction or failed to take any action with respect to any Commercial Bancshares Benefit Plan that would result in the imposition, directly or indirectly, of a material tax or penalty imposed by Sections 4980B or 4980D of the Code.

(l) Except as described in Section 3.11(l) of the Commercial Bancshares Disclosure Schedule, neither the execution and deliverysection of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) result in, cause the vesting, exercisability, funding, payment or delivery of, or increase the amount or value of, any payment, right or other benefitquestion), (ii) uploaded to any employee, officer, director or independent contractor of Commercial Bancshares or any of its Subsidiaries, or result in any limitation on the right of Commercial Bancshares or any of its Subsidiaries or Commercial Bancshares ERISA Affiliates to amend, merge, terminate or receive a reversion of assets from any Commercial Bancshares Benefit Plan or related trust. Without limiting the generality of the foregoing, except as described in Section 3.11(l) of the Commercial Bancshares Disclosure Schedule, no amount paid or payable (whether in cash, in property, or in the form of benefits) by Commercial Bancshares or any of its Subsidiaries in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an “excess parachute payment” within the meaning of Section 280G of the Code. Commercial Bancshares hasand made available to First Defiance preliminary copiesor United Community and its Representatives in the online data room hosted on behalf of United Community or First Defiance, as applicable, in connection with the Contemplated Transactions or (iii) filed by a party with the SEC and publicly available on EDGAR, in each case of (ii) and (iii) at least one day prior to the date hereof.

(t) “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator.

(u) “Registration Statement” means a registration statement on FormS-4 or other applicable form under the Securities Act covering the shares of First Defiance Common Stock to be issued pursuant to this Agreement, which shall include the Joint Proxy Statement.

(v) “Regulatory Authority” means any federal, state or local governmental body, agency, court or authority that, under applicable Legal Requirements: (i) has supervisory, judicial, administrative, police, enforcement, taxing or other power or authority over United Community, First Defiance, or any of their respective Subsidiaries; (ii) is required to approve, or give its consent to, the Contemplated Transactions; or (iii) with which a filing must be made in connection therewith.

(w) “Representative” means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

(x) “Requisite Regulatory Approvals” means all necessary documentation, applications, notices, petitions, filings, permits, consents, approvals and authorizations from (i) the Federal Reserve, the FDIC and the Ohio Division of Financial Institutions and (ii) as set forth inSection 280G calculations 3.4(b) of the United Community Disclosure Schedules orSection 4.4(b) of the First Defiance Disclosure Schedules, in each case of (i) and (ii) that are necessary to consummate the Merger, Bank Merger and the other Contemplated Transactions.

(y) “SEC” means the Securities and Exchange Commission.

(z) “Securities Act” means the Securities Act of 1933, as amended.

(aa) “Subsidiary” with respect to any disqualified individual in connection withPerson means an affiliate controlled by such Person directly or indirectly through one or more intermediaries.

(bb) “Tax” means any tax (including any income tax, franchise tax, capital gains tax, value-added tax, sales tax, property tax, escheat tax, use tax, payroll tax, gift tax or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency or other fee, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the transactions contemplated hereby. Except as described in Section 3.11(l)authority of the Commercial Bancshares Disclosure Schedule, neither Commercial Bancshares nor any of its Subsidiaries maintainsRegulatory Authority or contributespayable pursuant to a rabbi trust or similar funding vehicle, and the transactions contemplated by this Agreement will not cause or require Commercial Bancsharesanytax-sharing agreement or any of its affiliates to establish or make any contribution to a rabbi trust or similar funding vehicle.

(m) No Commercial Bancshares Benefit Plan provides for the gross-up or reimbursement of Taxes under Section 409A or 4999 of the Code, or otherwise.

(n) Each voluntary employees’ beneficiary association (“VEBA”) has been determined by the IRS to be exempt from federal tax under Section 501(a) of the Code, and nothing has occurred that could reasonably be expected to adversely affect the exempt status of any VEBA.

(o) There are no pending or,other Contract relating to the knowledge of Commercial Bancshares, threatened (in writing) material labor grievancessharing or material unfair labor practice claims or charges against Commercial Bancshares or any of its Subsidiaries, or any strikes or other material labor disputes against Commercial Bancshares or any of its Subsidiaries. Neither Commercial Bancshares nor any of its Subsidiaries are party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Commercial Bancshares or any of its Subsidiaries, and, to the knowledge of Commercial Bancshares, there are no organizing efforts by any union or other group seeking to represent any employees of Commercial Bancshares or any of its Subsidiaries.

3.12Compliance with Applicable Law.  Commercial Bancshares and each of its Subsidiaries hold, and have at all times since December 31, 2013 held, all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets under and pursuant to each (and have paid all fees and assessments due and payable in connection therewith), except where neither the cost of failure to hold nor the cost of obtaining and holding such license, franchise, permit or authorization (nor the failure to pay any fees or assessments) would, either individually or


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in the aggregate, reasonably be likely to have a Material Adverse Effect on Commercial Bancshares, and no suspension or cancellationpayment of any such necessary license, franchise, permittax, levy, assessment, tariff, duty, deficiency or authorization is threatened. Commercial Bancshares and each of its Subsidiaries have complied in all material respects with and are not in material default or violation under any law, statute, order, rule or regulation of any Governmental Entity applicable to Commercial Bancshares or any of its Subsidiaries, including, but not limited to, (to the extent applicable to Commercial Bancshares or its Subsidiaries) all laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act and Regulation V, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act and Regulation C, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act and Regulation E, the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, the Foreign Corrupt Practices Act, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, and any other law or regulation relating to bank secrecy, discriminatory lending, financing or leasing practices, consumer protection, money laundering prevention, foreign assets control, Sections 23A and 23B of the Federal Reserve Act and Regulation W, the Sarbanes-Oxley Act, and any and all agency requirements relating to the origination, sale and servicing of commercial, mortgage and consumer loans. Commercial Bank has a Community Reinvestment Act rating of “satisfactory” or better. Commercial Bancshares and each of its affiliates and subsidiaries have complied in all material respects with and are not in material default or violation under 12 U.S.C. §1851 and the regulations promulgated by the Federal Reserve Board, the OCC and the FDIC (together, thefee.

(cc) “Federal Banking Agencies”) in connection therewith (the “Volcker Rule”). Section 3.12 of the Commercial Bancshares Disclosure Schedule sets forth (i) all Commercial Bancshares affiliates and subsidiaries (including Commercial Bancshares) engaged in proprietary trading (as defined in the Volcker Rule) that would be prohibited upon expiration of any temporary conformance period granted by the Federal Banking Agencies under the Volcker Rule and (ii) all covered funds (as defined in the Volcker Rule) that Commercial Bancshares or any of its affiliates or subsidiaries sponsors or invests in that would be prohibited upon expiration of any temporary conformance period granted by the Federal Banking Agencies under the Volcker Rule. For the purpose of the preceding two sentences, “affiliate” and “subsidiary” shall have their respective meanings under 12 U.S.C. §1813.

3.13Certain Contracts.

(a) Except as set forth in Section 3.13(a) of the Commercial Bancshares Disclosure Schedule, as of the date hereof, neither Commercial Bancshares nor any of its Subsidiaries is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral), other than any Commercial Bancshares Benefit Plan of the following types (each a “Commercial Bancshares Contract”), and no such contract or agreement is presently being negotiated or discussed:

(i) any contract involving commitments to others to make capital expenditures or purchases or sales in excess of $75,000 in any one case or $200,000 in the aggregate in any period of 12 consecutive months;

(ii) any contract relating to any direct or indirect indebtedness of Commercial Bancshares or any of its Subsidiaries for borrowed money (including loan agreements, lease purchase agreements, guarantees, agreements to purchase goods or services or to supply funds or other undertakings relating to the extension of credit, but excluding outstanding put options with respect to loans sold into the secondary market, certificates of deposit, government bonds and other deposit accounts issued to customers), or any conditional sales contracts, equipment lease agreements and other security arrangements with respect to personal property with an obligation in excess of $75,000 in any one case or $150,000 in the aggregate in any period of 12 consecutive months;

(iii) any contract containing covenants limiting the freedom of Commercial Bancshares or any of its Subsidiaries to compete in any line of business or with any person or in any area or territory;

(iv) any partnership, joint venture, limited liability company arrangement or similar agreement;


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(v) any profit sharing, phantom stock award, stock option, stock purchase, stock appreciation, deferred compensation, issuance, or other plan or arrangement for the benefit of Commercial Bancshares’ or any of its Subsidiaries’ current or former directors, officers, employees or consultants;

(vi) any license agreement, either as licensor or licensee, or any other contract of any type relating to any intellectual property, except for license agreements relating to off-the-shelf software or software components pursuant to non-negotiable standard form or “shrink wrap” license agreement;

(vii) any contract with any insider of Commercial Bancshares or any of its Subsidiaries or any arrangement under which Commercial Bancshares or any of its Subsidiaries has advanced or loaned any amount to any of their respective insiders or immediate family member of any insider (the terms “insider” and “immediate family member” have the meanings given to them under Regulation O (12 C.F.R. Part 215) as promulgated by the FRB);

(viii) any contract, whether exclusive or otherwise, with any sales agent, representative, franchisee or distributor;

(ix) other than this Agreement and any ancillary agreements being executed in connection with this Agreement, any contract providing for the acquisition or disposition of any portion of the assets (other than cash or cash equivalents), properties or securities of Commercial Bancshares or any of its Subsidiaries in excess of $500,000;

(x) any contract that requires the payment of royalties;

(xi) any contract pursuant to which Commercial Bancshares or any of its Subsidiaries has any obligation to share revenues or profits derived from Commercial Bancshares or any of its Subsidiaries with any other person;

(xii) any contract between (i) Commercial Bancshares or any of its Subsidiaries, on the one hand, and any officer, director, employee or consultant of Commercial Bancshares or any of its Subsidiaries, on the other hand, and (ii) Commercial Bancshares or any of its Subsidiaries, on the one hand, and any affiliate of any director or executive officer of Commercial Bancshares, on the other hand;

(xiii) any contract that is a “material contract” (as defined in Item 601(b)(10) of Regulation S-K of the SEC); and

(xiv) any other legally binding contract not of the type covered by any of the other items of this Section 3.13(a) involving money or property and having an obligation by Commercial Bancshares or any of its Subsidiaries in excess of $250,000 aggregate in any period of 12 consecutive months and which is otherwise not in the ordinary course of business.

(b) In each case, except as would not reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares: (i) each Commercial Bancshares Contract is valid and binding on Commercial Bancshares or one of its Subsidiaries, as applicable, and in full force and effect, (ii) Commercial Bancshares and each of its Subsidiaries has performed all obligations required to be performed by it prior to the date hereof under each Commercial Bancshares Contract, (iii) to the knowledge of Commercial Bancshares each third-party counterparty to each Commercial Bancshares Contract has performed all obligations required to be performed by it to date under such Commercial Bancshares Contract, and (iv) no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a default on the part of Commercial Bancshares or any of its Subsidiaries under any such Commercial Bancshares Contract.

3.14Agreements with Regulatory Agencies.  Neither Commercial Bancshares nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since January 1, 2013, a recipient of any supervisory letter from, or since


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January 1, 2013, has adopted any policies, procedures or board resolutions at the request or suggestion of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the Commercial Bancshares Disclosure Schedule, a “Commercial Bancshares Regulatory Agreement”), nor has Commercial Bancshares or any of its Subsidiaries been advised in writing or, to the knowledge of Commercial Bancshares, orally, since January 1, 2013, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Commercial Bancshares Regulatory Agreement.

3.15Risk Management Instruments.  Neither Commercial Bancshares nor any of its Subsidiaries has entered into any rate swaps, caps, floors, option agreements, futures or forward contracts or other similar derivative transactions or risk management arrangements, whether entered into for the account of Commercial Bancshares or any of its Subsidiaries or for the account of a customer of Commercial Bancshares or one of its Subsidiaries.

3.16Environmental Matters.  To the knowledge of Commercial Bancshares and except as would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares, Commercial Bancshares and its Subsidiaries (including but not limited to real property previously or currently owned or operated by them and real property that is mortgage collateral securing loans made by them) are in compliance and have complied with all applicable federal, state or local laws, regulations, orders, decrees, permits, authorizations, common law or legal requirements relating to: (i) the protection or restoration of the environment, health and safety as it relates to hazardous substance exposure or natural resource damages, (ii) the handling, use, presence, disposal, release or threatened release of, or exposure to, any hazardous substance, or (iii) noise, odor, wetlands, indoor air, pollution, contamination or any injury to persons or property from exposure to any hazardous substance (collectively, “Environmental Laws”). There are no legal, administrative, arbitral means any federal, state or local law, statute, ordinance, rule, regulation, code, order, permit or other judicial proceedings, claims or actions or,legally binding requirement applicable to the knowledgebusiness or assets of Commercial Bancshares, any private environmental investigations or remediation activities or governmental investigations of any nature, which impose, or seek to impose, or that could reasonably be likely to result in the imposition, on Commercial BancsharesUnited Community or any of its Subsidiaries of anythat imposes liability or obligation arising under any Environmental Law, concluded, pending or threatened against Commercial Bancshares, which liability or obligation would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares. To the knowledgestandards of Commercial Bancshares, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares. Commercial Bancshares is not subject to any agreement, order, judgment, decree, letter agreement or memorandum of agreement by or with any court, governmental authority, regulatory agency or third party imposing any liability or obligation with respect to any Environmental Law that would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares.

3.17Investment Securities.

(a) Each of Commercial Bancshares and its Subsidiaries has good title to all securities owned by it, free and clear of any Lien, except (i) as set forth in the financial statements included in the Commercial Bancshares Reports and (ii) to the extent such securities or commodities are pledged in the ordinary course of business to secure obligations of Commercial Bancshares or its Subsidiaries. Such securities are valued on the books of Commercial Bancshares in accordance with GAAP in all material respects.

(b) Commercial Bancshares and its Subsidiaries employ investment, securities, risk management and other policies, practices and procedures that are prudent and reasonable in the context of their respective businesses, and Commercial Bancshares and its Subsidiaries have, since January 1, 2013, been in compliance with such policies, practices and procedures in all material respects.

3.18Real Property.

(a) Section 3.18(a) of the Commercial Bancshares Disclosure Schedule sets forth all real property owned by Commercial Bancshares or a Commercial Bancshares Subsidiary (the “Commercial


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Bancshares Owned Properties”) and all leases of real property to which Commercial Bancshares or a Commercial Bancshares Subsidiary is a party (the “Commercial Bancshares Leased Properties” and, collectively with the Commercial Bancshares Owned Properties, the “Commercial Bancshares Real Property”). Commercial Bancshares or a Commercial Bancshares Subsidiary (a) has good and marketable title to all Commercial Bancshares Owned Properties free and clear of all material Liens, except (i) statutory Liens securing payments not yet due, (ii) Liens for real property Taxes not yet due and payable, (iii) easements, rights of way, and other similar encumbrances that do not materially adversely affect the value or present use of the properties or assets subject thereto or affected thereby or otherwise materially adversely impair business operations at such properties and (iv) such imperfections or irregularities of title or Liens as do not materially adversely affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties (collectively, “Permitted Encumbrances”), and (b) is the lessee of all Commercial Bancshares Leased Properties, free and clear of all material Liens of any nature whatsoever, except for Permitted Encumbrances, and is in possession of the properties purported to be leased thereunder, and each such lease is valid without material default thereunder by the lessee or, to the knowledge of Commercial Bancshares, the lessor. There are no material pending or, to the knowledge of Commercial Bancshares, threatened condemnation proceedings against any Commercial Bancshares Real Property.

(b) All buildings, fixtures, mechanical systems (including electrical, plumbing and heating), and roof and structural systems at each Commercial Bancshares Real Property are in good operating condition and repair, ordinary wear and tear excepted, and no material expenditures are currently required or anticipated by Commercial Bancshares or a Commercial Bancshares Subsidiaryconduct with respect to the foregoing.Environment and/or Hazardous Materials.

(c) Neither Commercial Bancshares nor(l) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any Commercial Bancshares Subsidiary has received written notice of,stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or has any knowledgesimilar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any material uncured violation by Commercial Bancshareskind, whether written or a Commercial Bancshares Subsidiary of any of the Permitted Encumbrances.

3.19Intellectual Property.  Commercial Bancsharesoral, and each of its Subsidiaries owns, or is licensed to use (in each case, free and clear of any material Liens other than any Permitted Encumbrances), all Intellectual Property necessarywhether for the conductbenefit of its business as currently conducted. The use of any Intellectual Property by Commercial Bancshares and its Subsidiaries does not infringe, misappropriatea single individual or otherwise violate the rights of any person, and no person has asserted to Commercial Bancsharesmore than one (1) individual; or (vii) change in writing that Commercial Bancsharescontrol agreement or any of its Subsidiaries has infringed, misappropriatedemployment or otherwise violated the Intellectual Property rights of such person. To the knowledge of Commercial Bancshares, no person is challenging, infringing on or otherwise violating any right of Commercial Bancshares or any of its Subsidiariesseverance agreement, in each case with respect to any Intellectual Property owned by Commercial Bancshares or its Subsidiaries. Neither Commercial Bancshares nor any Commercial Bancshares Subsidiary has received any written notice of any pending claim with respect to any Intellectual Property owned by Commercial Bancshares or any Commercial Bancshares Subsidiary. Since January 1, 2013, no third party has, to the knowledge of Commercial Bancshares, gained unauthorized access to any information technology networks controlled by and material to the operation of the business of Commercial Bancshares and its Subsidiaries. For purposesclauses (i) through (vii) of this Agreement, “Intellectual Property” means trademarks, service marks, trade names, Internet domain names, logos and other indications of origin, the goodwill associated with the foregoing and registrations indefinition, to which contributions have at any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; patents, applications for patents (including divisions, continuations, continuations in part and renewal applications), and any re-examinations, extensions or reissues thereof, in any jurisdiction; trade secrets, and copyrights and registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof.

3.20Related Party Transactions.  Except as appropriately disclosed in a Commercial Bancshares Report, there are no transactions or series of related transactions, agreements, arrangements or understandings, nor are there any currently proposed transactions or series of related transactions, between Commercial Bancshares or any of its Subsidiaries, on the one hand, and any current director or “executive officer” (as defined in Rule 3b-7 under the Exchange Act) of Commercial Bancsharestime been made by First Defiance or any of its Subsidiaries or any person who beneficially owns (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) 5%First Defiance ERISA Affiliate or more of the outstanding Commercial Bancshares Shares (orunder which any of such person’s immediate family memberscurrent or affiliates)


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(other than Subsidiaries of Commercial Bancshares), on the other hand, of the type required to be reported in any Commercial Bancshares Report pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act.

3.21State Takeover Laws.  The Board of Directors of Commercial Bancshares has approved this Agreement and the transactions contemplated hereby as required to render inapplicable to this Agreement and the transactions contemplated hereby, including the voting agreement attached hereto as Exhibit B (the “Voting Agreement”), any applicable provisions of the takeover laws of any state, including any “moratorium,” “control share,” “fair price,” “takeover”former employee, director, agent or “interested shareholder” law (any such laws, “Takeover Statutes”).

3.22Reorganization.  Commercial Bancshares and each of its Subsidiaries has not taken any action and is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

3.23Opinion.  Prior to the execution of this Agreement, the Board of Directors of Commercial Bancshares has received an opinion (which, if initially rendered verbally, has been or will be confirmed by a written opinion, dated the same date) from Keefe, Bruyette & Woods, Inc., to the effect that, as of the date thereof, and based upon and subject to the factors, assumptions and limitations set forth therein, the Merger consideration (defined in such opinion as Cash Consideration and Stock Consideration, taken together) is fair, from a financial point of view, to the holders of Commercial Bancshares Shares. Such opinion has not been amended or rescinded as of the date of this Agreement.

3.24Commercial Bancshares Information.  The information relating to Commercial Bancshares and its Subsidiaries that is provided by Commercial Bancshares or its representatives specifically for inclusion in (a) the Proxy Statement on the date it (or any amendment or supplement thereto) is first mailed to holders of Commercial Bancshares Shares or at the time of the Commercial Bancshares Meeting, (b) the S-4, when it or any amendment thereto becomes effective under the Securities Act, (c) the documents and financial statements of Commercial Bancshares incorporated by reference in the Proxy Statement, the S-4 or any amendment or supplement thereto or (d) any other document filed with any other Regulatory Agency in connection herewith will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The portions of the Proxy Statement relating to Commercial Bancshares and its Subsidiaries and other portions within the reasonable control of Commercial Bancshares and its Subsidiaries will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation or warranty is made by Commercial Bancshares with respect to statements made or incorporated by reference therein based on information provided or supplied by or on behalfindependent contractor of First Defiance or its Subsidiaries for inclusion in the Proxy Statement or the S-4.

3.25Loan Portfolio.

(a) As of the date hereof, except as set forth in Section 3.25(a) of the Commercial Bancshares Disclosure Schedule, neither Commercial Bancshares nor any of its Subsidiaries is a party to any written or oral (i) loan, loan agreement, note or borrowing arrangement (including leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, “Loans”) in which Commercial Bancshares or any Subsidiary of Commercial Bancshares is a creditor which as of June 30, 2016 was over 90 days or more delinquent in payment of principal or interest, or (ii) Loans with any director, executive officer or principal shareholder of Commercial Bancshares or any of its Subsidiaries (as such terms are defined in 12 C.F.R. Part 215). Except as such disclosure may be limited byor any applicable law, rulebeneficiary thereof is covered, is eligible for coverage or regulation, Section 3.25(a) of the Commercial Bancshares Disclosure Schedule sets forth a true, correct and complete list of all of the Loans of Commercial Bancshares and its Subsidiaries that, as of June 30, 2016, were classified by Commercial Bancshares as “Other Loans Specially Mentioned,” “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import, together with the principal amount of and accrued and unpaid interest on each such Loan and the aggregate principal amount of and accrued and unpaid interest on such Loans as of such date.


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(b) Except as would not reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares, each outstanding Loan of Commercial Bancshares and its Subsidiaries (i) is evidenced by notes, agreementshas payment or other evidences of indebtedness that are true, genuinebenefit rights, and what they purport to be, (ii) to the extent carried on the books and records of Commercial Bancshares and its Subsidiaries as secured Loans, has been secured by valid Liens,for which have been perfected and (iii) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to the Enforceability Exceptions.

(c) Except as would not reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on Commercial Bancshares, each outstanding Loan of Commercial Bancshares and its Subsidiaries (including Loans held for resale to investors) was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant Loan files are being maintained, in all material respects, in accordance with the relevant notes or other credit or security documents, the applicable written underwriting standards of Commercial Bancshares and its Subsidiaries (and, in the case of Loans held for resale to investors, the applicable underwriting standards, if any, of the applicable investors) and with all applicable federal, state and local laws, regulations and rules.

(d) None of the agreements pursuant to which Commercial BancsharesFirst Defiance or any of its Subsidiaries has sold Loans or poolsmay have liability, including by reason of Loanshaving an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or participationsother equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Loans or poolsSection 3(9) of Loans contains any obligation to repurchase such Loans or interests therein solely on account ofERISA) that is treated as a payment default by the obligor on any such Loan (other than first payment defaults).

(e) There are no outstanding Loans made by Commercial Bancsharessingle employer with First Defiance or any of its Subsidiaries to any “executive officer” or other “insider” (as each such term is defined in Regulation O promulgated by the Federal Reserve Board)for purposes of Commercial Bancshares or its Subsidiaries, other than Loans that are subject to and that were made and continue to be in compliance with Regulation O or that are exempt therefrom.

(f) Neither Commercial Bancshares nor any of its Subsidiaries is now, nor has it ever been since December 31, 2012, subject to any material fine, suspension, settlement or other administrative agreement or sanction by, or any reduction in any loan purchase commitment, any Governmental Entity or Regulatory Agency relating to the origination, sale or servicing of mortgage or consumer Loans.

(g) Except as set forth in the Commercial Bancshares Disclosure Schedule, there is no Loan which was made by Commercial Bancshares or any of its Subsidiaries and which is reflected as an asset of Commercial Bancshares or its Subsidiaries that (i) is 90 days or more delinquent, (ii) has been classified by examiners (regulatory or internal) or by management of Commercial Bancshares or its Subsidiaries as “substandard,” “doubtful,” “loss” or “special mention,” or (iii) has been identified by accountants or auditors (regulatory or internal) as having significant risk of uncollectibility. The allowance for loan losses reflected on Commercial Bancshares June 30, 2016 financial statements filed with the SEC is adequate in all material respects under the requirements of GAAP.

3.26Insurance.  Commercial Bancshares and its Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of Commercial Bancshares reasonably has determined to be prudent and consistent with industry practice, and neither Commercial Bancshares nor any of its Subsidiaries has received notice to the effect that any of them are in default under any material insurance policy. Each such policy is outstanding and in full force and effect and, except for policies insuring against potential liabilities of officers, directors and employees of Commercial Bancshares and its Subsidiaries, Commercial Bancshares or the relevant Subsidiary thereof is the sole beneficiary of such policies. All premiums and other payments due under any such policy have been paid, and all claims thereunder have been filed in due and timely fashion.

3.27No Investment Adviser Subsidiary.  Neither Commercial Bancshares nor any Commercial Bancshares Subsidiary serves in a capacity described in Section 9(a) or 9(b)414 of the Investment Company Act of 1940, as amended, nor acts as an “investment adviser” required to register as such under the Investment Advisers Act of 1940, as amended.


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3.28Books and Records.  Except for minutes and actions related to the process leading up to this Agreement and the transactions contemplated hereunder or related to meetings held in the month prior to the date of this Agreement, which have not yet been prepared, approved, executed and/or placed in Commercial Bancshares’ minute books, (i) the books of account, minute books, stock record books, and other financial and corporate records of Commercial Bancshares and its Subsidiaries, all of which have been made available to First Defiance, are complete and correct in all material respects and have been maintained in accordance with sound business practices and, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Commercial Bancshares and its Subsidiaries; and (ii) the minute books of Commercial Bancshares and its Subsidiaries contain accurate and complete records of all meetings held of, and corporate action taken by, the shareholders, the Commercial Bancshares Board of Directors and the governing bodies of its Subsidiaries and committees of the Commercial Bancshares Board of Directors and the governing bodies of its Subsidiaries, and no meeting of any such shareholders, Commercial Bancshares Board of Directors and the governing bodies of its Subsidiaries, or committee has been held for which minutes have been prepared and are not contained in such minute books.

3.29Prohibited Payments.  Commercial Bancshares and its Subsidiaries have not, directly or indirectly (i) made or agreed to make any contribution, payment or gift to any government official, employee or agent where either the contribution, payment or gift or the purpose thereof was illegal under the laws of any federal, state, local or foreign jurisdiction, (ii) established or maintained any unrecorded fund asset for any purpose or made any false entries on the books and records of Commercial Bancshares or its Subsidiaries for any reason, (iii) made or agreed to make any contribution, or reimbursed any political gift or contribution made by any other person, to any candidate for federal, state, local or foreign public office, or (iv) paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, government official or other party, in the United States or any other country, which in any manner relates to the assets, business or operations of Commercial Bancshares or any of its Subsidiaries, which Commercial Bancshares or its Subsidiaries knows or has reason to believe may have been illegal under any federal, state or local laws of the United States or any other country having jurisdiction.

3.30Absence of Undisclosed Liabilities.  Neither Commercial Bancshares nor any of its Subsidiaries has any liability (whether accrued, absolute, contingent or otherwise) that, either individually or when combined with all liabilities as to similar matters, would have a Material Adverse Effect on Commercial Bancshares on a consolidated basis, except as disclosed in the financial statements in Commercial Bancshares Reports and except as set forth in Commercial Bancshares’ Disclosure Schedule.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRST DEFIANCE

Except as disclosed in the disclosure schedule delivered by First Defiance to Commercial Bancshares concurrently herewith (the(y) “First Defiance Disclosure SchedulePreferred Stock”), First Defiance hereby represents and warrants to Commercial Bancshares means the statements contained in this Article IV; provided, that the mere inclusionpreferred stock, $0.01 per value per share, of an item in the First Defiance Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by First Defiance that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect.

4.1Corporate Organization.

(a) First Defiance is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and is a unitary thrift holding company duly registered under the Home Owners’ Loan Act of 1933, as amended (“HOLA”). First Defiance has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted in all material respects. First Defiance is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not, either individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on First Defiance. True and complete copies of the First Defiance Articles and First Defiance Code of Regulations, as in effect as of the date of this Agreement, have previously been made available to Commercial Bancshares.


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(b) Except, in the case of clauses (ii) and (iii) only, as would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on First Defiance, each Subsidiary of First Defiance (a(z) “First Defiance Subsidiary”) (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and, where such concept is recognized under applicable law, in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted. There are no restrictions on the ability of any Subsidiary of First Defiance to pay dividends or distributions, except, in the case of a Subsidiary that is a regulated entity, for restrictions on dividends or distributions generally applicable to all such regulated entities. The deposit accounts of each Subsidiary of First Defiance that is an insured depository institution are insured by the FDIC through the Deposit Insurance Fund to the fullest extent permitted by law, all premiums and assessments required to be paid in connection therewith have been paid when due, and no proceedings for the termination of such insurance are pending or, to the knowledge of First Defiance, threatened. Section 4.1(b) of the First Defiance Disclosure Schedule sets forth a true and complete list of all Subsidiaries of First Defiance as of the date hereof.

4.2Capitalization.

(a) The authorized capital stock of First Defiance consists of 25,000,000 First Defiance Shares and 5,000,000 shares of preferred stock, par value $0.01 per share. As of the date of this Agreement, no shares of capital stock or other voting securities of First Defiance are issued, reserved for issuance or outstanding, other than 8,976,900 First Defiance Shares issued and outstanding, 3,743,447 First Defiance Shares held in treasury, 61,000 First Defiance Shares reserved for issuance upon the exercise of outstanding stock options granted under a First Defiance Stock Plan (“First Defiance Stock Options”), 87,629 First Defiance Shares reserved for issuance upon the settlement of outstanding restricted stock units granted under a First Defiance Stock Plan (“First Defiance Restricted Stock Unit Award”), and 168,251 First Defiance Shares reserved for issuance upon the issuance of future awards under the First Defiance Stock Plans. As used herein, the “First Defiance StockNew Plans” shall mean all employee and director equity incentive plans of First Defiance in effect as of the date of this Agreement and agreements for equity awards in respect of First Defiance Shares granted by First Defiance under the inducement grant exception. All of the issued and outstanding First Defiance Shares have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. No bonds, debentures, notes or other indebtedness that have the right to vote on any matters on which shareholders of First Defiance may vote are issued or outstanding. Except as set forth in Section 4.2(a) of the First Defiance Disclosure Schedule, as of the date of this Agreement, no trust preferred or subordinated debt securities of First Defiance are issued or outstanding. Other than First Defiance Stock Options and First Defiance Restricted Stock Unit Awards, in each case, issued prior to the date of this Agreement, as of the date of this Agreement, there are no outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements obligating First Defiance to issue, transfer, sell, purchase, redeem or otherwise acquire any such securities.

(b) There are no voting trusts, shareholder agreements, proxies or other agreements in effect pursuant to which First Defiance or any of its Subsidiaries has a contractual or other obligation to the voting or transfer of the First Defiance Shares or other equity interests of First Defiance.

(c) First Defiance owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each First Defiance Subsidiary, free and clear of any Liens, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, non-assessable (except, with respect to First Defiance Subsidiaries that are insured depository institutions, as provided under 12 U.S.C. §55 or any comparable provision of applicable state law) and free of preemptive rights, with no personal liability attaching to the ownership thereof. No First Defiance Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, rights, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any


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other equity security of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary.

4.3Authority; No Violation.

(a) First Defiance has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger has been duly and validly approved by the Board of Directors of First Defiance. The Board of Directors of First Defiance has determined that the Merger, on the terms and conditions set forth in this Agreement, is in the best interests of First Defiance and its shareholders. Except for the adoption of resolutions to give effect to the provisions of Section 6.10 in connection with the Closing, no other corporate proceedings on the part of First Defiance are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by First Defiance and (assuming due authorization, execution and delivery by Commercial Bancshares) constitutes a valid and binding obligation of First Defiance, enforceable against it in accordance with its terms (except in all cases as such enforceability may be limited by the Enforceability Exceptions). The First Defiance Shares to be issued in the Merger have been validly authorized and, when issued, will be validly issued, fully paid and non-assessable, and no current or past shareholder of First Defiance will have any preemptive right or similar rights in respect thereof.

(b) Neither the execution and delivery of this Agreement by First Defiance, nor the consummation by First Defiance of the transactions contemplated hereby, nor compliance by First Defiance with any of the terms or provisions hereof, will (i) violate any provision of the First Defiance Articles or the First Defiance Code of Regulations or); (ii) assuming that the consents, approvals and filings referred to in Section 4.4 are duly obtained and/or made, (x) violate any law, statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to First Defiance, any of its Subsidiaries or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of First Defiance or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which First Defiance or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound, except (in the case of clause (ii) above) for such violations, conflicts, breaches, defaults, terminations, cancellations, accelerations or creations which either individually or in the aggregate would not reasonably be likely to have a Material Adverse Effect on First Defiance.

4.4Consents and Approvals.  Except for (i) the filing of applications, filings and notices, as applicable, with the NASDAQ, (ii) the filing of applications, filings and notices, as applicable, with the Federal Reserve Board under the BHC Act and approval of such applications, filings and notices, (iii) the filing of applications, filings and notices, as applicable, with the Office of the Comptroller of the Currency in connection with the Bank Merger, including under the Bank Merger Act, and approval of such applications, filings and notices, (iv) the filing of any required applications, filings or notices with any state banking authorities listed on Section 3.4 of the Commercial Bancshares Disclosure Schedule and approval of such applications, filings and notices, (v) the filing with the SEC of the Proxy Statement and the S-4 in which the Proxy Statement will be included as a prospectus, and declaration of effectiveness of the S-4, (vi) the filing of the Certificate of Merger with the Ohio Secretary pursuant to the OGCL, and the filing of the Bank Merger Certificate, (vii) the filing of any notices or other filings under the HSR Act, if necessary or advisable, and (viii) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the First Defiance Shares pursuant to this Agreement and the approval of the listing of such First Defiance Shares on the NASDAQ, no consents or approvals of or filings or registrations with any Governmental Entity are necessary in connection with (A) the execution and delivery by First Defiance of this Agreement or (B) the consummation by First Defiance of the Merger and the other transactions contemplated hereby (including the Bank Merger). As of the date hereof, First Defiance is not


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aware of any reason why the necessary regulatory approvals and consents will not be received in order to permit consummation of the Merger and Bank Merger on a timely basis.

4.5SEC Filings.  First Defiance has filed all reports and proxy materials required to be filed by it with the SEC pursuant to the Exchange Act. All such filings, at the time of filing, complied in all material respects as to form and included all exhibits required to be filed under the applicable rules of the SEC. None of such documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

4.6Financial Statements.

(a) The financial statements of First Defiance and its Subsidiaries included (or incorporated by reference) in each final registration statement, prospectus, report, schedule and definitive proxy statement filed with or furnished to the SEC by First Defiance pursuant to the Securities Act or Exchange Act since January 1, 2013 (the “First Defiance Reports”) (including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of First Defiance and its Subsidiaries, (ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in shareholders’ equity and consolidated financial position of First Defiance and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (iii) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of First Defiance and its Subsidiaries have been, since January 1, 2013, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements. Crowe Horwath LLP has not resigned (or informed First Defiance that it intends to resign) or been dismissed as independent public accountants of First Defiance as a result of or in connection with any disagreements with First Defiance on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

(b) Since January 1, 2013, (i) neither First Defiance nor any of its Subsidiaries, nor, to the knowledge of First Defiance, any director, officer, auditor, accountant or representative of First Defiance or any of its Subsidiaries, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or, to the knowledge of First Defiance, oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of First Defiance or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or written claim that First Defiance or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing First Defiance or any of its Subsidiaries, whether or not employed by First Defiance or any of its Subsidiaries, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by First Defiance or any of its officers, directors, or employees to the Board of Directors of First Defiance or any committee thereof or, to the knowledge of First Defiance, to any director or officer of First Defiance.

4.7Broker’s Fees.  Neither First Defiance nor any First Defiance Subsidiary nor any of their respective officers or directors has employed any broker, finder or financial advisor or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement, other than Raymond James & Associates, Inc.

4.8Absence of Certain Changes or Events.

(a) Since December 31, 2015, no event or events have occurred that have had or would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance.


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(b) Since December 31, 2015, except with respect to the transactions contemplated hereby or as required or permitted by this Agreement, First Defiance and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.

4.9Legal Proceedings.

(a) Neither First Defiance nor any of its Subsidiaries is a party to any, and there are no pending or, to the knowledge of First Defiance, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against First Defiance or any of its Subsidiaries (i) that would reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, or (ii) of a material nature challenging the validity or propriety of this Agreement.

(b) There is no injunction, order, judgment, decree, or regulatory restriction imposed upon First Defiance, any of its Subsidiaries or the assets of First Defiance or any of its Subsidiaries (or that, upon consummation of the Merger, would apply to First Defiance or any of its affiliates) that would reasonably be expected to be material to either First Defiance or any of its Subsidiaries, taken as a whole.

4.10Taxes and Tax Returns.  Each of First Defiance and its Subsidiaries has duly and timely filed (taking into account all applicable extensions) all material Tax Returns in all jurisdictions in which Tax Returns are required to be filed by it, and all such Tax Returns are true, correct, and complete in all material respects. All material Taxes of First Defiance and its Subsidiaries (whether or not shown on any Tax Returns) that are due have been fully and timely paid. Each of First Defiance and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third party. The federal income Tax Returns of First Defiance and its Subsidiaries for all years up to and including December 31, 2011 have been examined by the IRS or are Tax Returns with respect to which the applicable period for assessment under applicable law, after giving effect to extensions or waivers, has expired. No deficiency with respect to any amount of Taxes has been proposed, asserted or assessed against First Defiance or any of its Subsidiaries. Except as set forth in Section 4.10 of the First Defiance Disclosure Schedule, there are no pending or threatened (in writing) disputes, claims, audits, examinations or other proceedings regarding any Taxes of First Defiance and its Subsidiaries or the assets of First Defiance and its Subsidiaries.

4.11Compliance with Applicable Law.  First Defiance and each of its Subsidiaries hold, and have at all times since December 31, 2012 held, all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets under and pursuant to each (and have paid all fees and assessments due and payable in connection therewith), except where neither the cost of failure to hold nor the cost of obtaining and holding such license, franchise, permit or authorization (nor the failure to pay any fees or assessments) would, either individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on First Defiance, and to the knowledge of First Defiance, no suspension or cancellation of any such necessary license, franchise, permit or authorization is threatened. First Defiance and each of its Subsidiaries have complied in all material respects with and are not in material default or violation under any law, statute, order, rule or regulation of any Governmental Entity applicable to First Defiance or any of its Subsidiaries, including (to the extent applicable to First Defiance or its Subsidiaries) all laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act and Regulation V, the Truth in Lending Act and Regulation Z, the Home Mortgage Disclosure Act and Regulation C, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act and Regulation E, the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, the Foreign Corrupt Practices Act, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, and any other law or regulation relating to bank secrecy, discriminatory lending, financing or leasing practices, consumer protection, money laundering prevention, foreign assets control, Sections 23A and 23B of the Federal Reserve Act and Regulation W, the Sarbanes-Oxley Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. First Federal has a Community Reinvestment Act rating of


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“satisfactory” or better. First Defiance and each of its affiliates and subsidiaries have complied in all material respects with and are not in material default or violation under the Volcker Rule.

4.12Certain Contracts.

(a) Each contract, arrangement, commitment or understanding (whether written or oral) which is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to which First Defiance or any of its Subsidiaries is a party or by which First Defiance or any of its Subsidiaries is bound as of the date hereof has been filed as an exhibit to the most recent Annual Report on Form 10-K filed by First Defiance, or a Quarterly Report on Form 10-Q or Current Report on Form 8-K subsequent thereto (each, a “First Defiance Contract”), and neither First Defiance nor any of its Subsidiaries knows of, or has received notice of, any violation of any First Defiance Contract by any of the other parties thereto which would reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on First Defiance.

(b) In each case, except as would not reasonably be likely to have, either individually or in the aggregate, a Material Adverse Effect on First Defiance, (i) each First Defiance Contract is valid and binding on First Defiance or one of its Subsidiaries, as applicable, and in full force and effect, (ii) First Defiance and each of its Subsidiaries have performed all obligations required to be performed by it prior to the date hereof under each First Defiance Contract, (iii) to the knowledge of First Defiance, each third-party counterparty to each First Defiance Contract has performed all obligations required to be performed by it to date under such First Defiance Contract, and (iv) no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a default on the part of First Defiance or any of its Subsidiaries under any such First Defiance Contract.

4.13Agreements with Regulatory Agencies.  Neither First Defiance nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, a recipient of any supervisory letter from, has adopted any policies, procedures or board resolutions at the request or suggestion of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the First Defiance Disclosure Schedule, a “First Defiance Regulatory Agreement”), nor has First Defiance or any of its Subsidiaries been advised, in writing or, to the knowledge of First Defiance, orally, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering or requesting any such First Defiance Regulatory Agreement.

4.14Information Technology.  Except as would not reasonably be likely, either individually or in the aggregate, to have a Material Adverse Effect on First Defiance, to the knowledge of First Defiance, since January 1, 2013, no third party has gained unauthorized access to any information technology networks controlled by and material to the operation of the business of First Defiance and its Subsidiaries.

4.15Related Party Transactions.  There are no transactions or series of related transactions, agreements, arrangements or understandings, nor are there any currently proposed transactions or series of related transactions, between First Defiance or any of its Subsidiaries, on the one hand, and any current director or “executive officer” (as defined in Rule 3b-7 under the Exchange Act) of First Defiance or any of its Subsidiaries or any person who beneficially owns (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) 5% or more of the outstanding First Defiance Shares (or any of such person’s immediate family members or affiliates) (other than Subsidiaries of First Defiance), on the other hand, of the type required to be reported in any First Defiance Report pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act.

4.16State Takeover Laws.  The Board of Directors of First Defiance has approved this Agreement and the transactions contemplated hereby as required to render inapplicable to such agreements and transactions any applicable Takeover Statutes.


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4.17Reorganization.  First Defiance and each of its Subsidiaries has not taken any action and is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

4.18First Defiance Information.  The information relating to First Defiance and its Subsidiaries that is provided by First Defiance or its representatives specifically for inclusion in (a) the Proxy Statement, on the date it (or any amendment or supplement thereto) is first mailed to holders of Commercial Bancshares Shares or at the time of the Commercial Bancshares Meeting, (b) the S-4, when it or any amendment thereto becomes effective under the Securities Act, (c) the documents and financial statements of First Defiance incorporated by reference in the Proxy Statement, the S-4 or any amendment or supplement thereto or (d) any other document filed with any other Regulatory Agency in connection herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The portions of the Proxy Statement relating to First Defiance and its Subsidiaries and other portions within the reasonable control of First Defiance and its Subsidiaries will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation or warranty is made by First Defiance with respect to statements made or incorporated by reference therein based on information provided or supplied by or on behalf of Commercial Bancshares or its Subsidiaries for inclusion in the Proxy Statement or the S-4.

4.19Financing.  First Defiance has, or will have available to it prior to the Closing Date, all funds necessary to satisfy its obligations hereunder.

ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS

5.1Conduct of Business Prior to the Effective Time.  During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or permitted by this Agreement, required by law or as consented to in writing by First Defiance, (a) Commercial Bancshares shall, and shall cause its Subsidiaries to, (i) conduct its business in the ordinary course in all material respects and (ii) use reasonable best efforts to maintain and preserve intact its business organization and advantageous business relationships, and (b) each of First Defiance and Commercial Bancshares shall and shall cause its respective Subsidiaries to take no action that would reasonably be likely to adversely affect or delay the ability to obtain any necessary approvals of any Regulatory Agency or other Governmental Entity required for the transactions contemplated hereby or to perform its respective covenants and agreements under this Agreement or to consummate the transactions contemplated hereby on a timely basis.

5.2Commercial Bancshares Forbearances.  During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or permitted by this Agreement or as required by law or binding regulatory guidance, Commercial Bancshares shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of First Defiance:

(a) in each case, other than in the ordinary course of business, incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person (other than any Subsidiary of Commercial Bancshares);

(b)  (i) adjust, split, combine or reclassify any capital stock;

(ii) Except for the payment of its regular quarterly cash dividend of $0.25 per share payable consistent with past practice, (the parties agree to coordinate their respective dividend declaration dates for the quarter in which the Merger shall occur such that the shareholders of Commercial Bancshares will receive a dividend from Commercial Bancshares or First Defiance but not from both) make, declare or pay any dividend, or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of its capital stock (except (A) dividends paid by any of the Subsidiaries of Commercial Bancshares to Commercial Bancshares or any of its wholly owned Subsidiaries, or (B) the acceptance of Commercial Bancshares Shares as


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payment for the exercise price of Commercial Bancshares Stock Options or for withholding taxes incurred in connection with the exercise of Commercial Bancshares Stock Options in accordance with past practice and the terms of the applicable award agreements);

(iii) grant any stock options, stock appreciation rights, performance shares, restricted stock units, restricted shares or other equity-based awards or interests, or grant any individual, corporation or other entity any right to acquire any shares of its capital stock; or

(iv) issue, sell or otherwise permit to become outstanding any additional shares of capital stock or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock or any options, warrants, or other rights of any kind to acquire any shares of capital stock, except for the issuance of shares upon the exercise of Commercial Bancshares Stock Options outstanding as of the date hereof;

(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any individual, corporation or other entity other than a wholly owned Subsidiary, or cancel, release or assign any material indebtedness to any such person or any claims held by any person, in each case other than in the ordinary course of business;

(d) except for transactions in the ordinary course of business (including by way of foreclosure or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith), make any investment that would be material to Commercial Bancshares and its Subsidiaries on a consolidated basis either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other individual, corporation or other entity, other than in a wholly owned Subsidiary of Commercial Bancshares;

(e) (i) terminate, amend, or waive any provision of, any Commercial Bancshares Contract, or make any change in any instrument or agreement governing the terms of any of its securities, other than normal renewals in the ordinary course of business or (ii) enter into any contract that would constitute a Commercial Bancshares Contract if it were in effect on the date of this Agreement;

(f) except as required under applicable law or the terms of any Commercial Bancshares Benefit Plan existing as of the date hereof, (i) enter into, adopt or terminate any Commercial Bancshares Benefit Plan (including any plans, programs, policies, agreements or arrangements that would be considered a Commercial Bancshares Benefit Plan if in effect as of the date hereof), (ii) amend (whether in writing or through the interpretation of) any Commercial Bancshares Benefit Plan (including any plans, programs, policies, agreements or arrangements adopted or entered into that would be considered a Commercial Bancshares Benefit Plan if in effect as of the date hereof), other than amendments in the ordinary course of business consistent with past practice that do not materially increase the cost or expense of maintaining such plan, program, policy or arrangements, (iii) other than in the ordinary course of business consistent with past practice increase the compensation payable to any current or former employee, officer, director, independent contractor or consultant, (iv) other than in the ordinary course of business consistent with past practice pay or award, or commit to pay or award, any bonuses or incentive compensation (so long as the total amount of bonuses and incentive compensation paid by Commercial Bancshares and all of its Subsidiaries for 2016 does not exceed $400,000), (v) accelerate the vesting of any equity-based awards or other compensation, (vi) enter into any collective bargaining agreement or similar agreement or arrangement, (vii) fund any rabbi trust or similar arrangement, (viii) terminate the employment or services of any officer, employee, independent contractor or consultant whose annual base salary or base wage is greater than $75,000, other than for cause, or (ix) hire any officer, employee, independent contractor or consultant whose annual base salary or base wage is greater than $75,000; provided, however, that First Defiance will not unreasonably withhold or delay its consent regarding an exception to subsections (f)(viii) or (ix) and will respond to Commercial Bancshares’ requests within three (3) business days after receipt thereof;

(g) except for debt workouts in the ordinary course of business, settle any material claim, suit, action or proceeding in an amount and for consideration in excess of $150,000 individually or $300,000 in the aggregate (net of any insurance proceeds or indemnity, contribution or similar payments received


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by Commercial Bancshares or any of its Subsidiaries in respect thereof) or that would impose any material restriction on the business of it or its Subsidiaries or First Defiance;

(h) amend the Commercial Bancshares Articles, the Commercial Bancshares Code of Regulations, or comparable governing documents of its Subsidiaries;

(i) merge or consolidate itself or any of its Subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its Subsidiaries;

(j) materially restructure or materially change its investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, except as may be required by GAAP or by applicable laws, regulations, guidelines or policies imposed by any Governmental Entity or requested by a Governmental Entity;

(k) implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP, by applicable laws, regulations, guidelines or policies imposed by any Governmental Entity, or requested by First Defiance;

(l) (i) enter into any material new line of business or change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking and operating, hedging policies, securitization and servicing policies (including any change in the maximum ratio or similar limits as a percentage of its capital exposure applicable with respect to its loan portfolio or any segment thereof), except as required by such policies or applicable law, regulation or policies imposed by any Governmental Entity;

(m) (i) make or purchase any indirect or brokered loans, or (ii) purchase from or sell to any financial institution or other non-depository lender an interest in a loan, other than in the ordinary course of business and consistent with past practice and in any case with dollar amounts in excess of the amounts for originations set forth in subsection (p) of this Section 5.2; provided, however, that First Defiance will not unreasonably withhold or delay its consent regarding an exception to this subsection (m);

(n) take any action that would change Commercial Bancshares’ loan loss reserves in a manner that is not in compliance with Commercial Bancshares’ policy on the date of this Agreement and past practices consistently applied and in material compliance with GAAP;

(o) make any capital expenditure or capital addition or improvement or purchase other assets outside of the ordinary course of business which individually exceeds $75,000 or in the aggregate exceed $200,000;

(p) (i) establish any new lending programs or make any changes in the policies of any Commercial Bancshares Subsidiary concerning which persons may approve loans, (ii) price or reprice any loans inconsistent with Commercial Bancshares current pricing methodology, or (iii) originate or issue any: (A) loans except in accordance with existing lending policies, and lending limits and authorities; or (B) (1) unsecured consumer loans in excess of $25,000; (2) individual commercial loans in excess of $1,000,000; or (3) construction, acquisition or development loans, residential permanent loans, loans secured by special purpose property, or SBA loans, to any one borrower in excess of $2,000,000 in the aggregate; provided, however, that First Defiance will not unreasonably withhold or delay its consent regarding an exception to this subsection (p) and will respond to Commercial Bancshares’ requests within three (3) business days after receipt thereof;

(q) (i) make, change or revoke any Tax election, (ii) change an annual Tax accounting period, (iii) adopt or change any Tax accounting method, (iv) file any amended Tax Return, (v) enter into any closing agreement with respect to Taxes, (vi) settle any Tax claim, audit, assessment or dispute or surrender any right to claim a refund of Taxes, (vii) fail to prepare or file or cause to be prepared or filed in a timely manner consistent with past practice all Tax Returns that are required to be filed (with extensions) at or before the Effective Time, (viii) fail to pay any Tax due (whether or not required to be shown on any such Tax Returns), (ix) consent to the extension or waiver of any statute of limitations


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with respect to taxes, or (x) offer or agree to do any of the foregoing or surrender its rights to do any of the foregoing or to claim any refund of Taxes or to file any amended Tax Return;

(r) (i) make application for the opening or relocation of, or open or relocate, any branch office, loan production office or other significant office or operations facility of it or its Subsidiaries, (ii) other than in consultation with First Defiance, make application for the closing of or close any branch or (iii) purchase any new real property (other than other real estate owned (OREO) properties in the ordinary course) or enter into, amend or renew any material lease with respect to real property;

(s) knowingly take any action that is intended to or would reasonably be likely to adversely affect or materially delay the ability of Commercial Bancshares or its Subsidiaries to obtain any necessary approvals of any Governmental Entity required for the transactions contemplated hereby or by the Bank Merger Agreement or the Requisite Commercial Bancshares Vote or to perform its covenants and agreements under this Agreement or the Bank Merger Agreement or to consummate the transactions contemplated hereby or thereby;

(t) foreclose upon or otherwise take title to or possession or control of any real property without first obtaining a Phase I Environmental Report in accordance with the requirements of ASTM E1527-13 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Practice” (a “Phase I”) thereon that indicates that the property does not contain any “Recognized Environmental Conditions” (as defined in the ASTM-E1527-13 standard for Phase I assessments) regarding pollutants, contaminants or hazardous or toxic waste materials including asbestos and petroleum products;

(u) except for communications made in accordance with Section 6.6(e) and Section 6.11, make any written communications to the employees of Commercial Bancshares or its Subsidiaries with respect to employment, compensation or benefits matters addressed in this Agreement or related, directly or indirectly, to the transactions contemplated by this Agreement; or

(v) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of, any of the actions prohibited by this Section 5.2.

5.3First Defiance Forbearances.  During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as set forth in the First Defiance Disclosure Schedule, as expressly contemplated or permitted by this Agreement, as required by law or binding regulatory guidance, First Defiance shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Commercial Bancshares (such consent not to be unreasonably withheld):

(a) amend the First Defiance Articles or the First Defiance Code of Regulations in a manner that would materially and adversely affect the holders of Commercial Bancshares Shares, or adversely affect the holders of Commercial Bancshares Shares relative to other holders of First Defiance Shares;

(b) adjust, split, combine or reclassify any capital stock of First Defiance or make, declare or pay any extraordinary dividend on any capital stock of First Defiance;

(c) merge or consolidate itself or any of its Subsidiaries with any other person (i) where it or its Subsidiary, as applicable, is not the surviving person or (ii) if the merger or consolidation is reasonably likely to cause the Closing to be materially delayed or the receipt of the Requisite Regulatory Approvals to be prevented or materially delayed;

(d) knowingly take any action that is intended to or would reasonably be likely to adversely affect or materially delay the ability of First Defiance or its Subsidiaries to obtain any necessary approvals of any Governmental Entity required for the transactions contemplated hereby or by the Bank Merger Agreement or to perform its covenants and agreements under this Agreement or the Bank Merger Agreement or to consummate the transactions contemplated hereby or thereby; or

(e) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of, any of the actions prohibited by this Section 5.3.


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5.4Tax Treatment.  Each of First Defiance and Commercial Bancshares agrees not to take any action or knowingly fail to take any action where such action or failure to act could reasonably be expected to prevent or impede the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code, and each of First Defiance and Commercial Bancshares agrees to take such action as may be reasonably required, if such action may be reasonably taken, to reverse the impact of past actions which would adversely impact the ability of the Merger to be characterized as a tax-free reorganization under Section 368(a) of the Code. Officers of First Defiance and Commercial Bancshares shall execute and deliver to Vorys, Sater, Seymour and Pease LLP and Shumaker, Loop & Kendrick, LLP, as tax counsel to First Defiance and Commercial Bancshares, respectively, tax representation letters (the “Tax Representation Letters”) substantially in such form agreed to by the parties at such time as may be reasonably requested by Vorys, Sater, Seymour and Pease LLP and Shumaker, Loop & Kendrick, LLP in connection with their delivery of opinions pursuant to Sections 7.2(c) and 7.3(c) of this Agreement.

ARTICLE VI
ADDITIONAL AGREEMENTS

6.1Regulatory Matters.

(a) First Defiance and Commercial Bancshares shall promptly prepare and file with the SEC the Proxy Statement and First Defiance shall promptly prepare and file with the SEC the S-4, in which the Proxy Statement will be included as a prospectus. Each of First Defiance and Commercial Bancshares shall use their reasonable best efforts to have the S-4 declared effective under the Securities Act as promptly as practicable after such filing and to keep the S-4 effective for so long as necessary to consummate the transactions contemplated by this Agreement, and Commercial Bancshares shall thereafter mail or deliver the Proxy Statement to its shareholders. First Defiance shall also use its reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by this Agreement as promptly as practicable, and Commercial Bancshares shall furnish all information concerning itself and the holders of Commercial Bancshares Shares as may be reasonably requested in connection with any such action.

(b) The parties hereto shall cooperate with each other and use their reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement (including the Merger and the Bank Merger), and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such third parties and Governmental Entities. First Defiance and Commercial Bancshares shall, and shall cause their respective Subsidiaries to, each prepare and file any applications, notices and filings required in order to obtain the Requisite Regulatory Approvals. First Defiance and Commercial Bancshares shall each use, and shall each cause their applicable Subsidiaries to use, reasonable best efforts to obtain each such Requisite Regulatory Approval and any approvals required for the Bank Merger as promptly as reasonably practicable. The parties shall cooperate with each other in connection therewith (including the furnishing of any information and any reasonable undertaking or commitments that may be required to obtain the Requisite Regulatory Approvals) and shall respond as promptly as practicable to the requests of Governmental Entities for documents and information. First Defiance and Commercial Bancshares shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to Commercial Bancshares or First Defiance, as the case may be, and any of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties shall act reasonably and as promptly as practicable. Each party will provide the other with copies of any applications and all correspondence relating thereto prior to filing and with sufficient opportunity to comment, other than any portions of material filed in connection therewith that contain competitively sensitive business or other proprietary information filed under a claim of confidentiality (except any competitively sensitive business or other proprietary information (but not any confidential supervisory information) of Commercial Bancshares that is necessary for First


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Defiance to prepare and file any applications, notices and filings required in order to obtain the Requisite Regulatory Approvals; provided, that First Defiance shall request confidential treatment of any such information, permit Commercial Bancshares to control the defense of any challenge to such confidential treatment request and will not release any such information publicly pursuant to Freedom of Information Act requests or similar rules without Commercial Bancshares’ consent). The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein.

(c) First Defiance and Commercial Bancshares shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, the S-4 or any other statement, filing, notice or application made by or on behalf of First Defiance, Commercial Bancshares or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger, the Bank Merger and the other transactions contemplated by this Agreement. Each of First Defiance and Commercial Bancshares agrees, as to itself and its Subsidiaries, that none of the information supplied or to be supplied by it specifically for inclusion or incorporation by reference in (i) the S-4 will, at the time the S-4 and each amendment or supplement thereto, if any, becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Proxy Statement and any amendment or supplement thereto will, at the date of mailing to the shareholders of Commercial Bancshares and at the time of the Commercial Bancshares Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which such statement was made, not misleading, and (iii) any applications, notices and filings required in order to obtain the Requisite Regulatory Approvals will, at the time each is filed, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Each of First Defiance and Commercial Bancshares further agrees that if it becomes aware that any information furnished by it would cause any of the statements in the S-4 or the Proxy Statement to be false or misleading with respect to any material fact, or to omit to state any material fact necessary to make the statements therein not false or misleading, to promptly inform the other party thereof and to take appropriate steps to correct the S-4 or the Proxy Statement.

(d) First Defiance and Commercial Bancshares shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained or that the receipt of any such approval will be materially delayed.

6.2Access to Information.

(a) Upon reasonable notice and subject to applicable laws, each of First Defiance and Commercial Bancshares, for the purposes of verifying the representations and warranties of the other and preparing for the Merger and the other matters contemplated by this Agreement, shall, and shall cause each of their respective Subsidiaries to, afford to the officers, employees, accountants, counsel, advisors and other representatives of the other party, access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, personnel, information technology systems,United Community and records, and each shall reasonably cooperate with the other party in preparing to execute after the Effective Time conversion or consolidation of systems and business operations generally (including by entering into customary confidentiality, non-disclosure and similar agreements with such service providers and/or the other party), and, during such period, during normal business hours and in a manner so as not to interfere with normal business operations, each of First Defiance shall cooperate in reviewing, evaluating and Commercial Bancshares shall,analyzing the United Community Benefit Plans and shall cause its respective Subsidiaries to, make available to the other party such information concerning its business, properties and personnel as such party may reasonably request. Each party shall use commercially reasonable efforts to minimize any interference with the other party’s regular business


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operations during any such access. Neither First Defiance nor Commercial Bancshares nor anyBenefit Plans with a view toward developing appropriate New Plans for the employees covered thereby; and (iii) it is the intention of their respective Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights ofUnited Community and First Defiance’s or Commercial Bancshares’, as the case may be, customers, jeopardize the attorney-client privilege of the institution in possession or control of such information (after giving due consideration to the existence of any common interest, joint defense or similar agreement between the parties) or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.

(b) Each of First Defiance, and Commercial Bancshares shall hold all information furnished by or on behalf of the other party or any of such party’s Subsidiaries or representatives pursuant to Section 6.2(a) in confidence to the extent requiredpermitted by and in accordance with, the provisions of each of the confidentiality agreements, dated April 27, 2016 and August 5, 2016, between First Defiance and Commercial Bancshares (the “Confidentiality Agreements”).

6.3Commercial Bancshares Shareholder Approval.

(a) Commercial Bancshares shall take, in accordance with applicable law and the Commercial Bancshares Articles and the Commercial Bancshares Code of Regulations, all actions necessaryLegal Requirements, to convene a meeting of its shareholders (the “Commercial Bancshares Meeting”) to be helddevelop New Plans (including amending existing plans), as soon as reasonably practicable after the S-4Effective Time, which, among other things, (x) treat similarly situated employees on a substantially equivalent basis, taking into account all relevant factors, including duties, geographic location, tenure, qualifications and abilities, and (y) do not discriminate between employees who were covered by United Community Benefit Plans, on the one hand, and those covered by First Defiance Benefit Plans on the other hand, at the Effective Time.

(c) For all purposes under the New Plans, each Covered Employee and each First Defiance Employee shall be credited with his or her years of service with United Community and First Defiance, their Subsidiaries and their respective predecessors, respectively, to the same extent as such Covered Employee or First Defiance Employee was entitled to credit for such service under any applicable United Community Benefit Plan or First Defiance Benefit Plan, respectively, in which such Covered Employee or First Defiance Employee participated or was eligible to participate immediately prior to the Transition Date;provided,however, that the foregoing shall not apply to the extent that its application would result in a duplication of benefits with respect to the same period of service.

(d) In addition, and without limiting the generality of the foregoing, as of the Transition Date: (i) each Covered Employee and First Defiance Employee shall be immediately eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan is declared effectivesimilar in type to an applicable United Community Benefit Plan or First Defiance Benefit Plan, respectively, in which such Covered Employee or First Defiance Employee was participating immediately prior to the Transition Date (such United Community Benefit Plans and First Defiance Benefit Plans prior to the Transition Date collectively, the “Old Plans”); (ii) for purposes of each New Plan providing medical, dental, pharmaceutical, vision or similar benefits to any Covered Employee or First Defiance Employee, allpre-existing condition exclusions andactively-at-work requirements of such New Plan shall be waived for such Covered Employee or First Defiance Employee and his or her covered dependents, unless such conditions would not have been waived under the Old Plan in which such Covered Employee or First Defiance Employee, as applicable, participated or was eligible to participate immediately prior to the Transition Date; and (iii) any eligible expenses incurred by such Covered Employee or First Defiance Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the

Transition Date shall be taken into account under such New Plan to the extent such eligible expenses were incurred during the plan year of the New Plan in which the Transition Date occurs for purposes of satisfying all deductible, coinsurance and maximumout-of-pocket requirements applicable to such Covered Employee or First Defiance Employee and his or her covered dependents for the purposeapplicable plan year as if such amounts had been paid in accordance with such New Plan.

(e) Notwithstanding any other provision of obtaining the Requisite Commercial Bancshares Vote required in connection with this Agreement to the contrary, from and following the Closing, First Defiance shall assume and honor the obligations of United Community and its Subsidiaries under all employment, severance, change in control, consulting, and other similar plans, programs, agreements, arrangements, policies and practices (“Severance Plans”) in accordance with their terms. First Defiance and United Community hereby agree that the Merger shall constitute or be deemed a “change in control” (or concept of similar import) for purposes of the United Community Benefit Plans, including Severance Plans and United Community Stock Plans, and that First Defiance may, in First Defiance’s sole discretion, deem the Merger a “change in control” (or concept of similar import) for purposes of the First Defiance Benefit Plans. With respect to a Covered Employee or First Defiance Employee who does not have contractual severance or termination protections and whose employment is terminated between the Closing Date and the Merger. Except infirst anniversary thereof, First Defiance shall provide severance protections consistent with the terms of a severance plan or policy to be developed by First Defiance and United Community between the date hereof and the Closing Date or, if no such plan or policy is adopted, First Defiance shall provide severance benefits on terms consistent with the Severance Plan applicable to such employee immediately prior to Closing or, if more favorable, the Severance Plan applicable to similarly situated employees of First Defiance (in the case of a Covered Employee) or United Community (in the case of an Adverse Recommendation Change,First Defiance Employee) immediately prior to Closing, determined without taking into account any reduction after the BoardClosing in compensation paid to such Covered Employee.

(f) As mutually determined by the parties, First Defiance shall provide outplacement services to eligible Covered Employees and First Defiance Employees who are terminated following the Merger due to relocation or consolidation of Directorsoperations.

(g) Nothing in this Agreement shall confer upon any employee, director or consultant of Commercial BancsharesUnited Community, First Defiance or their respective Subsidiaries or Affiliates any right to continue in the employ or service of United Community, First Defiance or their respective Subsidiaries or Affiliates, or shall interfere with or restrict in any way the rights of the United Community, First Defiance or their respective Subsidiaries or Affiliates to discharge or terminate the services of any employee, director or consultant at any time for any reason whatsoever, with or without cause. Nothing in this Agreement shall be deemed to (i) establish, amend, or modify any United Community Benefit Plan, First Defiance Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement, or (ii) alter or limit the ability of the United Community, First Defiance or their respective Subsidiaries or Affiliates to amend, modify or terminate any United Community Benefit Plan, First Defiance Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement after the Effective Time. Without limitingSection 11.6, nothing in this Agreement, express or implied, is intended to or shall confer upon any current or former employee, director or other service provider (or any beneficiary of the foregoing) of United Community, First Defiance or their respective Subsidiaries or Affiliates, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 7.8Section 16 Matters. Prior to the Effective Time, the parties will each take such steps as may be necessary or appropriate to cause any disposition of shares of United Community Capital Stock or conversion of any derivative securities in respect of shares of United Community Capital Stock in connection with the consummation of the Contemplated Transactions to be exempt under Rule16b-3 promulgated under the Exchange Act.

Section 7.9United Community Acquisition Proposals.

(a) United Community agrees that it will not, and will cause its Subsidiaries and use its reasonable best efforts to obtain fromcause its and their officers, directors, agents, advisors and representatives (collectively, “Representatives”) not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to any United Community Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any United Community Acquisition Proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any United Community Acquisition Proposal, except to notify a person that has made or, to the shareholdersKnowledge of Commercial BancsharesUnited Community, is making any inquiries with respect to, or is considering making, a United Community Acquisition Proposal of the Requisite Commercial Bancshares Vote, including by communicatingexistence of the provisions of thisSection 7.9(a); provided that, prior to its shareholders its recommendation (and including such recommendationobtaining the United Community Shareholder Approval, in the Proxy Statement) that they adopt and approveevent United Community receives an unsolicited bona fide written United Community Acquisition Proposal after the date of this Agreement and the transactions contemplated hereby. Commercial Bancshares shall engage a proxy solicitor reasonably acceptable to First Defiance to assistUnited Community Board concludes in the solicitation of proxies from shareholders relating to the Requisite Commercial Bancshares Vote. However, subject to Section 8.1 and Section 8.2, if the Board of Directors of Commercial Bancshares, aftergood faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors, determinesadvisors) that such United Community Acquisition Proposal constitutes or would be reasonably likely to result in a Superior Proposal, it may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions to the extent that United Community Board concludes in good faith that it will more likely than not result in a violation of its fiduciary duties under applicable law to continue to recommend this Agreement, then in submitting this Agreement to its shareholders, the Board of Directors of Commercial Bancshares may withhold or withdraw or modify in a manner adverse to First Defiance its recommendation to its shareholders or may submit this Agreement to its shareholders without recommendation (each, an “Adverse Recommendation Change”) (although the resolutions approving this Agreement as of the date hereof may not be rescinded or amended), in which event the Board of Directors of Commercial Bancshares may communicate the basis for its Adverse Recommendation Change to its shareholders in the Proxy Statement or an appropriate amendment or supplement thereto; provided, that the Board of Directors of Commercial Bancshares may not take any actions under this sentence unless (i) it gives First Defiance at least three (3) business days’ prior written notice of its intention to take such action and a reasonable description of the event or circumstances giving rise to its determination to take such action (including, in the event such action is taken by the Board of Directors of Commercial Bancshares in response to an Acquisition Proposal, the latest material terms and conditions and the identity of the third party in any such Acquisition Proposal, or any amendment or modification thereof, or describe in reasonable detail such other event or circumstances) and (ii) at the end of such notice period, the Board of Directors of Commercial Bancshares takes into account any amendment or modification to this Agreement proposed by First Defiance and after(after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors,advisor) that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements;provided, further, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, United Community shall have provided such information to First Defiance and entered into a confidentiality agreement with such third party on terms no less favorable to it than the Confidentiality Agreement (an “Acceptable Confidentiality Agreement”), which confidentiality agreement shall not provide such third party with any exclusive right to negotiate with United Community. United Community will, and will use its reasonable best efforts to cause its Representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of this Agreement with any person other than First Defiance with respect to any United Community Acquisition Proposal. United Community will promptly (within twenty-four (24) hours) advise First Defiance following receipt of any United Community Acquisition Proposal or any inquiry which could reasonably be expected to lead to a United Community Acquisition Proposal, and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or United Community Acquisition Proposal), and will keep First Defiance reasonably apprised (and in any event within twenty-four (24) hours) of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or United Community Acquisition Proposal. United Community shall (A) withdraw and terminate access that was granted to any person (other than the parties to this Agreement and their respective affiliates and Representatives) to any “data room” (virtual or physical) that was established in connection with a United Community Acquisition Proposal prior to the date of this Agreement and (B) use its reasonable best efforts to enforce and not waive or amend any existing confidentiality or standstill agreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof, unless solely in the case of this clause (B) the United Community Board of Directors determines in good faith that itfailure to take such actions would nevertheless morebe reasonably likely than not result in a violation ofto violate its fiduciary duties under applicable lawLegal Requirements, in which event United Community may waive or amend such confidentiality or standstill agreement solely to continuethe extent necessary to recommendpermit a third party to make, on a confidential basis to the Board of Directors, a United Community Acquisition Proposal. During the term of this Agreement. Any material amendmentAgreement, United Community shall not, and shall cause its Subsidiaries and its and their Representatives not to on its behalf, enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement relating to a United Community Acquisition Proposal (other than an Acceptable Confidentiality Agreement). As used in this Agreement, “UnitedCommunity Acquisition Proposal” shall mean other than the Contemplated Transactions, any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of United Community and its Subsidiaries or 25% or more of any class of equity or voting securities of United Community or of its Subsidiaries whose

assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 25% or more of any class of equity or voting securities of United Community or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving United Community or its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community. United Community shall use its reasonable best efforts, subject to applicable Legal Requirements, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any confidential information provided to any person (other than First Defiance and its affiliates) pursuant to any such confidentiality, standstill or similar agreement. As used in this Agreement, “United Community Superior Proposal” shall mean a bona fide written United Community Acquisition Proposal willthat the United Community Board concludes in good faith to be more favorable to its shareholders than the Merger and the other Contemplated Transactions, (i) after receiving the advice of its financial advisors (who shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel) financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable Legal Requirements; provided, that for purposes of the definition of “United Community Superior Proposal,” the reference to “25%” in the definition of United Community Acquisition Proposal shall be deemed to be a new Acquisition Proposal for purposes of this Section 6.3 and will require a new notice period as referredreferences to in this Section 6.3.


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(b) ExceptNothing contained in the case of an Adverse Recommendation Change, Commercial Bancshares shall adjourn or postpone the Commercial Bancshares Meeting, if, as of the time for which such meeting is originally scheduled, there are insufficient Commercial Bancshares Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or if on the date of such meeting, Commercial Bancshares has not received proxies representing a sufficient number of shares necessary to obtain the Requisite Commercial Bancshares Vote. Notwithstanding anything to the contrary herein, unless this Agreement has been terminated in accordance with its terms, the Commercial Bancshares Meeting shall be convened and this Agreement shall be submittedprevent United Community or the United Community Board from complying with Rules14d-9 and14e-2 under the Exchange Act or Item 1012(a) of RegulationM-A with respect to a United Community Acquisition Proposal or from making any legally required disclosure to United Community’s shareholders; provided that such Rules will in no way eliminate or modify the shareholders of Commercial Bancshares at the Commercial Bancshares Meeting, for the purpose of voting on the adoption of this Agreement and the other matters contemplated hereby, and nothing contained herein shall be deemed to relieve Commercial Bancshares of such obligation. Commercial Bancshares shall only be required to adjourn or postpone the Commercial Bancshares Meeting two (2) timeseffect that any action pursuant to the first sentence of this Section 6.3(b).

(c) Each member of the Commercial Bancshares Board of Directors of Commercial Bancshares will execute and deliver to First Defiance a Voting Agreement concurrently with the execution ofsuch Rules would otherwise have under this Agreement.

6.4Section 7.10Environmental Assessments and Title PoliciesFirst Defiance Acquisition Proposals.

(a) First Defiance may, atagrees that it will not, and will cause its Subsidiaries and use its reasonable best efforts to cause its and their Representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to any First Defiance's sole expense and within 50 daysDefiance Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any First Defiance Acquisition Proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any First Defiance Acquisition Proposal, except to notify a person that has made or, to the Knowledge of First Defiance, is making any inquiries with respect to, or is considering making, an First Defiance Acquisition Proposal of the existence of the provisions of thisSection 7.10(c); provided that, prior to obtaining the First Defiance Shareholder Approval, in the event First Defiance receives an unsolicited bona fide written First Defiance Acquisition Proposal after the date of this Agreement and First Defiance Board concludes in good faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors) that such First Defiance Acquisition Proposal constitutes or would be reasonably likely to result in a Superior Proposal, it may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions to the extent that First Defiance Board concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisor) that failure to take all commerciallysuch actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements; provided, further, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, First Defiance shall have provided such information to United Community and entered into an Acceptable Confidentiality Agreement with such third party, which confidentiality agreement shall not provide such third party with any exclusive right to negotiate with First Defiance. First Defiance will, and will use its reasonable best efforts to cause its Representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the

date of this Agreement with any person other than United Community with respect to any First Defiance Acquisition Proposal. First Defiance will promptly (within twenty-four (24) hours) advise United Community following receipt of any First Defiance Acquisition Proposal or any inquiry which could reasonably be expected to lead to an First Defiance Acquisition Proposal, and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or First Defiance Acquisition Proposal), and will keep United Community reasonably apprised (and in any event within twenty-four (24) hours) of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or First Defiance Acquisition Proposal. First Defiance shall (A) withdraw and terminate access that was granted to any person (other than the parties to this Agreement and their respective affiliates and Representatives) to any “data room” (virtual or physical) that was established in connection with an First Defiance Acquisition Proposal prior to the date of this Agreement and (B) use its reasonable best efforts to enforce and not waive or amend any existing confidentiality or standstill agreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof, unless solely in the case of this clause (B) the First Defiance Board of Directors determines in good faith that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements, in which event First Defiance may waive or amend such confidentiality or standstill agreement solely to the extent necessary to investigatepermit a third party to make, on a confidential basis to the Board of Directors, an First Defiance's satisfaction environmental matters concerningDefiance Acquisition Proposal. During the term of this Agreement, First Defiance shall not, and shall cause its Subsidiaries and its and their Representatives not to on its behalf, enter into any real property owned, leasedletter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or operated by Commercial Bancsharesother similar agreement with respect to an First Defiance Acquisition Proposal (other than an Acceptable Confidentiality Agreement). As used in this Agreement, “First Defiance Acquisition Proposal” shall mean, other than the Contemplated Transactions, any offer, proposal or inquiry relating to, or any Commercial Bancshares Subsidiary, including, but not limited to, completing Phase Ithird party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of First Defiance and Phase II environmental site assessmentsits Subsidiaries or agency file reviews for25% or more of any class of equity or voting securities of First Defiance or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such properties.third party beneficially owning 25% or more of any class of equity or voting securities of First Defiance or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving First Defiance or its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance. First Defiance shall use commerciallyits reasonable best efforts, subject to minimizeapplicable Legal Requirements, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any disruptionconfidential information provided to any person (other than United Community and its affiliates) pursuant to any such confidentiality, standstill or similar agreement. As used in this Agreement, “First Defiance Superior Proposal” shall mean a bona fide written First Defiance Acquisition Proposal that First Defiance Board concludes in good faith to be more favorable to its shareholders than the Merger and the other Contemplated Transactions, (i) after receiving the advice of Commercial Bancshares' business operationsits financial advisors (who shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and will indemnify(iii) after taking into account all legal (with the advice of outside counsel) financial (including the financing terms of any such proposal), regulatory and hold harmless Commercial Bancsharesother aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable Legal Requirements; provided, that for purposes of the definition of “First Defiance Superior Proposal,” the reference to “25%” in the definition of First Defiance Acquisition Proposal shall be deemed to be references to “a majority.”

(b) Nothing contained in this Agreement shall prevent First Defiance or First Defiance Board from complying with Rules14d-9 and14e-2 under the Exchange Act or Item 1012(a) of RegulationM-A with respect to an First Defiance Acquisition Proposal or from making any damageslegally required disclosure to First Defiance’s shareholders; provided that such Rules will in no way eliminate or losses resulting frommodify the effect that any action pursuant to such Rules would otherwise have under this Agreement.

Section 7.11Restructuring Efforts. If either United Community or arising out of such assessments. Commercial Bancshares and its Subsidiaries shall cooperate with the reasonable requests of professionals conducting the onsite assessments and agency file reviews.

(b) First Defiance shall have ten daysfailed to obtain the United Community Shareholder Approval or the First Defiance Shareholder Approval at the duly convened United Community Meeting or First Defiance Meeting, as applicable, or any adjournment or postponement thereof, each of the parties to this Agreement shall in good faith use its reasonable best efforts to negotiate a restructuring of the Contemplated Transactions (it being understood that neither party shall have any obligation to alter or change any material terms, including the Exchange Ratio, the amount or kind of the consideration to be issued to holders of the capital stock of United Community as provided for in this Agreement, or any term that would adversely affect the tax treatment of the Contemplated Transactions, in a manner adverse to such party or its shareholders or shareholders (as applicable)) and/or resubmit this Agreement and/or the Contemplated Transactions (or as restructured pursuant to thisSection  7.11) to its respective shareholders for adoption.

Section 7.12Takeover Statutes. None of United Community, First Defiance or their respective boards of directors shall take any action that would cause any Takeover Statute to become applicable to this Agreement, the Merger, or any of the other Contemplated Transactions, and each shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger and the other Contemplated Transactions from any applicable Takeover Statute now or hereafter in effect. If any Takeover Statute may become, or may purport to be, applicable to the receiptContemplated Transactions, each party to this Agreement and the members of their respective boards of directors will grant such approvals and take such actions as are necessary so that the Contemplated Transactions may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of any final report prepared in connection withTakeover Statute on any of the environmental investigation activities conducted byContemplated Transactions, including, if necessary, challenging the validity or applicability of any such Takeover Statute.

Section 7.13Shareholder Litigation. Each of United Community and First Defiance pursuantshall give the other the reasonable opportunity to Section 6.4(a) to notify Commercial Bancshares in writingconsult concerning the defense of any material environmental concerns regarding violations of,shareholder litigation against United Community or actions necessary to comply with, Environmental Laws, regardless of whether Commercial Bancshares, First Defiance, as applicable, or any of their Subsidiariesrespective directors or another Person is responsible or liable forofficers relating to the costs of remedial or corrective actions relatedContemplated Transactions.

Section 7.14Corporate Governance.

(a) Prior to such violation of, or non-compliance with, Environmental laws. Within ten days of the delivery of such notification,Effective Time First Defiance shall obtain an estimatetake all actions necessary to adopt the articles of incorporation set forth inExhibit A effective as of and from and after the Effective Time, subject to the approval by First Defiance shareholders of such amendments to the First Defiance Articles of Incorporation to the extent required under applicable Legal Requirements and without limitation toSection 7.3.

(b) Prior to the Effective Time, First Defiance shall take all actions necessary to adopt the code of regulations set forth inExhibit B effective as of and from and after the Effective Time and to effect the requirements referenced therein.

(c) On or indicationprior to the Effective Time, the First Defiance Board of Directors shall take such actions as described below regardingare necessary to cause the costnumber of taking remedialdirectors that will comprise the full board of directors of the Surviving Entity and corrective actions First Federal at the Effective Time to be thirteen (13), consisting of (i) the chief executive officer of First Defiance, the chairman of First Defiance and five other members of the First Defiance Board and/or First Federal Board as of immediately prior to the inability to make such an estimate. Should the cost of taking all remedial and corrective actions and measures required by applicable law, in the aggregate, exceed the sum of $500,000, as reasonably estimated by an environmental expert promptly retained for such purposeEffective Time, designated by First Defiance, and reasonably acceptable(ii) the chief executive officer of United Community, the chairman of United Community and four other members of the United Community Board and/or Home Savings Board as of immediately prior to Commercial Bancshares, thenthe Effective Time, designated by United Community, to be effective at the Effective Time.

(d) On or prior to the Effective Time, the First Defiance Board shall take such actions as are necessary to cause (i) Donald P. Hileman to continue to serve as the Chief Executive Officer of the Surviving Entity and First Federal, (ii) Gary M. Small to become the President of the Surviving Entity and First Federal, (iii) John L. Bookmyer to continue to serve as Chairman of the Surviving Entity and First Federal and (iv) Richard J. Schiraldi shall become Vice Chairman of the Surviving Entity and First Federal. In accordance with the code

of regulations of the Surviving Entity, on a date during the period commencing January 1, 2021 and ending June 30, 2021 as determined by the board of directors of the Surviving Entity, or any such earlier date as of which Mr. Hileman ceases for any reason to serve in the position of Chief Executive Officer of the Surviving Entity or First Federal, as applicable (any such date, the “Succession Date”, (i) Mr. Small shall become Chief Executive Officer and President of the Surviving Entity and First Federal, (ii) Mr. Hileman shall become Executive Chairman of the Surviving Entity and First Federal and (iii) Mr. Schiraldi shall continue as Vice Chairman of the Surviving Entity and First Federal.

(e) On or prior to the Effective Time, First Defiance shall havetake all actions necessary to adopt amendments to its corporate governance guidelines effective as of and from and after the right, pursuant to Article VIIIEffective Time that are consistent with the provisions of this Section 7.14 and Section 7.02(d) hereof, for a period of ten days following the receipt of such estimate, to terminate this Agreementare mutually agreed by providing written notice to Commercial Bancshares within such ten-day period.

(c) Commercial Bancshares will provide toUnited Community and First Defiance, evidenceincluding as set forth onSection 7.14(e) of title in the form that is customary for the respective jurisdiction for each Commercial Bancshares Real Property within 15 days after the execution of this Agreement. First Defiance shall haveDisclosure Schedules.

(f) As of and from the right pursuantEffective Time, the headquarters of the Surviving Corporation will be located in Defiance, Ohio, and the main office of First Federal will be located in Youngstown, Ohio.

(g) As of and from the Effective Time, the name of the Surviving Entity and the name of First Federal will each be a name to Article VIIIbe mutually agreed upon by First Defiance and Section 7.02(d) hereof,United Community prior to terminate this Agreementthe Closing Date.

Section 7.15Commitments to the Community. Following the Effective Time, the Surviving Entity will maintain the level of philanthropic and community investment provided by providing written notice to Commercial Bancshares if (i) in the reasonable judgmenteach of First Defiance such evidence of title identifies a breach regarding the representations and warranties containedUnited Community in Section 3.18 above with respect to ownership of any Commercial Bancshares Real Property with an individual or aggregate fair market value in excess of $500,000 and (ii) Commercial Bancshares is unwilling or unable to cure such breach within 60 days.


TABLE OF CONTENTS

6.5Stock Exchange Listing.  First Defiance shall cause the First Defiance Shares to be issued in the Merger to be approved for listing on the NASDAQ, subject to official notice of issuancetheir respective communities prior to the Effective Time.

6.6Section 7.16Employee MattersDividends.

(a) After the date of this Agreement, each of United Community and First Defiance will review allshall coordinate with the other the declaration of any dividends in respect of the Commercial Bancshares Benefit PlansUnited Community Common Stock and the First Defiance Common Stock and the record dates and payment dates relating thereto, it being the intention of the parties to determine whetherthis Agreement that holders of United Community Common Stock shall not receive two dividends, or fail to maintain, terminatereceive one dividend, in any quarter with respect to their shares of United Community Common Stock and any shares of First Defiance Common Stock any such holder receives in exchange therefor in the Merger.

ARTICLE 8

CONDITIONS PRECEDENT TO OBLIGATIONS OF FIRST DEFIANCE

The obligations of First Defiance to consummate the Contemplated Transactions and to take the other actions required to be taken by First Defiance at the Closing are subject to the satisfaction, at or continue such plans. Inprior to the event employee compensation and/or benefits as currently provided by Commercial Bancshares are changed or terminatedClosing, of each of the following conditions (any of which may be waived by First Defiance in whole or in part, subject to applicable Legal Requirements):

Section 8.1Accuracy of Representations and Warranties. For purposes of thisSection 8.1, the accuracy of the representations and warranties of United Community set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date (or such other date(s) as specified, to the extent any representation or warranty speaks as of a specific date). The representations and warranties set forth inSection 3.3andSection 3.5(a) shall be true and correct (except for inaccuracies which arede minimisin amount and effect). There shall not exist inaccuracies in the representations and warranties of United Community set forth in this Agreement (other than the representations set forth inSection 3.3 andSection 3.5(a)) such that the aggregate effect of such inaccuracies has, or is reasonably expected to have, a Material Adverse Effect on United Community;provided,that, for purposes of this sentence only, those representations and warranties which are qualified by references to “material” or “Material Adverse Effect” shall be deemed not to include such qualifications.

Section 8.2Performance by United Community. United Community shall have performed or complied in all material respects with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date.

Section 8.3Shareholder Approvals. Each of the United Community Shareholder Approval and the First Defiance Shareholder Approval shall have been obtained.

Section 8.4Regulatory Approvals. All Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated and there shall not be any action taken, or any Legal Requirement enacted, entered, enforced or deemed applicable to the Contemplated Transactions, by any Regulatory Authority, in connection with the grant of a Requisite Regulatory Approval, which shall have imposed a restriction or condition on, or requirement of, such approval that would, after the Effective Time, reasonably be expected to have a Material Adverse Effect on the Surviving Entity and its Subsidiaries, taken as a whole, after giving effect to the Merger.

Section 8.5Registration Statement. The Registration Statement shall have become effective under the Securities Act. No stop order shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement, and no Proceeding shall have been commenced or be pending or threatened for such purpose and not withdrawn.

Section 8.6Officers’ Certificate.First Defiance shall providehave received a certificate signed on behalf of United Community by an executive officer of United Community certifying as to the employeesmatters set forth inSections 8.1 and 8.2.

Section 8.7Tax Opinion. First Defiance shall have received a written opinion of Commercial BancsharesBarack Ferrazzano Kirschbaum & Nagelberg LLP, tax counsel to First Defiance, in form and substance reasonably satisfactory to United Community and First Defiance, dated as of the Closing Date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 8.8Stock Exchange Listing. The shares of First Defiance Common Stock to be issued in the Merger shall have been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance.

Section 8.9No Material Adverse Effect. From the date of this Agreement to the Closing, there shall be and have been no change in the financial condition, assets or business of United Community or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on United Community.

Section 8.10No Legal Restraint. No order, injunction or decree issued by any court or Regulatory Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Regulatory Authority which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions.

ARTICLE 9

CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UNITED COMMUNITY

The obligations of United Community to consummate the Contemplated Transactions and to take the other actions required to be taken by United Community at the Closing are subject to the satisfaction, at or prior to the

Closing, of each of the following conditions (any of which may be waived by United Community, in whole or in part):

Section 9.1Accuracy of Representations and Warranties. For purposes of thisSection 9.1, the accuracy of the representations and warranties of First Defiance set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date (or such other date(s) as specified, to the extent any representation or warranty speaks as of a specific date). The representations and warranties set forth inSection 4.3and Section 4.5(a) shall be true and correct (except for inaccuracies which aredeminimisin amount and effect). There shall not exist inaccuracies in the representations and warranties of First Defiance set forth in this Agreement (other than the representations set forth inSection 4.3 andSection 4.5(a)) such that the aggregate effect of such inaccuracies has, or is reasonably expected to have, a Material Adverse Effect on First Defiance;provided,that, for purposes of this sentence only, those representations and warranties which are qualified by references to “material” or “Material Adverse Effect” shall be deemed not to include such qualifications.

Section 9.2Performance by First Defiance. First Defiance shall have performed or complied in all material respects with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date.

Section 9.3Shareholder Approvals. Each of the United Community Shareholder Approval and the First Defiance Shareholder Approval shall have been obtained.

Section 9.4Regulatory Approvals. All Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated and there shall not be any action taken, or any Legal Requirement enacted, entered, enforced or deemed applicable to the Contemplated Transactions, by any Regulatory Authority, in connection with the grant of a Requisite Regulatory Approval, which shall have imposed a restriction or condition on, or requirement of, such approval that would, after the Effective Time, reasonably be expected to have a Material Adverse Effect on the Surviving Entity and its Subsidiaries, whotaken as a whole, after giving effect to the Merger.

Section 9.5Registration Statement. The Registration Statement shall have become effective under the Securities Act. No stop order shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement, and no Proceeding shall have been commenced or be pending or threatened for such purpose.

Section 9.6Officers’ Certificate. United Community shall have received a certificate signed on behalf of First Defiance by an executive officer of First Defiance certifying as to the matters set forth inSections 9.1 and9.2.

Section 9.7Tax Opinion. United Community shall have received a written opinion of Wachtell, Lipton, Rosen & Katz, tax counsel to United Community, in form and substance reasonably satisfactory to United Community and First Defiance, dated as of the Closing Date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 9.8Stock Exchange Listing. The shares of First Defiance Common Stock to be issued in the Merger shall have been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance.

Section 9.9No Material Adverse Effect. From the date of this Agreement to the Closing, there shall be and have been no change in the financial condition, assets or business of First Defiance or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on First Defiance.

Section 9.10No Legal Restraint. No order, injunction or decree issued by any court or Regulatory Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the

Merger, the Bank Merger or any of the other Contemplated Transactions shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Regulatory Authority which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions.

ARTICLE 10

TERMINATION

Section 10.1Termination of Agreement. This Agreement may be terminated only as set forth below, whether before or after approval of the matters presented in connection with the Merger by the shareholders of United Community or First Defiance:

(a) by mutual consent of First Defiance and United Community, each evidenced by appropriate written board resolutions;

(b) by First Defiance if United Community shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the Closing would otherwise occur would result in the failure of any of the conditions set forth inArticle 8 and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation and warranty or failing to perform;provided, that First Defiance is not then in material breach of any representation, warranty, covenant or other agreement contained herein;

(c) by United Community if First Defiance shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the Closing would otherwise occur would result in the failure of any of the conditions set forth inArticle 9 and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation and warranty or failing to perform,provided, that United Community is not then in material breach of any representation, warranty, covenant or other agreement contained herein;

(d) by First Defiance or United Community if: any Regulatory Authority that must grant a Requisite Regulatory Approval has denied approval of any of the Contemplated Transactions and such denial has become final and nonappealable;provided, however, that the right to terminate this Agreement under thisSection 10.1(d) shall not be available to a party whose failure (or the failure of any of its Affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any such event described above;

(e) by First Defiance or United Community if the Effective Time shall not have occurred at or before the date that is one (1) year following the Agreement date (the “Termination Date”);provided,however, that the right to terminate this Agreement under thisSection 10.1(e) shall not be available to any party to this Agreement whose failure to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the failure of the Effective Time to occur on or before such date;

(f) by First Defiance or United Community if any court of competent jurisdiction or other Regulatory Authority shall have issued a judgment, Order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting any of the Contemplated Transactions and such judgment, Order, injunction, rule, decree or other action shall have become final and nonappealable;provided, however, that the right to terminate this Agreement under thisSection 10.1(f) shall not be available to a party whose failure (or the failure of any of its Affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any such event described above;

(g) by United Community prior to such time as the First Defiance Shareholder Approval is obtained, if (i) First Defiance Board shall have (A) failed to recommend in the Joint Proxy Statement that the shareholders of First Defiance adopt this Agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to United Community, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting an First Defiance Acquisition Proposal that has been publicly disclosed within ten (10) Business Days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms hereof or (B) recommended or endorsed an First Defiance Acquisition Proposal or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after an First Defiance Acquisition Proposal is publicly announced or (ii) First Defiance or the First Defiance Board has breached its obligations underSection 7.3 or7.10 in any material respect; or

(h) by First Defiance prior to such time as the United Community Shareholder Approval is obtained, if (i) the United Community Board shall have (A) failed to recommend in the Joint Proxy Statement that the shareholders of United Community adopt this Agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to First Defiance, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting a United Community Acquisition Proposal that has been publicly disclosed within ten (10) Business Days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms hereof or (B) recommended or endorsed a United Community Acquisition Proposal or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after a United Community Acquisition Proposal is publicly announced, or (ii) United Community or the United Community Board has breached its obligations underSection 7.3or Section 7.9 in any material respect.

Section 10.2Effect of Termination or Abandonment.

(a) In the event of the termination of this Agreement and the abandonment of the Merger pursuant toSection 10.1, this Agreement shall become null and void, and there shall be no liability of one party to the other or any restrictions on the future activities on the part of any party to this Agreement, or its respective directors, officers or shareholders, except that: (i) the Confidentiality Agreement, thisSection 10.2 andArticle 11 shall survive such termination and abandonment; and (ii) notwithstanding anything to the contrary contained in this Agreement, neither First Defiance nor United Community shall be relieved or released from any liabilities or damages arising out of fraud or its Willful Breach of any provision of this Agreement occurring prior to termination. “Willful Breach” shall mean a material breach of, or material failure to perform any of the covenants or other agreements contained in, this Agreement, that is a consequence of an act or failure to act by the breaching ornon-performing party with actual knowledge that such party’s act or failure to act would, or would reasonably be expected to, result in or constitute such breach of or such failure of performance under this Agreement.

(b) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide United Community Acquisition Proposal shall have been made known to senior management of United Community or United Community Board or has been made directly to its shareholders generally or any person shall have publicly announced a United Community Acquisition Proposal (and not withdrawn such United Community Acquisition Proposal at least two (2) Business Days prior to the United Community Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the United Community Shareholder Approval having been obtained (and all other conditions set forth inArticle 9 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by First Defiance pursuant toSection 10.1(b) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, United Community enters into a definitive agreement or consummates a transaction with respect to a United Community Acquisition Proposal (whether or not the same United Community Acquisition Proposal as that referred to above), then

United Community shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay First Defiance, by wire transfer of same day funds, a fee equal to $18,400,000 (the “Termination Fee”); provided that for purposes of this Section 10.2(b), all references in the definition of United Community Acquisition Proposal to “25%” shall instead refer to “50%”.

(c) In the event that this Agreement is terminated by First Defiance pursuant toSection 10.1(h), then United Community shall pay First Defiance, by wire transfer of same day funds, the Termination Fee on the date of termination.

(d) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide First Defiance Acquisition Proposal shall have been made known to senior management of First Defiance or First Federal employeesDefiance Board or has been made directly to its shareholders generally or any person shall have publicly announced an First Defiance Acquisition Proposal (and not withdrawn such First Defiance Acquisition Proposal at least two (2) Business Days prior to the First Defiance Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the First Defiance Shareholder Approval having been obtained (and all other conditions set forth inArticle 8 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by United Community pursuant toSection 10.1(c) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, First Defiance enters into a definitive agreement or consummates a transaction with respect to an First Defiance Acquisition Proposal (whether or not the same First Defiance Acquisition Proposal as that referred to above), then First Defiance shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay United Community, by wire transfer of same day funds, the Termination Fee; provided that for purposes of thisSection 10.2(d), all references in the definition of First Defiance Acquisition Proposal to “25%” shall instead refer to “50%”.

(e) In the event that this Agreement is terminated by United Community pursuant toSection 10.1(g), then First Defiance shall pay United Community, by wire transfer of same day funds, the Termination Fee on the date of termination.

(f) Notwithstanding anything to the contrary herein, but without limiting the right of either party to recover liabilities or damages arising out of the other party’s fraud or Willful Breach of any provision of this Agreement, in the event that this Agreement is terminated as provided inSection 10.1 under circumstances where the Termination Fee is payable and paid in full, the maximum aggregate amount of monetary fees, liabilities or damages payable by a single party to this Agreement under thisSection 10.2 shall be equal to the Termination Fee, and neither United Community nor First Defiance shall be required to pay the Termination Fee on more than one occasion.

(g) Each of First Defiance and United Community acknowledges that the agreements contained in thisSection 10.2 are an integral part of the Contemplated Transactions, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if First Defiance or United Community fails promptly to pay the amount due pursuant to thisSection 10.2, and, in order to obtain such payment, the other party commences a suit which results in a judgment against thenon-paying party for the Termination Fee, suchnon-paying party shall pay the costs and expenses of the other party (including reasonable attorneys’ fees and expenses) in connection with such suit. In addition, if First Defiance or United Community, as the case may be, fails to pay the amounts payable pursuant to thisSection 10.2, then such party shall pay interest on such overdue amounts (for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full) at a rate per annum equal to the prime rate (as announced by JPMorgan Chase & Co. or any successor thereto) in effect on the date on which such payment was required to be made for the period commencing as of the date that such overdue amount was originally required to be paid. The amounts payable by First Defiance and United Community, as applicable, pursuant toSection 10.2, as applicable, constitute liquidated damages and not a penalty, and, except in the case of fraud or Willful Breach of this Agreement, shall be the sole monetary remedy of United Community and First

Defiance, as applicable, in the event of a termination of this Agreement specified in such section under circumstances where the Termination Fee is payable and is paid in full.

ARTICLE 11

MISCELLANEOUS

Section 11.1Survival. Except for covenants that are expressly to be performed after the Closing, none of the representations, warranties and covenants contained herein shall survive beyond the Closing.

Section 11.2Governing Law; Jurisdiction.

(a) All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the laws of the State of Ohio applicable to contracts made and performed entirely within such state, without giving effect to its principles of conflicts of laws.

(b) Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the courts of the State of Ohio (or, if such court determines that it lacks subject matter jurisdiction, any federal court sitting in the State of Ohio) (and any courts from which appeals may be taken) (the “Chosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance withSection 11.9.

Section 11.3Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BANK MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.3.

Section 11.4Cumulative Remedies; Specific Performance. All rights and remedies under this Agreement or otherwise afforded by applicable Legal Requirements to any party, shall be cumulative and not alternative. Without limiting the rights of a party hereto to pursue all other legal and equitable rights available to such party for another party’s failure to perform its obligations under this Agreement in accordance with its specific terms, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their respective obligations hereunder would be inadequate and irreparable damage would occur and that each party shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. Each of the parties hereby further waives any requirement under applicable Legal Requirements to post security as a prerequisite to obtaining equitable relief.

Section 11.5Expenses. Each party to this Agreement shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the Bank Merger Agreement and the transactions contemplated hereby and thereby, whether or not such transactions are consummated, including all fees and expenses of such party’s Representatives.

Section 11.6Assignments, Successors and No Third Party Rights. Neither party to this Agreement may assign any of its rights under this Agreement (whether by operation of law or otherwise) without the prior written consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement and every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except for (a) Section 6.5and (b) from and after the Effective Time, (the “the rights of the holders of shares of United Community Common Stock to receive the Merger Consideration and the holders of United Community Equity Awards to receive the consideration set forth inContinuing EmployeesSection”) 2.5, in each case in accordance with benefitsthe terms of and subject to the conditions of this Agreement, nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance withSection 11.8 without notice or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

Section 11.7Modification. This Agreement may be amended, modified or supplemented by the parties at any time before or after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained;provided, however, that are,after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained, there may not be, without further approval of United Community’s and/or First Defiance’s shareholders, respectively, any amendment of this Agreement that requires further approval under applicable Legal Requirements. This Agreement may not be amended, modified or supplemented except by an instrument in writing signed on behalf of each of the parties.

Section 11.8Extension of Time; Waiver. At any time prior to the Effective Time, the parties may, to the extent permitted by applicable Legal Requirements: (a) extend the time for the performance of any of the obligations or other acts of the other party; (b) waive any inaccuracies in the aggregate, substantiallyrepresentations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement; or (c) waive compliance with or amend, modify or supplement any of the sameagreements or conditions contained in this Agreement which are for the benefit of the waiving party. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the benefits providedexercise of any other right, power or privilege. To the maximum extent permitted by applicable Legal Requirements: (x) no claim or right arising out of this Agreement or the documents referred to similarly situated employeesin this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of First Defiance; provided,the claim or right unless in writing signed by the other party; (y) no waiver that until such time as First Defiance fully integrates the Continuing Employees into its plans, participationmay be given by a party will be applicable except in the Commercial Bancshares Benefit Plansspecific instance for which it is given; and (z) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 11.9Notices. All notices, consents, waivers and other communications under this Agreement shall be in writing (which shall include electronic mail) and shall be deemed to satisfyhave been duly given if delivered by

hand or by nationally recognized overnight delivery service (receipt requested), mailed by registered or certified U.S. mail (return receipt requested) postage prepaid or electronic mail (if confirmed) to the foregoing standard,parties at the following addresses (or at such other address for a party as shall be specified by like notice):

If to First Defiance, to:

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

Electronic mail:    dhileman@first-fed.com

                                jreisner@first-fed.com

Attention:     Donald P. Hileman, President and Chief Executive Officer

                      John Reisner, General Counsel

with copies to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street

Suite 3900

Chicago, Illinois 60606

Electronic mail:     robert.fleetwood@bfkn.com

Attention:     Robert M. Fleetwood, Esq.

If to United Community, to:

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503-1203

Electronic mail:     gsmall@homesavings.com

                                jnohra@homesavings.com

Attention:     Gary M. Small, President and Chief Executive Officer

                      Jude J. Nohra, General Counsel

with copies to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Electronic mail:     EDHerlihy@wlrk.com

                                BCPrice@wlrk.com

Attention:     Edward D. Herlihy, Esq.

                     Brandon C. Price, Esq.

or to such other Person or place as United Community shall furnish to First Defiance or First Defiance shall furnish to United Community in writing. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand or electronic mail, when delivered (provided that the receipt of electronic mail is promptly confirmed); (b) if delivered by overnight delivery service, on the next Business Day after deposit with such service; and (c) if mailed in the manner provided in thisSection 11.9, five (5) Business Days after deposit with the U.S. Postal Service.

Section 11.10Entire Agreement. This Agreement, the schedules, the exhibits and any documents executed by the parties pursuant to this Agreement and referred to herein, together with the Confidentiality Agreement, constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, relating to such subject matter between the parties.

Section 11.11Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Legal Requirements, but if any provision of this

Agreement is held to be prohibited by or invalid under applicable Legal Requirements, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement unless the consummation of the Contemplated Transactions is adversely affected thereby.

Section 11.12Counterparts. This Agreement and any amendments thereto may be executed in any number of counterparts (including by facsimile or other electronic means), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the Continuing Employees may commence participatingsame counterpart.

Section 11.13Confidential Supervisory Information.Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(c) and as identified in 12 C.F.R. § 309.5(g)(8)) of a Regulatory Authority by any party to this Agreement to the plansextent prohibited by applicable Legal Requirements. To the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.

ARTICLE 12

DEFINITIONS

Section 12.1Definitions. In addition to those terms defined throughout this Agreement, the following terms, when used herein, shall have the following meanings:

(a) “Affiliate” means, with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with, such specified Person.

(b) “Business Day” means any day except Saturday, Sunday and any day on which banks in Ohio are authorized or required by law or other government action to close.

(c) “Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (i) the Merger; (ii) the Bank Merger, (iii) the performance by First Defiance and United Community of their respective covenants and obligations under this Agreement; and (iv) First Defiance’s issuance of shares of First Defiance on different dates followingCommon Stock pursuant to the Effective TimeRegistration Statement and cash in lieu of fractional shares of First Defiance Common Stock.

(d) “Contract” means any agreement, contract, obligation, promise or understanding (whether written or oral and whether express or implied) that is legally binding: (i) under which a Person has or may acquire any rights; (ii) under which such Person has or may become subject to any obligation or liability; or (iii) by which such Person or any of the assets owned or used by such Person is or may become bound.

(e) “Control,” “Controlling” or “Controlled” when used with respect to differentany specified Person, means the power to vote 25 percent (25%) or more of any class of voting securities of a Person, the power to control in any manner the election of a majority of the directors or partners of such Person, or the power to exercise a controlling influence over the management or policies of such Person.

(f) “CRA” means the Community Reinvestment Act, as amended.

(g) “Deposit Insurance Fund” means the fund that is maintained by the FDIC to allow it to make up for any shortfalls from a failed depository institution’s assets.

(h) “Derivative Transactions” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, prices, values, or other financial or nonfinancial assets, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

(i) “DOL” means the U.S. Department of Labor.

(j) “Environment” means surface or subsurface soil or strata, surface waters and sediments, navigable waters, groundwater, drinking water supply and ambient air.

(k) “Environmental Laws” means any federal, state or local law, statute, ordinance, rule, regulation, code, order, permit or other legally binding requirement applicable to the business or assets of United Community or any of its Subsidiaries that imposes liability or standards of conduct with respect to the Environment and/or Hazardous Materials.

(l) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plans. Anyplan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of Commercial Bancsharesany kind, whether written or Commercial Bank who did not have an employment agreement,oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, and whoin each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is notcovered, is eligible for coverage or has payment or other benefit rights, and entitled tofor which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a severance benefit under any other severance plan or program maintained by or with Commercial Bancshares, who is not offered employmentsingle employer with First Defiance or First Federal with salary and bonus opportunities substantiallyany of its Subsidiaries for purposes of Section 414 of the same as the salary and bonus opportunities of their current employment with Commercial Bancshares or Commercial Bank or whose employment is terminated by Code.

(y) “First Defiance or First Federal (other than for cause) on or within six (6) months ofPreferred Stock” means the Effective Time shall receive a cash payment in an amount equal to two weeks of such employee’s current base salary (or average hourly wage over a two week period) for each full year of service, with a minimum payment of four weeks’ base salary or wages and a maximum of 26 weeks base salary or wages payable to each such employee. Nothing set forth herein shall be construed to limit the period of continued health care coverage to which such employee would be entitled under COBRA.

(b) With respect to any employee benefit planspreferred stock, $0.01 per value per share, of First Defiance or its Subsidiaries in which any Continuing Employees become eligible to participate on or after the Effective Time (theDefiance.

(z) “New Plans”), First Defiance and its Subsidiaries shall (i) use commercially reasonable efforts to waive all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to such employees and their eligible dependents under any New Plans, except to the extent such pre-existing conditions, exclusions or waiting periods would apply under the analogous Commercial Bancshares Benefit Plan, and; (ii) recognize all service of such employees with Commercial Bancshares and its Subsidiaries for all purposes in any New Plan to the same extent that such service was taken into account under the analogous Commercial Bancshares Benefit Plan prior to the Effective Time; provided, that the foregoing service recognition shall not apply (A) to the extent it would result in duplication of benefits for the same period of service, (B) for purposes of benefit accruals under any defined benefit pension plan, or (C) for purposes of any benefit plan that is a frozen plan or provides grandfathered benefits.

(c) First Defiance agrees to assume and honor all Commercial Bancshares Benefit Plans in accordance with their terms as of the date, it being understood that this sentence shall not be construed to limit the ability of First Defiance or any of its Subsidiaries or affiliates to amend or terminate any Commercial Bancshares Benefit Plan to the extent that such amendment or termination is permitted by the terms of the applicable plan.

(d) Commercial Bancshares shall cause any 401(k) plan sponsored or maintained by Commercial Bancshares (the “Commercial Bancshares 401(k) Plan”) to be terminated effective as of the day immediately prior to the Effective Time, and contingent upon the occurrence of the Closing. The Continuing Employees shall be eligible to participate, effective as of the Effective Time, in a 401(k) plan sponsored or maintained by First Defiance or one of its Subsidiaries (a “First Defiance 401(k) Plan”). Commercial BancsharesUnited Community and First Defiance shall takecooperate in reviewing, evaluating and analyzing the United Community Benefit Plans and First Defiance Benefit Plans with a view toward developing appropriate New Plans for the employees covered thereby; and (iii) it is the intention of United Community and First Defiance, to the extent permitted by applicable Legal Requirements, to develop New Plans (including amending existing plans), as soon as reasonably practicable after the Effective Time, which, among other things, (x) treat similarly situated employees on a substantially equivalent basis, taking into account all relevant factors, including duties, geographic location, tenure, qualifications and abilities, and (y) do not discriminate between employees who were covered by United Community Benefit Plans, on the one hand, and those covered by First Defiance Benefit Plans on the other hand, at the Effective Time.

(c) For all purposes under the New Plans, each Covered Employee and each First Defiance Employee shall be credited with his or her years of service with United Community and First Defiance, their Subsidiaries and their respective predecessors, respectively, to the same extent as such Covered Employee or First Defiance Employee was entitled to credit for such service under any applicable United Community Benefit Plan or First Defiance Benefit Plan, respectively, in which such Covered Employee or First Defiance Employee participated or was eligible to participate immediately prior to the Transition Date;provided,however, that the foregoing shall not apply to the extent that its application would result in a duplication of benefits with respect to the same period of service.

(d) In addition, and without limiting the generality of the foregoing, as of the Transition Date: (i) each Covered Employee and First Defiance Employee shall be immediately eligible to participate, without any waiting time, in any and all actions as may be required, including


TABLE OF CONTENTS

amendmentsNew Plans to the Commercial Bancshares 401(k)extent coverage under such New Plan and/is similar in type to an applicable United Community Benefit Plan or First Defiance 401(k)Benefit Plan, respectively, in which such Covered Employee or First Defiance Employee was participating immediately prior to the Transition Date (such United Community Benefit Plans and First Defiance Benefit Plans prior to the Transition Date collectively, the “Old Plans”); (ii) for purposes of each New Plan providing medical, dental, pharmaceutical, vision or similar benefits to any Covered Employee or First Defiance Employee, allpre-existing condition exclusions andactively-at-work requirements of such New Plan shall be waived for such Covered Employee or First Defiance Employee and his or her covered dependents, unless such conditions would not have been waived under the Old Plan in which such Covered Employee or First Defiance Employee, as applicable, participated or was eligible to participate immediately prior to the Transition Date; and (iii) any eligible expenses incurred by such Covered Employee or First Defiance Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the

Transition Date shall be taken into account under such New Plan to permit Continuing Employees who are then actively employedthe extent such eligible expenses were incurred during the plan year of the New Plan in which the Transition Date occurs for purposes of satisfying all deductible, coinsurance and maximumout-of-pocket requirements applicable to make rollover contributionssuch Covered Employee or First Defiance Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan.

(e) Notwithstanding any other provision of this Agreement to the contrary, from and following the Closing, First Defiance shall assume and honor the obligations of United Community and its Subsidiaries under all employment, severance, change in control, consulting, and other similar plans, programs, agreements, arrangements, policies and practices (“Severance Plans”) in accordance with their terms. First Defiance and United Community hereby agree that the Merger shall constitute or be deemed a “change in control” (or concept of similar import) for purposes of the United Community Benefit Plans, including Severance Plans and United Community Stock Plans, and that First Defiance may, in First Defiance’s sole discretion, deem the Merger a “change in control” (or concept of similar import) for purposes of the First Defiance 401(k)Benefit Plans. With respect to a Covered Employee or First Defiance Employee who does not have contractual severance or termination protections and whose employment is terminated between the Closing Date and the first anniversary thereof, First Defiance shall provide severance protections consistent with the terms of a severance plan or policy to be developed by First Defiance and United Community between the date hereof and the Closing Date or, if no such plan or policy is adopted, First Defiance shall provide severance benefits on terms consistent with the Severance Plan applicable to such employee immediately prior to Closing or, if more favorable, the Severance Plan applicable to similarly situated employees of “eligible rollover distributions” (with the meaning of Section 401(a)(31) of the Code) in the form of cash, notesFirst Defiance (in the case of loans)a Covered Employee) or a combination thereof. Commercial BancsharesUnited Community (in the case of an First Defiance Employee) immediately prior to Closing, determined without taking into account any reduction after the Closing in compensation paid to such Covered Employee.

(f) As mutually determined by the parties, First Defiance shall provide outplacement services to eligible Covered Employees and First Defiance with evidence thatEmployees who are terminated following the Commercial Bancshares 401(k) Plan has been terminatedMerger due to relocation or amended, as applicable, in accordance with this Section 6.6(d); provided, that prior to amending or terminating the Commercial Bancshares 401(k) Plan, Commercial Bancshares shall provide the form and substanceconsolidation of any applicable resolutions or amendments to First Defiance for review and approval.operations.

(e) On and after the date hereof, any broad-based employee notices or communication materials (including any website posting) with respect to employment, compensation or benefits matters addressed in this Agreement or related, directly or indirectly, to the transactions contemplated by this Agreement shall be subject to the prior prompt review and comment of the other party, and the party seeking to distribute any such notice or communication shall consider in good faith revising such notice or communication to reflect any comments or advice that the other party timely provides.

(f)(g) Nothing in this Agreement shall confer upon any employee, officer, director or consultant of Commercial BancsharesUnited Community, First Defiance or any of itstheir respective Subsidiaries or affiliatesAffiliates any right to continue in the employ or service of the Surviving Company, Commercial Bancshares,United Community, First Defiance or any Subsidiarytheir respective Subsidiaries or affiliate thereof,Affiliates, or shall interfere with or restrict in any way the rights of the Surviving Company, Commercial Bancshares,United Community, First Defiance or any Subsidiarytheir respective Subsidiaries or affiliate thereofAffiliates to discharge or terminate the services of any employee, officer, director or consultant of Commercial Bancshares or any of its Subsidiaries or affiliates at any time for any reason whatsoever, with or without cause. Nothing in this Agreement shall be deemed to (i) establish, amend, or modify any Commercial BancsharesUnited Community Benefit Plan, First Defiance Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement, or (ii) alter or limit the ability of the United Community, First Defiance or any of itstheir respective Subsidiaries or affiliatesAffiliates to amend, modify or terminate any particular Commercial BancsharesUnited Community Benefit Plan, First Defiance Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement after the Effective Time. Without limiting the generality of the final sentence of Section 9.11, 11.6, nothing in this Agreement, express or implied, is intended to or shall confer upon any person, including any current or former employee, officer, director or consultantother service provider (or any beneficiary of Commercial Bancsharesthe foregoing) of United Community, First Defiance or any of itstheir respective Subsidiaries or affiliates,Affiliates, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

6.7Section 7.8Indemnification; Directors’ and Officers’ InsuranceSection 16 Matters.

(a) From and after Prior to the Effective Time, the parties will each of First Defiance and the Surviving Company shall indemnify and hold harmless, to the fullest extent permitted by applicable law, the Commercial Bancshares Articles and the Commercial Bancshares Code of Regulations, each present director and officer of Commercial Bancshares and Commercial Bank (in each case, when acting intake such capacity) (collectively, the “Commercial Bancshares Indemnified Parties”) for a period of six years following the Effective Time. No Commercial Bancshares Indemnified Party shall be entitled to such indemnification with respect to a claim (i) if such person fails to cooperate in the defense and investigation of such claimsteps as to which indemnification may be made, (ii) made by such person against First Defiance, Commercial Bancsharesnecessary or appropriate to cause any disposition of their Subsidiaries arising outshares of United Community Capital Stock or conversion of any derivative securities in respect of shares of United Community Capital Stock in connection with this Agreement, the transactions contemplated hereby or the conductconsummation of the business of First Defiance, Commercial Bancshares or any of their Subsidiaries, or (iii) if such person failsContemplated Transactions to deliver such notices (within such person’s control) as may be requiredexempt under any applicable directors’Rule16b-3 promulgated under the Exchange Act.

Section 7.9United Community Acquisition Proposals.

(a) United Community agrees that it will not, and officers’ liability insurance policy to preserve any possible claims of which the claiming party is aware, to the extent such failure results in the denial of payment under such policy.

(b) For a period of six (6) years after the Effective Time, First Defiance shall maintain in effect the current policies of directors’ and officers’ liability insurance maintained by Commercial Bancshares orwill cause its Subsidiaries and any similar policies covering fiduciaries under the Commercial Bancshares Benefit Plans (provided, that First Defiance may substitute therefor policies with a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions which are no less advantageous


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to the insured) with respect to claims against the present and former officers and directors of Commercial Bancshares or any of its Subsidiaries arising from facts or events which occurred at or before the Effective Time (including the transactions contemplated by this Agreement); provided, however, that First Defiance shall not be obligated to expend, on an annual basis, an amount in excess of 125% of the current annual premium paid as of the date hereof by Commercial Bancshares for such insurance (the “Premium Cap”), and if such premiums for such insurance would at any time exceed the Premium Cap, then First Defiance shall cause to be maintained policies of insurance that, in First Defiance’s good faith determination, provide the maximum coverage available at an annual premium equal to the Premium Cap. In lieu of the foregoing, Commercial Bancshares, in consultation with, but only upon the consent of First Defiance, may (and at the request of First Defiance, Commercial Bancshares shall use its reasonable best efforts to) obtain at or prior to the Effective Time a six-year “tail” policy under Commercial Bancshares’ existing directors’ and officers’ insurance policy and similar policy covering fiduciaries under the Commercial Bancshares Benefit Plans providing equivalent coverage to that described in the preceding sentence if and to the extent that the same may be obtained for an amount that, in the aggregate, does not exceed, on an annual basis, the Premium Cap. If a “tail policy” is purchased as provided above, First Defiance shall maintain in full force and effect and not cancel such “tail policy.”

6.8Additional Agreements.  In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest First Defiance or the Surviving Company with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Merger, the then current officers and directors of each party to this Agreement and their respective Subsidiaries shall take, or cause to be taken, all such necessary action as may be reasonably requested by the other party, at the expense of the party who makes any such request. The parties will mutually agree on the date of distribution of the assets of the Commercial Bancshares, Inc. Deferred Compensation Plan, as amended and restated January 1, 2006, to its participants, which date selected shall occur no later than the period beginning 30 days prior to and ending on the Effective Time.

6.9Advice of Changes.  First Defiance and Commercial Bancshares shall each promptly advise the other party of any fact, change, event or circumstance known to it (i) that has had or is reasonably likely to have a Material Adverse Effect on it or (ii) which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein or that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition in Article VII; provided, that any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute a violation of this Section 6.9 or the failure of any condition set forth in Section 7.2 or 7.3 to be satisfied, or otherwise constitute a breach of this Agreement by the party failing to give such notice, in each case unless the underlying breach would independently result in a failure of the conditions set forth in Section 7.2 or 7.3 to be satisfied.

6.10Additional Director.  First Defiance shall take all appropriate action so that, as of the Effective Time, one (1) current director of Commercial Bancshares to be selected by First Defiance in consultation with Commercial Bancshares shall be appointed as a director of First Defiance.

6.11Acquisition Proposals.

(a) Commercial Bancshares shall not, and shall cause its Subsidiaries and its and their officers, directors, agents, advisors and representatives (collectively, “Representatives”) not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to any United Community Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any United Community Acquisition Proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any United Community Acquisition Proposal;Proposal, except to notify a person that has made or, to the Knowledge of United Community, is making any inquiries with respect to, or is considering making, a United Community Acquisition Proposal of the existence of the provisions of thisSection 7.9(a); provided that, prior to obtaining the receipt of the Requisite Commercial Bancshares Vote,United Community Shareholder Approval, in the event Commercial BancsharesUnited Community receives an unsolicited bona fide written United Community Acquisition Proposal after the date of this Agreement and United Community Board concludes in good faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors) that such United Community Acquisition Proposal constitutes or would be reasonably likely to result in a Superior Proposal, it may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions to the extent that itsUnited Community Board of Directors concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors)advisor) that failure to take such actions would be morereasonably likely than not to result in a violation ofviolate its fiduciary


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duties under applicable law; Legal Requirements;provided, further, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing provision, Commercial Bancsharesproviso, United Community shall have provided such information to First Defiance and shall have entered into a confidentiality agreement with such third party on terms no less favorable to it than the Confidentiality Agreement dated April 27, 2016,(an “Acceptable Confidentiality Agreement”), which confidentiality agreement shall not provide such personthird party with any exclusive right to negotiate with Commercial Bancshares. Commercial BancsharesUnited Community. United Community will, and will use its reasonable best efforts to cause its Representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of this Agreement with any person other than First Defiance with respect to any United Community Acquisition Proposal. Commercial BancsharesUnited Community will promptly (and in any event within one (1) business day)(within twenty-four (24) hours) advise First Defiance following receipt of any United Community Acquisition Proposal or any inquiry which could reasonably be expected to lead to ana United Community Acquisition Proposal, and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or United Community Acquisition Proposal), and will keep First Defiance reasonably apprised (and in any event within twenty-four (24) hours) of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the material terms of such inquiry or United Community Acquisition Proposal. Commercial BancsharesUnited Community shall (A) withdraw and terminate access that was granted to any person (other than the parties to this Agreement and their respective affiliates and Representatives) to any “data room” (virtual or physical) that was established in connection with a United Community Acquisition Proposal prior to the date of this Agreement and (B) use its reasonable best efforts subject to applicable law and the fiduciary duties of the Board of Directors of Commercial Bancshares, to enforce and not waive or amend any existing confidentiality or standstill agreementagreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof.thereof, unless solely in the case of this clause (B) the United Community Board of Directors determines in good faith that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements, in which event United Community may waive or amend such confidentiality or standstill agreement solely to the extent necessary to permit a third party to make, on a confidential basis to the Board of Directors, a United Community Acquisition Proposal. During the term of this Agreement, Commercial BancsharesUnited Community shall not, and shall cause its Subsidiaries and its and their Representatives not to on its behalf, enter into any bindingletter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other definitive transactionsimilar agreement relating to a United Community Acquisition Proposal (other than a confidentiality agreement referred to and entered into in accordance with this Section 6.11(a)) relating to any Acquisition Proposal.an Acceptable Confidentiality Agreement). As used in this Agreement, “UnitedCommunity Acquisition Proposal” shall mean other than the transactions contemplated by this Agreement,Contemplated Transactions, any offer, proposal or proposalinquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of Commercial BancsharesUnited Community and its Subsidiaries or 25% or more of any class of equity or voting securities of Commercial BancsharesUnited Community or of its Subsidiaries whose

assets, individually or in the aggregate, constitute 25% or more than 25% of the consolidated assets of Commercial Bancshares,United Community, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 25% or more than 25% of any class of equity or voting securities of Commercial BancsharesUnited Community or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of United Community, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving United Community or its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more than 25% of the consolidated assets of Commercial Bancshares,United Community. United Community shall use its reasonable best efforts, subject to applicable Legal Requirements, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any confidential information provided to any person (other than First Defiance and its affiliates) pursuant to any such confidentiality, standstill or similar agreement. As used in this Agreement, “United Community Superior Proposal” shall mean a bona fide written United Community Acquisition Proposal that the United Community Board concludes in good faith to be more favorable to its shareholders than the Merger and the other Contemplated Transactions, (i) after receiving the advice of its financial advisors (who shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) a merger, consolidation, share exchange orafter taking into account all legal (with the advice of outside counsel) financial (including the financing terms of any such proposal), regulatory and other business combination, reorganization involving Commercial Bancshares or its Subsidiaries whose assets, individually oraspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable Legal Requirements; provided, that for purposes of the definition of “United Community Superior Proposal,” the reference to “25%” in the aggregate, constitute more than 25%definition of the consolidated assets of Commercial Bancshares, except, in each case, any sale of whole loans and securitizations in the ordinary course of business and any bona fide internal reorganization.United Community Acquisition Proposal shall be deemed to be references to “a majority.”

(b) Nothing contained in this Agreement shall prevent Commercial BancsharesUnited Community or itsthe United Community Board of Directors from complying with Rule Rules14d-9 and Rule 14e-2 under the Exchange Act or Item 1012(a) of RegulationM-A with respect to ana United Community Acquisition Proposal or from making any legally required disclosure to Commercial Bancshares’United Community’s shareholders; provided that such Rules will in no way eliminate or modify the effect that any action pursuant to such Rules would otherwise have under this Agreement.

6.12Section 7.10Public AnnouncementsFirst Defiance Acquisition Proposals.  Commercial Bancshares

(a) First Defiance agrees that it will not, and will cause its Subsidiaries and use its reasonable best efforts to cause its and their Representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to any First Defiance Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any First Defiance Acquisition Proposal, or (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any person relating to any First Defiance Acquisition Proposal, except to notify a person that has made or, to the Knowledge of First Defiance, is making any inquiries with respect to, or is considering making, an First Defiance Acquisition Proposal of the existence of the provisions of thisSection 7.10(c); provided that, prior to obtaining the First Defiance Shareholder Approval, in the event First Defiance receives an unsolicited bona fide written First Defiance Acquisition Proposal after the date of this Agreement and First Defiance Board concludes in good faith (after receiving the advice of its outside counsel and with respect to financial matters, its financial advisors) that such First Defiance Acquisition Proposal constitutes or would be reasonably likely to result in a Superior Proposal, it may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished nonpublic information or data and participate in such negotiations or discussions to the extent that First Defiance Board concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisor) that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements; provided, further, that, prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, First Defiance shall eachhave provided such information to United Community and entered into an Acceptable Confidentiality Agreement with such third party, which confidentiality agreement shall not provide such third party with any exclusive right to negotiate with First Defiance. First Defiance will, and will use theirits reasonable best efforts (a) to develop a joint communications plan, (b)cause its Representatives to, ensure that all press releasesimmediately cease and cause to be terminated any activities, discussions or negotiations conducted before the

date of this Agreement with any person other public statementsthan United Community with respect to the transactions contemplated hereby shall be consistent with such joint communications plan, and (c) except in respectany First Defiance Acquisition Proposal. First Defiance will promptly (within twenty-four (24) hours) advise United Community following receipt of any announcement required by (i) applicable lawFirst Defiance Acquisition Proposal or regulation, (ii)any inquiry which could reasonably be expected to lead to an First Defiance Acquisition Proposal, and the substance thereof (including the material terms and conditions of and the identity of the person making such inquiry or First Defiance Acquisition Proposal), and will keep United Community reasonably apprised (and in any event within twenty-four (24) hours) of any related developments, discussions and negotiations on a request by a Governmental Entity, (iii) communicationscurrent basis, including any amendments to or revisions of the material terms of such inquiry or First Defiance Acquisition Proposal. First Defiance shall (A) withdraw and terminate access that are substantially similarwas granted to communications previously approved pursuantany person (other than the parties to this Section 6.12, (iv) communications permitted by Section 6.3Agreement and their respective affiliates and Representatives) to any “data room” (virtual or Section 6.11physical) that was established in connection with an First Defiance Acquisition Proposal prior to the date of this Agreement and (B) use its reasonable best efforts to enforce and not waive or (v)amend any existing confidentiality or standstill agreements to which it or any of its Subsidiaries is a party in accordance with the terms thereof, unless solely in the case of this clause (B) the First Defiance Board of Directors determines in good faith that failure to take such actions would be reasonably likely to violate its fiduciary duties under applicable Legal Requirements, in which event First Defiance may waive or amend such confidentiality or standstill agreement solely to the extent necessary to permit a third party to make, on a confidential basis to the Board of Directors, an obligationFirst Defiance Acquisition Proposal. During the term of this Agreement, First Defiance shall not, and shall cause its Subsidiaries and its and their Representatives not to on its behalf, enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement with respect to an First Defiance Acquisition Proposal (other than an Acceptable Confidentiality Agreement). As used in this Agreement, “First Defiance Acquisition Proposal” shall mean, other than the Contemplated Transactions, any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 25% or more of the consolidated assets of First Defiance and its Subsidiaries or 25% or more of any class of equity or voting securities of First Defiance or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 25% or more of any class of equity or voting securities of First Defiance or of its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving First Defiance or its Subsidiaries whose assets, individually or in the aggregate, constitute 25% or more of the consolidated assets of First Defiance. First Defiance shall use its reasonable best efforts, subject to applicable Legal Requirements, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any confidential information provided to any person (other than United Community and its affiliates) pursuant to any listing agreement withsuch confidentiality, standstill or rulessimilar agreement. As used in this Agreement, “First Defiance Superior Proposal” shall mean a bona fide written First Defiance Acquisition Proposal that First Defiance Board concludes in good faith to be more favorable to its shareholders than the Merger and the other Contemplated Transactions, (i) after receiving the advice of its financial advisors (who shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel) financial (including the financing terms of any securities exchange, Commercial Bancsharessuch proposal), regulatory and other aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable Legal Requirements; provided, that for purposes of the definition of “First Defiance Superior Proposal,” the reference to “25%” in the definition of First Defiance agreeAcquisition Proposal shall be deemed to consultbe references to “a majority.”

(b) Nothing contained in this Agreement shall prevent First Defiance or First Defiance Board from complying with each otherRules14d-9 and14e-2 under the Exchange Act or Item 1012(a) of RegulationM-A with respect to an First Defiance Acquisition Proposal or from making any legally required disclosure to First Defiance’s shareholders; provided that such Rules will in no way eliminate or modify the effect that any action pursuant to such Rules would otherwise have under this Agreement.

Section 7.11Restructuring Efforts. If either United Community or First Defiance shall have failed to obtain the advance approvalUnited Community Shareholder Approval or the First Defiance Shareholder Approval at the duly convened United Community Meeting or First Defiance Meeting, as applicable, or any adjournment or postponement thereof, each of the other party (which approval shall not be unreasonably withheld, conditioned or delayed) before issuing any press release or, to the extent practical, otherwise making any public statement with respectparties to this Agreement orshall in good faith use its reasonable best efforts to negotiate a restructuring of the transactions contemplated hereby.

6.13Change of Method.  First Defiance may atContemplated Transactions (it being understood that neither party shall have any time change the method of effecting the Merger if andobligation to the extent requested by First Defiance, and Commercial Bancshares agrees to enter into such


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amendments to this Agreement as First Defiance may reasonably request in order to give effect to such restructuring; provided, however, that no such change or amendment shall (i) alter or change any material terms, including the Exchange Ratio, the amount or kind of the Merger Considerationconsideration to be issued to holders of the capital stock of United Community as provided for in this Agreement, (ii)or any term that would adversely affect the Taxtax treatment of the Merger with respectContemplated Transactions, in a manner adverse to Commercial Bancshares’such party or its shareholders or (iii) be reasonably likely to cause the Closing to be materially delayed shareholders (as applicable)) and/or resubmit this Agreement and/or the receipt of the Requisite Regulatory ApprovalsContemplated Transactions (or as restructured pursuant to be prevented or materially delayed.thisSection  7.11) to its respective shareholders for adoption.

6.14Section 7.12Takeover Statutes. Neither Commercial Bancshares norNone of United Community, First Defiance or their respective boards of directors shall take any action that would cause any Takeover Statute to become applicable to this Agreement, the Merger, or any of the other transactions contemplated hereby,Contemplated Transactions, and each of First Defiance and Commercial Bancshares shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger and the other transactions contemplated herebyContemplated Transactions from any applicable Takeover Statute now or hereafter in effect. If any Takeover Statute may become, or may purport to be, applicable to the transactions contemplated hereby,Contemplated Transactions, each party to this Agreement and the members of First Defiance and Commercial Bancsharestheir respective boards of directors will grant such approvals and take such actions as are necessary so that the transactions contemplated by this AgreementContemplated Transactions may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of any Takeover Statute on any of the transactions contemplated by this Agreement,Contemplated Transactions, including, if necessary, challenging the validity or applicability of any such Takeover Statute.

6.15Section 7.13Exemption from Liability Under Section 16(b)Shareholder Litigation. Commercial BancsharesEach of United Community and First Defiance agree that, in ordershall give the other the reasonable opportunity to most effectively compensate and retain thoseconsult concerning the defense of any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers and directors of Commercial Bancshares subjectrelating to the reporting requirementsContemplated Transactions.

Section 7.14Corporate Governance.

(a) Prior to the Effective Time First Defiance shall take all actions necessary to adopt the articles of Section 16(a)incorporation set forth inExhibit A effective as of the Exchange Act (the “Commercial Bancshares Insiders”), both prior toand from and after the Effective Time, it is desirable that Commercial Bancshares Insiders not be subject to a riskthe approval by First Defiance shareholders of liabilitysuch amendments to the First Defiance Articles of Incorporation to the extent required under applicable Legal Requirements and without limitation toSection 16(b) 7.3.

(b) Prior to the Effective Time, First Defiance shall take all actions necessary to adopt the code of regulations set forth inExhibit B effective as of and from and after the Effective Time and to effect the requirements referenced therein.

(c) On or prior to the Effective Time, the First Defiance Board of Directors shall take such actions as are necessary to cause the number of directors that will comprise the full board of directors of the Exchange ActSurviving Entity and First Federal at the Effective Time to be thirteen (13), consisting of (i) the chief executive officer of First Defiance, the chairman of First Defiance and five other members of the First Defiance Board and/or First Federal Board as of immediately prior to the fullest extent permittedEffective Time, designated by applicable law in connectionFirst Defiance, and (ii) the chief executive officer of United Community, the chairman of United Community and four other members of the United Community Board and/or Home Savings Board as of immediately prior to the Effective Time, designated by United Community, to be effective at the Effective Time.

(d) On or prior to the Effective Time, the First Defiance Board shall take such actions as are necessary to cause (i) Donald P. Hileman to continue to serve as the Chief Executive Officer of the Surviving Entity and First Federal, (ii) Gary M. Small to become the President of the Surviving Entity and First Federal, (iii) John L. Bookmyer to continue to serve as Chairman of the Surviving Entity and First Federal and (iv) Richard J. Schiraldi shall become Vice Chairman of the Surviving Entity and First Federal. In accordance with the conversion code

of Commercial Bancshares Sharesregulations of the Surviving Entity, on a date during the period commencing January 1, 2021 and ending June 30, 2021 as determined by the board of directors of the Surviving Entity, or any such earlier date as of which Mr. Hileman ceases for any reason to serve in the Merger,position of Chief Executive Officer of the Surviving Entity or First Federal, as applicable (any such date, the “Succession Date”, (i) Mr. Small shall become Chief Executive Officer and forPresident of the Surviving Entity and First Federal, (ii) Mr. Hileman shall become Executive Chairman of the Surviving Entity and First Federal and (iii) Mr. Schiraldi shall continue as Vice Chairman of the Surviving Entity and First Federal.

(e) On or prior to the Effective Time, First Defiance shall take all actions necessary to adopt amendments to its corporate governance guidelines effective as of and from and after the Effective Time that compensatory and retentive purpose agree toare consistent with the provisions of this Section 6.15. The Boards7.14 and are mutually agreed by United Community and First Defiance, including as set forth onSection 7.14(e) of Directorsthe First Defiance Disclosure Schedules.

(f) As of and from the Effective Time, the headquarters of the Surviving Corporation will be located in Defiance, Ohio, and the main office of First Federal will be located in Youngstown, Ohio.

(g) As of and from the Effective Time, the name of the Surviving Entity and the name of First Federal will each be a name to be mutually agreed upon by First Defiance and United Community prior to the Closing Date.

Section 7.15Commitments to the Community. Following the Effective Time, the Surviving Entity will maintain the level of philanthropic and community investment provided by each of First Defiance and of Commercial Bancshares, or a committee of non-employee directors thereof (as such term is defined for purposes of Rule 16b-3(d) underUnited Community in their respective communities prior to the Exchange Act), shall reasonably promptly afterEffective Time.

Section 7.16Dividends. After the date of this Agreement, each of United Community and First Defiance shall coordinate with the other the declaration of any dividends in respect of the United Community Common Stock and the First Defiance Common Stock and the record dates and payment dates relating thereto, it being the intention of the parties to this Agreement that holders of United Community Common Stock shall not receive two dividends, or fail to receive one dividend, in any event priorquarter with respect to the Effective Time, take all such steps as may be necessary or appropriate to cause (i)their shares of United Community Common Stock and any dispositions of Commercial Bancshares Shares and (ii) any acquisitionsshares of First Defiance Shares,Common Stock any such holder receives in each case pursuant toexchange therefor in the transactions contemplated by this Agreement and by any Commercial Bancshares Insiders who, immediately following the Merger, will be officers or directorsMerger.

ARTICLE 8

CONDITIONS PRECEDENT TO OBLIGATIONS OF FIRST DEFIANCE

The obligations of First Defiance or ofto consummate the Surviving Company subjectContemplated Transactions and to the reporting requirements of Section 16(a) of the Exchange Act, to be exempt from liability pursuant to Rule 16b-3 under the Exchange Act to the fullest extent permitted by applicable law.

6.16Litigation and Claims.  Each of First Defiance and Commercial Bancshares shall promptly notifytake the other party in writing of any action, arbitration, audit, hearing, investigation, litigation, suit, subpoena or summons issued, commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Entity or arbitrator pending or, to the knowledge of First Defiance or Commercial Bancshares, as applicable, threatened against First Defiance, Commercial Bancshares or any of their respective Subsidiaries that (a) questions or would reasonably be expected to question the validity of this Agreement, the Bank Merger Agreement or the other agreements contemplated hereby or thereby or any actions taken orrequired to be taken by First Defiance Commercial Bancshares, or their respective Subsidiaries with respect hereto or thereto, or (b) seeks to enjoin or otherwise restrainat the transactions contemplated hereby or thereby. Commercial Bancshares shall give First Defiance the opportunity to participate at its own expense in the defense or settlement of any shareholder litigation against Commercial Bancshares and/or its directors or affiliates relating to the transactions contemplated by this Agreement, and no such settlement shall be agreed without First Defiance’s prior written consent (such consent not to be unreasonably withheld, conditioned or delayed).

6.17No Control of Other Party’s Business.  Nothing contained in this Agreement shall give First Defiance, directly or indirectly, the right to control or direct the operations of Commercial Bancshares or its Subsidiaries prior to the Effective Time, and nothing contained in this Agreement shall give Commercial Bancshares, directly or indirectly, the right to control or direct the operations of First Defiance or its Subsidiaries prior to the Effective Time. Prior to the Effective Time, each of First Defiance and Commercial


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Bancshares shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations.

ARTICLE VII
CONDITIONS PRECEDENT

7.1Conditions to Each Party’s Obligation to Effect the Merger.  The respective obligations of the parties to effect the Merger shall beClosing are subject to the satisfaction, at or prior to the Effective TimeClosing, of each of the following conditions:

(a)Shareholder Approval.  This Agreement shall have been adoptedconditions (any of which may be waived by the shareholders of Commercial Bancshares by the Requisite Commercial Bancshares Vote.

(b)Stock Exchange Listing.  The First Defiance Shares that shall be issuable pursuantin whole or in part, subject to applicable Legal Requirements):

Section 8.1Accuracy of Representations and Warranties. For purposes of thisSection 8.1, the accuracy of the representations and warranties of United Community set forth in this Agreement shall have been authorized for listing onbe assessed as of the NASDAQ.

(c)S-4date of this Agreement and as of the Closing Date (or such other date(s) as specified, to the extent any representation or warranty speaks as of a specific date). The S-4 shall have become effective under the Securities Actrepresentations and no stop order suspending the effectiveness of the S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC and not withdrawn.

(d)No Injunctions or Restraints; Illegality.  No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger or the Bank Merger shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits or makes illegal consummation of the Merger.

(e)Regulatory Approvals.  All regulatory authorizations, consents, orders or approvals (x) from the Federal Banking Agencies, (y) required under the HSR Act, and (z)warranties set forth in Sections 3.4Section 3.3andSection 3.5(a) shall be true and 4.4correct (except for inaccuracies which are necessary to consummatede minimisin amount and effect). There shall not exist inaccuracies in the transaction contemplated byrepresentations and warranties of United Community set forth in this Agreement including(other than the Mergerrepresentations set forth inSection 3.3 andSection 3.5(a)) such that the Bank Merger,aggregate effect of such inaccuracies has, or those the failure of which to be obtained wouldis reasonably be likelyexpected to have, individually or in the aggregate, a Material Adverse Effect on United Community;provided,that, for purposes of this sentence only, those representations and warranties which are qualified by references to “material” or “Material Adverse Effect” shall be deemed not to include such qualifications.

Section 8.2Performance by United Community. United Community shall have performed or complied in all material respects with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date.

Section 8.3Shareholder Approvals. Each of the United Community Shareholder Approval and the First Defiance or the Surviving Company,Shareholder Approval shall have been obtained.

Section 8.4Regulatory Approvals. All Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired (such approvalsor been terminated and there shall not be any action taken, or any Legal Requirement enacted, entered, enforced or deemed applicable to the Contemplated Transactions, by any Regulatory Authority, in connection with the grant of a Requisite Regulatory Approval, which shall have imposed a restriction or condition on, or requirement of, such approval that would, after the Effective Time, reasonably be expected to have a Material Adverse Effect on the Surviving Entity and its Subsidiaries, taken as a whole, after giving effect to the Merger.

Section 8.5Registration Statement. The Registration Statement shall have become effective under the Securities Act. No stop order shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement, and no Proceeding shall have been commenced or be pending or threatened for such purpose and not withdrawn.

Section 8.6Officers’ Certificate. First Defiance shall have received a certificate signed on behalf of United Community by an executive officer of United Community certifying as to the matters set forth inSections 8.1 and 8.2.

Section 8.7Tax Opinion. First Defiance shall have received a written opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP, tax counsel to First Defiance, in form and substance reasonably satisfactory to United Community and First Defiance, dated as of the Closing Date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 8.8Stock Exchange Listing. The shares of First Defiance Common Stock to be issued in the Merger shall have been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance.

Section 8.9No Material Adverse Effect. From the date of this Agreement to the Closing, there shall be and have been no change in the financial condition, assets or business of United Community or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on United Community.

Section 8.10No Legal Restraint. No order, injunction or decree issued by any court or Regulatory Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Regulatory Authority which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions.

ARTICLE 9

CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UNITED COMMUNITY

The obligations of United Community to consummate the Contemplated Transactions and to take the other actions required to be taken by United Community at the Closing are subject to the satisfaction, at or prior to the

Closing, of each of the following conditions (any of which may be waived by United Community, in whole or in part):

Section 9.1Accuracy of Representations and Warranties. For purposes of thisSection 9.1, the accuracy of the representations and warranties of First Defiance set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date (or such other date(s) as specified, to the extent any representation or warranty speaks as of a specific date). The representations and warranties set forth inSection 4.3and Section 4.5(a) shall be true and correct (except for inaccuracies which aredeminimisin amount and effect). There shall not exist inaccuracies in the representations and warranties of First Defiance set forth in this Agreement (other than the representations set forth inSection 4.3 andSection 4.5(a)) such that the aggregate effect of such inaccuracies has, or is reasonably expected to have, a Material Adverse Effect on First Defiance;provided,that, for purposes of this sentence only, those representations and warranties which are qualified by references to “material” or “Material Adverse Effect” shall be deemed not to include such qualifications.

Section 9.2Performance by First Defiance. First Defiance shall have performed or complied in all material respects with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date.

Section 9.3Shareholder Approvals. Each of the United Community Shareholder Approval and the expirationFirst Defiance Shareholder Approval shall have been obtained.

Section 9.4Regulatory Approvals. All Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated and there shall not be any action taken, or any Legal Requirement enacted, entered, enforced or deemed applicable to the Contemplated Transactions, by any Regulatory Authority, in connection with the grant of a Requisite Regulatory Approval, which shall have imposed a restriction or condition on, or requirement of, such waiting periodsapproval that would, after the Effective Time, reasonably be expected to have a Material Adverse Effect on the Surviving Entity and its Subsidiaries, taken as a whole, after giving effect to the Merger.

Section 9.5Registration Statement. The Registration Statement shall have become effective under the Securities Act. No stop order shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement, and no Proceeding shall have been commenced or be pending or threatened for such purpose.

Section 9.6Officers’ Certificate. United Community shall have received a certificate signed on behalf of First Defiance by an executive officer of First Defiance certifying as to the matters set forth inSections 9.1 and9.2.

Section 9.7Tax Opinion. United Community shall have received a written opinion of Wachtell, Lipton, Rosen & Katz, tax counsel to United Community, in form and substance reasonably satisfactory to United Community and First Defiance, dated as of the Closing Date, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Section 9.8Stock Exchange Listing. The shares of First Defiance Common Stock to be issued in the Merger shall have been approved for listing on the Nasdaq Global Select Market, subject to official notice of issuance.

Section 9.9No Material Adverse Effect. From the date of this Agreement to the Closing, there shall be and have been no change in the financial condition, assets or business of First Defiance or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on First Defiance.

Section 9.10No Legal Restraint. No order, injunction or decree issued by any court or Regulatory Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the

Merger, the Bank Merger or any of the other Contemplated Transactions shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Regulatory Authority which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other Contemplated Transactions.

ARTICLE 10

TERMINATION

Section 10.1Termination of Agreement. This Agreement may be terminated only as set forth below, whether before or after approval of the matters presented in connection with the Merger by the shareholders of United Community or First Defiance:

(a) by mutual consent of First Defiance and United Community, each evidenced by appropriate written board resolutions;

(b) by First Defiance if United Community shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the Closing would otherwise occur would result in the failure of any of the conditions set forth inArticle 8 and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation and warranty or failing to perform;provided, that First Defiance is not then in material breach of any representation, warranty, covenant or other agreement contained herein;

(c) by United Community if First Defiance shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform, either individually or together with other such breaches, in the aggregate, if occurring or continuing on the date on which the Closing would otherwise occur would result in the failure of any of the conditions set forth inArticle 9 and such breach or failure to perform has not been or cannot be cured within forty-five (45) days following written notice to the party committing such breach, making such untrue representation and warranty or failing to perform,provided, that United Community is not then in material breach of any representation, warranty, covenant or other agreement contained herein;

(d) by First Defiance or United Community if: any Regulatory Authority that must grant a Requisite Regulatory Approval has denied approval of any of the Contemplated Transactions and such denial has become final and nonappealable;provided, however, that the right to terminate this Agreement under thisSection 10.1(d) shall not be available to a party whose failure (or the failure of any of its Affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any such event described above;

(e) by First Defiance or United Community if the Effective Time shall not have occurred at or before the date that is one (1) year following the Agreement date (the “Termination Date”);provided,however, that the right to terminate this Agreement under thisSection 10.1(e) shall not be available to any party to this Agreement whose failure to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the failure of the Effective Time to occur on or before such date;

(f) by First Defiance or United Community if any court of competent jurisdiction or other Regulatory Authority shall have issued a judgment, Order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting any of the Contemplated Transactions and such judgment, Order, injunction, rule, decree or other action shall have become final and nonappealable;provided, however, that the right to terminate this Agreement under thisSection 10.1(f) shall not be available to a party whose failure (or the failure of any of its Affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any such event described above;

(g) by United Community prior to such time as the First Defiance Shareholder Approval is obtained, if (i) First Defiance Board shall have (A) failed to recommend in the Joint Proxy Statement that the shareholders of First Defiance adopt this Agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to United Community, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting an First Defiance Acquisition Proposal that has been publicly disclosed within ten (10) Business Days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms hereof or (B) recommended or endorsed an First Defiance Acquisition Proposal or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after an First Defiance Acquisition Proposal is publicly announced or (ii) First Defiance or the First Defiance Board has breached its obligations underSection 7.3 or7.10 in any material respect; or

(h) by First Defiance prior to such time as the United Community Shareholder Approval is obtained, if (i) the United Community Board shall have (A) failed to recommend in the Joint Proxy Statement that the shareholders of United Community adopt this Agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to First Defiance, or publicly disclosed that it has resolved to do so, or failed to recommend against acceptance of a tender offer or exchange offer constituting a United Community Acquisition Proposal that has been publicly disclosed within ten (10) Business Days after the commencement of such tender or exchange offer, in any such case whether or not permitted by the terms hereof or (B) recommended or endorsed a United Community Acquisition Proposal or failed to issue a press release reaffirming its recommendation that the shareholders of United Community adopt this Agreement within ten (10) Business Days after a United Community Acquisition Proposal is publicly announced, or (ii) United Community or the United Community Board has breached its obligations underSection 7.3or Section 7.9 in any material respect.

Section 10.2Effect of Termination or Abandonment.

(a) In the event of the termination of this Agreement and the abandonment of the Merger pursuant toSection 10.1, this Agreement shall become null and void, and there shall be no liability of one party to the other or any restrictions on the future activities on the part of any party to this Agreement, or its respective directors, officers or shareholders, except that: (i) the Confidentiality Agreement, thisSection 10.2 andArticle 11 shall survive such termination and abandonment; and (ii) notwithstanding anything to the contrary contained in this Agreement, neither First Defiance nor United Community shall be relieved or released from any liabilities or damages arising out of fraud or its Willful Breach of any provision of this Agreement occurring prior to termination. “Willful Breach” shall mean a material breach of, or material failure to perform any of the covenants or other agreements contained in, this Agreement, that is a consequence of an act or failure to act by the breaching ornon-performing party with actual knowledge that such party’s act or failure to act would, or would reasonably be expected to, result in or constitute such breach of or such failure of performance under this Agreement.

(b) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide United Community Acquisition Proposal shall have been made known to senior management of United Community or United Community Board or has been made directly to its shareholders generally or any person shall have publicly announced a United Community Acquisition Proposal (and not withdrawn such United Community Acquisition Proposal at least two (2) Business Days prior to the United Community Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the United Community Shareholder Approval having been obtained (and all other conditions set forth inArticle 9 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by First Defiance pursuant toSection 10.1(b) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, United Community enters into a definitive agreement or consummates a transaction with respect to a United Community Acquisition Proposal (whether or not the same United Community Acquisition Proposal as that referred to above), then

United Community shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay First Defiance, by wire transfer of same day funds, a fee equal to $18,400,000 (the “Termination Fee”); provided that for purposes of this Section 10.2(b), all references in the definition of United Community Acquisition Proposal to “25%” shall instead refer to “50%”.

(c) In the event that this Agreement is terminated by First Defiance pursuant toSection 10.1(h), then United Community shall pay First Defiance, by wire transfer of same day funds, the Termination Fee on the date of termination.

(d) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide First Defiance Acquisition Proposal shall have been made known to senior management of First Defiance or First Defiance Board or has been made directly to its shareholders generally or any person shall have publicly announced an First Defiance Acquisition Proposal (and not withdrawn such First Defiance Acquisition Proposal at least two (2) Business Days prior to the First Defiance Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the First Defiance Shareholder Approval having been obtained (and all other conditions set forth inArticle 8 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by United Community pursuant toSection 10.1(c) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, First Defiance enters into a definitive agreement or consummates a transaction with respect to an First Defiance Acquisition Proposal (whether or not the same First Defiance Acquisition Proposal as that referred to above), then First Defiance shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay United Community, by wire transfer of same day funds, the Termination Fee; provided that for purposes of thisSection 10.2(d), all references in the definition of First Defiance Acquisition Proposal to “25%” shall instead refer to “50%”.

(e) In the event that this Agreement is terminated by United Community pursuant toSection 10.1(g), then First Defiance shall pay United Community, by wire transfer of same day funds, the Termination Fee on the date of termination.

(f) Notwithstanding anything to the contrary herein, but without limiting the right of either party to recover liabilities or damages arising out of the other party’s fraud or Willful Breach of any provision of this Agreement, in the event that this Agreement is terminated as provided inSection 10.1 under circumstances where the Termination Fee is payable and paid in full, the maximum aggregate amount of monetary fees, liabilities or damages payable by a single party to this Agreement under thisSection 10.2 shall be equal to the Termination Fee, and neither United Community nor First Defiance shall be required to pay the Termination Fee on more than one occasion.

(g) Each of First Defiance and United Community acknowledges that the agreements contained in thisSection 10.2 are an integral part of the Contemplated Transactions, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if First Defiance or United Community fails promptly to pay the amount due pursuant to thisSection 10.2, and, in order to obtain such payment, the other party commences a suit which results in a judgment against thenon-paying party for the Termination Fee, suchnon-paying party shall pay the costs and expenses of the other party (including reasonable attorneys’ fees and expenses) in connection with such suit. In addition, if First Defiance or United Community, as the case may be, fails to pay the amounts payable pursuant to thisSection 10.2, then such party shall pay interest on such overdue amounts (for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full) at a rate per annum equal to the prime rate (as announced by JPMorgan Chase & Co. or any successor thereto) in effect on the date on which such payment was required to be made for the period commencing as of the date that such overdue amount was originally required to be paid. The amounts payable by First Defiance and United Community, as applicable, pursuant toSection 10.2, as applicable, constitute liquidated damages and not a penalty, and, except in the case of fraud or Willful Breach of this Agreement, shall be the sole monetary remedy of United Community and First

Defiance, as applicable, in the event of a termination of this Agreement specified in such section under circumstances where the Termination Fee is payable and is paid in full.

ARTICLE 11

MISCELLANEOUS

Section 11.1Survival. Except for covenants that are expressly to be performed after the Closing, none of the representations, warranties and covenants contained herein shall survive beyond the Closing.

Section 11.2Governing Law; Jurisdiction.

(a) All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the laws of the State of Ohio applicable to contracts made and performed entirely within such state, without giving effect to its principles of conflicts of laws.

(b) Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the courts of the State of Ohio (or, if such court determines that it lacks subject matter jurisdiction, any federal court sitting in the State of Ohio) (and any courts from which appeals may be taken) (the “Chosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance withSection 11.9.

Section 11.3Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BANK MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.3.

Section 11.4Cumulative Remedies; Specific Performance. All rights and remedies under this Agreement or otherwise afforded by applicable Legal Requirements to any party, shall be cumulative and not alternative. Without limiting the rights of a party hereto to pursue all other legal and equitable rights available to such party for another party’s failure to perform its obligations under this Agreement in accordance with its specific terms, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their respective obligations hereunder would be inadequate and irreparable damage would occur and that each party shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. Each of the parties hereby further waives any requirement under applicable Legal Requirements to post security as a prerequisite to obtaining equitable relief.

Section 11.5Expenses. Each party to this Agreement shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the Bank Merger Agreement and the transactions contemplated hereby and thereby, whether or not such transactions are consummated, including all fees and expenses of such party’s Representatives.

Section 11.6Assignments, Successors and No Third Party Rights. Neither party to this Agreement may assign any of its rights under this Agreement (whether by operation of law or otherwise) without the prior written consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement and every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except for (a) Section 6.5and (b) from and after the Effective Time, the rights of the holders of shares of United Community Common Stock to receive the Merger Consideration and the holders of United Community Equity Awards to receive the consideration set forth inSection 2.5, in each case in accordance with the terms of and subject to the conditions of this Agreement, nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance withSection 11.8 without notice or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

Section 11.7Modification. This Agreement may be amended, modified or supplemented by the parties at any time before or after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained;provided, however, that after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained, there may not be, without further approval of United Community’s and/or First Defiance’s shareholders, respectively, any amendment of this Agreement that requires further approval under applicable Legal Requirements. This Agreement may not be amended, modified or supplemented except by an instrument in writing signed on behalf of each of the parties.

Section 11.8Extension of Time; Waiver. At any time prior to the Effective Time, the parties may, to the extent permitted by applicable Legal Requirements: (a) extend the time for the performance of any of the obligations or other acts of the other party; (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement; or (c) waive compliance with or amend, modify or supplement any of the agreements or conditions contained in this Agreement which are for the benefit of the waiving party. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Legal Requirements: (x) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (y) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (z) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 11.9Notices. All notices, consents, waivers and other communications under this Agreement shall be in writing (which shall include electronic mail) and shall be deemed to have been duly given if delivered by

hand or by nationally recognized overnight delivery service (receipt requested), mailed by registered or certified U.S. mail (return receipt requested) postage prepaid or electronic mail (if confirmed) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

If to First Defiance, to:

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

Electronic mail:    dhileman@first-fed.com

                                jreisner@first-fed.com

Attention:     Donald P. Hileman, President and Chief Executive Officer

                      John Reisner, General Counsel

with copies to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street

Suite 3900

Chicago, Illinois 60606

Electronic mail:     robert.fleetwood@bfkn.com

Attention:     Robert M. Fleetwood, Esq.

If to United Community, to:

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503-1203

Electronic mail:     gsmall@homesavings.com

                                jnohra@homesavings.com

Attention:     Gary M. Small, President and Chief Executive Officer

                      Jude J. Nohra, General Counsel

with copies to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Electronic mail:     EDHerlihy@wlrk.com

                                BCPrice@wlrk.com

Attention:     Edward D. Herlihy, Esq.

                     Brandon C. Price, Esq.

or to such other Person or place as United Community shall furnish to First Defiance or First Defiance shall furnish to United Community in writing. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand or electronic mail, when delivered (provided that the receipt of electronic mail is promptly confirmed); (b) if delivered by overnight delivery service, on the next Business Day after deposit with such service; and (c) if mailed in the manner provided in thisSection 11.9, five (5) Business Days after deposit with the U.S. Postal Service.

Section 11.10Entire Agreement. This Agreement, the schedules, the exhibits and any documents executed by the parties pursuant to this Agreement and referred to herein, together with the Confidentiality Agreement, constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, relating to such subject matter between the parties.

Section 11.11Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Legal Requirements, but if any provision of this

Agreement is held to be prohibited by or invalid under applicable Legal Requirements, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement unless the consummation of the Contemplated Transactions is adversely affected thereby.

Section 11.12Counterparts. This Agreement and any amendments thereto may be executed in any number of counterparts (including by facsimile or other electronic means), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart.

Section 11.13Confidential Supervisory Information.Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(c) and as identified in 12 C.F.R. § 309.5(g)(8)) of a Regulatory Authority by any party to this Agreement to the extent prohibited by applicable Legal Requirements. To the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.

ARTICLE 12

DEFINITIONS

Section 12.1Definitions. In addition to those terms defined throughout this Agreement, the following terms, when used herein, shall have the following meanings:

(a) “Affiliate” means, with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with, such specified Person.

(b) “Business Day” means any day except Saturday, Sunday and any day on which banks in Ohio are authorized or required by law or other government action to close.

(c) “Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (i) the Merger; (ii) the Bank Merger, (iii) the performance by First Defiance and United Community of their respective covenants and obligations under this Agreement; and (iv) First Defiance’s issuance of shares of First Defiance Common Stock pursuant to the Registration Statement and cash in lieu of fractional shares of First Defiance Common Stock.

(d) “Contract” means any agreement, contract, obligation, promise or understanding (whether written or oral and whether express or implied) that is legally binding: (i) under which a Person has or may acquire any rights; (ii) under which such Person has or may become subject to any obligation or liability; or (iii) by which such Person or any of the assets owned or used by such Person is or may become bound.

(e) “Control,” “Controlling” or “Controlled” when used with respect to any specified Person, means the power to vote 25 percent (25%) or more of any class of voting securities of a Person, the power to control in any manner the election of a majority of the directors or partners of such Person, or the power to exercise a controlling influence over the management or policies of such Person.

(f) “CRA” means the Community Reinvestment Act, as amended.

(g) “Deposit Insurance Fund” means the fund that is maintained by the FDIC to allow it to make up for any shortfalls from a failed depository institution’s assets.

(h) “Derivative Transactions” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, prices, values, or other financial or nonfinancial assets, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

(i) “DOL” means the U.S. Department of Labor.

(j) “Environment” means surface or subsurface soil or strata, surface waters and sediments, navigable waters, groundwater, drinking water supply and ambient air.

(k) “Environmental Laws” means any federal, state or local law, statute, ordinance, rule, regulation, code, order, permit or other legally binding requirement applicable to the business or assets of United Community or any of its Subsidiaries that imposes liability or standards of conduct with respect to the Environment and/or Hazardous Materials.

(l) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a single employer with First Defiance or any of its Subsidiaries for purposes of Section 414 of the Code.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the following: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “First Defiance SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by First Defiance with the SEC under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance Shareholder Approval” means (i) the adoption of this Agreement by the shareholders of First Defiance by the affirmative vote oftwo-thirds of the outstanding shares of First Defiance Common Stock, and (ii) the amendment to the First Defiance Code of Regulations, by the shareholders of First Defiance by the affirmative vote of a majority of the outstanding shares of First Defiance Common Stock.

(b) “First Defiance Stock Issuance” means the issuance of the First Defiance Common Stock pursuant to this Agreement.

(c) “GAAP” means generally accepted accounting principles in the U.S., consistently applied.

(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the U.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a joint proxy statement/prospectus prepared by First Defiance and United Community for use in connection with the United Community Meeting and the First Defiance Meeting, all in accordance with the rules and regulations of the SEC.

(g) “Knowledge” means the actual knowledge of the officers of First Defiance listed onSection 12.1 of the First Defiance Disclosure Schedules or the officers of United Community listed onSection 12.1of the United Community Disclosure Schedules, as the context requires.

(h) “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any mortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or other similar encumbrance or claim.

(j) “Material Adverse Effect” as used with respect to a party, means an event, circumstance, change, effect or occurrence which, individually or together with any other event, circumstance, change, effect or occurrence: (i) has a material adverse effect on the business, financial condition, assets, liabilities or results of operations of such party and its Subsidiaries, taken as a whole; or (ii) materially impairs the ability of such party to perform its obligations under this Agreement or to consummate the Merger and the other Contemplated Transactions by the Termination Date;provided that, in the case of clause (i) only, in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent attributable to or resulting from: (A) changes in Legal Requirements and the interpretation of such Legal Requirements by courts or governmental authorities; (B) changes in GAAP or regulatory accounting requirements; (C) changes or events generally affecting banks, bank holding companies or financial holding companies, or the economy or the financial, securities or credit markets, including changes in prevailing interest rates, liquidity and quality, currency exchange rates, price levels or trading volumes in the U.S. or foreign securities markets; (D) changes in national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States; (E) floods, hurricanes, tornados, earthquakes, fires or other natural disasters; (F) any failure by First Defiance or United Community, as applicable, to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period or any changes in the trading price or trading volume of United Community Common Stock or the First Defiance Common Stock, as applicable (it being understood and agreed that the facts and circumstances giving rise to such failure or such changes that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect); (H) the effects of the public disclosure or pendency of this Agreement and the actions expressly permitted or required by this Agreement (other than, in the case of United Community, pursuant toSection 5.2(a) and, in the case of First Defiance,Section 6.2(a)) or that are taken at the written request of, or with the prior written consent of, the other party in contemplation of the Contemplated Transactions, including the costs and expenses associated therewith and the response or reaction of customers, vendors, licensors, investors or employees; and (I) any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers related to the Contemplated Transactions; except with respect to clauses (A), (B), (C), (D) and (E), to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate.

(k) “Nasdaq Rules” means the listing rules of the Nasdaq Global Select Market.

(l) “OGCL” means the Ohio General Corporation Law, as amended.

(m) “Order” means any award, decision, injunction, judgment, order, ruling, extraordinary supervisory letter, policy statement, memorandum of understanding, resolution, agreement, directive, subpoena or verdict entered, issued, made, rendered or required by any court, administrative or other governmental agency, including any Regulatory Authority, or by any arbitrator.

(n) “Ordinary Course of Business” shall include any action taken by a Person only if such action is consistent with the past practices of such Person and is similar in nature and magnitude to actions customarily taken in the ordinary course of the normalday-to-day operations of other Persons that are in the same line of business as such Person.

(o) “OREO” means real estate owned by a Person and designated as “other real estate owned.”

(p) “Outstanding United Community Shares” means the shares of United Community Common Stock issued and outstanding immediately prior to the Effective Time.

(q) “PBGC” means the U.S. Pension Benefit Guaranty Corporation.

(r) “Person” means any individual, corporation (including anynon-profit corporation), general or limited partnership, limited liability company, foundation, joint venture, estate, trust, association, organization, labor union or other entity or Regulatory Authority.

(s) “Previously Disclosed” means information (i) set forth by United Community or First Defiance in the applicable paragraph of its Schedules, or any other paragraph of its Schedules (so long as it is reasonably clear from the context that the disclosure in such other paragraph of its Schedule is also applicable to the section of this Agreement in question), (ii) uploaded to and made available to First Defiance or United Community and its Representatives in the online data room hosted on behalf of United Community or First Defiance, as applicable, in connection with the Contemplated Transactions or (iii) filed by a party with the SEC and publicly available on EDGAR, in each case of (ii) and (iii) at least one day prior to the date hereof.

(t) “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator.

(u) “Registration Statement” means a registration statement on FormS-4 or other applicable form under the Securities Act covering the shares of First Defiance Common Stock to be issued pursuant to this Agreement, which shall include the Joint Proxy Statement.

(v) “Regulatory Authority” means any federal, state or local governmental body, agency, court or authority that, under applicable Legal Requirements: (i) has supervisory, judicial, administrative, police, enforcement, taxing or other power or authority over United Community, First Defiance, or any of their respective Subsidiaries; (ii) is required to approve, or give its consent to, the Contemplated Transactions; or (iii) with which a filing must be made in connection therewith.

(w) “Representative” means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

(x) “Requisite Regulatory ApprovalsTermination Fee”). The Requisite Regulatory Approvals will not contain (i) any conditions, restrictions or requirements; provided that the Board of Directors of First Defiance reasonably determines would either, before or after the Effective Time, have a Material Adverse Effect on First Defiance and its Subsidiaries taken as a whole after giving effect to the consummation of the Merger, or (ii) any conditions, restrictions or requirements that are not customary and usual for approvals for such type and which the Board of Directors of First Defiance reasonably determines would either before or after the Effective Time be unduly burdensome.

7.2Conditions to Obligations of First Defiance.  The obligation of First Defiance to effect the Merger is also subject to the satisfaction or waiver by First Defiance, at or prior to the Effective Time, of the following conditions:

(a)Representations and Warranties.  The representations and warranties of Commercial Bancshares set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. First Defiance shall have received a certificate signed on behalf of Commercial Bancshares by the Chief Executive Officer and the Chief Financial Officer of Commercial Bancshares to the foregoing effect.

(b)Performance of Obligations of Commercial Bancshares.  Commercial Bancshares shall have performed in all material respects the obligations required to be performed by it under this Agreement at or prior to the Closing Date, and First Defiance shall have received a certificate signed on behalf of Commercial Bancshares by the Chief Executive Officer and the Chief Financial Officer of Commercial Bancshares to such effect.

(c)Federal Tax Opinion.  First Defiance shall have received the opinion of Vorys, Sater, Seymour and Pease LLP, in form and substance reasonably satisfactory to First Defiance, dated as of the Closing


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Date, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel shall require and rely upon, and First Defiance and Commercial Bancshares shall supply, the Tax Representation Letters.

(d)Real Estate.  First Defiance shall not have terminated this Agreement pursuant to Section 6.4 of this Agreement.

(e)Consents.  Commercial Bancshares shall have obtained the consent or approval of each person (other than the Requisite Regulatory Approvals) whose consent or approval shall be required in connection with the transactions contemplated hereby under any Loan or credit agreement, note, mortgage, indenture, lease, license or other agreement or instrument, except those for which failure to obtain such consents and approvals would not, individually or in the aggregate, in First Defiance’s reasonable estimate have a Material Adverse Effect, after the Effective Time, on the Surviving Company.

(f)FIRPTA Certification. First Defiance shall have received a statement executed on behalf of Commercial Bancshares, dated as of the Effective Date, satisfying the requirements of Treasury Regulations Section 1.1445-2(c)(3)(and complying with Treasury Regulations Section 1.897-2(h)) in a form reasonably acceptable to First Defiance certifying that Commercial Bancshares is a U.S. person, and that the Commercial Bancshares Shares do not represent United States real property interests within the meaning of Section 897 of the Code and the Treasury Regulations promulgated thereunder.

(g)Dissenting Shares.  The holders of not more than 10% of the outstanding Commercial Bancshares Shares shall have perfected their dissenters’ rights under Section 1701.84 of the OGCL in connection with the transactions contemplated by this Agreement.

(h)No Material Adverse Effect.  From the date of this Agreement, there shall not have occurred any event, circumstance or development that has had or could reasonably be expected to have a Material Adverse Effect on Commercial Bancshares.

7.3Conditions to Obligations of Commercial Bancshares.  The obligation of Commercial Bancshares to effect the Merger is also subject to the satisfaction or waiver by Commercial Bancshares at or prior to the Effective Time of the following conditions:

(a)Representations and Warranties.  The representations and warranties of First Defiance set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. Commercial Bancshares shall have received a certificate signed on behalf of First Defiance by the Chief Executive Officer and the Chief Financial Officer of First Defiance to the foregoing effect.

(b)Performance of Obligations of First Defiance.  First Defiance shall have performed in all material respects the obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Commercial Bancshares shall have received a certificate signed on behalf of First Defiance by the Chief Executive Officer and the Chief Financial Officer of First Defiance to such effect.

(c)Federal Tax Opinion.  Commercial Bancshares shall have received the opinion of Shumaker, Loop & Kendrick, LLP, in form and substance reasonably satisfactory to Commercial Bancshares, dated as of the Closing Date, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel shall require and rely upon, and First Defiance and Commercial Bancshares shall supply, the Tax Representation Letters.

(d)No Material Adverse Effect.  From the date of this Agreement, there shall not have occurred any event, circumstance or development that has had or could reasonably be expected to have a Material Adverse Effect on First Defiance.


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ARTICLE VIII
TERMINATION AND AMENDMENT

8.1Termination.  This Agreement may be terminated at any time prior to the Effective Time, whether before or after adoption of this Agreement by the shareholders of Commercial Bancshares:

(a) by mutual consent of First Defiance and Commercial Bancshares in a written instrument;

(b) by either First Defiance or Commercial Bancshares if any Governmental Entity that must grant a Requisite Regulatory Approval has denied approval of the Merger or the Bank Merger and such denial has become final and nonappealable or any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order, injunction or decree permanently enjoining or otherwise prohibiting or making illegal the consummation of the Merger or the Bank Merger, unless the failure to obtain a Requisite Regulatory Approval shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein;

(c) by either First Defiance or Commercial Bancshares if the Merger shall not have been consummated on or before June 30, 2017 (the “Termination Date”), unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein;

(d) by either First Defiance or Commercial Bancshares (provided, that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties (or any such representation or warranty shall cease to be true) set forth in this Agreement on the part of Commercial Bancshares, in the case of a termination by First Defiance, or First Defiance, in the case of a termination by Commercial Bancshares, which breach or failure to be true, either individually or in the aggregate with all other breaches by such party (or failures of such representations or warranties to be true), would constitute, if occurring or continuing on the Closing Date, the failure of a condition set forth in Section 7.2 or Section 7.3, as the case may be, and which is not cured within the earlier of the Termination Date and 30 days following written notice to Commercial Bancshares, in the case of a termination by First Defiance, or First Defiance, in the case of a termination by Commercial Bancshares, or by its nature or timing cannot be cured during such period;

(e) by First Defiance, if (i) prior to such time as the Requisite Commercial Bancshares Vote is obtained, Commercial Bancshares or the Board of Directors of Commercial Bancshares (A) submits this Agreement to its shareholders without a recommendation for approval, or otherwise withdraws or materially and adversely modifies (or discloses its intention to withdraw or materially and adversely modify) its recommendation as contemplated by Section 6.3(a), or recommends to its shareholders an Acquisition Proposal other than the Merger, or (B) materially breaches its obligations under Section 6.3 or Section 6.11; or (ii) a tender offer or exchange offer for 20% or more of the outstanding Commercial Bancshares Shares is commenced (other than by First Defiance or a Subsidiary thereof), and the Board of Directors of Commercial Bancshares recommends that the shareholders of Commercial Bancshares tender their shares in such tender or exchange offer or otherwise fails to recommend that such shareholders reject such tender offer or exchange offer within the ten (10) business day period specified in Rule 14e-2(a) under the Exchange Act; or

(f) by First Defiance if the Commercial Bancshares’ Total Shareholders' Equity calculated as of the last day of the month prior to the Closing Date is less than $36.2 million. For purposes of this Section 8.1(f)10.2(b), “Total Shareholders’ Equity” means the total shareholders’ equity as reportedall references in the financial statements included in Commercial Bancshares Reports, calculated in accordance with GAAP; provided, however, that such amount will not include any accumulated comprehensive income or anydefinition of the following costs and expenses actually incurred by Commercial Bancshares that are directly relatedUnited Community Acquisition Proposal to the Merger and are paid or accrued for on or prior“25%” shall instead refer to the last day of the month prior to the Closing Date: (i) legal, accounting, professional, advisory, brokerage and fairness opinion fees and expenses (including reimbursable costs), (ii) termination, estimated conversion costs and penalty costs associated with vendor contracts and/or commitments, including data processing contracts and commitments, (iii) the costs and expenses incurred by Commercial Bancshares relating to the printing and mailing of the Proxy Statement


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and the fees and expenses related to the retention of a proxy solicitor, and (iv) the cost of compensation and other benefits to be provided under each change in control, severance, employment or similar agreement to which Commercial Bancshares or any of its Subsidiaries is a party.

The party desiring to terminate this Agreement pursuant to clause (b), (c), (d), (e) or (f) of this Section 8.1 shall give written notice of such termination to the other party in accordance with Section 9.5, specifying the provision or provisions hereof pursuant to which such termination is affected.

8.2Effect of Termination“50%”.

(a)(c) In the event of termination ofthat this Agreement is terminated by either First Defiance or Commercial Bancshares as provided in pursuant toSection 8.1, this Agreement will become void and have no effect, and none of 10.1(h), then United Community shall pay First Defiance, Commercial Bancshares, anyby wire transfer of their respective Subsidiaries or anysame day funds, the Termination Fee on the date of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated hereby, except that (i) this Section 8.2 and Article IX shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, neither First Defiance nor Commercial Bancshares shall be relieved or released from any liabilities or damages arising out of its fraud or willful and material breach of any provision of this Agreement.termination.

(i)(d) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide First Defiance Acquisition Proposal shall have been made known to Commercial Bancsharessenior management of First Defiance or shall haveFirst Defiance Board or has been made directly to its shareholders generally or any person shall have publicly announced an First Defiance Acquisition Proposal (and not withdrawn) a bona fidewithdrawn such First Defiance Acquisition Proposal with respectat least two (2) Business Days prior to Commercial Bancsharesthe First Defiance Meeting) and (A)(i) thereafter this Agreement is terminated by either First Defiance or Commercial BancsharesUnited Community pursuant toSection 8.1(c) 10.1(e) without the Requisite Commercial Bancshares VoteFirst Defiance Shareholder Approval having been obtained (and all other conditions set forth inArticle 8 were satisfied or (B)capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by First DefianceUnited Community pursuant toSection 8.1(d), 10.1(c) as a result of a Willful Breach and (C)(iii) prior to the date that is twelve (12) months after the date of such termination, Commercial BancsharesFirst Defiance enters into a definitive agreement or consummates a transaction with respect to an First Defiance Acquisition Proposal (whether or not the same First Defiance Acquisition Proposal as that referred to above), then Commercial BancsharesFirst Defiance shall, on the earlier of the date of execution ofit enters into such definitive agreement orand the date of consummation of such transaction, pay First Defiance,United Community, by wire transfer of same day funds, the Termination Fee; provided that for purposes of thisSection 10.2(d), all references in the definition of First Defiance Acquisition Proposal to “25%” shall instead refer to “50%”.

(e) In the event that this Agreement is terminated by United Community pursuant toSection 10.1(g), then First Defiance shall pay United Community, by wire transfer of same day funds, the Termination Fee on the date of termination.

(f) Notwithstanding anything to the contrary herein, but without limiting the right of either party to recover liabilities or damages arising out of the other party’s fraud or Willful Breach of any provision of this Agreement, in the event that this Agreement is terminated as provided inSection 10.1 under circumstances where the Termination Fee is payable and paid in full, the maximum aggregate amount of monetary fees, liabilities or damages payable by a feesingle party to this Agreement under thisSection 10.2 shall be equal to $2,400,000the Termination Fee, and neither United Community nor First Defiance shall be required to pay the Termination Fee on more than one occasion.

(g) Each of First Defiance and United Community acknowledges that the agreements contained in thisSection 10.2 are an integral part of the Contemplated Transactions, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if First Defiance or United Community fails promptly to pay the amount due pursuant to thisSection 10.2, and, in order to obtain such payment, the other party commences a suit which results in a judgment against thenon-paying party for the Termination Fee, suchnon-paying party shall pay the costs and expenses of the other party (including reasonable attorneys’ fees and expenses) in connection with such suit. In addition, if First Defiance or United Community, as the case may be, fails to pay the amounts payable pursuant to thisSection 10.2, then such party shall pay interest on such overdue amounts (for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full) at a rate per annum equal to the prime rate (as announced by JPMorgan Chase & Co. or any successor thereto) in effect on the date on which such payment was required to be made for the period commencing as of the date that such overdue amount was originally required to be paid. The amounts payable by First Defiance and United Community, as applicable, pursuant toSection 10.2, as applicable, constitute liquidated damages and not a penalty, and, except in the case of fraud or Willful Breach of this Agreement, shall be the sole monetary remedy of United Community and First

Defiance, as applicable, in the event of a termination of this Agreement specified in such section under circumstances where the Termination Fee is payable and is paid in full.

ARTICLE 11

MISCELLANEOUS

Section 11.1Survival. Except for covenants that are expressly to be performed after the Closing, none of the representations, warranties and covenants contained herein shall survive beyond the Closing.

Section 11.2Governing Law; Jurisdiction.

(a) All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the laws of the State of Ohio applicable to contracts made and performed entirely within such state, without giving effect to its principles of conflicts of laws.

(b) Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the courts of the State of Ohio (or, if such court determines that it lacks subject matter jurisdiction, any federal court sitting in the State of Ohio) (and any courts from which appeals may be taken) (the “Chosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance withSection 11.9.

Section 11.3Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BANK MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.3.

Section 11.4Cumulative Remedies; Specific Performance. All rights and remedies under this Agreement or otherwise afforded by applicable Legal Requirements to any party, shall be cumulative and not alternative. Without limiting the rights of a party hereto to pursue all other legal and equitable rights available to such party for another party’s failure to perform its obligations under this Agreement in accordance with its specific terms, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their respective obligations hereunder would be inadequate and irreparable damage would occur and that each party shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. Each of the parties hereby further waives any requirement under applicable Legal Requirements to post security as a prerequisite to obtaining equitable relief.

Section 11.5Expenses. Each party to this Agreement shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the Bank Merger Agreement and the transactions contemplated hereby and thereby, whether or not such transactions are consummated, including all fees and expenses of such party’s Representatives.

Section 11.6Assignments, Successors and No Third Party Rights. Neither party to this Agreement may assign any of its rights under this Agreement (whether by operation of law or otherwise) without the prior written consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement and every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except for (a) Section 6.5and (b) from and after the Effective Time, the rights of the holders of shares of United Community Common Stock to receive the Merger Consideration and the holders of United Community Equity Awards to receive the consideration set forth inSection 2.5, in each case in accordance with the terms of and subject to the conditions of this Agreement, nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance withSection 11.8 without notice or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

Section 11.7Modification. This Agreement may be amended, modified or supplemented by the parties at any time before or after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained;provided, however, that after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained, there may not be, without further approval of United Community’s and/or First Defiance’s shareholders, respectively, any amendment of this Agreement that requires further approval under applicable Legal Requirements. This Agreement may not be amended, modified or supplemented except by an instrument in writing signed on behalf of each of the parties.

Section 11.8Extension of Time; Waiver. At any time prior to the Effective Time, the parties may, to the extent permitted by applicable Legal Requirements: (a) extend the time for the performance of any of the obligations or other acts of the other party; (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement; or (c) waive compliance with or amend, modify or supplement any of the agreements or conditions contained in this Agreement which are for the benefit of the waiving party. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Legal Requirements: (x) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (y) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (z) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 11.9Notices. All notices, consents, waivers and other communications under this Agreement shall be in writing (which shall include electronic mail) and shall be deemed to have been duly given if delivered by

hand or by nationally recognized overnight delivery service (receipt requested), mailed by registered or certified U.S. mail (return receipt requested) postage prepaid or electronic mail (if confirmed) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

If to First Defiance, to:

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

Electronic mail:    dhileman@first-fed.com

                                jreisner@first-fed.com

Attention:     Donald P. Hileman, President and Chief Executive Officer

                      John Reisner, General Counsel

with copies to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street

Suite 3900

Chicago, Illinois 60606

Electronic mail:     robert.fleetwood@bfkn.com

Attention:     Robert M. Fleetwood, Esq.

If to United Community, to:

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503-1203

Electronic mail:     gsmall@homesavings.com

                                jnohra@homesavings.com

Attention:     Gary M. Small, President and Chief Executive Officer

                      Jude J. Nohra, General Counsel

with copies to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Electronic mail:     EDHerlihy@wlrk.com

                                BCPrice@wlrk.com

Attention:     Edward D. Herlihy, Esq.

                     Brandon C. Price, Esq.

or to such other Person or place as United Community shall furnish to First Defiance or First Defiance shall furnish to United Community in writing. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand or electronic mail, when delivered (provided that the receipt of electronic mail is promptly confirmed); (b) if delivered by overnight delivery service, on the next Business Day after deposit with such service; and (c) if mailed in the manner provided in thisSection 11.9, five (5) Business Days after deposit with the U.S. Postal Service.

Section 11.10Entire Agreement. This Agreement, the schedules, the exhibits and any documents executed by the parties pursuant to this Agreement and referred to herein, together with the Confidentiality Agreement, constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, relating to such subject matter between the parties.

Section 11.11Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Legal Requirements, but if any provision of this

Agreement is held to be prohibited by or invalid under applicable Legal Requirements, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement unless the consummation of the Contemplated Transactions is adversely affected thereby.

Section 11.12Counterparts. This Agreement and any amendments thereto may be executed in any number of counterparts (including by facsimile or other electronic means), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart.

Section 11.13Confidential Supervisory Information.Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(c) and as identified in 12 C.F.R. § 309.5(g)(8)) of a Regulatory Authority by any party to this Agreement to the extent prohibited by applicable Legal Requirements. To the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.

ARTICLE 12

DEFINITIONS

Section 12.1Definitions. In addition to those terms defined throughout this Agreement, the following terms, when used herein, shall have the following meanings:

(a) “Affiliate” means, with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with, such specified Person.

(b) “Business Day” means any day except Saturday, Sunday and any day on which banks in Ohio are authorized or required by law or other government action to close.

(c) “Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (i) the Merger; (ii) the Bank Merger, (iii) the performance by First Defiance and United Community of their respective covenants and obligations under this Agreement; and (iv) First Defiance’s issuance of shares of First Defiance Common Stock pursuant to the Registration Statement and cash in lieu of fractional shares of First Defiance Common Stock.

(d) “Contract” means any agreement, contract, obligation, promise or understanding (whether written or oral and whether express or implied) that is legally binding: (i) under which a Person has or may acquire any rights; (ii) under which such Person has or may become subject to any obligation or liability; or (iii) by which such Person or any of the assets owned or used by such Person is or may become bound.

(e) “Control,” “Controlling” or “Controlled” when used with respect to any specified Person, means the power to vote 25 percent (25%) or more of any class of voting securities of a Person, the power to control in any manner the election of a majority of the directors or partners of such Person, or the power to exercise a controlling influence over the management or policies of such Person.

(f) “CRA” means the Community Reinvestment Act, as amended.

(g) “Deposit Insurance Fund” means the fund that is maintained by the FDIC to allow it to make up for any shortfalls from a failed depository institution’s assets.

(h) “Derivative Transactions” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, prices, values, or other financial or nonfinancial assets, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

(i) “DOL” means the U.S. Department of Labor.

(j) “Environment” means surface or subsurface soil or strata, surface waters and sediments, navigable waters, groundwater, drinking water supply and ambient air.

(k) “Environmental Laws” means any federal, state or local law, statute, ordinance, rule, regulation, code, order, permit or other legally binding requirement applicable to the business or assets of United Community or any of its Subsidiaries that imposes liability or standards of conduct with respect to the Environment and/or Hazardous Materials.

(l) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a single employer with First Defiance or any of its Subsidiaries for purposes of Section 414 of the Code.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the following: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “First Defiance SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by First Defiance with the SEC under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance Shareholder Approval” means (i) the adoption of this Agreement by the shareholders of First Defiance by the affirmative vote oftwo-thirds of the outstanding shares of First Defiance Common Stock, and (ii) the amendment to the First Defiance Code of Regulations, by the shareholders of First Defiance by the affirmative vote of a majority of the outstanding shares of First Defiance Common Stock.

(b) “First Defiance Stock Issuance” means the issuance of the First Defiance Common Stock pursuant to this Agreement.

(c) “GAAP” means generally accepted accounting principles in the U.S., consistently applied.

(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the U.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a joint proxy statement/prospectus prepared by First Defiance and United Community for use in connection with the United Community Meeting and the First Defiance Meeting, all in accordance with the rules and regulations of the SEC.

(g) “Knowledge” means the actual knowledge of the officers of First Defiance listed onSection 12.1 of the First Defiance Disclosure Schedules or the officers of United Community listed onSection 12.1of the United Community Disclosure Schedules, as the context requires.

(h) “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any mortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or other similar encumbrance or claim.

(j) “Material Adverse Effect” as used with respect to a party, means an event, circumstance, change, effect or occurrence which, individually or together with any other event, circumstance, change, effect or occurrence: (i) has a material adverse effect on the business, financial condition, assets, liabilities or results of operations of such party and its Subsidiaries, taken as a whole; or (ii) materially impairs the ability of such party to perform its obligations under this Agreement or to consummate the Merger and the other Contemplated Transactions by the Termination Date;provided that, in the case of clause (i) only, in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent attributable to or resulting from: (A) changes in Legal Requirements and the interpretation of such Legal Requirements by courts or governmental authorities; (B) changes in GAAP or regulatory accounting requirements; (C) changes or events generally affecting banks, bank holding companies or financial holding companies, or the economy or the financial, securities or credit markets, including changes in prevailing interest rates, liquidity and quality, currency exchange rates, price levels or trading volumes in the U.S. or foreign securities markets; (D) changes in national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States; (E) floods, hurricanes, tornados, earthquakes, fires or other natural disasters; (F) any failure by First Defiance or United Community, as applicable, to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period or any changes in the trading price or trading volume of United Community Common Stock or the First Defiance Common Stock, as applicable (it being understood and agreed that the facts and circumstances giving rise to such failure or such changes that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect); (H) the effects of the public disclosure or pendency of this Agreement and the actions expressly permitted or required by this Agreement (other than, in the case of United Community, pursuant toSection 5.2(a) and, in the case of First Defiance,Section 6.2(a)) or that are taken at the written request of, or with the prior written consent of, the other party in contemplation of the Contemplated Transactions, including the costs and expenses associated therewith and the response or reaction of customers, vendors, licensors, investors or employees; and (I) any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers related to the Contemplated Transactions; except with respect to clauses (A), (B), (C), (D) and (E), to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate.

(k) “Nasdaq Rules” means the listing rules of the Nasdaq Global Select Market.

(l) “OGCL” means the Ohio General Corporation Law, as amended.

(m) “Order” means any award, decision, injunction, judgment, order, ruling, extraordinary supervisory letter, policy statement, memorandum of understanding, resolution, agreement, directive, subpoena or verdict entered, issued, made, rendered or required by any court, administrative or other governmental agency, including any Regulatory Authority, or by any arbitrator.

(n) “Ordinary Course of Business” shall include any action taken by a Person only if such action is consistent with the past practices of such Person and is similar in nature and magnitude to actions customarily taken in the ordinary course of the normalday-to-day operations of other Persons that are in the same line of business as such Person.

(o) “OREO” means real estate owned by a Person and designated as “other real estate owned.”

(p) “Outstanding United Community Shares” means the shares of United Community Common Stock issued and outstanding immediately prior to the Effective Time.

(q) “PBGC” means the U.S. Pension Benefit Guaranty Corporation.

(r) “Person” means any individual, corporation (including anynon-profit corporation), general or limited partnership, limited liability company, foundation, joint venture, estate, trust, association, organization, labor union or other entity or Regulatory Authority.

(s) “Previously Disclosed” means information (i) set forth by United Community or First Defiance in the applicable paragraph of its Schedules, or any other paragraph of its Schedules (so long as it is reasonably clear from the context that the disclosure in such other paragraph of its Schedule is also applicable to the section of this Agreement in question), (ii) uploaded to and made available to First Defiance or United Community and its Representatives in the online data room hosted on behalf of United Community or First Defiance, as applicable, in connection with the Contemplated Transactions or (iii) filed by a party with the SEC and publicly available on EDGAR, in each case of (ii) and (iii) at least one day prior to the date hereof.

(t) “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator.

(u) “Registration Statement” means a registration statement on FormS-4 or other applicable form under the Securities Act covering the shares of First Defiance Common Stock to be issued pursuant to this Agreement, which shall include the Joint Proxy Statement.

(v) “Regulatory Authority” means any federal, state or local governmental body, agency, court or authority that, under applicable Legal Requirements: (i) has supervisory, judicial, administrative, police, enforcement, taxing or other power or authority over United Community, First Defiance, or any of their respective Subsidiaries; (ii) is required to approve, or give its consent to, the Contemplated Transactions; or (iii) with which a filing must be made in connection therewith.

(w) “Representative” means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

(x) “Termination Fee”); provided that for purposes of this Section 10.2(b), all references in the definition of United Community Acquisition Proposal to “25%” shall instead refer to “50%”.

(ii)(c) In the event that this Agreement is terminated by First Defiance pursuant toSection 8.1(e) 10.1(h), then Commercial BancsharesUnited Community shall pay First Defiance, by wire transfer of same day funds, the Termination Fee as promptly as reasonably practicableon the date of termination.

(d) In the event that after the date of this Agreement and prior to the termination of this Agreement, a bona fide First Defiance Acquisition Proposal shall have been made known to senior management of First Defiance or First Defiance Board or has been made directly to its shareholders generally or any person shall have publicly announced an First Defiance Acquisition Proposal (and not withdrawn such First Defiance Acquisition Proposal at least two (2) Business Days prior to the First Defiance Meeting) and (i) thereafter this Agreement is terminated by either First Defiance or United Community pursuant toSection 10.1(e) without the First Defiance Shareholder Approval having been obtained (and all other conditions set forth inArticle 8 were satisfied or capable of being satisfied prior to such termination) or (ii) thereafter this Agreement is terminated by United Community pursuant toSection 10.1(c) as a result of a Willful Breach and (iii) prior to the date that is twelve (12) months after the date of such termination, First Defiance enters into a definitive agreement or consummates a transaction with respect to an First Defiance Acquisition Proposal (whether or not the same First Defiance Acquisition Proposal as that referred to above), then First Defiance shall, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay United Community, by wire transfer of same day funds, the Termination Fee; provided that for purposes of thisSection 10.2(d), all references in any event, within three (3) business days thereafter)the definition of First Defiance Acquisition Proposal to “25%” shall instead refer to “50%”.

(b)(e) In nothe event that this Agreement is terminated by United Community pursuant toSection 10.1(g), then First Defiance shall Commercial Bancsharespay United Community, by wire transfer of same day funds, the Termination Fee on the date of termination.

(f) Notwithstanding anything to the contrary herein, but without limiting the right of either party to recover liabilities or damages arising out of the other party’s fraud or Willful Breach of any provision of this Agreement, in the event that this Agreement is terminated as provided inSection 10.1 under circumstances where the Termination Fee is payable and paid in full, the maximum aggregate amount of monetary fees, liabilities or damages payable by a single party to this Agreement under thisSection 10.2 shall be equal to the Termination Fee, and neither United Community nor First Defiance shall be required to pay the Termination Fee on more than one occasion.

(c)(g) Each of First Defiance and Commercial BancsharesUnited Community acknowledges that the agreements contained in thisSection 8.2 10.2 are an integral part of the transactions contemplated by this Agreement,Contemplated Transactions, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if Commercial BancsharesFirst Defiance or United Community fails promptly to pay the Termination Feeamount due pursuant to thisSection 8.2, 10.2, and, in order to obtain such payment, First Defiancethe other party commences a suit which results in a judgment against Commercial Bancsharesthenon-paying party for the Termination Fee, or any portion thereof, Commercial Bancsharessuchnon-paying party shall pay the costs and expenses of First Defiancethe other party (including reasonable attorneys’ fees and expenses) in connection with such suit. In addition, if Commercial BancsharesFirst Defiance or United Community, as the case may be, fails to pay the amounts payable pursuant to thisSection 8.2, 10.2, then Commercial Bancsharessuch party shall pay interest on such overdue amounts (for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full) at a rate per annum equal to the “prime rate”prime rate (as announced by JPMorgan Chase & Co. or any successor thereto) in effect on the date on which such payment was required to be made for the period commencing as of the date that such overdue amount was originally required to be paid. The amounts payable by Commercial BancsharesFirst Defiance and United Community, as applicable, pursuant toSection 8.2(a)(i) 10.2, as applicable, constitute liquidated damages and not a penalty, and, except in the case of


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fraud or willful and material breach,Willful Breach of this Agreement, shall be the sole monetary remedy of United Community and First

Defiance, as applicable, in the event of a termination of this Agreement specified in such section.section under circumstances where the Termination Fee is payable and is paid in full.

ARTICLE IX
GENERAL PROVISIONS

11

MISCELLANEOUS

9.1Section 11.1Nonsurvival of Representations, Warranties and AgreementsSurvival.  None Except for covenants that are expressly to be performed after the Closing, none of the representations, warranties and covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement (other than the Confidentiality Agreements, whichcontained herein shall survive in accordance with its terms) shall survivebeyond the Effective Time, except for Section 6.7 and for those other covenants and agreements contained herein and therein which by their terms apply or are to be performed in whole or in part after the Effective Time.Closing.

9.2Section 11.2Governing Law; Jurisdiction.Amendment.  Subject to compliance with applicable law, this Agreement may be amended by

(a) All questions concerning the parties hereto, by action taken or authorized by their respective Boardsconstruction, validity and interpretation of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of Commercial Bancshares; provided, however, that after the adoption of this Agreement by the shareholders of Commercial Bancshares, there may not be, without further approval of such shareholders, any amendment of this Agreement that requires further shareholder approval under applicable law. This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed on behalf of each of the parties in interest at the time of the amendment.

9.3Extension; Waiver.  At any time prior to the Effective Time, the parties hereto, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or satisfaction of any conditions contained herein; provided, however, that after adoption of this Agreement by the shareholders of Commercial Bancshares, there may not be, without further approval of such shareholders, any extension or waiver of this Agreement or any portion thereof that requires further shareholder approval under applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

9.4Expenses.  Except (i) with respect to costs and expenses of printing and mailing the Proxy Statement, which shall be borne equally by First Defiance and Commercial Bancshares, (ii) with respect to costs and expenses of all filing and other fees in connection with any filing under the HSR Act, which shall be borne by First Defiance and (iii) as otherwise provided in Section 8.2, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paidperformance of the obligations imposed by the party incurring such fees or expenses, whether or not the Merger is consummated.


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9.5Notices.  All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by facsimile or email, upon confirmation of receipt, (b) on the first (1st) business day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on the earlier of confirmed receipt or the fifth (5th) business day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

If to Commercial Bancshares, to:

Commercial Bancshares, Inc.
118 S. Sandusky Avenue Upper Sandusky, Ohio 43351
Attention: Robert E. Beach, President and CEO
Facsimile: (419) 294-2350

With a copy (which shall not constitute notice) to:

Shumaker, Loop & Kendrick, LLP
1000 Jackson Street Toledo, Ohio 43604
Attention: Thomas C. Blank, Esq.
Facsimile: (419) 241-6894

and

If to First Defiance, to:

First Defiance Financial Corp.
419 Fifth Street, Suite 1200 Defiance, Ohio 43512
Attention: Donald P. Hileman, CEO and President
Facsimile: (419) 782-5145

With a copy (which shall not constitute notice) to:

Vorys, Sater, Seymour and Pease LLP
301 East Fourth Street
Suite 3500, Great American Tower
Attention: Kimberly J. Schaefer, Esq.
Facsimile: (513) 852-7892

9.6Interpretation.  The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointlygoverned by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference shall be to an Article or Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” References to “the date hereof” shall mean the date of this Agreement. As used in this Agreement, the “knowledge” of Commercial Bancshares means the knowledge of any officer of Commercial Bancshares or Commercial Bank with the title of Chief Executive Officer, President, Chief Financial Officer, Executive Vice President, Chief Lending Officer or Senior Vice President, and the “knowledge” of First Defiance means the knowledge of any officer of First Defiance or First Federal with the title of Chief Executive Officer, President, Chief Financial Officer, Executive Vice President, Compliance Officer or Senior Vice President. An officer shall be deemed to have “knowledge” of a particular fact or matter if such officer is actually aware of such fact or matter or a prudent individual would be reasonably expected to discover or otherwise become aware of such fact or matter in the ordinary course of such officer’s duties. As used herein, (i) “business day” means any day other than a


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Saturday, a Sunday or a day on which banks in Defiance or Upper Sandusky, Ohio are authorized by law or executive order to be closed, (ii) the term “person” means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature, (iii) an “affiliate” of a specified person is any person that directly or indirectly controls, is controlled by, or is under common control with, such specified person and (iv) the term “made available” means any document or other information that was (a) provided by one party or its representatives to the other party and its representatives prior to the date hereof, (b) included in the virtual data room of a party prior to the date hereof or (c) filed by a party with the SEC and publicly available on EDGAR prior to the date hereof. The Commercial Bancshares Disclosure Schedule and the First Defiance Disclosure Schedule, as well as all other schedules and all exhibits hereto, shall be deemed part of this Agreement and included in any reference to this Agreement. All references to “dollars” or “$” in this Agreement are to United States dollars. This Agreement shall not be interpreted or construed to require any person to take any action, or fail to take any action, if to do so would violate any applicable law. No disclosure, representation or warranty shall be required to be made (or any other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information of a Governmental Entity by any party hereto to the extent prohibited by applicable law, and, to the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of this sentence apply.

9.7Counterparts.  This Agreement may be executed in two or more counterparts (including by facsimile or other electronic means), all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

9.8Entire Agreement.  This Agreement (including the documents and the instruments referred to herein) together with the Confidentiality Agreements constitutes the entire agreement among the parties and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

9.9Governing Law; Jurisdiction.

(a) This Agreement shall be governed and construed in accordance with the laws of the State of Ohio applicable to contracts made and performed entirely within such state, without regardgiving effect to any applicableits principles of conflicts of law.laws.

(b) Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the courts of the State of Ohio (or, if such court determines that it lacks subject matter jurisdiction, any federal or state court of competent jurisdiction locatedsitting in the State of OhioOhio) (and any courts from which appeals may be taken) (the “OhioChosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the OhioChosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the OhioChosen Courts, (iii) waives any objection that the OhioChosen Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance withSection 9.5. 11.9.

9.10Section 11.3Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICHTHAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDINGLITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BANK MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I)THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY SUIT, ACTION OR OTHER PROCEEDING,LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II)(B) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III)(C) EACH SUCH PARTY MAKES THIS


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WAIVER VOLUNTARILY AND (IV)(D) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10.11.3.

9.11Section 11.4Assignment; Third-Party BeneficiariesCumulative Remedies; Specific Performance.  Neither All rights and remedies under this Agreement noror otherwise afforded by applicable Legal Requirements to any ofparty, shall be cumulative and not alternative. Without limiting the rights interests orof a party hereto to pursue all other legal and equitable rights available to such party for another party’s failure to perform its obligations under this Agreement in accordance with its specific terms, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their respective obligations hereunder would be inadequate and irreparable damage would occur and that each party shall be assigned byentitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. Each of the parties heretohereby further waives any requirement under applicable Legal Requirements to post security as a prerequisite to obtaining equitable relief.

Section 11.5Expenses. Each party to this Agreement shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the Bank Merger Agreement and the transactions contemplated hereby and thereby, whether or not such transactions are consummated, including all fees and expenses of such party’s Representatives.

Section 11.6Assignments, Successors and No Third Party Rights. Neither party to this Agreement may assign any of its rights under this Agreement (whether by operation of law or otherwise) without the prior written consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement willand every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. Except as otherwise specifically providedfor (a) Section 6.5and (b) from and after the Effective Time, the rights of the holders of shares of United Community Common Stock to receive the Merger Consideration and the holders of United Community Equity Awards to receive the consideration set forth inSection 6.8, which is intended 2.5, in each case in accordance with the terms of and subject to benefit each Commercial Bancshares Indemnified Party and his or her heir and representatives,the conditions of this Agreement, (including the documents and instrumentsnothing expressed or referred to herein) is not intendedin this Agreement will be construed to and does not confer upongive any personPerson other than the parties heretoto this Agreement any rightslegal or remedies hereunder, including theequitable right, remedy or claim under or with respect to rely upon the representations and warranties set forth herein.this Agreement or any provision of this Agreement. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance herewithwithSection 11.8 without notice or liability to any other person.Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date. Notwithstanding

Section 11.7Modification. This Agreement may be amended, modified or supplemented by the parties at any time before or after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained;provided, however, that after the United Community Shareholder Approval and/or First Defiance Shareholder Approval is obtained, there may not be, without further approval of United Community’s and/or First Defiance’s shareholders, respectively, any amendment of this Agreement that requires further approval under applicable Legal Requirements. This Agreement may not be amended, modified or supplemented except by an instrument in writing signed on behalf of each of the parties.

Section 11.8Extension of Time; Waiver. At any time prior to the Effective Time, the parties may, to the extent permitted by applicable Legal Requirements: (a) extend the time for the performance of any of the obligations or other provisionacts of the other party; (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to the contrary, no consent, approvalthis Agreement; or agreement of any third-party beneficiary will be required to(c) waive compliance with or amend, modify or waivesupplement any provision of this Agreement.

9.12Specific Performance.  The parties hereto agree that irreparable damage would occur if any provision ofthe agreements or conditions contained in this Agreement were not performed in accordance with its specific termswhich are for the benefit of the waiving party. Any agreement on the part of a party to any such extension or were otherwise breached. Accordingly, the partieswaiver shall be entitled to specific performancevalid only if set forth in a written instrument signed on behalf of such party. Neither the terms offailure nor any delay by any party in exercising any right, power or privilege under this Agreement including an injunction or injunctionsthe documents referred to prevent breachesin this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Legal Requirements: (x) no claim or right arising out of this Agreement or the documents referred to enforce specifically the performancein this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the termsclaim or right unless in writing signed by the other party; (y) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and provisions hereof (including(z) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the parties’ obligationright of the party giving such notice or demand to consummatetake further action without notice or demand as provided in this Agreement or the Merger)documents referred to in this Agreement.

Section 11.9Notices. All notices, consents, waivers and other communications under this Agreement shall be in writing (which shall include electronic mail) and shall be deemed to have been duly given if delivered by

hand or by nationally recognized overnight delivery service (receipt requested), mailed by registered or certified U.S. mail (return receipt requested) postage prepaid or electronic mail (if confirmed) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

If to First Defiance, to:

First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

Electronic mail:    dhileman@first-fed.com

                                jreisner@first-fed.com

Attention:     Donald P. Hileman, President and Chief Executive Officer

                      John Reisner, General Counsel

with copies to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street

Suite 3900

Chicago, Illinois 60606

Electronic mail:     robert.fleetwood@bfkn.com

Attention:     Robert M. Fleetwood, Esq.

If to United Community, to:

United Community Financial Corp.

275 West Federal Street

Youngstown, Ohio 44503-1203

Electronic mail:     gsmall@homesavings.com

                                jnohra@homesavings.com

Attention:     Gary M. Small, President and Chief Executive Officer

                      Jude J. Nohra, General Counsel

with copies to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Electronic mail:     EDHerlihy@wlrk.com

                                BCPrice@wlrk.com

Attention:     Edward D. Herlihy, Esq.

                     Brandon C. Price, Esq.

or to such other Person or place as United Community shall furnish to First Defiance or First Defiance shall furnish to United Community in additionwriting. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand or electronic mail, when delivered (provided that the receipt of electronic mail is promptly confirmed); (b) if delivered by overnight delivery service, on the next Business Day after deposit with such service; and (c) if mailed in the manner provided in thisSection 11.9, five (5) Business Days after deposit with the U.S. Postal Service.

Section 11.10Entire Agreement. This Agreement, the schedules, the exhibits and any documents executed by the parties pursuant to any other remedythis Agreement and referred to which they are entitled at law or in equity. Eachherein, together with the Confidentiality Agreement, constitute the entire understanding and agreement of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law would be adequatehereto and (b) any requirement under any lawsupersede all other prior agreements and understandings, written or oral, relating to post security or a bond as a prerequisite to obtaining equitable relief.such subject matter between the parties.

9.13Section 11.11Severability. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law,Legal Requirements, but if any provision or portion of any provision of this

Agreement is held to be prohibited by or invalid illegalunder applicable Legal Requirements, such provision will be ineffective only to the extent of such prohibition or unenforceable in any respect under any applicable law or rule in any jurisdiction,invalidity, without invalidating the remainder of such invalidity, illegality or unenforceability shall not affect any other provision or portionthe remaining provisions of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction such thatunless the invalid, illegal or unenforceable provision or portion thereof shall be interpreted to be only so broad asconsummation of the Contemplated Transactions is enforceable.adversely affected thereby.

9.14Section 11.12Delivery by Facsimile or Electronic TransmissionCounterparts. This Agreement and any amendments thereto may be executed in any number of counterparts (including by facsimile or other electronic means), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart.

Section 11.13Confidential Supervisory Information.Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(c) and as identified in 12 C.F.R. § 309.5(g)(8)) of a Regulatory Authority by any party to this Agreement to the extent prohibited by applicable Legal Requirements. To the extent legally permissible, appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.

ARTICLE 12

DEFINITIONS

Section 12.1Definitions. In addition to those terms defined throughout this Agreement, the following terms, when used herein, shall have the following meanings:

(a) “Affiliate” means, with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with, such specified Person.

(b) “Business Day” means any day except Saturday, Sunday and any day on which banks in Ohio are authorized or required by law or other government action to close.

(c) “Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (i) the Merger; (ii) the Bank Merger, (iii) the performance by First Defiance and United Community of their respective covenants and obligations under this Agreement; and (iv) First Defiance’s issuance of shares of First Defiance Common Stock pursuant to the Registration Statement and cash in lieu of fractional shares of First Defiance Common Stock.

(d) “Contract” means any agreement, contract, obligation, promise or understanding (whether written or oral and whether express or implied) that is legally binding: (i) under which a Person has or may acquire any rights; (ii) under which such Person has or may become subject to any obligation or liability; or (iii) by which such Person or any of the assets owned or used by such Person is or may become bound.

(e) “Control,” “Controlling” or “Controlled” when used with respect to any specified Person, means the power to vote 25 percent (25%) or more of any class of voting securities of a Person, the power to control in any manner the election of a majority of the directors or partners of such Person, or the power to exercise a controlling influence over the management or policies of such Person.

(f) “CRA” means the Community Reinvestment Act, as amended.

(g) “Deposit Insurance Fund” means the fund that is maintained by the FDIC to allow it to make up for any shortfalls from a failed depository institution’s assets.

(h) “Derivative Transactions” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, prices, values, or other financial or nonfinancial assets, credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.

(i) “DOL” means the U.S. Department of Labor.

(j) “Environment” means surface or subsurface soil or strata, surface waters and sediments, navigable waters, groundwater, drinking water supply and ambient air.

(k) “Environmental Laws” means any federal, state or local law, statute, ordinance, rule, regulation, code, order, permit or other legally binding requirement applicable to the business or assets of United Community or any of its Subsidiaries that imposes liability or standards of conduct with respect to the Environment and/or Hazardous Materials.

(l) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “FDIC” means the Federal Deposit Insurance Corporation.

(o) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(p) “First Defiance Articles of Incorporation” means the articles of incorporation of First Defiance, as amended.

(q) “First Defiance Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or instrumentaward); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by First Defiance or any of its Subsidiaries or any First Defiance ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of First Defiance or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which First Defiance or any of its Subsidiaries has or may have liability, including by reason of having an First Defiance ERISA Affiliate.

(r) “First Defiance Board” means the board of directors of First Defiance.

(s) “First Defiance Capital Stock” means the First Defiance Common Stock and the First Defiance Preferred Stock, collectively.

(t) “First Defiance Code of Regulations” means the code of regulations of First Defiance, as amended.

(u) “First Defiance Common Stock” means the common stock, $0.01 par value per share, of First Defiance.

(v) “First Defiance Common Stock Price” means the volume weighted average closing price of First Defiance Common Stock on the Nasdaq Global Select Market over the ten (10) trading day period ending on the specified date.

(w)“First Defiance Equity Award” means any outstanding stock option, stock appreciation right, restricted stock award, restricted stock unit, or other equity award granted under an First Defiance Stock Plan.

(x) “First Defiance ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a single employer with First Defiance or any of its Subsidiaries for purposes of Section 414 of the Code.

(y) “First Defiance Preferred Stock” means the preferred stock, $0.01 per value per share, of First Defiance.

(z) “First Defiance Stock Plans” means any of the following: the First Defiance 2018 Equity Incentive Plan, the First Defiance 2010 Equity Incentive Plan, the First Defiance 2008 Long Term Incentive Compensation Plan, the First Defiance 2005 Stock Option and Incentive Plan, or the First Defiance 2001 Stock Option and Incentive Plan, or the First Defiance Employee Investment Plan.

(aa) “First Defiance SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by First Defiance with the SEC under the Securities Act, the Exchange Act, or the regulations thereunder.

(a) “First Defiance Shareholder Approval” means (i) the adoption of this Agreement by the shareholders of First Defiance by the affirmative vote oftwo-thirds of the outstanding shares of First Defiance Common Stock, and (ii) the amendment to the First Defiance Code of Regulations, by the shareholders of First Defiance by the affirmative vote of a majority of the outstanding shares of First Defiance Common Stock.

(b) “First Defiance Stock Issuance” means the issuance of the First Defiance Common Stock pursuant to this Agreement.

(c) “GAAP” means generally accepted accounting principles in the U.S., consistently applied.

(d) “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

(e) “IRS” means the U.S. Internal Revenue Service.

(f) “Joint Proxy Statement” means a joint proxy statement/prospectus prepared by First Defiance and United Community for use in connection with the United Community Meeting and the First Defiance Meeting, all in accordance with the rules and regulations of the SEC.

(g) “Knowledge” means the actual knowledge of the officers of First Defiance listed onSection 12.1 of the First Defiance Disclosure Schedules or the officers of United Community listed onSection 12.1of the United Community Disclosure Schedules, as the context requires.

(h) “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(i) “Lien” means any mortgage, lien, pledge, charge, encumbrance, security interest, easement, encroachment or other similar encumbrance or claim.

(j) “Material Adverse Effect” as used with respect to a party, means an event, circumstance, change, effect or occurrence which, individually or together with any other event, circumstance, change, effect or occurrence: (i) has a material adverse effect on the business, financial condition, assets, liabilities or results of operations of such party and its Subsidiaries, taken as a whole; or (ii) materially impairs the ability of such party to perform its obligations under this Agreement or to consummate the Merger and the other Contemplated Transactions by the Termination Date;provided that, in the case of clause (i) only, in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent attributable to or resulting from: (A) changes in Legal Requirements and the interpretation of such Legal Requirements by courts or governmental authorities; (B) changes in GAAP or regulatory accounting requirements; (C) changes or events generally affecting banks, bank holding companies or financial holding companies, or the economy or the financial, securities or credit markets, including changes in prevailing interest rates, liquidity and quality, currency exchange rates, price levels or trading volumes in the U.S. or foreign securities markets; (D) changes in national or international political or social conditions including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States; (E) floods, hurricanes, tornados, earthquakes, fires or other natural disasters; (F) any failure by First Defiance or United Community, as applicable, to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period or any changes in the trading price or trading volume of United Community Common Stock or the First Defiance Common Stock, as applicable (it being understood and agreed that the facts and circumstances giving rise to such failure or such changes that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect); (H) the effects of the public disclosure or pendency of this Agreement and the actions expressly permitted or required by this Agreement (other than, in the case of United Community, pursuant toSection 5.2(a) and, in the case of First Defiance,Section 6.2(a)) or that are taken at the written request of, or with the prior written consent of, the other party in contemplation of the Contemplated Transactions, including the costs and expenses associated therewith and the response or reaction of customers, vendors, licensors, investors or employees; and (I) any shareholder litigation against United Community or First Defiance, as applicable, or any of their respective directors or officers related to the Contemplated Transactions; except with respect to clauses (A), (B), (C), (D) and (E), to the extent that the effects of such change are disproportionately adverse to the financial condition, results of operations or business of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate.

(k) “Nasdaq Rules” means the listing rules of the Nasdaq Global Select Market.

(l) “OGCL” means the Ohio General Corporation Law, as amended.

(m) “Order” means any award, decision, injunction, judgment, order, ruling, extraordinary supervisory letter, policy statement, memorandum of understanding, resolution, agreement, directive, subpoena or verdict entered, intoissued, made, rendered or required by any court, administrative or other governmental agency, including any Regulatory Authority, or by any arbitrator.

(n) “Ordinary Course of Business” shall include any action taken by a Person only if such action is consistent with the past practices of such Person and is similar in nature and magnitude to actions customarily taken in the ordinary course of the normalday-to-day operations of other Persons that are in the same line of business as such Person.

(o) “OREO” means real estate owned by a Person and designated as “other real estate owned.”

(p) “Outstanding United Community Shares” means the shares of United Community Common Stock issued and outstanding immediately prior to the Effective Time.

(q) “PBGC” means the U.S. Pension Benefit Guaranty Corporation.

(r) “Person” means any individual, corporation (including anynon-profit corporation), general or limited partnership, limited liability company, foundation, joint venture, estate, trust, association, organization, labor union or other entity or Regulatory Authority.

(s) “Previously Disclosed” means information (i) set forth by United Community or First Defiance in the applicable paragraph of its Schedules, or any other paragraph of its Schedules (so long as it is reasonably clear from the context that the disclosure in such other paragraph of its Schedule is also applicable to the section of this Agreement in question), (ii) uploaded to and made available to First Defiance or United Community and its Representatives in the online data room hosted on behalf of United Community or First Defiance, as applicable, in connection with the Contemplated Transactions or (iii) filed by a party with the SEC and publicly available on EDGAR, in each case of (ii) and (iii) at least one day prior to the date hereof.

(t) “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator.

(u) “Registration Statement” means a registration statement on FormS-4 or other applicable form under the Securities Act covering the shares of First Defiance Common Stock to be issued pursuant to this Agreement, which shall include the Joint Proxy Statement.

(v) “Regulatory Authority” means any federal, state or local governmental body, agency, court or authority that, under applicable Legal Requirements: (i) has supervisory, judicial, administrative, police, enforcement, taxing or other power or authority over United Community, First Defiance, or any of their respective Subsidiaries; (ii) is required to approve, or give its consent to, the Contemplated Transactions; or (iii) with which a filing must be made in connection therewith.

(w) “Representative” means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

(x) “Requisite Regulatory Approvals” means all necessary documentation, applications, notices, petitions, filings, permits, consents, approvals and authorizations from (i) the Federal Reserve, the FDIC and the Ohio Division of Financial Institutions and (ii) as set forth inSection 3.4(b) of the United Community Disclosure Schedules orSection 4.4(b) of the First Defiance Disclosure Schedules, in each case of (i) and (ii) that are necessary to consummate the Merger, Bank Merger and the other Contemplated Transactions.

(y) “SEC” means the Securities and Exchange Commission.

(z) “Securities Act” means the Securities Act of 1933, as amended.

(aa) “Subsidiary” with respect to any Person means an affiliate controlled by such Person directly or indirectly through one or more intermediaries.

(bb) “Tax” means any tax (including any income tax, franchise tax, capital gains tax, value-added tax, sales tax, property tax, escheat tax, use tax, payroll tax, gift tax or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency or other fee, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Regulatory Authority or payable pursuant to anytax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency or fee.

(cc) “Tax Return” means any return (including any information return), report, statement, schedule, notice, form or other document or information filed with or submitted to, or required to be filed with or submitted to, any Regulatory Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax.

(dd) “Transition Date” means, with respect to any Covered Employee, the date First Defiance commences providing benefits to such employee with respect to each New Plan.

(ee) “United Community Benefit Plan” means any: (i) qualified or nonqualified “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or other deferred compensation or retirement plan or arrangement; (ii) “employee welfare benefit plan” (as defined in Section 3(1) of ERISA) or other health, welfare or similar plan or arrangement; (iii) “employee benefit plan” (as defined in Section 3(3) of ERISA); (iv) equity-based compensation plan or arrangement (including any stock option, stock purchase, stock ownership, stock appreciation, restricted stock, restricted stock unit, phantom stock or similar plan, agreement or award); (v) other paid time off, compensation, severance, bonus, profit-sharing or incentive plan or arrangement; (vi) other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, and whether for the benefit of a single individual or more than one (1) individual; or (vii) change in control agreement or employment or severance agreement, in each case with respect to clauses (i) through (vii) of this definition, to which contributions have at any time been made by United Community or any of its Subsidiaries or any United Community ERISA Affiliate or under which any current or former employee, director, agent or independent contractor of United Community or any of its Subsidiaries or any beneficiary thereof is covered, is eligible for coverage or has payment or other benefit rights, and for which United Community or any of its Subsidiaries has or may have liability, including by reason of having a United Community ERISA Affiliate.

(ff) “United Community Board” means the board of directors of United Community.

(gg) “United Community Capital Stock” means the United Community Common Stock and the United Community Preferred Stock, collectively.

(hh) “United Community Articles of Incorporation” means the articles of incorporation of United Community, as amended.

(ii) “United Community Code of Regulations” means the code of regulations of United Community, as amended.

(jj) “United Community Common Stock” means the common stock, no par value per share, of United Community.

(kk) “United Community Equity Award” means any outstanding United Community Stock Option, United Community PSU Award, United Community Restricted Stock Award, or other equity award granted under a United Community Stock Plan.

(ll) “United Community ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA) that is treated as a single employer with United Community or any of its Subsidiaries for purposes of Section 414 of the Code.

(mm) “United Community Preferred Stock” means the preferred stock, no par value per share, of United Community.

(nn) “United Community Stock Plans” means any of the following: the United Community 2015 Long Term Incentive Compensation Plan, the United Community 2007 Long Term Incentive Compensation Plan or the United Community 1999 Long Term Incentive Compensation Plan.

(oo) “United Community SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed or furnished by United Community with the SEC under the Securities Act, the Exchange Act, or the rules and regulations of the SEC thereunder.

(pp) “United Community Shareholder Approval” means the adoption of this Agreement by the shareholders of United Community by the affirmative vote oftwo-thirds of the outstanding shares of United Community’s Common Stock.

(qq) “U.S.” means the United States of America.

Section 12.2Principles of Construction.

(a) In this Agreement, unless otherwise stated or the context otherwise requires, the following uses apply: (i) actions permitted under this Agreement may be taken at any time and from time to time in the actor’s sole discretion; (ii) references to a statute shall refer to the statute and any successor statute, and to all regulations promulgated under or implementing the statute or its successor, as in effect at the relevant time; (iii) in computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until” and “ending on” (and the like) mean “to, but excluding”; (iv) references to a governmental or quasi-governmental agency, authority or instrumentality shall also refer to a regulatory body that succeeds to the functions of the agency, authority or instrumentality; (v) indications of time of day mean Eastern Time; (vi) “including” means “including, but not limited to”; (vii) all references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified; (viii) all words used in this Agreement will be construed to be of such gender or number as the circumstances and context require; (ix) the captions and headings of articles, sections, schedules and exhibits appearing in or attached to this Agreement have been inserted solely for convenience of reference and shall not be considered a part of this Agreement nor shall any of them affect the meaning or interpretation of this Agreement or any of its provisions; (x) any reference to a document or set of documents in this Agreement, and the rights and obligations of the parties under any such documents, means such document or documents as amended from time to time in accordance with this Agreement, and any amendmentsand all modifications, extensions, renewals, substitutions or waivers hereto or thereto,replacements thereof; and (xi) the word “or” as used in this Agreement shall not be exclusive.

(b) All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

(c) With regard to each and every term and condition of this Agreement and any and all agreements and instruments subject to the extent signedterms hereof, the parties hereto understand and delivered by means of a facsimile machineagree that the same have or by e-mail delivery of a “.pdf” format data file, shall be treated in all mannerhas been mutually negotiated, prepared and respects as an originaldrafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument andsubject hereto, no consideration shall be consideredgiven to have the same binding legal effect as if it were the original signed version thereof delivered in person. Noissue of which party hereto actually prepared, drafted or torequested any such agreementterm or instrument shall raise the usecondition of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation of a contract and each party hereto forever waives any such defense.subject hereto.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as ofon the dateday and year first above written.written above.

FIRST DEFIANCE FINANCIAL CORP.

FIRST DEFIANCE FINANCIAL CORP.UNITED COMMUNITY FINANCIAL CORP.
By:/s/

  /s/ Donald P. Hileman

Name: Donald P. Hileman
Title:  President and Chief Executive Officer

COMMERCIAL BANCSHARES, INC.

By:/s/ Robert E. Beach

Name: Robert E. Beach
Title:  President and Chief Executive Officer

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EXHIBIT A

AGREEMENT OF MERGER

THIS AGREEMENT OF MERGER(this “Agreement”) is entered into as of the 23rd day of August, 2016, by and between First Federal Bank of the Midwest (“First Federal”), a federal savings bank, and The Commercial Savings Bank (“Commercial Bank”), an Ohio commercial bank.

RECITALS:

WHEREAS, First Federal is a wholly owned subsidiary of First Defiance Financial Corp. (“FDEF”), an Ohio corporation, and Commercial Bank is a wholly owned subsidiary of Commercial Bancshares, Inc. (“CB”), an Ohio corporation;

WHEREAS, FDEF and CB have entered into an Agreement and Plan of Merger dated August 23, 2016, (the “Parent Merger Agreement”), which provides for the merger of CB with and into FDEF and the subsequent merger of Commercial Bank with and into First Federal; and

WHEREAS, the Boards of Directors of each of the parties hereto have authorized, adopted and approved this Agreement;

NOW, THEREFORE,in consideration of the mutual premises and mutual agreements contained herein, the parties hereto have agreed as follows:

ARTICLE I

THE MERGER

Section 1.01.  At the Effective Time (as defined in Article IV below), Commercial Bank shall merge with and into First Federal (the “Merger”) pursuant to Ohio Rev. Code §§ 1115.11 and 1701.79, and the applicable regulations of the Division of Financial Institutions of the Ohio Department of Commerce (the “Division”) and the Office of the Comptroller of the Currency (“OCC”). Upon consummation of the Merger, the separate corporate existence of Commercial Bank shall cease and First Federal shall continue as the surviving institution (the “Surviving Institution”).

Section 1.02.  The name of the Surviving Institution shall be First Federal Bank of the Midwest.

ARTICLE II

CONVERSION OF SECURITIES

Section 2.01.First Federal Stock.  The shares of common stock of First Federal issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger and shall constitute the only outstanding shares of capital stock of the Surviving Institution at and after the Effective Time.

Section 2.02.Commercial Bank Stock.  At the Effective Time, by virtue of the Merger and without any action on the part of First Federal or Commercial Bank, all of the common shares of Commercial Bank, $12.50 par value per share, that are issued and outstanding immediately prior thereto shall thereupon be canceled.

ARTICLE III

EFFECTIVE TIME

Section 3.01. The Merger shall become effective immediately following and contingent upon the occurrence of the Closing (as defined in Article I of the Parent Merger Agreement) at the date and time specified in the articles of combination to be filed with the OCC (the “Effective Time”); provided, however, that such filing shall not occur and the Merger shall not be effective until all of the following events have taken place: (a) CB shall have been merged with and into FDEF; (b) the sole shareholders of First Federal and Commercial Bank shall have adopted this Agreement; (c) the Merger shall have been approved by all regulatory authorities, including the OCC; and (d) all applicable regulatory waiting periods shall have expired.

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ARTICLE IV

CHARTER AND BYLAWS
OF SURVIVING INSTITUTION

Section 4.01.  The charter and bylaws of First Federal as in effect at the Effective Time shall be the charter and bylaws of the Surviving Institution at and after the Effective Time.

ARTICLE V

EXECUTIVE OFFICERS OF SURVIVING INSTITUTION

Section 5.01.  The executive officers of First Federal immediately before the Effective Time shall serve in the same capacities as executive officers of the Surviving Institution at and after the Effective Time.

ARTICLE V

DIRECTORS OF RESULTING INSTITUTION

6.01  At and after the Effective Time and until changed in accordance with law, the number of directors of the Resulting Institution shall be ten. The directors of First Federal immediately prior to the Effective Time shall be the directors of the Resulting Institution at and after the Effective Time, until changed in accordance with law, whose names, terms and residence addresses are as follows:

  
DirectorTerm to ExpireResidence Address
John L. Bookmyer2017
Stephen L. Boomer2017
Douglas A. Burgei2017
Donald P. Hileman2017
Jean A. Hubbard2017
Barbara A. Mitzel2017
Charles D. Niehaus2017
Thomas A. Reineke2017
William J. Small2017
Samuel S. Strausbaugh2017

ARTICLE VII

EFFECTS OF MERGER

Section 7.01.  At the Effective Time, Commercial Bank shall merge with and into First Federal, with First Federal as the Surviving Institution. The business of the Surviving Institution shall be that of a federal savings bank, as provided for in its charter. All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of First Federal and Commercial Bank shall be automatically transferred to and vested in the Surviving Institution by virtue of the Merger without any deed or other document of transfer.

Section 7.02.  The Surviving Institution, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the assets, rights, privileges, powers, properties, franchises and interests, including, without limitation, appointments, powers, designations, nominations and all other rights, interests and powers as agent or fiduciary, in the same manner and to the same extent as such rights, interests and powers were held or enjoyed by First Federal and Commercial Bank, respectively.

Section 7.03.  The Surviving Institution shall be responsible for all of the liabilities, restrictions and duties of every kind and description of both First Federal and Commercial Bank, immediately prior to the Merger, including, without limitation, liabilities for all savings accounts, deposits, debts, obligations and contracts of First Federal and Commercial Bank, respectively, matured or unmatured, whether accrued, absolute, contingent and otherwise and whether or not reflected or reserved against on balance sheets, books

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of accounts or records of either First Federal or Commercial Bank. Deposit accounts shall be deemed issued in the name of the Surviving Institution in accordance with applicable regulations. All rights of creditors and other obligees and all liens on property of either First Federal or Commercial Bank shall be preserved, shall be assumed by the Surviving Institution and shall not be released or impaired.

ARTICLE VIII

OFFICES OF SURVIVING INSTITUTION

Section 8.01.  After the Effective Time, the locations of the offices of the Resulting Institution shall be as set forth on Annex A to this Agreement.

ARTICLE IX

OTHER TERMS

Section 9.01.  All terms used in this Agreement shall, unless defined herein, have the meanings set forth in the Merger Agreement.

Section 9.02.  Subject to applicable law, at any time prior to the consummation of the Merger, this Agreement may be amended by an instrument in writing signed on behalf of each of the parties hereto.

Section 9.03. This Agreement shall terminate and become null and void, and the transactions contemplated herein shall thereupon be abandoned, upon any occurrence of a termination of the Merger Agreement pursuant to Article VIII thereof.

Section 9.04.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of such counterparts shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written.

ATTEST:First Federal Bank of the Midwest
By: 

By:

  /s/ Gary M. Small

Name:     Donald P. HilemanName:  Gary M. Small
Title:      President and Chief Executive Officer
  
ATTEST:The Commercial Savings Bank

By:

Name:      Robert E. Beach
Title:      President and Chief Executive Officer

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ANNEX A

Home Office:

LocationAddressCityState
Main Office601 Clinton St.DefianceOhio

Other Offices:

LocationAddressCityState
Operations Center25600 Elliott Rd.DefianceOhio
Mobile Banking1011 W. Beecher St.AdrianMichigan
Bryan Main204 E. High St.BryanOhio
Wauseon211 S. Fulton St.BryanOhio
Napoleon Main625 Scott St.NapoleonOhio
Montpelier1050 E. Main St.MontpelierOhio
Napoleon North1800 Scott. St.NapoleonOhio
Defiance North1177 N. Clinton St.DefianceOhio
Paulding905 N. Williams St.PauldingOhio
Hicksville201 E. High St.HicksvilleOhio
Findlay North3900 N. Main St.FindlayOhio
Fostoria1694 N. Countyline St.FostoriaOhio
Bowling Green1226W. Wooster St.Bowling GreenOhio
Maumee417 W. Dussel Dr.MaumeeOhio
Findlay Downtown301 S. Main St.FindlayOhio
Ottawa405 E. Main St.OttawaOhio
McComb124 E. Main St.McCombOhio
Findlay East7591 Patriot Dr.FindlayOhio
Delphos230 E. Second St.DelphosOhio
Elida105 S. Greenlawn Ave.ElidaOhio
Lima Allentown2600 Allentown Rd.LimaOhio
Genoa22020 W. State Rt. 51GenoaOhio
Oregon3426 Navarre Ave.OregonOhio
Perrysburg1077 Louisiana Ave.PerrysburgOhio
Lima Shawnee2565 Shawnee Rd.LimaOhio
Fort Wayne1595 W. Dupont Rd.Fort WayneIndiana
Glandorf135 S. Main St.GlandorfOhio
Adrian North (300 N. Main)300 N. Main St.AdrianMichigan
Adrian West (1701 W. Maumee)1701 W. Maumee St.AdrianMichigan
Morenci211 W. Main St.MorenciMichigan
Hudson539 S. Meridian Hwy.HudsonMichigan
Tecumseh West1449 W. Chicago Blvd.TecumsehMichigan
Bowling Green North1200 N. Main St.Bowling GreenOhio
Fort Wayne Illinois Rd9909 Illinois Rd.Fort WayneIndiana
Hilliard4501 Cemetery Rd.ColumbusOhio
Toledo West Central2920 W. Central Ave.ToledoOhio
Upper Sandusky118 S. Sandusky Ave.Upper SanduskyOhio
Carey128 S. Vance St.CareyOhio
Harpster17480 Cherokee St.HarpsterOhio
Arlington112 E. Liberty St.ArlingtonOhio
Findlay1660 Tiffin Ave.FindlayOhio
Marion — Barks195 Barks Rd. WestMarionOhio
Marion — Jamesway279 JameswayMarionOhio
Columbus Loan Production965 High St.WorthingtonOhio

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EXHIBIT B

VOTING AGREEMENT

THIS VOTING AGREEMENT (this “Agreement”) is entered into as of August 23, 2016, by and among First Defiance Financial Corp., a savings and loan holding company incorporated under Ohio law (“First Defiance”), and each of the undersigned shareholders (collectively, the “Shareholders”) of Commercial Bancshares, Inc., a financial holding company incorporated under Ohio law (“Commercial Bancshares”).

WHEREAS, the Shareholders collectively own, either solely or jointly, 205,160.59789 shares of common stock, no par value, of Commercial Bancshares (such common shares, together with all shares of Commercial Bancshares which may hereafter be acquired by the Shareholders prior[Signature Page to the termination of this Agreement, shall be referred to herein as the “Shares”);

WHEREAS, First Defiance and Commercial Bancshares propose to enter into an Agreement and Plan of Merger dated as of the date hereof (the “Merger Agreement”), which provides, among other things, that Commercial Bancshares will merge with and into First Defiance pursuant to the Merger (this and other capitalized terms used and not defined herein shall have the meanings given to such terms in the Merger Agreement); and]

WHEREAS, First Defiance and Commercial Bancshares have made it a condition to their entering into the Merger Agreement that the Shareholders agree to vote the Shares in favor of the adoption of the Merger Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereby agree as follows:

ARTICLE 1
Voting of Shares

1.1Voting Agreement.  The Shareholders, individually and not jointly, hereby agree that, during the time this Agreement is in effect, at any meeting of the shareholders of Commercial Bancshares, however called, and in any action by consent of the shareholders of Commercial Bancshares, they will be present (in person or by proxy) at such meeting so that all of their Shares will be counted for the purpose of determining the presence of a quorum and will vote their Shares (except Shares held in a fiduciary capacity): (i) in favor of the adoption of the Merger Agreement (as amended from time to time) and (ii) against any proposal for any recapitalization, merger, sale of assets or other business combination between Commercial Bancshares or any of its Subsidiaries and any person or entity other than First Defiance or any of its Subsidiaries, or any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Commercial Bancshares under the Merger Agreement or that would result in any of the conditions to the obligations of Commercial Bancshares under the Merger Agreement not being fulfilled. The parties hereto acknowledge and agree that nothing contained herein is intended to restrict any Shareholder from voting or otherwise acting in the Shareholder’s capacity as a director of Commercial Bancshares with respect to any matter.

ARTICLE 2
Representations and Warranties

Each of the Shareholders, individually and not jointly, hereby represents and warrants to First Defiance as follows:

2.1Authority Relative to this Agreement.  He or she has all necessary power and authority or capacity, as the case may be, to execute and deliver this Agreement, to perform his, or her obligations hereunder and to consummate the transaction contemplated by the Merger Agreement. This Agreement has been duly and validly executed and delivered by the Shareholder and constitutes a legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms.

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2.2No Conflict.

(a) The execution and delivery of this Agreement by the Shareholder does not, and the performance of this Agreement by him or her will not (i) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to him or her or by which the Shares are bound, or (ii) result in any breach of or constitute a default (or event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the Shares held by him or her pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which he or she is a party or by which he or she or any Shares of him or her are bound, except, in the case of clauses (i) and (ii), for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or delay the performance by such Shareholder of his, her or its obligations under this Agreement.

(b) The execution and delivery of this Agreement by him or her does not, and the performance of this Agreement by him or her will not, require any consent, approval, authorization or permit of, or filing with or notification to, any federal, state, local or foreign regulatory body.

2.3Title to the Shares.  Each of the Shareholders is the owner of the number and class of Shares specified onAnnex I hereto, free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on voting rights, charges and other encumbrances of any nature whatsoever except as otherwise specified onAnnex I. No Shareholder has appointed or granted any proxy, which appointment or grant is still effective, with respect to the Shares. Each Shareholder has sole voting power with respect to his or her Shares, except as otherwise specified on Annex I.

ARTICLE 3
Additional Covenants

3.1Transfer of the Shares.  Each of the Shareholders hereby covenants and agrees that, during the term of this Agreement, the Shareholder will not, without the prior written consent of First Defiance, sell, pledge, transfer, or otherwise voluntarily dispose of any of the Shares that are owned by the Shareholder (except Shares held in a fiduciary capacity) or take any other voluntary action which would have the effect of removing the Shareholder’s power to vote his, her or its Shares or which would otherwise be inconsistent with this Agreement.

ARTICLE 4
Miscellaneous

4.1Termination.  This Agreement will terminate on the earlier to occur of (i) the date of consummation of the Merger and (ii) the date of termination of the Merger Agreement for any reason whatsoever.

4.2Specific Performance.  The Shareholders agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that First Defiance shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity.

4.3Entire Agreement.  This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings with respect to the subject matter hereof.

4.4Amendment.  This Agreement may not be amended except by an instrument in writing signed by all the parties hereto.

4.5Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

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4.6Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio.

4.7Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.

4.8Assignment.  This Agreement shall not be assigned by operation of law or otherwise.

4.9Parties in Interest.  This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

4.10Transfers, Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

4.11Spousal Consent.  If any Shareholder who is a natural person is married on the date of this Agreement, such Shareholder shall request the Shareholder’s spouse to execute and deliver to Commercial Bancshares a consent of spouse in the form ofAnnex II hereto (“Consent of Spouse”), within 5 days of the date of this Agreement. Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Shareholder’s shares of capital stock that do not otherwise exist by operation of law or the agreement of the parties.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on the day first written above.

SHAREHOLDERSFIRST DEFIANCE FINANCIAL CORP.

Robert E. Beach

By:


Donald P. Hileman, President & CEO


Daniel E. Berg

John W. Bremyer

Lynn R. Child

Mark E. Dillon

Deborah J. Grafmiller

Kurt D. Kimmel

Stanley K. Kinnett

Lee M. Sisler

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ANNEX I

ShareholderAddressE-MailNumber of Shares
Robert E. Beach57,236.68372
Daniel E. Berg16,026.10950
Dr. John Bremyer30,857.01320
Lynn R. Child9,543.86357
Mark E. Dillon44,138.82270
Deborah J. Grafmiller9,693.55880
Kurt D. Kimmel8,135.88800
Stanley K. Kinnett13,272.45180
Lee M. Sisler16,256.20660

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ANNEX II

CONSENT OF SPOUSE

I,     , spouse of     , acknowledge that I have read the Voting Agreement, dated as of August 23, 2016, to which this Consent is attached asAnnex II (the “Agreement”), and that I know the contents of the Agreement. I am aware that the Agreement contains provisions regarding the voting and transfer of shares of capital stock of Commercial Bancshares, Inc. which my spouse may own, including any interest I might have therein.

I hereby agree that my interest, if any, in any shares of capital stock of Commercial Bancshares, Inc. subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in such shares of capital stock of Commercial Bancshares, Inc. shall be similarly bound by the Agreement.

I am aware that the legal, financial and related matters contained in the Agreement are complex and that I am free to seek independent professional guidance or counsel with respect to this Consent. I have either sought such guidance of counsel or determined after reviewing the Agreement carefully that I will waive such right.

Dated:  


Signature

 


Print Name

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AMENDMENT TO
AGREEMENT AND PLAN OF MERGER

THIS AMENDMENT (this “Amendment”) to the Agreement and Plan of Merger, dated as of August 23, 2016 (the “Merger Agreement”), by and betweenFIRST DEFIANCE FINANCIAL CORP., an Ohio corporation (“First Defiance”), andCOMMERCIAL BANCSHARES, INC., an Ohio corporation (“Commercial Bancshares”), is made and entered into by First Defiance and Commercial Bancshares to be effective as of October 31, 2016. Capitalized terms used, but not defined, in this Amendment which are defined in the Merger Agreement will have the meanings given to them in the Merger Agreement.

RECITALS

A.Section 9.2 of the Merger Agreement provides that the Merger Agreement may be amended by an instrument in writing signed on behalf of the parties in interest at the time of the amendment.

B.Commercial Bancshares and First Defiance, as parties in interest to the Merger Agreement, desire to amend the Merger Agreement on and subject to the terms and conditions set forth below.

STATEMENT OF AMENDMENT

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, First Defiance and Commercial Bancshares agree as follows:

1.Amendment. Section 2.1 of the Merger Agreement is hereby amended and restated in its entirety by substituting the following in its place:

First Defiance to Make Shares and Cash Available. At or prior to the Effective Time, First Defiance will deposit, or will cause to be deposited, with a bank, trust company or its transfer agent, Broadridge Corporate Issuer Solutions, Inc., as designated by First Defiance (the “Exchange Agent”), for the benefit of the holders of Old Certificates, for exchange in accordance with this Article II, a sufficient amount of cash to be paid in exchange for Commercial Bancshares Shares that are to receive the Cash Consideration, and a sufficient number of First Defiance Shares to be exchanged for the Commercial Bancshares Shares that are to receive the Stock Consideration (such cash and New Certificates, together with any dividends or disbursements, the “Exchange Fund”). The Exchange Fund will be held for the benefit of the holders of Commercial Bancshares Shares by the Exchange Agent until distributed to the holders of Old Certificates pursuant to this Agreement.

2.Continuing Effect of Merger Agreement. Except as expressly amended hereby, all of the provisions of the Merger Agreement are ratified and confirmed and remain in full force and effect.

3.One Agreement; References. The Merger Agreement, as amended by this Amendment, will be construed as one agreement. All references to the Merger Agreement will be deemed to be references to the Merger Agreement as amended by this Amendment.

4.Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

5.Entire Agreement. This Amendment sets forth the entire agreement of the parties with respect to the subject matter of this Amendment and supersedes all previous understandings, written or oral, in respect of this Amendment.

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IN WITNESS WHEREOF, this Amendment has been executed on behalf of First Defiance and Commercial Bancshares to be effective as of the date set forth in the first paragraph above.

FIRST DEFIANCE FINANCIAL CORP.COMMERCIAL BANCSHARES, INC.
By: /s/Donald P. Hileman
By:/s/ Robert E. Beach
Name: Donald P. Hileman
Title: President and Chief Executive Officer		Name: Robert E. Beach
Title: President and Chief Executive Officer

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ANNEX B

[GRAPHIC MISSING]

LOGO

August 23, 2016September 7, 2019

The Board of Directors
Commercial Bancshares, Inc.
118 South Sandusky Avenue
Upper Sandusky,

First Defiance Financial Corp.

601 Clinton Street

Defiance, OH 4335143512

Members of the Board:

You have requested the opinion of Keefe, Bruyette & Woods, Inc. (“KBW” or “we”) as investment bankers as to the fairness, from a financial point of view, to the common shareholders of Commercial Bancshares, Inc.First Defiance Financial Corp. (“Commercial”First Defiance”) of the Merger ConsiderationExchange Ratio (as defined below) to be received by such shareholders in the proposed merger (the “Merger”) of CommercialUnited Community Financial Corp. (“United Community”) with and into First Defiance, Financial Corp. (“First Defiance”), pursuant to the Agreement and Plan of Merger (the “Agreement”) to be entered into by and between CommercialFirst Defiance and First Defiance.United Community. Pursuant to the Agreement and subject to the terms, conditions and limitations set forth therein, at the Effective Time (as defined in the Agreement), by virtue of the Merger and without any action on the part of First Defiance, CommercialUnited Community, or the holder thereof,holders of any shares of the common stock, no par value per share, of United Community (“United Community Common Stock”), each share of common stock, without par value, of Commercial (“Commercial Common Stock”) issued and outstanding immediately prior to the Effective Time (except for shares of Commercial Common Stock owned by Commercial as treasury stock or otherwise owned by Commercial or First Defiance (in each case other than the Exception Shares (as defined in the Agreement)) and Dissenting Shares (as defined in the Agreement)) will be converted into the right to receive, at the election of the holder thereof (subject to proration and reallocation as set forth in the Agreement, as to which we express no opinion), either: (i) $51.00 in cash (the “Cash Consideration”) or (ii) 1.1808 shares of common stock, par value $0.01 per share, of First Defiance (“First Defiance Common Stock” and, such number of shares of First Defiance Common Stock issuable for one share of Commercial Common Stock, the “Stock Consideration”); provided that the Agreement provides that, in the aggregate, 80% of the total number of shares of CommercialUnited Community Common Stock issued and outstanding immediately prior to the Effective Time will be converted into the right to receive 0.3715 of a share of common stock, $0.01 par value per share, of First Defiance (“First Defiance Common Stock”); provided that each share of United Community Common Stock Considerationheld in United Community’s treasury and remainingeach share of United Community Common Stock owned directly or indirectly by First Defiance (other than shares held in a fiduciary capacity or in connection with debts previously contracted) will be canceled and no shares of CommercialFirst Defiance Common Stock or other consideration will be converted into the Cash Consideration.issued or paid in exchange therefor. The Cash Consideration and theratio of 0.3715 of a share of First Defiance Common Stock Consideration, taken together, arefor one share of United Community Common Stock is referred to herein as the “Merger Consideration.“Exchange Ratio.” The terms and conditions of the Merger are more fully set forth in the Agreement.

The Agreement further provides that, immediately following the Merger (oror at such later time as First Defiance and United Community may be determined by First Defiance) and as more fully set forth in a separate agreement and plan of merger, The Commercialmutually agree, Home Savings Bank, a wholly-owned subsidiary of Commercial (“Commercial Bank”),United Community, will merge with and into First Federal Bank of the Midwest, a wholly-owned subsidiary of First Defiance, (“First Federal Bank”), with First Federal Bank as the surviving entitypursuant to a separate agreement and plan of merger (such transaction, the “Bank Merger”).

KBW has acted as financial advisor to CommercialFirst Defiance and not as an advisor to or agent of any other person. As part of our investment banking business, we are continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, we have experience in, and knowledge of, the valuation of banking enterprises. InFurther to certain existing sales and trading relationships of certain KBW broker-dealer affiliates with United Community, and otherwise in the ordinary course of theirKBW and its affiliates’ broker-dealer businesses, KBW and its affiliates may from time to time purchase securities from, and sell securities to, Commercial and First Defiance and United Community. In addition, as a market makersmaker in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of CommercialFirst Defiance or First DefianceUnited Community for its and their own respective accounts and for the accounts of its and their respective customers and clients. KBW employees may also from time to time maintain individual positions in Commercial Common Stock and First Defiance Common Stock. As CommercialFirst Defiance has previously been informed by KBW, such positions currently include an individual position in shares of First



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TABLE OF CONTENTS

The Board of Directors — Commercial Bancshares, Inc.
August 23, 2016
Page 2 of 5

Defiance Common Stock held by a senior member of the KBW advisory team providing services to CommercialFirst Defiance in connection with the proposed Merger. We have acted exclusively for the board of directors of CommercialFirst Defiance (the “Board”) in rendering this opinion and will receive a fee from CommercialFirst Defiance for our services.

The Board of Directors—First Defiance Financial Corp.

September 7, 2019

Page 2 of 5

A portion of our fee is payable upon the rendering of this opinion, and a significant portion is contingent upon the successful completion of the Merger. In addition, CommercialFirst Defiance has agreed to indemnify us for certain liabilities arising out of our engagement.

Other than in connection with thisthe present engagement, in the past two years KBW has not provided investment banking and financial advisory services to Commercial.First Defiance. In the past two years, KBW has not provided investment banking and financial advisory services to First Defiance.United Community. We may in the future provide investment banking and financial advisory services to CommercialFirst Defiance or First DefianceUnited Community and receive compensation for such services.

In connection with this opinion, we have reviewed, analyzed and relied upon material bearing upon the financial and operating condition of CommercialFirst Defiance and First DefianceUnited Community and bearing upon the Merger, including among other things, the following: (i) a draft of the Agreement dated August 22, 2016September 7, 2019 (the most recent draft made available to us); (ii) the audited financial statements and the Annual Reports on Form10-K for the three fiscal years ended December 31, 20152018 of Commercial;First Defiance; (iii) the unaudited quarterly financial statements and the Quarterly Reports on Form10-Q for the fiscal quarters ended March 31, 20162019 and June 30, 20162019 of Commercial;First Defiance; (iv) the audited financial statements and the Annual Reports on Form10-K for the three fiscal years ended December 31, 20152018 of First Defiance;United Community; (v) the unaudited quarterly financial statements and the Quarterly Reports on Form10-Q for the fiscal quarters ended March 31, 20162019 and June 30, 20162019 of First Defiance:United Community; (vi) certain regulatory filings of Commercial, Commercial Bank, First Defiance and First Federal Bank,United Community and their respective subsidiaries, including (as applicable) the semi-annual reports on Form FR Y-9SP and quarterly reports on Form FR Y-9CFRY-9C and quarterly call reports required to be filed with respect to each semi-annual period and quarter (as the case may be) during the three year period ended December 31, 2015, to2018 and the quarterquarters ended March 31, 20162019 and to the semi-annual period and quarter ended June 30, 2016;2019; (vii) certain other interim reports and other communications of CommercialFirst Defiance and First DefianceUnited Community to their respective shareholders; and (viii) other financial information concerning the respective businesses and operations of Commercial and First Defiance that wasand United Community furnished to us by CommercialFirst Defiance and First DefianceUnited Community or which we were otherwise directed to use for purposes of our analyses.analysis. Our consideration of financial information and other factors that we deemed appropriate under the circumstances or relevant to our analyses included, among others, the following: (i) the historical and current financial position and results of operations of CommercialFirst Defiance and First Defiance;United Community; (ii) the assets and liabilities of CommercialFirst Defiance and First Defiance;United Community; (iii) the nature and terms of certain other merger transactions and business combinations in the banking industry; (iv) a comparison of certain financial and stock market information for Commercialof First Defiance and First DefianceUnited Community with similar information for certain other companies, the securities of which are publicly traded; (v) financial and operating forecasts and projectionspublicly available consensus “street estimates” of Commercial that were prepared by, andUnited Community, as well as assumed United Community long-term growth rates provided to us andby United Community management, all of which information was discussed with us by Commercialsuch management and that were used and relied upon by us based on such discussions, at the direction of suchFirst Defiance management and with the consent of the Board; (vi) publicly available consensus “street estimates” of First Defiance, for 2016 and 2017, as well as assumed long-term First Defiance long-term growth rates provided to us by First Defiance management, all of which information was discussed with us by such management and used and relied upon by us based on such discussions, at the direction of Commercialsuch management and with the consent of the Board; and (vii) estimates regarding certain pro forma financial effects of the Merger on First Defiance (including without limitation the cost savings and related expenses expected to result or be derived from the Merger) that were prepared by andFirst Defiance management, provided to and discussed with us by thesuch management, of First Defiance, and used and relied upon by us based on such discussions, at the direction of Commercialsuch management and with the consent of the Board. We have also performed such other studies and analyses as we considered appropriate and have taken into account our assessment of general economic, market and financial conditions and our experience in



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TABLE OF CONTENTS

The Board of Directors — Commercial Bancshares, Inc.
August 23, 2016
Page 3 of 5

other transactions, as well as our experience in securities valuation and knowledge of the banking industry generally. We have also participated in discussions

Keefe, Bruyette & Woods, A Stifel Company

The Board of Directors—First Defiance Financial Corp.

September 7, 2019

Page 3 of 5

that were held withby the respective managements of CommercialFirst Defiance and First DefianceUnited Community regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as we have deemed relevant to our inquiry. In addition, we have considered the results of the efforts undertaken by or on behalf of Commercial, with our assistance, to solicit indications of interest from third parties regarding a potential transaction with Commercial.

In conducting our review and arriving at our opinion, we have relied upon and assumed the accuracy and completeness of all of the financial and other information that was provided to us or that was publicly available and we have not independently verified the accuracy or completeness of any such information or assumed any responsibility or liability for such verification, accuracy or completeness. We have relied, with the consent of First Defiance, upon the management of CommercialUnited Community as to the reasonableness and achievability of the financialpublicly available consensus “street estimates” of United Community and operating forecasts and projections of Commercialthe assumed United Community long-term growth rates referred to above (and the assumptions and bases therefor) that were prepared by, and provided to us and discussed with us by, such management, and we have assumed that all such forecasts and projections wereinformation has been reasonably prepared on bases reflectingand represents, or in the case of the United Community “street estimates” referred to above that such estimates are consistent with, the best currently available estimates and judgments of such management and that the forecasts, projections and estimates reflected in such forecasts and projectionsinformation will be realized in the amounts and in the time periods currently estimated by such management.estimated. We have further relied withupon the consentmanagement of Commercial, upon First Defiance management as to the reasonableness and achievability of the publicly available consensus “street estimates” of First Defiance, (and the assumed First Defiance long-term growth rates, provided to us by such management) referred to above, as well asand the estimates regarding certain pro forma financial effects of the Merger on First Defiance (and the assumptions and bases therefor, including,(including, without limitation, the cost savings and related expenses expected to result or be derived from the Merger), all as referred to above, and the assumptions and bases for all such information, and we have assumed, at the direction of First Defiance, that all suchof the foregoing information washas been reasonably prepared on bases reflecting,and represents, or in the case of the First Defiancepublicly available consensus “street estimates” referred to above that such estimates wereare consistent with, the best currently available estimates and judgments of First Defiance management and that the forecasts, projections and estimates reflected in such information will be realized in the amounts and in the time periods currently estimated.

It is understood that the portion of the foregoing financial information of CommercialFirst Defiance and First DefianceUnited Community that was provided to us was not prepared with the expectation of public disclosure and that all of the foregoing financial information, including the publicly available consensus “street estimates” of First Defiance and United Community referred to above, that we were directed to use, is based on numerous variables and assumptions that are inherently uncertain including,(including, without limitation, factors related to general economic and competitive conditionsconditions) and, that, accordingly, actual results could vary significantly from those set forth in all of such information. We have assumed, based on discussions with the respective managements of CommercialFirst Defiance and First DefianceUnited Community and with the consent of the Board, that all such information provides a reasonable basis upon which we couldcan form our opinion, and we express no view as to any such information or the assumptions or bases therefor. We have relied on all such information without independent verification or analysis and do not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

We also have assumed that there werehave been no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either CommercialFirst Defiance or First DefianceUnited Community since the date of the last financial statements of each such entity that were made available to us.us and that we were directed to use. We are not experts in the independent verification of the adequacy of allowances for loan and lease losses and we have assumed, without independent verification and with your consent, that the aggregate allowances for loan and lease losses for Commercialeach of First Defiance and First DefianceUnited Community are adequate to cover such losses. In rendering our opinion, we have not made or obtained any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of CommercialFirst Defiance or First Defiance,United Community, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor have we examined any individual loan or

Keefe, Bruyette & Woods, A Stifel Company

The Board of Directors—First Defiance Financial Corp.

September 7, 2019

Page 4 of 5

credit files, nor did we evaluate



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The Board of Directors — Commercial Bancshares, Inc.
August 23, 2016
Page 4 of 5

the solvency, financial capability or fair value of CommercialFirst Defiance or First DefianceUnited Community under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, we assume no responsibility or liability for their accuracy.

We have assumed, in all respects material to our analyses, the following: (i) that the Merger and any related transactions (including the Bank Merger) will be completed substantially in accordance with the terms set forth in the Agreement (the final terms of which we have assumed will not differ in any respect material to our analyses from the draft version reviewed by us and referred to above) with no adjustments to the Merger Consideration;Exchange Ratio and with no other consideration or payments in respect of the United Community Common Stock; (ii) that the representations and warranties of each party in the Agreement and in all related documents and instruments referred to in the Agreement are true and correct; (iii) that each party to the Agreement and allor any of the related documents will perform all of the covenants and agreements required to be performed by such party under such documents; (iv) that there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the Merger or any related transaction and that all conditions to the completion of the Merger and any related transaction will be satisfied without any waivers or modifications to the Agreement or any of the related documents; and (v) that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the Merger and any related transaction,transactions, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of Commercial, First Defiance, United Community or the pro forma entity or the contemplated benefits of the Merger, including without limitation the cost savings and related expenses expected to result or be derived from the Merger. We have assumed that the Merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. We have further been advised by representatives of CommercialFirst Defiance that CommercialFirst Defiance has relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Commercial, First Defiance, United Community, the Merger and any related transaction (including the Bank Merger), and the Agreement. KBW has not provided advice with respect to any such matters.

This opinion addresses only the fairness, from a financial point of view, as of the date hereof, to the holders of Commercial Common Stock of the Merger Consideration to be received by such holdersExchange Ratio in the Merger.Merger to First Defiance. We express no view or opinion as to any other terms or aspects of the Merger or any term or aspect of any related transaction (including the Bank Merger), including without limitation, the form or structure of the Merger (including the form of Merger Consideration or the allocation thereof between cash and stock) or any such related transaction, any consequences of the Merger or any related transaction to Commercial,First Defiance, its shareholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, retention, consulting, voting, support, cooperation, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger, any such related transaction, or otherwise. Our opinion is necessarily based upon conditions as they exist and can be evaluated on the date hereof and the information made available to us through the date hereof. It is understood that subsequent developments may affect the conclusion reached in this opinion and that KBW does not have an obligation to update, revise or reaffirm this opinion. Our opinion does not address, and we express no view or opinion with respect to, (i) the underlying business decision of CommercialFirst Defiance to engage in the Merger or enter into the Agreement, (ii) the relative merits of the Merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by CommercialFirst Defiance or the Board, (iii) any business, operational or other plans with respect to United Community or the pro forma entity that may be currently contemplated by First Defiance or the Board or

Keefe, Bruyette & Woods, A Stifel Company

The Board of Directors—First Defiance Financial Corp.

September 7, 2019

Page 5 of 5

that may be implemented by First Defiance or the Board subsequent to the closing of the Merger, (iv) the fairness of the amount or nature of any compensation to any of Commercial’sFirst Defiance’s officers, directors or employees, or any class of such persons, relative to theany compensation to the holders of CommercialFirst Defiance Common Stock (iv)or relative to the Exchange Ratio, (v) the effect of the Merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Commercial (other than the holders of Commercial Common



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The Board of Directors — Commercial Bancshares, Inc.
August 23, 2016
Page 5 of 5

Stock solely with respect to the Merger Consideration, as described herein and not relative to the consideration to be received by holders of any other class of securities) or holders of any class of securities of First Defiance, United Community or any other party to any transaction contemplated by the Agreement, (v) whether First Defiance has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate amount of the Cash Consideration to the holders of Commercial Common Stock at the closing of the Merger, (vi) the election by holders of Commercial Common Stock to receive the Cash Consideration or the Stock Consideration, or any combination thereof, or the actual allocation between the Cash Consideration and the Stock Consideration among such holders (including, without limitation, any reallocation thereof as a result of proration pursuant to the Agreement), or the relative fairness of the Stock Consideration and the Cash Consideration, (vii) the actual value of First Defiance Common Stock to be issued in connection with the Merger, (viii)(vii) the prices, trading range or volume at which CommercialFirst Defiance Common Stock or First DefianceUnited Community Common Stock will trade following the public announcement of the Merger or the prices, trading range or volume at which First Defiance Common Stock will trade following the consummation of the Merger, (ix)(viii) any advice or opinions provided by any other advisor to any of the parties to the Merger or any other transaction contemplated by the Agreement, or (x)(ix) any legal, regulatory, accounting, tax or similar matters relating to Commercial, First Defiance, United Community, any of their respective shareholders, or relating to or arising out of or as a consequence of the Merger or any other related transaction, (including the Bank Merger), including whether or not the Merger wouldwill qualify as atax-free reorganization for United States federal income tax purposes.

This opinion is for the information of, and is directed to, the Board (in its capacity as such) in connection with its consideration of the financial terms of the Merger. This opinion does not constitute a recommendation to the Board as to how it should vote on the Merger or to any holder of CommercialFirst Defiance Common Stock or any shareholder of any other entity as to how to vote in connection with the Merger or any other matter, (including, with respect to holders of Commercial Common Stock, what election any such shareholder should make with respect to the Cash Consideration, the Stock Consideration or any combination thereof), nor does it constitute a recommendation regardingas to whether or not any such shareholder should enter into a voting, shareholders’, affiliates’ or affiliates’other agreement with respect to the Merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.

This opinion has been reviewed and approved by our Fairness Opinion Committee in conformity with our policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Merger Consideration to be received by the holders of Commercial Common StockExchange Ratio in the Merger is fair, from a financial point of view, to such holders.First Defiance.

Very truly yours,

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ANNEX C

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September 8, 2019

Board of Directors

United Community Financial Corp.

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TABLE OF CONTENTSFederal St.

ANNEX CP.O. Box 1111

Dissenters’ Rights Under Section 1701.85

Youngstown, OH 44503

Ladies and Gentlemen:

United Community Financial Corp. (“United Community”) and First Defiance Financial Corp. (“First Defiance”) are proposing to enter into an Agreement and Plan of Merger (the “Agreement”) pursuant to which United Community will, subject to the terms and conditions set forth in the Agreement, merge with and into First Defiance with First Defiance being the surviving corporation (the “Merger”). Pursuant to the terms and conditions of the Ohio Revised Code

Section 1701.85. Dissenting shareholder’s demandAgreement, at the Effective Time, each share of United Community common stock, no par value (“United Community Common Stock”), issued and outstanding immediately prior to the Effective Time, except for fair cashcertain shares of United Community Common Stock as specified in the Agreement, shall be converted into the right to receive 0.3715 shares (the “Exchange Ratio”) of First Defiance common stock, par value $0.01 per share (“First Defiance Common Stock”). Capitalized terms used herein without definition shall have the meanings assigned to them in the Agreement. The terms and conditions of the Merger are more fully set forth in the Agreement. You have requested our opinion as to the fairness, from a financial point of view, of the Exchange Ratio to the holders of United Community Common Stock.

Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”, “we” or “our”), as part of its investment banking business, is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. In connection with this opinion, we have reviewed and considered, among other things: (i) an execution copy of the merger agreement, distributed on September 7, 2019; (ii) certain publicly available financial statements and other historical financial information of United Community and its banking subsidiary that we deemed relevant; (iii) certain publicly available financial statements and other historical financial information of First Defiance that we deemed relevant; (iv) publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community; (v) publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of First Defiance; (vi) the pro forma financial impact of the Merger on First Defiance based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Defiance and

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confirmed by the senior management of United Community; (vii) the relative contribution of assets, liabilities, equity and earnings of the United Community and First Defiance to the combined entity; (viii) the publicly reported historical price and trading activity for United Community Common Stock and First Defiance Common Stock, including a comparison of certain stock market information for United Community Common Stock and First Defiance Common Stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded; (ix) a comparison of certain financial information for United Community and First Defiance with similar financial institutions for which information is publicly available; (x) governance terms of certain recent merger of equals transactions in the bank and thrift industry (on a nationwide basis), to the extent publicly available; (xi) the current market environment generally and the banking environment in particular; and (xii) such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant. We also discussed with certain members of the senior management of United Community and its representatives the business, financial condition, results of operations and prospects of United Community and held similar discussions with certain members of the senior management of First Defiance and its representatives regarding the business, financial condition, results of operations and prospects of First Defiance.

In performing our review, we have relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by us from public sources, that was provided to us by United Community or First Defiance or their respective representatives, or that was otherwise reviewed by us, and we have assumed such accuracy and completeness for purposes of rendering this opinion without any independent verification or investigation. We have relied on the assurances of the respective managements of United Community and First Defiance that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. We have not been asked to and have not undertaken an independent verification of any of such information and we do not assume any responsibility or liability for the accuracy or completeness thereof. We did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of United Community or First Defiance or any of their respective subsidiaries, nor have we been furnished with any such evaluations or appraisals. We render no opinion or evaluation on the collectability of any assets or the future performance of any loans of United Community or First Defiance or any of their respective subsidiaries. We did not make an independent evaluation of the adequacy of the allowance for loan losses of United Community, First Defiance, or any of their respective subsidiaries, or of the combined entity after the Merger, and we have not reviewed any individual credit files relating to United Community or First Defiance or any of their respective subsidiaries. We have assumed, with your consent, that the respective allowances for loan losses for United Community, First Defiance and their respective subsidiaries are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as confirmed by the senior management of United Community. In addition, Sandler O’Neill used publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending December 31, 2019 and December 31, 2020, as confirmed by the senior management of First Defiance, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years ending December 31, 2021 through December 31, 2023, as

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confirmed by the senior management of First Defiance. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Defiance and confirmed by the senior management of United Community. With respect to the foregoing information, the respective senior managements of United Community and First Defiance confirmed to us that such information reflected (or, in the case of the publicly available analyst estimates referred to above, were consistent with) the best currently available estimates and judgments of those respective managements as to the future financial performance of United Community and First Defiance, respectively, and the other matters covered thereby, and we assumed that the future financial performance reflected in such information would be achieved. We express no opinion as to such information, or the assumptions on which such information is based. We have also assumed that there has been no material change in the respective assets, financial condition, results of operations, business or prospects of United Community, First Defiance or any of their respective subsidiaries since the date of the most recent financial statements made available to us. We have assumed in all respects material to our analyses that United Community and First Defiance will remain as going concerns for all periods relevant to our analyses.

We have also assumed, with your consent, that (i) each of the parties to the Agreement will comply in all material respects with all material terms and conditions of the Agreement and all related agreements, that all of the representations and warranties contained in such agreements are true and correct in all material respects, that each of the parties to such agreements will perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements are not and will not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on United Community, First Defiance, the Merger or any related transactions, and (iii) the Merger and any related transactions will be consummated in accordance with the terms of the Agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with your consent, we have relied upon the advice that United Community has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Merger and the other transactions contemplated by the Agreement. We express no opinion as to any such matters.

Our opinion is necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof could materially affect this opinion. We have not undertaken to update, revise, reaffirm or withdraw this opinion or otherwise comment upon events occurring after the date hereof. We express no opinion as to the trading value of shares.United Community Common Stock or First Defiance Common Stock at any time or what the value of First Defiance Common Stock will be once it is actually received by the holders of United Community Common Stock.

(A) (1) AWe have acted as United Community’s financial advisor in connection with the Merger and will receive a fee for our services, which fee is contingent upon closing of the Merger. We will also receive a fee for rendering this opinion, which opinion fee will be credited in full towards the advisory fee which will become payable to Sandler O’Neill on the day of closing of the Merger. United Community has also agreed to indemnify us against certain claims and liabilities arising out of our engagement and to reimburse us for certain of ourout-of-pocket expenses incurred in connection with our engagement. In the two years preceding the date hereof we have not provided any other investment banking services to United Community, nor has Sandler O’Neill provided any

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investment banking services to First Defiance in the two years preceding the date hereof. In the ordinary course of our business as a broker-dealer, we may purchase securities from and sell securities to United Community, First Defiance and their respective affiliates. We may also actively trade the equity and debt securities of United Community, First Defiance and their respective affiliates for our own account and for the accounts of our customers.

Our opinion is directed to the Board of Directors of United Community in connection with its consideration of the Agreement and the Merger and does not constitute a recommendation to any shareholder of United Community as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the Agreement and the Merger. Our opinion is directed only to the fairness, from a domesticfinancial point of view, of the Exchange Ratio to the holders of United Community Common Stock and does not address the underlying business decision of United Community to engage in the Merger, the form or structure of the Merger or any other transactions contemplated in the Agreement, the relative merits of the Merger as compared to any other alternative transactions or business strategies that might exist for United Community or the effect of any other transaction in which United Community might engage. We also do not express any opinion as to the fairness of the amount or nature of the compensation to be received in the Merger by any officer, director or employee of United Community, or any class of such persons, if any, relative to the compensation to be received in the Merger by any other shareholder. This opinion has been approved by Sandler O’Neill’s fairness opinion committee. This opinion may not be reproduced without Sandler O’Neill’s prior written consent;provided, however, Sandler O’Neill will provide its consent for this opinion to be included in any regulatory filings (including the proxy statement to be sent to shareholders of United Community) to be completed in connection with the Merger.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair to holders of United Community Common Stock from a financial point of view.

Very truly yours,

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ANNEX D

ARTICLES OF INCORPORATION

OF

FIRST DEFIANCE FINANCIAL CORP.

[●]

ARTICLE I

Name

The name of the corporation is entitled to relief as a dissenting shareholder in respectFirst Defiance Financial Corp.[●] (herein the “Corporation”).

ARTICLE II

Principal Office

The principal office of the proposals describedCorporation in sections 1701.74, 1701.76,Ohio is located at 601 Clinton Street, Defiance, Ohio 43512.

ARTICLE III

Purpose

The purpose for which the Corporation is formed is tobecome a savings and 1701.84loan holding company and toengage in any lawful act or activity for which corporations may be formed under Chapter 1701 of the Revised Code of Ohio.

ARTICLE IV

Number of Directors

The number of directors constituting the initial Board of Directors of the Corporation is seven. Thereafter, theThe number of members of the Board of Directors may be increased or decreased by resolution of the Board of Directors, provided that the number of directors shall be within the range specified in Article XI hereof.

ARTICLE V

Capital Stock

The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is5580,000,000 shares, of which5075,000,000 shares are to be shares of common stock, $0.01 par value per share, and of which 5,000,000 are to be shares of serial preferred stock,$.$0.01 par value per share. The shares may be issued by the Corporation from time to time as approved by the Board of Directors of the Corporation without the approval of the stockholders except as otherwise provided in these Articles of Incorporation or the rules of a national securities exchange, if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares may be paid in whole or in part, in real property, in tangible or,

intangible personal property, in labor or services actually performed for the Corporation or in its formation, or as otherwise permitted by Ohio law. In the absence of actual fraud in the transaction, the judgment of the Board of Directors or the stockholders as the case may be as to the value of such consideration shall be conclusive. Upon payment of such consideration such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.

A description of the different classes and series (if any) of the Corporation’s capital stock, and a statement of the relative rights, preferences and limitations of the shares of each class and series (if any) of capital stock, are as follows:

A.Common Stock. Except as provided in these Articles of Incorporation, the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. Holders of shares of common stock shall not be permitted to cumulate votes in the election of directors or for any other purpose.

Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when and as declared by the Board of Directors of the Corporation.

In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock in complianceany such event, the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distributions of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, including the payment of all fees, taxes and other expenses incidental thereto, to receive the remaining assets of the Corporation available for distribution, in cash or in kind.

Each share of common stock shall have the same relative rights, preferences and limitations as, and shall be identical in all respects with, all the other shares of common stock of the Corporation.

B.Serial Preferred Stock. Except as provided in these Articles of Incorporation, the Board of Directors of the Corporation is authorized, by resolution or resolutions from time to time adopted, to further amend these Articles to provide for the specific terms of serial preferred stock to be issued in series and to fix and state the rights, preferences, limitations and relative, participating, optional or other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereof. The terms of shares of different series shall be identical except as to the following rights and preferences, as to which there may be variations between different series:

1. the distinctive serial designation and the number of shares constituting such series;

2. the voting rights, full, conditional or limited, of shares of such series;

3. the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends;

4. whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed;

5. the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

6. whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds;

7. whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rates or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;

8. the price or other consideration for which the shares of such series shall be issued;

9. restrictions, if any, on the issuance of shares of the same series or any other class or series; and

10. any other designations, preferences, limitations or rights that are now or hereafter permitted by the laws of the State of Ohio and are not inconsistent with the provisions of this section.Paragraph B.

(2) IfEach share of each series of serial preferred stock shall have the proposalsame relative rights, preferences and limitations as, and shall be identical in all respects with, all the other shares of capital stock of the Corporation of the same series.

C.Express Terms of Fixed Rate Cumulative Perpetual Preferred Stock, Series A

Part 1.Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A” (the “Designated Preferred Stock”). The authorized number of shares of Designated Preferred Stock shall be 37,000.

Part 2.Standard Provisions. The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions had been set forth in full herein.

Part. 3.Definitions. The following terms are used in this Part C (including the Standard Provisions in Annex A hereto) as defined below:

(a) “Common Stock” means the common stock, par value $.01 per share, of the Corporation.

(b) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

(c) “Junior Stock” means the Common Stock, and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

(d) “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

(e) “Minimum Amount” means $9,250,000.

(f) “Parity Stock” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to

Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively ornon-cumulatively).

(g) “Signing Date” means December 5, 2008.

Part. 4.Certain Voting Matters. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.

ARTICLE VI

Incorporation

The name and mailing address of the sole incorporator is as follows:

Name

Address

First Federal Savings and Loan

601 Clinton Street

Defiance, Ohio 43512

ARTICLE VII

Indemnification

The Corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, including actions by or in the right of the Corporation, by reason of the fact that such person is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, member, manager, or agent of another corporation, a limited liability company, or a partnership, joint venture, trust, or other enterprise, against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding to the full extent permissible under Ohio law.

ARTICLE VIII

Preemptive Rights

No stockholder of the Corporation shall have, as a matter of right, the preemptive right to purchase or subscribe for shares of any class, now or hereafter authorized, or to purchase or subscribe for securities or other obligations convertible into or exchangeable for such shares or which by warrants or otherwise entitle the holders thereof to subscribe for or purchase any such shares.

ARTICLE IX

Repurchase of Shares

The Corporation may from time to time, pursuant to authorization by the Board of Directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of any class of capital stock, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the Board of Directors shall determine.

ARTICLE X

Shareholder Meetings; Director Nominations

A. Notwithstanding any other provision of these Articles or the Code of Regulations of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting by signed written consent by all stockholders entitled to vote.

B. Special meetings of stockholders of the Corporation for any purpose or purposes may be called at any time by (i) the chairman of the board, the president, or, in the case of the president’s absence, death or disability, a vice-president authorized to exercise the authority of the president, (ii) the Board of Directors by action at a meeting or a majority of the Board of Directors acting without a meeting, and (iii) the holders of 50% or more of all the shares outstanding and entitled to vote at the meeting.

C. Meetings of stockholders may be held within or without the State of Ohio, as the Code of Regulations may provide.

D. In addition to any provision in the Code of Regulations of the Corporation, nominations for the election of directors and proposals for any new business to be taken up at any annual or special meeting of stockholders may be made by the Board of Directors of the Corporation or by any stockholder of the Corporation entitled to vote generally in the election of directors. In order for a stockholder of the corporation to make any such nominations and/or proposals, he or she shall give notice thereof in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation; provided, however, that with respect to the first scheduled annual meeting of stockholders of the Corporation, notice by the stockholder must be so delivered or received no later than the close of business on the tenth day following the day on which notice of the date of the scheduled annual meeting was mailed, provided further that the notice by the stockholder must be delivered or received no later than the close of business on the fifth day preceding the date of the meeting.

E. Each such notice given by a stockholder with respect to nominations for the election of directors shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by the Corporation.

F. Each such notice given by a stockholder to the Secretary with respect to business proposals to bring before a meeting shall set forth in writing as to each matter: (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Articles of Incorporation or Code of Regulations to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Article X.

G. The Chairman of the annual or special meeting of stockholders may, if the facts warrant, determine and declare to such meeting that a nomination or proposal was not made in accordance with the foregoing procedure, and, if he should so determine, he shall so declare to the meeting and the defective nomination or proposal shall be disregarded and laid over for action at the next succeeding adjourned, special or annual meeting of the stockholders taking place thirty days or more thereafter. This provision shall not require the holding of any adjourned or special meeting of stockholders for the purpose of considering such defective nomination or proposal.

ARTICLE XI

Board of Directors

The number of directors of the Corporation shall be such number, not less than five nor more than 15 (exclusive of directors, if any, to be elected by holders of preferred stock of the Corporation, voting separately as a class), as shall be provided from time to time pursuant to these Articles, provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors from time to time unless at leasttwo-thirds of the directors then in office shall concur in said action. Vacancies in the Board of Directors of the Corporation and newly created directorships shall be filled by a vote oftwo-thirds of the directors then in office, whether or not a quorum, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which the director has been chosen expires and when the director’s successor is elected and qualified. Directors shall not be required to own any shares of the Corporation’s common stock and need not be residents of any particular state, country or other jurisdiction.

The Board of Directors of the Corporation shall be divided into two classes if the Board of Directors consists of six, seven or eight members, or into three classes if the Board of Directors consists of nine or more members. Such classes shall consist of no fewer than three members each.

In the event the Board of Directors consists of nine or more members, the Board of Directors of the Corporation shall be divided into three classes, which shall be designated Class I, Class II and Class III. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. Such classes shall be as nearly equal in number as the then total number of directors constituting the entire Board of Directors shall permit, with the terms of office of all members of one class expiring each year. Should the number of directors not be equally divisible by three, the excess director or directors shall be assigned to Classes II or III as follows: (i) if there shall be an excess of one directorship over a number equally divisible by three, such extra directorship shall be classified in Class III; and (ii) if there be an excess of two directorships over a number equally divisible by three, one shall be classified in Class II and the other in Class III.

In the event the Board of Directors consists of six, seven, or eight members, the Board of Directors of the Corporation shall be divided into two classes of directors, consisting of not less than three directors each, which shall be designated Class I and Class II. The members of each class shall be elected for a term of two years and until their successors are elected and qualified. Such classes shall be as nearly equal in number as the then total number of directors constituting the entire Board of Directors shall permit, with the terms of office of all members of one class expiring each year. Should the number of directors not be equally divisible by three, the excess director or directors shall be assigned to Classes I or II as follows: (i) if there shall be an excess of one directorship over a number equally divisible by three, such extra directorship shall be classified in Class II; and (ii) if there be an excess of two directorships over a number equally divisible by three, one shall be classified in Class I and the other in Class II.

At the first annual meeting of stockholders, directors of Class I shall be elected to hold office for a term expiring at the second or third succeeding annual meeting thereafter depending on whether there are two or three classes, as described in this Article XI. At the second annual meeting of stockholders, directors of Class II shall be elected to hold office for a term expiring at the second or third succeeding annual meeting thereafter, depending on whether there are two or three classes, as described in this Article XI. In the event the Board of Directors consists of nine or more members, at the third annual meeting of stockholders the directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting thereafter. Thereafter, at each succeeding annual meeting, directors of each class shall be elected for two or three year terms depending on whether there are two or three classes, as described in this Article XI. Notwithstanding the foregoing, any director whose term shall expire at any annual meeting shall continue to serve until such time as his successor shall have been duly elected and shall have qualified unless his position on the Board of Directors shall have been abolished by action taken to reduce the size of the Board of Directors prior to said meeting.

Should the number of directors of the Corporation be reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified above. The Board of Directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Should the number of directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified above.

ARTICLE XII

Removal of Directors

Any director (including persons elected by directors to fill vacancies in the Board of Directors) may be removed from office without cause by an affirmative vote of not less than 75% of the total votes eligible to be cast by stockholders at a duly constituted meeting of stockholders called expressly for such purpose and may be removed from office with cause by an affirmative vote of not less than a majority of the total votes eligible to be cast by stockholders. Cause for removal shall exist only if the director whose removal is proposed has been either declared incompetent by an order of a court, convicted of a felony or of an offense punishable by imprisonment for a term of more than one year by a court of competent jurisdiction, or deemed liable by a court of competent jurisdiction for gross negligence or misconduct in the performance of such director’s duties to the Corporation.

In the case of a removal of a director by the stockholders, a new director may be elected at the same meeting of stockholders to hold office for the remainder of the term of the removed director. Failure by the stockholders to fill the unexpired term of a removed director at such meeting of stockholders shall be deemed to create a vacancy in the Board of Directors, which shall be filled by the Board of Directors as provided in Article XI.

ARTICLE XIII

Duties of Directors; Limitation of Liability

A director shall perform his duties as a director, including his duties as a member of any committee of the directors upon which he may serve, in good faith, in a manner he reasonably believes to be in or not opposed to the best interests of the Corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In performing his duties, a director is entitled to rely on, among other things, information, opinions, reports, or statements, including financial statements and other financial data, that are prepared or presented by one or more directors, offices, or employees of the Corporation, counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person’s professional or expert competence, or a committee of the directors upon which he does not serve.

A director of the Corporation shall not be personally liable for monetary damages for any action taken, or for any failure to take any action, as a director except to the extent that by law a director’s liability for monetary damages may not be limited.

ARTICLE XIV

Prohibition on Share Purchases

A.Five Year Prohibition. For a period of five years from the effective date of the completion of the reorganization of First Federal Savings and Loan, Defiance, Ohio, (“First Federal”), pursuant to which First

Federal shall become a subsidiary of the Corporation (“Reorganization”), no person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of the Corporation, unless such offer or acquisition shall have been approved in advance by atwo-thirds vote of the Corporation’s Board of Directors. In addition, for a period of five years from the completion of the Reorganization of First Federal, and notwithstanding any provision to the contrary in these Articles or the Code of Regulations of the Corporation, in the event that any person directly or indirectly acquires beneficial ownership of more than 10% of any class of equity security of the Corporation in violation of this Article XIV, the securities beneficially owned in excess of 10% shall not be counted as shares entitled to vote, shall not be voted by any person or counted as voting shares in connection with any matter submitted to the shareholders of the corporation involved, the dissenting shareholder shall befor a record holder of the shares of the corporation as to which the dissenting shareholder seeks relief as of the date fixed for the determination of shareholders entitled to notice of a meeting of the shareholders at which the proposal is to be submitted,vote, and such shares shall not have been voted in favorbe counted as outstanding for purposes of determining a quorum or the proposal.

(3) Not later than twenty days before the date of the meeting at which the proposal will beaffirmative vote necessary to approve any matter submitted to the shareholders for a vote.

B.Definitions. The term “person” means an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group acting in concert formed for the corporation may notifypurpose of acquiring, holding or disposing of securities of the corporation's shareholdersCorporation. The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise. The term “offer” includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for or request for invitation for tenders of, a security or interest in a security for value. The term “acting in concert” includes (1) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement and (2) a combination or pooling of voting or other interests in the Corporation’s outstanding shares for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. The term “beneficial ownership” shall have the meaning defined in Rule13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing these Articles.

C.Exclusion for Underwriters and Employee Benefit Plans. The restrictions contained in this Article XIV shall not apply to (1) any underwriter or member of an underwriting or selling group involving a public sale or resale of securities of the Corporation or a subsidiary thereof; provided, however, that reliefupon completion of the sale or resale of such securities, no such underwriter or member of such selling group is a beneficial owner of more than 10% of any class of equity security of the Corporation or (2) any employee benefit plans of the Corporation or a subsidiary thereof.

D.Determinations. A majority of the Corporation’s Board of Directors shall have the power to construe and apply the provisions of this Article XIV and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (a) the number of shares beneficially owned by any person; (b) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of beneficial ownership; (c) the application of any other definition or operative provision of this Article XIV to the given facts; or (d) any other matter relating to the applicability or effect of this Article XIV.Any constructions, applications or determinations made by the Corporation’s Board of Directors pursuant to this Article XIV in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its shareholders.

ARTICLE XV

Business Combinations

The shareholder vote required to approve a Business Combination (as hereinafter defined) shall be as set forth in this Article XV, in addition to any other requirements under applicable law.

A. (1) Except as otherwise expressly provided in this sectionArticle XV, the affirmative vote of the holders of (i) at least a majority of the outstanding shares entitled to vote thereon (and, if any class or series of shares is available. The noticeentitled

to vote thereon separately, the affirmative vote of the holders of at leasttwo-thirds of the outstanding shares of each such class or series) and (ii) a majority of the outstanding shares entitled to vote thereon not including shares deemed beneficially owned by a Related Person (as hereinafter defined) shall include or be accompanied by allrequired in order to authorize any of the following:

(a) A copyany merger, share exchange or consolidation of the Corporation with or into a Related Person;

(b) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage, or any other security device, of all or any Substantial Part (as hereinafter defined) of the assets of the Corporation (including, without limitation, any voting securities of a subsidiary) or of a subsidiary to a Related Person;

(c) any merger or consolidation of a Related Person with or into the Corporation or a subsidiary;

(d) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage, or any other capital device, of all or any Substantial Part of the assets of a Related Person to the Corporation or a subsidiary;

(e) the issuance of any securities of the Corporation or a subsidiary to a Related Person;

(f) the acquisition by the Corporation or a subsidiary of any securities of a Related Person;

(g) any reclassification of the common stock of the Corporation, or any recapitalization involving the common stock of the Corporation; and

(h) any agreement, contract or other arrangement providing for any of the transactions described in this Paragraph A.

(2) Such affirmative vote shall be required notwithstanding any other provision of these Articles, any provision of law, or any agreement with any national securities exchange or automated quotation system which might otherwise permit a lesser vote or no vote.

(3) The term “Business Combination” as used in this Article XV shall mean any transaction which is referred to in any one or more of Paragraphs (l)(a) through (1)(h) of this section;Article XV.

B. The provisions of Paragraph (A) of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by any other provisions of these Articles, any provisions of law or any agreement with any federal regulatory agency, national securities exchange or automated quotation system, if the Business Combination shall have been approved by at leasttwo-thirds of the Continuing Directors (as hereinafter defined); provided, however, that such approval shall be effective only if obtained at a meeting at which a Continuing Director Quorum (as hereinafter defined) is present.

C. For the purpose of this Article XV the following definitions apply:

(1) The term “Related Person” shall mean (a) any individual, corporation, partnership or other person or entity which together with its “affiliates” (as that term is defined in Rule12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934) “beneficially owns” (as that term is defined in Rule13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934) in the aggregate 10% or more of the outstanding shares of the common stock of the Corporation; and (b) A statementany “affiliate” (as that term is defined in Rule12b-2 under the Securities Exchange Act of 1934) of any such individual, corporation, partnership or other person or entity. Without limitation, any shares of the common stock of the Corporation which any Related Person has the right to acquire pursuant to any agreement, upon exercise of conversion rights, warrants or options or otherwise shall be deemed “beneficially owned” by such Related Person.

(2) The term “Substantial Part” shall mean more than 25 percent of the total assets of the Corporation, as of the end of its most recent fiscal year ending prior to the time the determination is made.

(3) The term “Continuing Director” shall mean any member of the Board of Directors of the Corporation who is unaffiliated with a Related Person and was a member of the Board of Directors prior to the time that the proposal can give riseRelated Person became a Related Person, and any successor of a Continuing Director who is recommended to succeed a Continuing Directors by a majority of Continuing Directors than on the Board of Directors.

(4) The term “Continuing Director Quorum” shall mean at leasttwo-thirds of the Continuing Directors capable of exercising the powers conferred on them.

D. In addition to Paragraphs (A) through (C) of this Article XV, the provisions of the Ohio General Corporation Law regarding (i) transactions with interested shareholders and (ii) proposed control share acquisitions, as in effect on the date hereof (Chapter 1704 and Section 1701.831 of the Revised Code of Ohio, respectively), shall apply to the Corporation.

ARTICLE XVI

Amendment of Code of Regulations

The Code of Regulation may be made, repealed, altered, amended or rescinded by the stockholders of the Corporation by the vote of the holders of not less than a majority of the voting power of the Corporation entitled to vote at a meeting of stockholders called for that purpose. In addition, the Code of Regulations may be repealed, altered, amended or rescinded by the affirmative vote of a majority of the authorized number of directors, subject to any exceptions provided in the Code of Regulations.

ARTICLE XVII

Amendment of Article of Incorporation

The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in these Articles in the manner now or hereafter prescribed by law, including upon the affirmative vote of at least a majority of the voting power of the Corporation, and all rights underconferred on stockholders herein are granted subject to this section ifreservation. Notwithstanding the proposalforegoing, the provisions of Articles IV, VII, X, XI, XII, XIII, XIV, XV, XVI and this Article XVII of these Articles may not be repealed, replaced, altered, amended or rescinded in any respect unless the same is approved by the requiredaffirmative vote of the shareholders;holders of not less than a majority of the voting power of the Corporation entitled to vote at a meeting of stockholders called for that purpose (provided that notice of such proposed adoption, repeal, replacement, alteration, amendment or rescission is included in the notice of such meeting).

ANNEX A

STANDARD PROVISIONS

Section 1.General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

Section 2.Standard Definitions. As used herein with respect to Designated Preferred Stock:

(a) “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

(b) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c) A statement“Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the shareholder will be eligible as a dissenting shareholder under this section only ifapproval of the shareholder deliversCorporation’s stockholders.

(d) “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

(e) “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the corporationDesignated Preferred Stock, of which these Standard Provisions form a written demand withpart, as it may be amended from time to time.

(f) “Charter” means the information providedCorporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

(g) “Dividend Period” has the meaning set forth in Section 3(a).

(h) “Dividend Record Date” has the meaning set forth in Section 3(a).

(i) “Liquidation Preference” has the meaning set forth in Section 4(a).

(j) “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

(k) “Preferred Director” has the meaning set forth in Section 7(b).

(l) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

(m) “Qualified Equity Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in division (A)(4)each case, qualify as and may be included in Tier 1 capital of this section before the vote on the proposal will be takenCorporation at the meetingtime of issuance under the applicable risk-based capital guidelines of the

Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).

(n) “Regulations” means the regulations of the shareholders andCorporation, as they may be amended from time to time.

(o) “Share Dilution Amount” has the shareholder does not votemeaning set forth in favorSection 3(b).

(p) “Standard Provisions” mean these Standard Provisions that form a part of the proposal.

(4) If the corporation delivers notice to its shareholders as provided in division (A)(3)Certificate of this section, a shareholder electing to be eligible as a dissenting shareholder under this section shall deliverDesignations relating to the corporation beforeDesignated Preferred Stock.

(q) “Successor Preferred Stock” has the vote on the proposal is taken a written demand for payment of the fair cash value of the sharesmeaning set forth in Section 5(a).

(r) “Voting Parity Stock” means, with regard to any matter as to which the shareholder seeks relief. The demand for paymentholders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3.Dividends.

(a)Rate. Holders of Designated Preferred Stock shall includebe entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the shareholder's address,Board of Directors or any duly authorized committee of the numberBoard of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and class of such shares, and(ii) the amount claimed byof accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the shareholder asOriginal Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the fair cash value offirst Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the shares.

(5) If the corporation does not notify the corporation's shareholders pursuantfirst such Dividend Payment Date to division (A)(3) of this section, not later than tenoccur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

Dividends that are payable on which the voteDesignated Preferred Stock in respect of any Dividend Period shall be computed on the proposal was taken atbasis of a360-day year consisting of twelve30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the meetingend of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a360-day year consisting of twelve30-day months, and actual days elapsed over a30-day month.

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the shareholders,Corporation on the dissenting shareholderapplicable record date, which shall deliverbe the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the corporation a written demand for paymentother provisions of the Certificate of Designations).

(b)Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the dissenting shareholder of the fair cash value of the shares as to which the dissenting shareholder seeks relief, which demand shall state the dissenting shareholder's address, the number and class of such shares, and the amount claimed by the dissenting shareholder as the fair cash value of the shares.

(6) If a signatory, designated and approved by the dissenting shareholder, executes the demand, then at any time after receiving the demand, the corporation may make a written request that the dissenting shareholder provide evidence of the signatory's authority. The shareholder shall provide the evidence within a reasonable time but not sooner than twenty days after the dissenting shareholder has received the corporation's written request for evidence.

(7) The dissenting shareholder entitled to relief under division (A)(3) of section 1701.84 of the Revised Codeimmediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a mergersum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to section 1701.80a publicly announced repurchase plan) and consistent with past practice,providedthat any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Revised Code andCorporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a dissenting shareholder entitled to relief under division (A)(5) of section 1701.84broker- dealer subsidiary of the Revised CodeCorporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the casenumber of a merger pursuant to section 1701.801 of the Revised Code shall be a record holder of thediluted shares of the corporation as to which the dissenting shareholder seeks relief as of the date on which the agreement of merger was adopted by the directors of that corporation. Within twenty days after the dissenting shareholder has been sent the notice providedoutstanding (determined in section 1701.80 or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the corporation a written demand for paymentaccordance with the same information as that provided for in division (A)(4) of this section.


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(8) In the case of a merger or consolidation, a demand served on the constituent corporation involved constitutes service on the surviving or the new entity, whether the demand is served before, on, or after the effective date of the merger or consolidation. In the case of a conversion, a demand served on the converting corporation constitutes service on the converted entity, whether the demand is served before, on, or after the effective date of the conversion.

(9) If the corporation sends to the dissenting shareholder, at the address specifiedgenerally accepted accounting principles in the dissenting shareholder's demand, a request for the certificates representing the sharesUnited States, and as to which the dissenting shareholder seeks relief, the dissenting shareholder, within fifteen daysmeasured from the date of the sending of such request, shall deliverCorporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the corporationOriginal Issue Date) resulting from the certificates requested so that the corporation may endorse on themgrant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

When dividends are not paid (or declared and a legend to the effect that demandsum sufficient for payment thereof set aside for the fair cash value of such shares has been made. The corporation promptly shall return the endorsed certificates to the dissenting shareholder. A dissenting shareholder's failure to deliver the certificates terminates the dissenting shareholder's rights as a dissenting shareholder, at the optionbenefit of the corporation, exercised by written notice sent to the dissenting shareholder within twenty days after the lapse of the fifteen-day period, unless a court for good cause shown otherwise directs. If shares represented by a certificate on which such a legend has been endorsed are transferred, each new certificate issued for them shall bear a similar legend, together with the name of the original dissenting holder of the shares. Upon receiving a demand for payment from a dissenting shareholder who is the record holder of uncertificated securities, the corporation shall make an appropriate notation of the demand for payment in its shareholder records. If uncertificated shares for which payment has been demanded are to be transferred, any new certificate issued for the shares shall bear the legend required for certificated securities as provided in this paragraph. A transferee of the shares so endorsed, or of uncertificated securities where such notation has been made, acquires only the rights in the corporation as the original dissenting holder of such shares had immediately after the service of a demand for payment of the fair cash value of the shares. A request under this paragraph by the corporation is not an admission by the corporation that the shareholder is entitled to relief under this section.

(B) Unless the corporation and the dissenting shareholder have come to an agreementholders thereof on the fair cash value per share of the shares as to which the dissenting shareholder seeks relief, the dissenting shareholder or the corporation, which in case of a merger or consolidation may be the surviving or new entity, orapplicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a conversion may be the converted entity,dividend payment date falling within three months after the service of the demand by the dissenting shareholder, may file a complaintDividend Period related to such Dividend Payment Date) in the court of common pleas of the county in which the principal office of the corporation that issued the shares is located or was located when the proposal was adopted by the shareholders of the corporation, or, if the proposal was not required to be submitted to the shareholders, was approved by the directors. Other dissenting shareholders, within that three-month period, may join as plaintiffs or may be joined as defendants in any such proceeding,full upon Designated Preferred Stock and any two or moreshares of Parity Stock, all dividends declared on Designated Preferred Stock and all such proceedings may be consolidated. The complaint shall contain a brief statement of the facts, including the voteParity Stock and the facts entitling the dissenting shareholder to the relief demanded. No answer to a complaint is required. Upon the filing of a complaint, the court,payable on motion of the petitioner, shall enter an order fixing a date for a hearing on the complaint and requiring that a copy of the complaint and a notice of the filing and of the date for hearing be given to the respondent or defendant in the manner in which summons is required to be served or substituted service is required to be made in other cases. On the day fixed for the hearing on the complaint or any adjournment of it, the court shall determine from the complaint and from evidence submitted by either party whether the dissenting shareholder is entitled to be paid the fair cash value of any shares and, if so, the number and class of such shares. If the court finds that the dissenting shareholder is so entitled, the court may appoint one or more persons as appraisers to receive evidence and to recommend a decision on the amount of the fair cash value. The appraisers have power and authority specified in the order of their appointment. The court thereupon shall make a finding as to the fair cash value of a share and shall render judgment against the corporation for the payment of it, with interest at a rate and from a date as the court considers equitable. The costs of the proceeding, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable. The proceeding is a special proceeding and final orders in it may be vacated, modified, or reversed on appeal pursuant to the Rules of Appellate Procedure and, to the extent not in conflict with those rules, Chapter 2505 of the Revised Code. If, during the pendency of any proceeding instituted under this section, a suit or proceeding is or has been instituted to enjoin or otherwise to prevent the carrying out of the action as to which the shareholder has dissented, the proceeding


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instituted under this section shall be stayed until the final determination of the other suit or proceeding. Unless any provision in division (D) of this section is applicable, the fair cash value of the shares that is agreed upon by the parties or fixed under this section shall be paid within thirty days after the date of final determination of such value under this division, the effective date of the amendment to the articles, or the consummation of the other action involved, whichever occurs last. Upon the occurrence of the last such event, payment shall be made immediately to a holder of uncertificated securities entitled to payment. In the case of holders of shares represented by certificates, payment shall be made only upon and simultaneously with the surrender to the corporation of the certificates representing the shares for which the payment is made.

(C) (1) If the proposal was required to be submitted to the shareholders of the corporation, fair cash value as to those shareholders shall be determined as of the day prior to the day on which the vote by the shareholders was taken and,Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a merger pursuantdividend payment date falling within the Dividend Period related to section 1701.80such Dividend Payment Date) shall be declaredpro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or 1701.801a duly authorized committee of the Revised Code, fair cash value asBoard of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to shareholderseach other. If the Board of Directors or a constituent subsidiary corporation shall be determined asduly authorized committee of the day before the adoptionBoard of the agreement of merger by the directors of the particular subsidiary corporation. The fair cash value of a share for the purposes of this section is the amount that a willing seller who is under no compulsionDirectors determines not to sell would be willing to accept and that a willing buyer who is under no compulsion to purchase would be willing to pay but in no event shall the fair cash value of a share exceed the amount specified in the demand of the particular shareholder. In computing fair cash value, both of the following shall be excluded:

(a) Any appreciation or depreciation in market value resulting from the proposal submitted to the directors or to the shareholders;

(b) Any premium associated with control of the corporation, or any discount for lack of marketability or minority status.

(2) For the purposes of this section, the fair cash value of a share that was listed on a national securities exchange at any of the following times shall be the closing sale price on the national securities exchange as of the applicable date provided in division (C)(1) of this section:

(a) Immediately before the effective time of a merger or consolidation;

(b) Immediately before the filing of an amendment to the articles of incorporation as described in division (A) of section 1701.74 of the Revised Code;

(c) Immediately before the time of the vote described in division (A)(1)(b) of section 1701.76 of the Revised Code.

(D) (1) The right and obligation of a dissenting shareholder to receive fair cash value and to sell such shares as to which the dissenting shareholder seeks relief, and the right and obligation of the corporation to purchase such shares and to pay the fair cash value of them terminates if any of the following applies:

(a) The dissenting shareholder has not complied with this section, unless the corporation by its directors waives such failure;

(b) The corporation abandons the action involved or is finally enjoined or prevented from carrying it out, or the shareholders rescind their adoption of the action involved;

(c) The dissenting shareholder withdraws the dissenting shareholder's demand, with the consent of the corporation by its directors;

(d) The corporation and the dissenting shareholder have not come to an agreement as to the fair cash value per share, and neither the shareholder nor the corporation has filed or joined in a complaint under division (B) of this section within the period provided in that division.

(2) For purposes of division (D)(1) of this section, if the merger, consolidation, or conversion has become effective and the surviving, new, or converted entity is not a corporation, action required to be taken by the directors of the corporation shall be taken by the partners of a surviving, new, or converted partnership or the comparable representatives of any other surviving, new, or converted entity.

(E) From the time of the dissenting shareholder's giving of the demand until either the termination of the rights and obligations arising from it or the purchase of the shares by the corporation, all other rights accruing from such


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shares, including voting and dividend or distribution rights, are suspended. If during the suspension, any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

Section 4.Liquidation Rights.

(a)Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution is paid in money upon sharesto stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such classassets or proceeds is made to or set aside for the holders of Common Stock and any dividend,other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, or interest is paidpayment in money upon any securities issuedfull in extinguishment of or in substitution for such shares, an amount equal to the dividend,sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

(b)Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or interestproceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

(c)Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

(d)Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

Section 5.Redemption.

(a)Optional Redemption. Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

Notwithstanding the suspension, would have beenforegoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate

Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption;providedthat (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “Successor Preferred Stock”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

The redemption price for any shares of Designated Preferred Stock shall be payable uponon the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or securities,its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record as a credit upon the fair cash value of the shares. Ifredeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b)No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to receive fair cash value is terminated other than by the purchaserequire redemption or repurchase of theany shares by the corporation, all rights of the holderDesignated Preferred Stock.

(c)Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be restored and all distributions which, except for the suspension, would have been made shall be madegiven by first class mail, postage prepaid, addressed to the holderholders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d)Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time of termination.


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PART II

Item 20. Indemnificationoutstanding, the shares to be redeemed shall be selected eitherpro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e)Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the

Corporation, in trust for thepro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

(f)Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6.Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

Section 7.Voting Rights.

(a)General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b)Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned;provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

(c)Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66 2/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i)Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

(ii)Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or

(iii)Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;

provided,however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative ornon-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(d)Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

(e)Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Regulations, and

applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

Section 8.Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

Section 9.Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Regulations or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 10.No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 11.Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

Section 12.Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

ANNEX E

AMENDED AND RESTATEDCODE OF REGULATIONS

OF

FIRST DEFIANCE FINANCIAL CORP.

[●]

(as amended through[●], 20[●])

ARTICLE I

Principal Office

The principal office ofFirst Defiance Financial Corp.[●] (herein the “Corporation”) in Ohio is locatedisat 601 Clinton Street, Defiance, Ohio 43512. The Corporation may also have offices at such other places within or without the State of Ohio as the Board of Directors shall from time to time determine.

ARTICLE II

Stockholders

SECTION 1.Place of Meetings. All annual and special meetings of stockholders shall be held at such place within or without the State in which the principal executive office of the Corporation is located as the Board of Directors may determine and as designated in the notice of such meeting.

SECTION 2.Annual Meeting. A meeting of theshareholdersstockholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the Board of Directors may determine.

SECTION 3.Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called by thechairmanChairman of theboardBoard, the president or the Board of Directors in accordance with the Corporation’s Articles of Incorporation.

SECTION 4.Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the rules and procedures established by the Board of Directors. The Board of Directors shall designate, when present, either thechairmanChairman of theboardBoard or president to preside at such meetings.

SECTION 5.Notice of Meeting. Written notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than seven days nor more than sixty days before the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II, with postage thereon prepaid. If a stockholder is present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such stockholder shall be unnecessary. When any stockholders’ meeting, either annual or special, is adjourned, notice of adjournment need not be given if the time and place to which such meeting is adjourned are fixed and announced at such meeting.

Upon request in writing delivered either in person or by registered mail to the president or the secretary by any persons entitled to call a meeting of stockholders, the president or the secretary shall give written notice of the

meeting to be held on a date not less than seven nor more than sixty days following the provision of such notice. If such notice is not given within fifteen days after the delivery or mailing of such request, the persons calling the meeting may fix the time of the meeting and give notice thereof as provided in the preceding paragraph, or cause notice to be given by any designated representative.

SECTION 6.Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors shall fix in advance a date as the record date for any such determination of stockholders. Such date in any case shall not be a date earlier than the date on which the record date is fixed and shall not be more than sixty days and, in case of a meeting of stockholders, not less than twenty days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

SECTION 7.Voting Lists. The Corporation shall make available upon the request of any stockholder at any meeting of stockholders, a complete record of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders.

SECTION 8.Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding voting shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

SECTION 9.Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the Board of Directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. Every appointment of a proxy shall be revocable unless such appointment is coupled with an interest.

SECTION 10.Voting. Every stockholder entitled to vote shall be entitled to one vote for each share of stock held by him. Unless otherwise provided in the Articles of Incorporation, by applicable law, or by this Code of Regulations, a majority of those votes cast by stockholders at a lawful meeting shall be sufficient to pass on a transaction or matter.

SECTION 11.Voting of Shares in the Name of Two or More Persons. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the stockholders of the Corporation any one or more of such stockholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting and, an equal number of votes shall be cast for and against any proposal if a majority cannot agree.

SECTION 12.Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such

provision, and except to the extent inconsistent with applicable law, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian, conservator or a trustee in bankruptcy may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee, other than a trustee in bankruptcy, shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed.

A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred.

Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

SECTION 13.Inspectors of Election. In advance of any meeting of stockholders, the Board of Directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the Board of Directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, thechairmanChairman of theboardBoard or the president may, and on the request of not less than ten percent of the votes represented at the meeting shall, make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting or at the meeting by thechairmanChairman of theboardBoard or the president.

Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders.

ARTICLE III

Officers

SECTION 1.Positions. The officers of the Corporation shall be a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may also designate thechairmanChairman of theboardBoard as an officer. The president shall be the chief executive officer, unless the Board of Directors designates another person as the chief executive officer. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The Board of Directors may designate one or more vice presidents as executive vice president or senior vice president. The Board of Directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the Board of Directors may from time to time authorize or determine. In the absence of action by the Board of Directors, the officers shall have such powers and duties as generally pertain to their respective offices.

SECTION 2.Election and Term of Office. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the

shareholdersstockholders or at such other meeting of the Board of Directors as is determined by the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The Board of Directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law, but no such contract shall impair the right of the Board of Directors to remove any officer at any time in accordance with Section 3 of this Article III.

SECTION 3.Removal. Any officer may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed.

SECTION 4.Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

ARTICLE IV

Contracts, Loans, Checks and Deposits

SECTION 1.Contracts. To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation’s Articles of Incorporation or this Code of Regulations with respect to certificates for shares, the Board of Directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authorization may be general or confined to specific instances.

SECTION 2.Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.

SECTION 3.Checks, Drafts. Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by the Board of Directors.

SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the Board of Directors may select.

ARTICLE V

Certificates for Shares and Their Transfer

SECTION 1.Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by thechairmanChairman orvice chairmanVice Chairman of the Board of Directors or by the president or a vice president and by the secretary, an assistant secretary, the treasurer, or an assistant treasurer of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation itself of an employee of the Corporation. If any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

SECTION 2.Form of Share Certificates. All certificates representing shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to anyshareholderstockholder upon request and without charge within five days after receipt of written request therefor a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series.

Each certificate representing shares shall state upon the face thereof: that the Corporation is organized under the laws of the State of Ohio; the name of the person to whom issued; the number of shares represented by such certificate; the date of issue; the designation of the series or class, if any, which such certificate represents. Other matters in regard to the form of the certificates shall be determined by the Board of Directors.

SECTION 3.Payment of Shares. No certificate shall be issued for any shares until such share is fully paid.

SECTION 4.Form of Payment for Shares. The consideration for the issuance of shares shall be paid in accordance with the provisions of the Corporation’s Articles of Incorporation.

SECTION 5.Transfer of Shares. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.

SECTION 6.Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

SECTION 7.Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

SECTION 8.Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VI

Fiscal Year; Annual Audit

The fiscal year of the Corporation shall be determined by the Board of Directors. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the Board of Directors.

ARTICLE VII

Dividends

Subject to the provisions of the Articles of Incorporation and applicable law, the Board of Directors may, at any regular or special meeting, declare dividends on the Corporation’s outstanding capital stock. Dividends may be paid in cash, in property or in the Corporation’s own stock.

ARTICLE VIII

Corporate Seal

The corporate seal of the Corporation shall be in such form as the Board of Directors shall prescribe.

ARTICLE IX

Amendments

In accordance with the Corporation’s Articles of Incorporation, this Code of Regulations may be repealed, altered, amended or rescinded by the stockholders of the Corporation by vote of not less than a majority of the outstanding voting power of the Corporation entitled to vote at a meeting of the stockholders called for that purpose.In addition, this Code of Regulations may be repealed, altered, amended or rescinded by the affirmative vote of a majority of the authorized number of directors.

ARTICLE X

Board of Directors

SECTION 1.General Powers. The business and affairs of the Corporation shall be under the direction of its Board of Directors. The Board of Directors shall annually elect a Chairman of the Board from among its members.

SECTION 2.Number and Classification. The number of members of the Board of Directors (such number referred to herein as the“authorized number of directors”) may be increased or decreased by resolution of the Board ofDirectors within the range set forth in the Corporation’s Articles of Incorporation. The Board of Directors shall be divided into classes in accordance with the provisions of the Corporation’s Articles of Incorporation.

SECTION 3.Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Section immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.

SECTION 4.Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or the Chief Executive Officer, or byone-third of the directors. The persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by such persons.

Members of the Board of Directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person.

SECTION 5.Notice. Written notice of any special meeting shall be given to each director at least two days previous thereto if delivered personally or by email, or at least five days previous thereto if delivered by mail at the address of the director on the records of the Corporation. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed, or when sent if by email. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, unless, prior to or at the commencement of such meeting, such director objects to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 6.Quorum. A majority of the number of directors fixed by Section 2 of this Article X shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this Article X.

SECTION 7.Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater number is prescribed by this Code of Regulations, the Articles of Incorporation, or the laws of Ohio.

SECTION 8.Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

SECTION 9.Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the Chairman of the Board or the Chief Executive Officer. Unless otherwise specified therein such resignation shall take effect upon the acceptance thereof by the Chairman of the Board or the Chief Executive Officer.

SECTION 10.Vacancies. Vacancies occurring in the Board of Directors shall be filled in accordance with the provisions of the Corporation’s Articles of Incorporation. A director elected to fill a vacancy shall be elected to serve until the annual meeting of stockholders at which the term of the class to which the director has been chosen expires.

SECTION 11.Presumption of Assent. Unless Ohio law provides otherwise, a director of the Corporation who is present at a meeting of the Board of Directors at which action on any Corporation matter is taken shall be presumed to have assented to the action taken unless (i) he objects at the beginning of the meeting (or promptly upon his arrival) to holding the meeting or transacting business at the meeting; (ii) his dissent or abstention from the action taken is entered in the minutes of the meeting; or (iii) he delivers written notice of his dissent or abstention to thepresiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

SECTION 12.Compensation. The Board of Directors may, by resolution, from time to time establish the compensation to be paid to directors for their service as such. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the Board of Directors may determine.

ARTICLE XI

Committees of the Board of Directors

The Board of Directors may, by resolution passed by a majority of the authorized number of directors, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of

the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of not less than three directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

The Board of Directors shall have power, by the affirmative vote of a majority of the number of directors fixed by Article X, Section 2, at any time to change the members of, to fill vacancies in, and to discharge any committee of the Board. Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the Board, the Chairman of the Board, the Chief Executive Officer, the Chairman of such committee, or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the Board called for that purpose.

ARTICLE XII

Certain Governance Matters

SECTION 1.Interpretation.The provisions of this Article XII shall apply notwithstanding anything to the contrary set forth in this Code of Regulations. In the event of any inconsistency between any provision of this Article XII and any other provision of this Code of Regulations, such provision of this Article XII shall control.

SECTION 2.Office of the Bank. The main office of the Corporation’s subsidiary[●] Bank (formerly known as First Federal Bank of the Midwest; herein the“Bank”) will be located in Youngstown, Ohio.

SECTION 3.Officers of the Corporation.Notwithstanding any other provision of this Code of Regulations, the Board of Directors shall, subject to the next succeeding paragraph in this Section 3, elect the following individuals to the following officer positions for the periods of time set forth opposite their names, pursuant to Section 7.14(d)of the Agreement and Plan of Merger between the Corporation (formerly known as First Defiance Financial Corp.) and United CommunityFinancial Corp. (“United Community”), dated September 9, 2019 (the“Agreement”) (terms capitalized but not otherwise defined in this Code of Regulations shall have the meaning given to them in the Agreement):

Name

Position

Term

Donald Hileman

Executive Chairman of the Board of Directors

Beginning on a date during the period commencing January 1, 2021 and ending June 30, 2021, as determined by the Board of Directors, or any such earlier date as of which Donald Hileman ceases for any reason to serve as Chief Executive Officer (the“Succession Date”).

Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations.

Name

Position

Term

Donald Hileman

Chief Executive Officer

Beginning at the Effective Time.

Ending on the Succession Date.

Gary Small

Chief Executive Officer

Beginning on the Succession Date.

Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations.

Gary Small

President

Beginning at the Effective Time.

Continuing at and following the Succession Date and ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations.

The removal of any of these individuals from, or the failure to appoint orre-elect the individuals to, the positions listed above or set forth in any of their respective employment agreements with the Corporation, any modification to any of their respective duties, authority or reporting relationships and any amendment to or termination of any employment agreements entered into by the Corporation with the foregoing individuals shall require the affirmative vote ofthree-fourths of the authorized number of directors until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall not appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors.

SECTION 4.Officers of the Bank. The Corporation shall,subject to the next succeeding paragraph in this Section 4, cause the Bank to elect the following individuals to the following officer positions at the Bank for the periods of time set forth opposite their names, pursuant to Section 7.14(d)of the Agreement:

Name

Position

Term

Donald Hileman

Executive Chairman of the Board of Directors of the Bank

Beginning on the Succession Date.

Ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations and the organizational documents of the Bank.

Donald Hileman

Chief Executive Officer

Beginning at the Effective Time.

Ending on the Succession Date.

Gary Small

Chief Executive Officer

Beginning on the Succession Date.

Ending upon the date on which his successor shall have been duly

Name

Position

Term

elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations and the organizational documents of the Bank.

Gary Small

President

Beginning at the Effective Time.

Continuing at and following the Succession Date and ending upon the date on which his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations and the organizational documents of the Bank.

The Corporation shall cause the Bank not to remove any of these individuals from, or fail to appoint orre-elect the individuals to, the positions listed above or set forth in any of their respective employment agreements with the Bank, or modify any of their respective duties, authority or reporting relationships or amend or terminate any employment agreements entered into by the Bank with the foregoing individuals, in each case, without the affirmative vote ofthree-fourths of the authorized number of directors of the Corporation until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall cause the Bank not to appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

SECTION 5.Amendments to this Code of Regulations. Prior tothe second anniversary of the Succession Date, any repeal, alteration, amendment or rescindment of Article I or this Article XII of this Code of Regulations by the Board of Directors shall require (and any such repeal, alteration, amendment or rescindment may be proposed or recommended by the Board of Directors for adoption by the stockholders of the Corporation only by) the affirmative vote ofthree-fourths of the authorized number of directors. Prior to the second anniversary of the Succession Date, the Corporation may not exercise its authority, in its capacity as sole stockholder of the Bank, to (and the Corporation shall cause the Bank not to) modify, amend or repeal any of the provisions of the organizational documents of the Bank implementing the provisions of this Article XII, or implement or adopt any provisions of the organizational documents of the Bank inconsistent with the foregoing, in each case, without the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

SECTION 6.Board of Directors of the Corporation. In accordance with Section 7.14(c)of the Agreement, the following provisions shall govern directors to the exclusion of any provision in this Code of Regulations to the contrary. At the Effective Time, the Board of Directors of the Corporation, as the Surviving Entity, shall consist of thirteen directors who shall consist of: (i) Donald Hileman, John Bookmyer, and five other persons who served as directors of the Corporation or the Bank immediately prior to the Effective Time and are designated by the Corporation (each, a“Corporation-Related Director,” which term shall include any directors who are subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a Corporation-Related Director, as applicable, in accordance with this Article XII, Section 6); and (ii) Gary Small, Richard Schiraldi, and four other persons who served as directors of United Community or Home Savings Bank immediately prior to the Effective Time and are designated by United Community (each, a “United Community-

Related Director,” which term shall include any directors who are subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a United Community-Related Director in accordance with this Article XII, Section 6).

The directors shall be divided into three classes. Immediately following the Effective Time, the Class I directors shall consist of two Corporation-Related Directors and two United Community-Related Directors. The initial Class I directors shall hold office for an initial term expiring at the 2022 annual meeting of stockholders, and Class I directors shall thereafter be elected to three-year terms.Upon the expiration of their initial term,the initial Class I directors shall be nominated by the Board of Directors, provided that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2025 annual meeting of stockholders. If, prior to the second anniversary of the Succession Date, any of the initial Class I directors shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors with an individual selected by theUnited Community-RelatedDirectors (if such director was aUnited Community-Related Director) or the Corporation-Related Directors (if such director was a Corporation-Related Director) in good faith in a manner intended to preserve the principles of representation inthis Code of Regulations,provided that such individual is reasonably agreeable to the Governance and Nominating Committeein accordance with the good faith execution of its duties, which such individual, if appointed to the Board of Directors prior to the 2022 annual meeting of stockholders, will be nominated by the Board of Directors for reelection at such annual meetingfor an additional term to expire at the 2025 annual meeting of stockholders,provided again that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties.

Immediately following the Effective Time, the Class II directors shall consist of two Corporation-Related Directors and two United Community-Related Directors. The initial Class II directors shall hold office for an initial term expiring at the 2021 annual meeting of stockholders, and Class II directors shall thereafter be elected to three-year terms. Upon the expiration of their initial terms, the initial Class II directors shall be nominated by the Board of Directors, provided that such nominations are reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties, for an additional term to expire at the 2024 annual meeting of stockholders. If, prior to the second anniversary of the Succession Date, any of the initial Class II directors shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors with an individual selected by theUnited Community-RelatedDirectors (if such director was aUnited Community-Related Director) or the Corporation-Related Directors (if such director was a Corporation-Related Director) in good faith in a manner intended to preserve the principles of representation inthis Code of Regulations,provided that such individual is reasonably agreeable to the Governance and Nominating Committeein accordance with the good faith execution of its duties, which such individual, if appointed to the Board of Directors prior to the 2021 annual meeting of stockholders, will be nominated by the Board of Directors for reelection at such annual meetingfor an additional term to expire at the 2024 annual meeting of stockholders,provided again that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties.

Immediately following the Effective Time, the Class III directors shall consist of three Corporation-Related Directors and two United Community-Related Director. The initial Class III directors shall hold office for an initial term expiring at the 2020 annual meeting of stockholders, and Class III directors shall thereafter be elected to three-year terms.Upon the expiration of their initial term,the initial Class III directors shall be nominated by the Board of Directors, provided that such nomination is reasonably agreeable to the Governance and Nominating Committee inaccordance with the good faith execution of its duties, for an additional term to expire at the 2023 annual meeting of stockholders. If, prior to the second anniversary of the Succession Date, any of the initial Class III directors shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors with an individual selected by theUnited Community-RelatedDirectors (if such director was aUnited Community-Related Director) or the Corporation-

Related Directors (if such director was a Corporation-Related Director) in good faith in a manner intended to preserve the principles of representation inthis Code of Regulations,provided that such individual is reasonably agreeable to the Governance and Nominating Committeein accordance with the good faith execution of its duties, which such individual, if appointed to the Board of Directors prior to the 2020 annual meeting of stockholders, will be nominated by the Board of Directors for reelection at such annual meetingfor an additional term to expire at the 2023 annual meeting of stockholders,provided again that such nomination is reasonably agreeable to the Governance and Nominating Committee in accordance with the good faith execution of its duties.

In addition, John Bookmyer shall serve as Chairman of the Board of Directors for a term beginning at theEffective Time anduntilthe Succession Date and Richard Schiraldi shall serve as Vice Chairman of the Board of Directors for a term beginning at theEffective Time and continuing on and following the Succession Dateuntilthe date on which hissuccessor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations. The removal of any of these individuals from, or the failure to appoint orre-elect the individuals to, the positions listed in the foregoing sentence shall require the affirmative vote ofthree-fourths of the authorized number of directors until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall not appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors.

Notwithstanding anything to the contrary herein,prior to the second anniversary of the Succession Date, theCorporation may not increase or decrease the authorized number of directors or increase, decrease or change the classification of any class of directors, in each case, without the affirmative vote of three-fourths of the authorized number of directors.

SECTION 7.Board of Directors of the Bank. At the Effective Time, the Corporation shall cause the Board of Directors of the Bank, as the surviving bank, to consist of thirteen directors who shall consist of: (i) Donald Hileman, John Bookmyer, and five other persons who served as directors of the Corporation or the Bank immediately prior to the Effective Time (each, a“Corporation-Related Bank Director,” which term shall include any directors who were subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a Corporation-Related Bank Director in accordance with this Article XII, Section 7); and (ii) Gary Small, Richard Schiraldi, and four other persons who served as directors of United Community or Home Savings Bank immediately prior to the Effective Time (each, a “United Community-Related Bank Director,” which term shall include any directors who were subsequently appointed or nominated and elected to fill a vacancy created by the cessation of service of a United Community-Related Bank Director in accordance with this Article XII, Section 7). If, prior to the second anniversary of the Succession Date, any of the directors of the Bank shall for any reason cease to serve as a director or shall not stand for reelection as a director, the resultant vacancy shall be filled by the Board of Directors of the Bank with an individual selected by theUnited Community-Related BankDirectors (if such director was aUnited Community-Related Bank Director) or the Corporation-Related Bank Directors (if such director was a Corporation-Related Bank Director), in each case, in good faith in a manner intended to preserve the principles of representation inthis Code of Regulations. Prior to the second anniversary of the Succession Date,the Corporation shall cause the Board of Directors of the Bank not to (a) fail tore-elect any of the United Community-Related Bank Directors or Corporation-Related Bank Directors or (b) increase or decrease the number of directors of the Board of Directors of the Bank, in each case, without the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

In addition, the Corporation shall cause the Bank to appoint John Bookmyer as Chairman of the Board of Directors of the Bank for a term beginning at theEffective Time anduntilthe Succession Date and Richard Schiraldi as Vice Chairman of the Board of Directors of the Bank for a term beginning at theEffective Time and continuing on and following the Succession Dateuntilthe date on which his successor shall have been duly

elected and qualified or until his death or until he shall resign or shall have been removed in accordance with this Code of Regulations. The removalof any of these individuals from, or the failure to appoint orre-elect the individuals to, the positions listed in the foregoing sentence shall require the affirmative vote ofthree-fourths of the authorized number of directors of the Corporation until the second anniversary of the Succession Date. Until the second anniversary of the Succession Date, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth above (or any of such individuals’ successors selected and appointed pursuant to this subsection), the Corporation shall cause the Bank not to appoint any individual to serve in such capacity, except with the affirmative vote of three-fourths of the authorized number of directors of the Corporation.

SECTION 8.Committees of the Board of Directors of the Corporation. At the Effective Time, the Corporation shall have an Audit Committee, a Governance and Nominating Committee, a Compensation Committee, and a Risk Committee. The Chairman of each of the Audit Committee and the Risk Committee shall be a Corporation-Related Director. The Chairman of each of the Governance and Nominating Committee and the Compensation Committee shall be a United Community-Related Director.

PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20.

Indemnification of Directors and Officers

First Defiance Articles of Incorporation

Article VII of the First Defiance articles of incorporation of First Defiance provide that any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, including actions by or in the right of First Defiance, by reason of the fact that such person is or was First Defiance’s director, officer, employee, or agent, or is or was serving at First Defiance’s request as a director, trustee, officer, employee, member, manager, or agent of another corporation, a limited liability company, or a partnership, joint venture, trust, or other enterprise, will be indemnified by First Defiance against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit, or proceeding to the full extent permissible under Ohio law.

Article XIII of the First Defiance articles of incorporation of First Defiance limits the monetary liability of First Defiance directors with regardsregard to their duties as directors. Under Article XIII, First Defiance directors must perform their duties as directors, including duties as a member of any committee of the directors upon which they serve, in good faith, in a manner he reasonably believesbelieved to be in or not opposed to the best interests of First Defiance, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In performing these duties, a director may rely on, among other things, information, opinions, reports, or statements, including financial statements and other financial data, that are prepared or presented by one or more directors, officers, or employees of First Defiance, counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person’s professional or expert competence, or a committee of the directors upon which hethe director does not serve. With regardsregard to such duties, Article XIII provides that a director of First Defiance will not be personally liable for monetary damages for any action taken, or for any failure to take any action as a director except to the extent that by law a director’s liability for monetary damages may not be limited.

Ohio General Corporation Law

The OGCL provides broad authority for an Ohio corporation to indemnify its current or former directors, officers, employees or agents. Section 1701.13(E) of the Ohio Revised Code more specifically provides:

(1)    A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, member, manager, or agent of another corporation, domestic or foreign, nonprofit or for profit, a limited liability company, or a partnership, joint venture, trust, or other enterprise, against expenses, including attorney’s fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful.

(2)    A corporation may indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director,

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trustee, officer, employee, member, manager, or agent of another corporation, domestic or foreign, nonprofit or for profit, a limited liability company, or a partnership, joint venture, trust, or other

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enterprise, against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any of the following:

(a)    Any claim, issue, or matter as to which such person is adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless, and only to the extent that, the court of common pleas or the court in which such action or suit was brought determines, upon application, that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper;

(b)    Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code.

(3)    To the extent that a director, trustee, officer, employee, member, manager, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in division (E)(1) or (2) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the action, suit, or proceeding.

(4)    Any indemnification under division (E)(1) or (2) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, trustee, officer, employee, member, manager, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in division (E)(1) or (2) of this section. Such determination shall be made as follows:

(a)    By a majority vote of a quorum consisting of directors of the indemnifying corporation who were not and are not parties to or threatened with the action, suit, or proceeding referred to in division (E)(1) or (2) of this section;

(b)    If the quorum described in division (E)(4)(a) of this section is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the corporation or any person to be indemnified within the past five years;

(c)    By the shareholders;

(d)    By the court of common pleas or the court in which the action, suit, or proceeding referred to in division (E)(1) or (2) of this section was brought.

Any determination made by the disinterested directors under division (E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this section shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the corporation under division (E)(2) of this section, and, within ten days after receipt of such notification, such person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination.

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(5)    (a) Unless at the time of a director’s act or omission that is the subject of an action, suit, or proceeding referred to in division (E)(1) or (2) of this section, the articles or the regulations of a corporation state, by specific reference to this division, that the provisions of this division do not apply to the corporation and unless the only liability asserted against a director in an action, suit, or proceeding referred to in division (E)(1) or (2) of this section is pursuant to section 1701.95 of the Revised Code, expenses, including attorney’s fees, incurred by a director in defending the action, suit, or proceeding shall be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director in which he agrees to do both of the following:

(i)    Repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation;

(ii)    Reasonably cooperate with the corporation concerning the action, suit, or proceeding.

(b)    Expenses, including attorney’s fees, incurred by a director, trustee, officer, employee, member, manager, or agent in defending any action, suit, or proceeding referred to in division (E)(1) or (2) of this section, may be paid by the corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding, as authorized by the directors in the specific case, upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, member, manager, or agent to repay such amount, if it ultimately is determined that he is not entitled to be indemnified by the corporation.

(6)    The indemnification authorized by this section shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the articles, the regulations, any agreement, a vote of shareholders or disinterested directors, or otherwise, both as to action in their official capacities and as to action in another capacity while holding their offices or positions, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, member, manager, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

(7)    A corporation may purchase and maintain insurance or furnish similar protection, including, but not limited to, trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee, member, manager, or agent of another corporation, domestic or foreign, nonprofit or for profit, a limited liability company, or a partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. Insurance may be purchased from or maintained with a person in whom the corporation has a financial interest.

(8)    The authority of a corporation to indemnify persons pursuant to division (E)(1) or (2) of this section does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and (2) of this section do not create any obligation to repay or return payments made by the corporation pursuant to division (E)(5), (6), or (7).

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(9)    As used in division (E) of this section, “corporation” includes all constituent entities in a consolidation or merger and the new or surviving corporation, so that any person who is or was a director, officer, employee, trustee, member, manager, or agent of such a constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee, member, manager, or agent of another corporation, domestic or foreign, nonprofit or for profit, a limited liability company, or a partnership, joint venture, trust, or other enterprise, shall stand in the same position under this section with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity.

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Insurance

First Defiance has purchased insurance coverage under policies that insure directors and officers against certain liabilities that they may incur in their capacities as directors and officers.

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Item 21. Exhibits and Financial Statements Schedules

    (a) Exhibits

Exhibit No.

  

Description

Exhibit No.
2  Description
 2.1

Agreement and Plan of Merger dated as of August 23, 2016,September 9, 2019, by and between First Defiance Financial Corp. and Commercial Bancshares, Inc. (includedUnited Community Financial Corp. (attached asAnnex A to the Proxy Statement/Prospectus included injoint proxy statement/prospectus forming a part of this Registration Statement)registration statement)†

 2.2Amendment to Agreement and Plan of Merger, dated October 31, 2016, by and between First Defiance Financial Corp. and Commercial Bancshares, Inc. (included as Annex A to the Proxy Statement/Prospectus included in this Registration Statement).
3.1  

Articles of Incorporation of First Defiance Financial Corp. (incorporated by reference to like numbered exhibit in(reflecting all amendments filed with the Registrant’s Form S-1, file no. 33-93354)Ohio Secretary of State) [restated for purposes of SEC reporting compliance only – not filed with the Ohio Secretary of State]**

3.2  

Code of Regulations of First Defiance Financial Corp. (incorporated by reference to like numbered exhibit in(reflecting all amendments) [restated for purposes of SEC reporting compliance only – not filed with the Registrant’s Form S-1, file no. 33-93354)Ohio Secretary of State]**

4.1  Instruments defining the Rights of Security Holders — reference

Reference is made to ArticlesV,VIII,X,XI,XIIXV,XVI, andXVII of the First Defiance Articles of Incorporation, as amended, and ArticlesII,V,VII andIX of the First Defiance Code of Regulations, as amended, which define the rights of security holders

4.2  

Agreement to furnish instruments and agreements defining rights of holders of long-term debt (incorporated by reference to Exhibit 4.1 in the Registrant’s 2014 Form10-K, film no. 15655545) FileNo. 333-197203)

 4.3
5.1  Form of Warrant for Purchase of Shares of Common Stock (incorporated by reference to Exhibit 4 in Form 8-K, filed December 8, 2008, film no. 081236105)
 5

Opinion of Vorys, Sater, Seymour and Pease LLP regarding legality of the First Defiance common stock being registered**

8.1  Opinion

Form of Vorys, Sater, Seymour and Peaseopinion of Barack Ferrazzano Kirschbaum  & Nagelberg LLP as to federal incomeregarding certain tax matters (filed herewith)

8.2  Opinion

Form of Shumaker, Loopopinion of Wachtell, Lipton, Rosen  & Kendrick, LLP as to federal incomeKatz regarding certain tax matters (filed herewith)

10.1
21  Form

Subsidiaries of Incentive Stock Option Award Agreement under 2001 Stock Option and Incentive PlanFirst Defiance (incorporated by reference to Exhibit 10.221 in the Registrant’s 2004 Form10-K, film no. 05685500) filed February 28, 2019, FileNo. 000-26850)

10.22001 Stock Option and Incentive Plan (incorporated by reference to Appendix B to the 2001 Proxy Statement, film no. 1577137)
10.3Employment Agreement with Gregory R. Allen (incorporated by reference to Exhibit 10.4 in Form 8-K filed October 1, 2007, film no. 071144951)
10.42005 Stock Option and Incentive Plan (incorporated by reference to Appendix A to the 2005 Proxy Statement, film no. 05692264)
10.5Letter Agreement, dated December 5, 2008, between First Defiance and the U.S. Treasury (incorporated by reference to Exhibit 10 in Form 8-K filed December 8, 2008, film no. 081236105)
10.62008 Long Term Incentive Compensation Plan (LTIP) (incorporated by reference to Exhibit 10.1 in Form 8-K filed December 12, 2008, film no. 081245224)
10.7Form of Contingent Award Agreement under LTIP (incorporated by reference to Exhibit 10.2 in Form 8-K filed December 12, 2008, film no. 081245224)
10.8Form of Stock Option Award Agreement under 2005 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.16 in Registrant’s 2008 Form 10-K, film no. 09683948)
10.9First Federal Executive Group Life Plan — Post Separation (incorporated by reference to Exhibit 10.1 in Form 10-Q filed November 2, 2010, film no. 101158262)
10.10First Defiance 2010 Equity Incentive Plan (incorporated by reference to Annex A to 2010 Proxy Statement, film no. 10693151)

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Exhibit No.Description
10.11First Defiance Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 in Form 8-K filed December 23, 2005, film no. 051284175)
10.12Form of Restricted Stock Award Agreement (with TARP limitations) (incorporated by reference to Exhibit 10.1 in Form 8-K filed March 4, 2011, film no. 11664601)
10.13Form of Performance-Based Award Agreement (Long-Term Incentive) (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.1 in Form 10-Q filed November 8, 2011, film no. 111188059)
10.14Form of Performance-Based Award Agreement (Short-Term Incentive) (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.2 in Form 10-Q filed November 8, 2011, film no. 111188059)
10.15First Amendment to First Defiance Financial Corp. 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 in Form 8-K filed March 15, 2012, film no. 12694926)
10.16First Defiance Financial Corp. and Affiliates Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 in Form 8-K filed March 15, 2012, film no. 12694926)
10.17First Defiance Financial Corp. Long-Term Restricted Stock Unit Award Agreement (2012 Long Term Incentive — TARP Applicable) (incorporated by reference to Exhibit 10.3 in Form 8-K filed March 15, 2012, film no. 12694926)
10.18First Defiance Financial Corp. Long-Term Restricted Stock Unit Award Agreement (2012 Long Term Incentive) (incorporated by reference to Exhibit 10.4 in Form 8-K filed March 15, 2012, film no. 12694926)
10.19Employment Agreement with Donald P. Hileman (incorporated by reference to Exhibit 10.1 in Form 8-K filed December 30, 2013, film no. 131303552)
10.20Employment Agreement with Kevin T. Thompson (incorporated by reference to Exhibit 10.2 in Form 8-K filed December 30, 2013, film no. 131303552)
10.21Form of Restricted Stock Award Agreement (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.3 in Form 8-K filed December 30, 2013, film no. 131303552)
10.22Consulting Agreement with William J. Small (incorporated by reference to Exhibit 10.4 in Form 8-K filed December 30, 2013, film no. 131303552)
10.23Change of Control and Non-Solicitation Agreement with John R. Reisner (incorporated by reference to Exhibit 10.23 in Registrant’s 2015 Form 10-K, film no. 161468309)
21Subsidiaries of First Defiance**
23.1  Consent of Crowe Horwath LLP**
23.2Consent of Plante & Moran, PLLC**
23.3

Consent of Vorys, Sater, Seymour and Pease LLP (included in Exhibits 5 and 8)Exhibit 5.1)**

23.2

Consent of Barack Ferrazzano Kirschbaum & Nagelberg LLP (included in Exhibit 8.1)

23.3

Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.2)

23.4

Consent of Crowe LLP regarding First Defiance Financial Corp.**

23.5

Consent of Crowe LLP regarding United Community Financial Corp.**

24.1  

Power of Attorney*Attorney (included on the signature page to the registration statement filed October 9, 2019)**

99.1  

Form of Voting and Support Agreement (incorporated by reference to Exhibit 99.1 in the Registrant’s Form 8-K, filed September 10, 2019, File No. 000-26850)

99.2

Consent of Keefe, Bruyette & Woods, Inc.**

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99.2

Exhibit No.

  

Description

99.3

Consent of Sandler O’Neill & Partners, L.P. **

99.4

Form of Proxy for Commercial Bancshares, Inc. (filed herewith)First Defiance Financial Corp.*

99.5

Form of Proxy for United Community Financial Corp.*

99.6

Consent of Gary M. Small to be named as director**

99.7

Consent of Richard J. Schiraldi to be named as director**

**Previously filed.
†

Annexes, schedules, and exhibits have been omitted pursuant to Item 601(b)(2) of RegulationS-K. First Defiance agrees to furnish supplementally a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request.

*

To be filed by amendment.

**

Previously filed.

Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions or are inapplicable and, therefore, have been omitted.

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TABLE OF CONTENTS

Item 22. Undertakings

Item 22.

Undertakings.

The undersigned registrant hereby undertakes:

(1) Toundertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(i)

To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii)

(ii)

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii)

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

The undersigned registrant hereby undertakes that, which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) ToThe undersigned registrant hereby undertakes to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That,The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to sectionSection 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to sectionSection 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(5) To deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holdersThe undersigned registrant hereby undertakes as follows: that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14A-3 or Rule 14C-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulations S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.

(6) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or

II-5

party who is deemed to be an underwriter within the meaning of the Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Itemsitems of the applicable form.

(7) ThatThe undersigned registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (6)the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall

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TABLE OF CONTENTS

be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(8) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing, provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

(9) ToThe undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to ItemItems 4, 10(b), 11, or 13 of this Form,registration statement, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(10) ToThe undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

II-6

II-8

TABLE OF CONTENTSSIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Defiance, State of Ohio, on October 31, 2016.onOctober 18, 2019.

First Defiance Financial Corp.

By:
First Defiance Financial Corp.

By:  

/s/ Donald P. Hileman

Donald P. Hileman,

President and

Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on October 31, 2016.18, 2019.

Signature

  

Capacity

By

/s/ Donald P. Hileman

President and Chief Executive Officer

Donald P. Hileman President and
Chief Executive Officer

  By

*

  

Executive Vice President and Chief Financial Officer

(Principal Accounting Officer)

Paul D. Nungester, Jr.

*

William J. Small,

Chairman of the Board

By

John L. Bookmyer

  /s/ Kevin T. Thompson

Kevin T. Thompson,
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)

*

  By

Director

Robert E. Beach

  *

Stephen L. Boomer,
Director, Vice Chairman
By

*

  *

John L. Bookmyer,

Director

Terri A. Bettinger

  By

*

  *

Director

Dr. Douglas A. Burgei
Director

By

  

*

Director

Thomas K. Herman

*

Director

Jean A. Hubbard
Director

  By

*

  *

Barb

Director

Barbara A. Mitzel
Director

By

  

*

Director

Charles D. Niehaus
Director

  By

*

  *

Director

Thomas A. Reineke
Director

By

  

*

Director

Mark A. Robison

*

Director

Samuel S. Strausbaugh
Director

  
*By/s/ Donald P. Hileman

Donald P. Hileman,
Attorney-in-Fact

October 31, 2016

TABLE OF CONTENTS

FIRST DEFIANCE FINANCIAL CORP.
Registration Statement on Form S-4

INDEX TO EXHIBITS

Exhibit No.Description
 2.1Agreement and Plan of Merger dated as of August 23, 2016, by and between First Defiance Financial Corp. and Commercial Bancshares, Inc. (included as Annex A to the Proxy Statement/Prospectus included in this Registration Statement)†
 2.2Amendment to Agreement and Plan of Merger, dated October 31, 2016, by and between First Defiance Financial Corp. and Commercial Bancshares, Inc. (included as Annex A to the Proxy Statement/Prospectus included in this Registration Statement).
 3.1Articles of Incorporation of First Defiance Financial Corp. (incorporated by reference to like numbered exhibit in the Registrant’s Form S-1, file no. 33-93354)
 3.2Code of Regulations of First Defiance Financial Corp. (incorporated by reference to like numbered exhibit in the Registrant’s Form S-1, file no. 33-93354)
 4.1Instruments defining the Rights of Security Holders — reference is made to Articles V, VIII, X, XI, XII XV, XVI, and XVII of the First Defiance Articles of Incorporation, as amended, and Articles II, V, VII and IX of the First Defiance Code of Regulations
 4.2Agreement to furnish instruments and agreements defining rights of holders of long-term debt (incorporated by reference to Exhibit 4.1 in the Registrant’s 2014 Form 10-K, film no. 15655545)
 4.3Form of Warrant for Purchase of Shares of Common Stock (incorporated by reference to Exhibit 4 in Form 8-K, filed December 8, 2008, film no. 081236105)
 5Opinion of Vorys, Sater, Seymour and Pease LLP regarding legality of the First Defiance stock being registered**
 8.1Opinion of Vorys, Sater, Seymour and Pease LLP as to federal income tax matters (filed herewith)
 8.2Opinion of Shumaker, Loop & Kendrick, LLP as to federal income tax matters (filed herewith)
10.1Form of Incentive Stock Option Award Agreement under 2001 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 in Registrant’s 2004 Form 10-K, film no. 05685500)
10.22001 Stock Option and Incentive Plan (incorporated by reference to Appendix B to the 2001 Proxy Statement, film no. 1577137)
10.3Employment Agreement with Gregory R. Allen (incorporated by reference to Exhibit 10.4 in Form 8-K filed October 1, 2007, film no. 071144951)
10.42005 Stock Option and Incentive Plan (incorporated by reference to Appendix A to the 2005 Proxy Statement, film no. 05692264)
10.5Letter Agreement, dated December 5, 2008, between First Defiance and the U.S. Treasury (incorporated by reference to Exhibit 10 in Form 8-K filed December 8, 2008, film no. 081236105)
10.62008 Long Term Incentive Compensation Plan (LTIP) (incorporated by reference to Exhibit 10.1 in Form 8-K filed December 12, 2008, film no. 081245224)
10.7Form of Contingent Award Agreement under LTIP (incorporated by reference to Exhibit 10.2 in Form 8-K filed December 12, 2008, film no. 081245224)
10.8Form of Stock Option Award Agreement under 2005 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.16 in Registrant’s 2008 Form 10-K, film no. 09683948)
10.9First Federal Executive Group Life Plan — Post Separation (incorporated by reference to Exhibit 10.1 in Form 10-Q filed November 2, 2010, film no. 101158262)
10.10First Defiance 2010 Equity Incentive Plan (incorporated by reference to Annex A to 2010 Proxy Statement, film no. 10693151)

TABLE OF CONTENTS

Exhibit No.Description
10.11First Defiance Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 in Form 8-K filed December 23, 2005, film no. 051284175)
10.12Form of Restricted Stock Award Agreement (with TARP limitations) (incorporated by reference to Exhibit 10.1 in Form 8-K filed March 4, 2011, film no. 11664601)
10.13Form of Performance-Based Award Agreement (Long-Term Incentive) (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.1 in Form 10-Q filed November 8, 2011, film no. 111188059)
10.14Form of Performance-Based Award Agreement (Short-Term Incentive) (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.2 in Form 10-Q filed November 8, 2011, film no. 111188059)
10.15First Amendment to First Defiance Financial Corp. 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 in Form 8-K filed March 15, 2012, film no. 12694926)
10.16First Defiance Financial Corp. and Affiliates Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 in Form 8-K filed March 15, 2012, film no. 12694926)
10.17First Defiance Financial Corp. Long-Term Restricted Stock Unit Award Agreement (2012 Long Term Incentive — TARP Applicable) (incorporated by reference to Exhibit 10.3 in Form 8-K filed March 15, 2012, film no. 12694926)
10.18First Defiance Financial Corp. Long-Term Restricted Stock Unit Award Agreement (2012 Long Term Incentive) (incorporated by reference to Exhibit 10.4 in Form 8-K filed March 15, 2012, film no. 12694926)
10.19Employment Agreement with

*By: /s/ Donald P. Hileman (incorporated by reference to Exhibit 10.1 in Form 8-K filed December 30, 2013, film no. 131303552)

10.20Employment Agreement with Kevin T. Thompson (incorporated by reference to Exhibit 10.2 in Form 8-K filed December 30, 2013, film no. 131303552)
10.21Form of Restricted Stock Award Agreement (2010 Equity Incentive Plan) (incorporated by reference to Exhibit 10.3 in Form 8-K filed December 30, 2013, film no. 131303552)
10.22Consulting Agreement with William J. Small (incorporated by reference to Exhibit 10.4 in Form 8-K filed December 30, 2013, film no. 131303552)
10.23Change of Control and Non-Solicitation Agreement with John R. Reisner (incorporated by reference to Exhibit 10.23 in Registrant’s 2015 Form 10-K, film no. 161468309)
21Subsidiaries of First Defiance**
23.1Consent of Crowe Horwath LLP**
23.2Consent of Plante & Moran, PLLC**
23.3Consent of Vorys, Sater, Seymour and Pease LLP (included in Exhibits 5 and 8)
24.1Power of Attorney**
99.1Consent of Keefe, Bruyette & Woods, Inc.**
99.2Form of Proxy for Commercial Bancshares, Inc. (filed herewith)

  Donald P. Hileman, Attorney-in-fact

**Previously filed.
†Annexes, schedules, and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. First Defiance agrees to furnish supplementally a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request.