10-Q

Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           .

Commission File No. 000-26719

MERCANTILE BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan	38-3360865
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

310 Leonard Street, NW, Grand Rapids, MI 49504

(Address of principal executive offices) (Zip Code)

(616) 406-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X              No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    X              No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ___	Accelerated filer X
Non-accelerated filer	Smaller reporting company __
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 13(a) of the Exchange Act.

Yes      No  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No    X   

At April 30, 2017, there were 16,465,988 shares of common stock outstanding.

MERCANTILE BANK CORPORATION

INDEX

PART I.	Financial Information	Page No.
	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) - March 31, 2017 and December 31, 2016	1
	Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2017 and March 31, 2016	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2017 and March 31, 2016	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Three Months Ended March 31, 2017 and March 31, 2016	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2017 and March 31, 2016	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	80
	Item 4. Controls and Procedures	83
PART II.	Other Information
	Item 1. Legal Proceedings	84
	Item 1A. Risk Factors	84
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	84
	Item 3. Defaults Upon Senior Securities	84
	Item 4. Mine Safety Disclosures	84
	Item 5. Other Information	84
	Item 6. Exhibits	85
	Signatures	86

MERCANTILE BANK CORPORATION

PART I --- FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2017			2016
ASSETS
Cash and due from banks	$	40,313,000		$	50,200,000
Interest-earning deposits		12,663,000			133,396,000
Total cash and cash equivalents		52,976,000			183,596,000
Securities available for sale		332,441,000			328,060,000
Federal Home Loan Bank stock		9,236,000			8,026,000
Loans		2,441,314,000			2,378,620,000
Allowance for loan losses		(18,276,000	)		(17,961,000	)
Loans, net		2,423,038,000			2,360,659,000
Premises and equipment, net		45,848,000			45,456,000
Bank owned life insurance		66,211,000			67,198,000
Goodwill		49,473,000			49,473,000
Core deposit intangible		9,321,000			9,957,000
Other assets		30,375,000			30,146,000
Total assets	$	3,018,919,000		$	3,082,571,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing	$	757,706,000		$	810,600,000
Interest-bearing		1,520,310,000			1,564,385,000
Total deposits		2,278,016,000			2,374,985,000
Securities sold under agreements to repurchase		126,679,000			131,710,000
Federal Home Loan Bank advances		205,000,000			175,000,000
Subordinated debentures		45,006,000			44,835,000
Accrued interest and other liabilities		16,168,000			15,230,000
Total liabilities		2,670,869,000			2,741,760,000
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued		0			0
Common stock, no par value; 40,000,000 shares authorized; 16,469,108 shares outstanding at March 31, 2017 and 16,416,695 shares outstanding at December 31, 2016		307,371,000			305,488,000
Retained earnings		45,596,000			40,904,000
Accumulated other comprehensive income (loss)		(4,917,000	)		(5,581,000	)
Total shareholders’ equity		348,050,000			340,811,000
Total liabilities and shareholders’ equity	$	3,018,919,000		$	3,082,571,000

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2017		2016
Interest income
Loans, including fees	$	26,733,000	$	26,779,000
Securities, taxable		1,278,000		1,516,000
Securities, tax-exempt		550,000		537,000
Other interest-earning assets		143,000		57,000
Total interest income		28,704,000		28,889,000
Interest expense
Deposits		1,868,000		1,866,000
Short-term borrowings		51,000		44,000
Federal Home Loan Bank advances		655,000		350,000
Subordinated debentures and other borrowings		621,000		747,000
Total interest expense		3,195,000		3,007,000
Net interest income		25,509,000		25,882,000
Provision for loan losses		600,000		600,000
Net interest income after provision for loan losses		24,909,000		25,282,000
Noninterest income
Service charges on deposit and sweep accounts		1,018,000		948,000
Credit and debit card income		1,106,000		1,015,000
Mortgage banking income		1,123,000		598,000
Earnings on bank owned life insurance		1,738,000		286,000
Gain on trust preferred securities repurchase		0		2,970,000
Other income		866,000		1,269,000
Total noninterest income		5,851,000		7,086,000
Noninterest expense
Salaries and benefits		11,272,000		10,995,000
Occupancy		1,554,000		1,604,000
Furniture and equipment depreciation, rent and maintenance		535,000		525,000
Data processing costs		2,011,000		1,992,000
FDIC insurance costs		210,000		392,000
Other expense		4,194,000		4,360,000
Total noninterest expenses		19,776,000		19,868,000
Income before federal income tax expense		10,984,000		12,500,000
Federal income tax expense		3,369,000		3,951,000
Net income	$	7,615,000	$	8,549,000
Basic earnings per share	$	0.46	$	0.52
Diluted earnings per share	$	0.46	$	0.52
Cash dividends per share	$	0.18	$	0.16
Average basic shares outstanding		16,434,647		16,291,654
Average diluted shares outstanding		16,449,210		16,325,475

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
Net income	$	7,615,000		$	8,549,000
Other comprehensive income (loss):
Unrealized holding gains on securities available for sale		980,000			1,919,000
Fair value of interest rate swap		42,000			(21,000	)
Total other comprehensive income		1,022,000			1,898,000
Tax effect of unrealized holding gains on securities available for sale		(343,000	)		(672,000	)
Tax effect of fair value of interest rate swap		(15,000	)		7,000
Total tax effect of other comprehensive income		(358,000	)		(665,000	)
Other comprehensive income, net of tax effect		664,000			1,233,000
Comprehensive income	$	8,279,000		$	9,782,000

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

($ in thousands except per share amounts)	Preferred Stock		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, January 1, 2017	$	0	$	305,488	$	40,904		$	(5,581	)	$	340,811
Employee stock purchase plan (338 shares)				12								12
Dividend reinvestment plan (35,319 shares)				1,145								1,145
Stock option exercises (20,000 shares)				248								248
Stock grant for director fees (62 shares)				2								2
Stock-based compensation expense				476								476
Cash dividends ($0.18 per common share)						(2,923	)					(2,923	)
Net income for the three months ended March 31, 2017						7,615						7,615
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect									637			637
Change in fair value of interest rate swap, net of tax effect									27			27
Balances, March 31, 2017	$	0	$	307,371	$	45,596		$	(4,917	)	$	348,050

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

(Unaudited)

($ in thousands except per share amounts)	Preferred Stock		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, January 1, 2016	$	0	$	304,819		$	27,722		$	1,263		$	333,804
Employee stock purchase plan (364 shares)				8									8
Dividend reinvestment plan (17,876 shares)				411									411
Stock option exercises (4,700 shares)				50									50
Stock-based compensation expense				330									330
Share repurchase program (147,656 shares)				(3,258	)								(3,258	)
Cash dividends ($0.16 per common share)							(2,574	)					(2,574	)
Net income for the three months ended March 31, 2016							8,549						8,549
Change in net unrealized holding gain on securities available for sale, net of tax effect										1,247			1,247
Change in fair value of interest rate swap, net of tax effect										(14	)		(14	)
Balances, March 31, 2016	$	0	$	302,360		$	33,697		$	2,496		$	338,553

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months			Three Months
	Ended			Ended
	March 31, 2017			March 31, 2016
Cash flows from operating activities
Net income	$	7,615,000		$	8,549,000
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization		2,548,000			2,767,000
Accretion of acquired loans		(832,000	)		(1,316,000	)
Provision for loan losses		600,000			600,000
Stock-based compensation expense		476,000			330,000
Stock grants to directors for retainer fees		2,000			0
Proceeds from sales of mortgage loans held for sale		19,317,000			19,465,000
Origination of mortgage loans held for sale		(19,342,000	)		(18,150,000	)
Net gain from sales of mortgage loans held for sale		(867,000	)		(543,000	)
Gain on trust preferred securities repurchase		0			(2,970,000	)
Net gain from sales and valuation write-downs of foreclosed assets		(43,000	)		(125,000	)
Net (gain) loss from sales and valuation write-downs of former bank premises		15,000			(39,000	)
Net loss from sales and write-downs of fixed assets		40,000			140,000
Net loss from sales of available for sale securities		0			1,000
Earnings on bank owned life insurance		(1,738,000	)		(286,000	)
Net change in:
Accrued interest receivable		(828,000	)		(366,000	)
Other assets		(321,000	)		732,000
Accrued interest and other liabilities		980,000			1,278,000
Net cash from operating activities		7,622,000			10,067,000
Cash flows from investing activities
Loan originations and payments, net		(61,352,000	)		(18,011,000	)
Purchases of securities available for sale		(14,701,000	)		(17,873,000	)
Proceeds from maturities, calls and repayments of securities available for sale		10,858,000			22,337,000
Proceeds from sales of securities available for sale		0			264,000
Purchases of Federal Home Loan Bank stock		(1,210,000	)		0
Proceeds from sales of foreclosed assets		99,000			529,000
Proceeds from sales of former bank premises		0			45,000
Proceeds from bank owned life insurance cash value release and death benefits		2,720,000			0
Net sales (purchases) of premises and equipment		(1,138,000	)		44,000
Net cash for investing activities		(64,724,000	)		(12,665,000	)
Cash flows from financing activities
Net decrease in time deposits		(55,203,000	)		(24,764,000	)
Net increase (decrease) in all other deposits		(41,766,000	)		14,504,000
Net increase (decrease) in securities sold under agreements to repurchase		(5,031,000	)		7,541,000
Maturities of Federal Home Loan Bank advances		(10,000,000	)		0
Proceeds from Federal Home Loan Bank advances		40,000,000			30,000,000
Proceeds from stock option exercises		248,000			50,000
Employee stock purchase plan		12,000			8,000
Dividend reinvestment plan		1,145,000			411,000
Repurchase of common stock shares		0			(3,258,000	)
Repurchase of trust preferred securities		0			(8,030,000	)
Payment of cash dividends to common shareholders		(2,923,000	)		(2,574,000	)
Net cash from (for) financing activities		(73,518,000	)		13,888,000
Net change in cash and cash equivalents		(130,620,000	)		11,290,000
Cash and cash equivalents at beginning of period		183,596,000			89,891,000
Cash and cash equivalents at end of period	$	52,976,000		$	101,181,000

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Three Months		Three Months
	Ended		Ended
	March 31, 2017		March 31, 2016
Supplemental disclosures of cash flows information
Cash paid during the period for:
Interest	$	3,322,000	$	3,063,000
Federal income tax		0		250,000
Noncash financing and investing activities:
Transfers from loans to foreclosed assets		97,000		224,000
Transfers from bank premises to other real estate owned		0		371,000

See accompanying notes to condensed consolidated financial statements.

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The unaudited financial statements for the three months ended March 31, 2017 include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s two subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Item 303(b) of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended March 31, 2017 should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2016.

We have five separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Earnings Per Share: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately 225,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three months ended March 31, 2017. In addition, stock options for approximately 34,000 shares of common stock were included in determining diluted earnings per share for the three months ended March 31, 2017. Stock options for approximately 7,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three months ended March 31, 2017.

Approximately 150,000 unvested restricted shares were included in determining both basic and diluted earnings per share for the three months ended March 31, 2016. In addition, stock options for approximately 118,000 shares of common stock were included in determining diluted earnings per share for the three months ended March 31, 2016. Stock options for approximately 10,000 shares of common stock were antidilutive and not included in determining diluted earnings per share for the three months ended March 31, 2016.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other than temporary (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Loans: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than when they are 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of March 31, 2017 and December 31, 2016, we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of $1.9 million and $1.0 million, respectively. Loans held for sale are reported as part of our total loans on the balance sheet.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make a rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in the gain on sale of loans. Mortgage loans serviced for others totaled approximately $603 million as of March 31, 2017.

Mortgage Banking Activities: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructurings: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings may have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these two measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

(Continued)

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MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of 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 our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered 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. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. In February 2012, we entered into an interest rate swap agreement that qualifies for hedge accounting. The current outstanding interest rate swap is discussed in more detail in Note 9. We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between derivatives as hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and Core Deposit Intangible: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. We may elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. The quantitative test is a two-step process consisting of comparing the carrying value of the reporting unit to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. In 2015 and 2016, we elected to perform a qualitative assessment for our annual impairment test and concluded it is more likely than not our fair value was greater than its carrying amount; therefore, no further testing was required.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a ten-year period using the sum-of-the-years-digits methodology.

Adoption of New Accounting Standards: In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This ASU was originally effective for annual and interim periods beginning after December 15, 2016, with three transition methods available – full retrospective, retrospective and cumulative effect approach. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of Effective Date, which delays the implementation of this guidance by one year. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In January 2016, the FASB issued ASU 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU requires an entity to (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses on available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. This ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and are not expected to have a material effect on our financial position or results of operations when adopted.

(Continued)

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(Unaudited)

1.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for annual and interim periods beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU requires that, prospectively, all tax effects related to share-based payments be made through the income statement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in capital under the current guidance. The ASU also removes the requirement to delay recognition of a tax benefit until it reduces current taxes payable. This change is required to be applied on a modified retrospective basis, with a cumulative-effect adjustment to opening retained earnings. Additionally, all tax related cash flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows, a change from the current requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. Finally, entities will be allowed to withhold an amount up to the employees’ maximum individual tax rate (as opposed to the minimum statutory tax rate) in the relevant jurisdiction without resulting in liability classification of the award. The change in withholding requirements will be applied on a modified retrospective approach. This standard will be effective for annual and interim periods beginning after December 15, 2016. Adoption of this ASU did not have a material effect on our financial position or results of operations.

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 are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) 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 ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and 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. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019, and 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). We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows and is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impractical to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     SIGNIFICANT ACCOUNTING POLICIES (Continued)

In January 2017, the FASB issued ASU No. 2017-04, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this ASU, an entity should perform the Step 1 annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. If the carrying amount exceeds the fair value, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective January 1, 2020 and early adoption is permitted. The ASU should be applied prospectively. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

2.     SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2017
U.S. Government agency debt obligations	$	162,923,000	$	73,000	$	(6,985,000	)	$	156,011,000
Mortgage-backed securities		43,525,000		472,000		(293,000	)		43,704,000
Municipal general obligation bonds		123,235,000		496,000		(1,201,000	)		122,530,000
Municipal revenue bonds		8,295,000		22,000		(78,000	)		8,239,000
Other investments		1,986,000		0		(29,000	)		1,957,000
	$	339,964,000	$	1,063,000	$	(8,586,000	)	$	332,441,000
December 31, 2016
U.S. Government agency debt obligations	$	159,271,000	$	106,000	$	(7,337,000	)	$	152,040,000
Mortgage-backed securities		47,329,000		486,000		(423,000	)		47,392,000
Municipal general obligation bonds		120,284,000		312,000		(1,549,000	)		119,047,000
Municipal revenue bonds		7,699,000		23,000		(91,000	)		7,631,000
Other investments		1,979,000		0		(29,000	)		1,950,000
	$	336,562,000	$	927,000	$	(9,429,000	)	$	328,060,000

(Continued)

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(Unaudited)

2.     SECURITIES (Continued)

Securities with unrealized losses at March 31, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
March 31, 2017
U.S. Government agency debt obligations	$	123,657,000	$	6,850,000	$	4,108,000	$	135,000	$	127,765,000	$	6,985,000
Mortgage-backed securities		19,107,000		145,000		15,498,000		148,000		34,605,000		293,000
Municipal general obligation bonds		46,728,000		1,047,000		8,805,000		154,000		55,533,000		1,201,000
Municipal revenue bonds		1,246,000		78,000		0		0		1,246,000		78,000
Other investments		1,486,000		29,000		0		0		1,486,000		29,000
	$	192,224,000	$	8,149,000	$	28,411,000	$	437,000	$	220,635,000	$	8,586,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2016
U.S. Government agency debt obligations	$	110,160,000	$	7,172,000	$	5,073,000	$	165,000	$	115,233,000	$	7,337,000
Mortgage-backed securities		3,670,000		4,000		37,072,000		419,000		40,742,000		423,000
Municipal general obligation bonds		65,895,000		1,360,000		27,734,000		189,000		93,629,000		1,549,000
Municipal revenue bonds		1,921,000		90,000		206,000		1,000		2,127,000		91,000
Other investments		1,479,000		29,000		0		0		1,479,000		29,000
	$	183,125,000	$	8,655,000	$	70,085,000	$	774,000	$	253,210,000	$	9,429,000

(Continued)

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(Unaudited)

2.     SECURITIES (Continued) 

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. 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, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At March 31, 2017, 316 debt securities and one mutual fund with fair values totaling $221 million have unrealized losses aggregating $8.6 million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. As we do not intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than not that we will not be required to sell our debt securities before recovery of the cost basis, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at March 31, 2017, by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

	Weighted
	Average		Amortized		Fair
	Yield (%)		Cost		Value
Due in 2017		1.45	$	30,644,000	$	30,670,000
Due in 2018 through 2022		2.24		97,092,000		97,132,000
Due in 2023 through 2027		2.68		93,216,000		90,060,000
Due in 2028 and beyond		2.84		73,501,000		68,918,000
Mortgage-backed securities		1.85		43,525,000		43,704,000
Other investments		0.65		1,986,000		1,957,000
Total available for sale securities		2.36	$	339,964,000	$	332,441,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.   SECURITIES (Continued)

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of $113 million and $109 million at March 31, 2017 and December 31, 2016, respectively, with estimated market values of $112 million and $107 million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of $18.7 million and $19.5 million at March 31, 2017 and December 31, 2016, respectively, with estimated market values of $18.8 million and $19.5 million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed 10% of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations and mortgage-backed securities that are pledged to secure repurchase agreements was $127 million and $132 million at March 31, 2017 and December 31, 2016, respectively. Investments in Federal Home Loan Bank stock are restricted and may only be resold or redeemed by the issuer.

3.    LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

Acquired loans are those purchased in the Firstbank merger. These loans were recorded at estimated fair value at the merger date with no carryover of the related allowance. The acquired loans were segregated between those considered to be performing (“acquired non-impaired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Acquired loans restructured after acquisition are not considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the merger date and are accounted for in pools.

The fair value estimates for acquired loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the merger date fair value of acquired impaired loans, and in subsequent accounting, we have generally aggregated acquired commercial and consumer loans into pools of loans with common risk characteristics.

The difference between the fair value of an acquired non-impaired loan and contractual amounts due at the merger date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The excess of an acquired impaired loan’s undiscounted contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess cash flows expected to be collected over the carrying amount of the acquired loan is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

We evaluate quarterly the remaining contractual required payments receivable and estimate cash flows expected to be collected over the lives of the impaired loans. Contractually required payments receivable may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the merger date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to the merger date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance.

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Our total loans at March 31, 2017 were $2.44 billion compared to $2.38 billion at December 31, 2016, an increase of $62.7 million, or 2.6%. The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at March 31, 2017 and December 31, 2016, and the percentage change in loans from the end of 2016 to the end of the first quarter of 2017, are as follows:

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	685,227,000		34.7	%	$	636,771,000		33.8	%		7.6	%
Vacant land, land development, and residential construction		23,841,000		1.2			26,519,000		1.4			(10.1	)
Real estate – owner occupied		368,910,000		18.7			363,509,000		19.3			1.5
Real estate – non-owner occupied		678,359,000		34.4			652,054,000		34.6			4.0
Real estate – multi-family and residential rental		47,072,000		2.4			50,045,000		2.6			(5.9	)
Total commercial		1,803,409,000		91.4			1,728,898,000		91.7			4.3
Retail:
Home equity and other		69,032,000		3.5			69,831,000		3.7			(1.1	)
1-4 family mortgages		101,298,000		5.1			85,819,000		4.6			18.0
Total retail		170,330,000		8.6			155,650,000		8.3			9.4
Total originated loans	$	1,973,739,000		100.0	%	$	1,884,548,000		100.0	%		4.7	%

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	71,993,000		15.4	%	$	77,132,000		15.6	%		(6.7	%)
Vacant land, land development, and residential construction		8,083,000		1.7			8,309,000		1.7			(2.7	)
Real estate – owner occupied		83,472,000		17.9			86,955,000		17.6			(4.0	)
Real estate – non-owner occupied		90,206,000		19.3			96,215,000		19.5			(6.2	)
Real estate – multi-family and residential rental		66,185,000		14.1			67,838,000		13.7			(2.4	)
Total commercial		319,939,000		68.4			336,449,000		68.1			(4.9	)
Retail:
Home equity and other		43,085,000		9.2			48,216,000		9.8			(10.6	)
1-4 family mortgages		104,551,000		22.4			109,407,000		22.1			(4.4	)
Total retail		147,636,000		31.6			157,623,000		31.9			(6.3	)
Total acquired loans	$	467,575,000		100.0	%	$	494,072,000		100.0	%		(5.4	%)

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	757,220,000		31.0	%	$	713,903,000		30.0	%		6.1	%
Vacant land, land development, and residential construction		31,924,000		1.3			34,828,000		1.5			(8.3	)
Real estate – owner occupied		452,382,000		18.5			450,464,000		18.9			0.4
Real estate – non-owner occupied		768,565,000		31.5			748,269,000		31.5			2.7
Real estate – multi-family and residential rental		113,257,000		4.7			117,883,000		4.9			(3.9	)
Total commercial		2,123,348,000		87.0			2,065,347,000		86.8			2.8
Retail:
Home equity and other		112,117,000		4.6			118,047,000		5.0			(5.0	)
1-4 family mortgages		205,849,000		8.4			195,226,000		8.2			5.4
Total retail		317,966,000		13.0			313,273,000		13.2			1.5
Total loans	$	2,441,314,000		100.0	%	$	2,378,620,000		100.0	%		2.6	%

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The total contractually required payments due on and carrying value of acquired impaired loans were $14.9 million and $6.0 million, respectively, as of March 31, 2017. The total contractually required payments due on and carrying value of acquired impaired loans were $15.5 million and $6.2 million, respectively, as of December 31, 2016. Changes in the accretable yield for acquired impaired loans for the three months ended March 31, 2017 and March 31, 2016 were as follows:

Balance at December 31, 2016	$	1,726,000
Additions		1,000
Accretion income		(147,000	)
Net reclassification from nonaccretable to accretable		63,000
Reductions (1)		(179,000	)
Balance at March 31, 2017	$	1,464,000
Balance at December 31, 2015	$	5,193,000
Additions		21,000
Accretion income		(680,000	)
Net reclassification from nonaccretable to accretable		2,372,000
Reductions (1)		(587,000	)
Balance at March 31, 2016	$	6,319,000

(1) Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

Nonperforming originated loans as of March 31, 2017 and December 31, 2016 were as follows:

	March 31,		December 31,
	2017		2016
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		4,716,000		3,328,000
Total nonperforming originated loans	$	4,716,000	$	3,328,000

Nonperforming acquired loans as of March 31, 2017 and December 31, 2016 were as follows:

	March 31,		December 31,
	2017		2016
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,576,000		2,611,000
Total nonperforming acquired loans	$	2,576,000	$	2,611,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The recorded principal balance of nonperforming loans was as follows:

	March 31,		December 31,
	2017		2016
Commercial:
Commercial and industrial	$	3,073,000	$	2,296,000
Vacant land, land development, and residential construction		80,000		95,000
Real estate – owner occupied		911,000		285,000
Real estate – non-owner occupied		421,000		488,000
Real estate – multi-family and residential rental		163,000		17,000
Total commercial		4,648,000		3,181,000
Retail:
Home equity and other		407,000		496,000
1-4 family mortgages		2,237,000		2,262,000
Total retail		2,644,000		2,758,000
Total nonperforming loans	$	7,292,000	$	5,939,000

Acquired impaired loans are not reported as nonperforming loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

An age analysis of past due loans is as follows as of March 31, 2017:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	230,000	$	1,661,000	$	0	$	1,891,000	$	683,336,000	$	685,227,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		23,841,000		23,841,000		0
Real estate – owner occupied		0		0		0		0		368,910,000		368,910,000		0
Real estate – non-owner occupied		0		0		0		0		678,359,000		678,359,000		0
Real estate – multi-family and residential rental		130,000		0		0		130,000		46,942,000		47,072,000		0
Total commercial		360,000		1,661,000		0		2,021,000		1,801,388,000		1,803,409,000		0
Retail:
Home equity and other		542,000		13,000		3,000		558,000		68,474,000		69,032,000		0
1-4 family mortgages		0		0		225,000		225,000		101,073,000		101,298,000		0
Total retail		542,000		13,000		228,000		783,000		169,547,000		170,330,000		0
Total past due loans	$	902,000	$	1,674,000	$	228,000	$	2,804,000	$	1,970,935,000	$	1,973,739,000	$	0

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

													Recorded
	30 – 59		60 – 89		Greater Than 89								Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	25,000	$	0	$	16,000	$	41,000	$	71,952,000	$	71,993,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,083,000		8,083,000		0
Real estate – owner occupied		273,000		0		75,000		348,000		83,124,000		83,472,000		0
Real estate – non-owner occupied		49,000		0		353,000		402,000		89,804,000		90,206,000		0
Real estate – multi-family and residential rental		152,000		37,000		11,000		200,000		65,985,000		66,185,000		0
Total commercial		499,000		37,000		455,000		991,000		318,948,000		319,939,000		0
Retail:
Home equity and other		451,000		63,000		49,000		563,000		42,522,000		43,085,000		0
1-4 family mortgages		826,000		178,000		610,000		1,614,000		102,937,000		104,551,000		0
Total retail		1,277,000		241,000		659,000		2,177,000		145,459,000		147,636,000		0
Total past due loans	$	1,776,000	$	278,000	$	1,114,000	$	3,168,000	$	464,407,000	$	467,575,000	$	0

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

An age analysis of past due loans is as follows as of December 31, 2016:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	27,000	$	0	$	27,000	$	636,744,000	$	636,771,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		26,519,000		26,519,000		0
Real estate – owner occupied		0		0		0		0		363,509,000		363,509,000		0
Real estate – non-owner occupied		0		0		0		0		652,054,000		652,054,000		0
Real estate – multi-family and residential rental		0		0		0		0		50,045,000		50,045,000		0
Total commercial		0		27,000		0		27,000		1,728,871,000		1,728,898,000		0
Retail:
Home equity and other		46,000		98,000		0		144,000		69,687,000		69,831,000		0
1-4 family mortgages		758,000		122,000		337,000		1,217,000		84,602,000		85,819,000		0
Total retail		804,000		220,000		337,000		1,361,000		154,289,000		155,650,000		0
Total past due loans	$	804,000	$	247,000	$	337,000	$	1,388,000	$	1,883,160,000	$	1,884,548,000	$	0

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired Loans
Commercial:
Commercial and industrial	$	0	$	11,000	$	16,000	$	27,000	$	77,105,000	$	77,132,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,309,000		8,309,000		0
Real estate – owner occupied		62,000		0		50,000		112,000		86,843,000		86,955,000		0
Real estate – non-owner occupied		0		0		353,000		353,000		95,862,000		96,215,000		0
Real estate – multi-family and residential rental		0		0		17,000		17,000		67,821,000		67,838,000		0
Total commercial		62,000		11,000		436,000		509,000		335,940,000		336,449,000		0
Retail:
Home equity and other		258,000		26,000		45,000		329,000		47,887,000		48,216,000		0
1-4 family mortgages		1,255,000		467,000		439,000		2,161,000		107,246,000		109,407,000		0
Total retail		1,513,000		493,000		484,000		2,490,000		155,133,000		157,623,000		0
Total past due loans	$	1,575,000	$	504,000	$	920,000	$	2,999,000	$	491,073,000	$	494,072,000	$	0

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired originated loans as of March 31, 2017, and average originated impaired loans for the three months ended March 31, 2017, were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,680,000	$	1,680,000		$	1,589,000
Vacant land, land development and residential construction		479,000		80,000			88,000
Real estate – owner occupied		227,000		225,000			113,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		264,000		264,000			197,000
Total commercial		2,650,000		2,249,000			1,987,000
Retail:
Home equity and other		386,000		380,000			247,000
1-4 family mortgages		1,316,000		668,000			649,000
Total retail		1,702,000		1,048,000			896,000
Total with no related allowance recorded	$	4,352,000	$	3,297,000		$	2,883,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	3,021,000	$	2,998,000	$	2,368,000	$	2,690,000
Vacant land, land development and residential construction		499,000		499,000		13,000		749,000
Real estate – owner occupied		1,382,000		1,382,000		209,000		1,144,000
Real estate – non-owner occupied		4,470,000		4,470,000		157,000		4,745,000
Real estate – multi-family and residential rental		462,000		462,000		99,000		751,000
Total commercial		9,834,000		9,811,000		2,846,000		10,079,000
Retail:
Home equity and other		997,000		982,000		715,000		697,000
1-4 family mortgages		165,000		117,000		20,000		137,000
Total retail		1,162,000		1,099,000		735,000		834,000
Total with an allowance recorded	$	10,996,000	$	10,910,000	$	3,581,000	$	10,913,000
Total impaired loans:
Commercial	$	12,484,000	$	12,060,000	$	2,846,000	$	12,066,000
Retail		2,864,000		2,147,000		735,000		1,730,000
Total impaired loans	$	15,348,000	$	14,207,000	$	3,581,000	$	13,796,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired acquired loans as of March 31, 2017, and average impaired acquired loans for the three months ended March 31, 2017, were as follows: 

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	985,000	$	958,000		$	892,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,159,000		1,092,000			1,151,000
Real estate – non-owner occupied		848,000		713,000			751,000
Real estate – multi-family and residential rental		318,000		231,000			160,000
Total commercial		3,310,000		2,994,000			2,954,000
Retail:
Home equity and other		476,000		322,000			336,000
1-4 family mortgages		2,168,000		1,695,000			1,662,000
Total retail		2,644,000		2,017,000			1,998,000
Total with no related allowance recorded	$	5,954,000	$	5,011,000		$	4,952,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	19,000	$	19,000	$	2,000	$	19,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		48,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		67,000		67,000		5,000		67,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		172,000
Total retail		172,000		172,000		4,000		172,000
Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	239,000
Total impaired loans:
Commercial	$	3,377,000	$	3,061,000	$	5,000	$	3,021,000
Retail		2,816,000		2,189,000		4,000		2,170,000
Total impaired loans	$	6,193,000	$	5,250,000	$	9,000	$	5,191,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired originated loans as of December 31, 2016, and average impaired originated loans for the three months ended March 31, 2016, were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,498,000	$	1,498,000		$	1,695,000
Vacant land, land development and residential construction		487,000		95,000			0
Real estate – owner occupied		0		0			287,000
Real estate – non-owner occupied		0		0			5,678,000
Real estate – multi-family and residential rental		130,000		130,000			0
Total commercial		2,115,000		1,723,000			7,660,000
Retail:
Home equity and other		114,000		114,000			7,000
1-4 family mortgages		1,270,000		630,000			615,000
Total retail		1,384,000		744,000			622,000
Total with no related allowance recorded	$	3,499,000	$	2,467,000		$	8,282,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,405,000	$	2,382,000	$	673,000	$	270,000
Vacant land, land development and residential construction		999,000		999,000		28,000		1,648,000
Real estate – owner occupied		906,000		906,000		97,000		1,307,000
Real estate – non-owner occupied		5,020,000		5,020,000		247,000		4,798,000
Real estate – multi-family and residential rental		1,040,000		1,040,000		258,000		1,017,000
Total commercial		10,370,000		10,347,000		1,303,000		9,040,000
Retail:
Home equity and other		434,000		412,000		203,000		516,000
1-4 family mortgages		204,000		157,000		66,000		127,000
Total retail		638,000		569,000		269,000		643,000
Total with an allowance recorded	$	11,008,000	$	10,916,000	$	1,572,000	$	9,683,000
Total impaired loans:
Commercial	$	12,485,000	$	12,070,000	$	1,303,000	$	16,700,000
Retail		2,022,000		1,313,000		269,000		1,265,000
Total impaired loans	$	14,507,000	$	13,383,000	$	1,572,000	$	17,965,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired acquired loans as of December 31, 2016, and average impaired acquired loans for the three months ended March 31, 2016, were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	853,000	$	826,000		$	1,462,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,281,000		1,210,000			1,811,000
Real estate – non-owner occupied		928,000		789,000			826,000
Real estate – multi-family and residential rental		152,000		89,000			343,000
Total commercial		3,214,000		2,914,000			4,442,000
Retail:
Home equity and other		531,000		351,000			293,000
1-4 family mortgages		2,081,000		1,629,000			1,411,000
Total retail		2,612,000		1,980,000			1,704,000
Total with no related allowance recorded	$	5,826,000	$	4,894,000		$	6,146,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	19,000	$	19,000	$	2,000	$	378,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		50,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		22,000
Total commercial		67,000		67,000		5,000		450,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		88,000
Total retail		172,000		172,000		4,000		88,000
Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	538,000
Total impaired loans:
Commercial	$	3,281,000	$	2,981,000	$	5,000	$	4,892,000
Retail		2,784,000		2,152,000		4,000		1,792,000
Total impaired loans	$	6,065,000	$	5,133,000	$	9,000	$	6,684,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated collateral value. Interest income recognized on accruing troubled debt restructurings totaled $0.2 million and $0.3 million during the first quarter of 2017 and 2016, respectively. No interest income was recognized on nonaccrual loans during either the first quarter of 2017 or 2016. Lost interest income on nonaccrual loans totaled $0.1 million and $0.2 million during the first quarter of 2017 and 2016, respectively.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Quality Indicators. We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a ten grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of March 31, 2017:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	471,570,000	$	14,994,000	$	266,147,000	$	553,441,000	$	29,421,000
Grades 5 – 7		206,434,000		8,767,000		100,967,000		124,918,000		16,925,000
Grades 8 – 9		7,223,000		80,000		1,796,000		0		726,000
Total commercial	$	685,227,000	$	23,841,000	$	368,910,000	$	678,359,000	$	47,072,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,032,000	$	101,298,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	37,236,000	$	1,756,000	$	34,189,000	$	52,796,000	$	38,612,000
Grades 5 – 7		33,417,000		6,002,000		47,471,000		36,001,000		27,274,000
Grades 8 – 9		1,340,000		325,000		1,812,000		1,409,000		299,000
Total commercial	$	71,993,000	$	8,083,000	$	83,472,000	$	90,206,000	$	66,185,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	43,085,000	$	104,551,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit quality indicators were as follows as of December 31, 2016:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	440,219,000	$	16,378,000	$	238,890,000	$	542,294,000	$	29,793,000
Grades 5 – 7		190,170,000		10,046,000		123,517,000		109,304,000		19,082,000
Grades 8 – 9		6,382,000		95,000		1,102,000		456,000		1,170,000
Total commercial	$	636,771,000	$	26,519,000	$	363,509,000	$	652,054,000	$	50,045,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,831,000	$	85,819,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	40,911,000	$	1,887,000	$	36,246,000	$	57,671,000	$	39,574,000
Grades 5 – 7		35,233,000		6,164,000		49,255,000		37,040,000		28,015,000
Grades 8 – 9		988,000		258,000		1,454,000		1,504,000		249,000
Total commercial	$	77,132,000	$	8,309,000	$	86,955,000	$	96,215,000	$	67,838,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	48,216,000	$	109,407,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

All commercial loans are graded using the following criteria:
Grade 1.	Excellent credit rating that contain very little, if any, risk of loss.
Grade 2.	Strong sources of repayment and have low repayment risk.
Grade 3.	Good sources of repayment and have limited repayment risk.
Grade 4.	Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event.
Grade 5.	Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics.
Grade 6.	Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and review by the Board of Directors and senior management).
Grade 7.	Defined weaknesses or negative trends that merit close monitoring through Watch List status.
Grade 8.	Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in a distinct possibility of loss requiring close monitoring through Watch List status.
Grade 9.	Vital weaknesses exist where collection of principal is highly questionable.
Grade 10.	Considered uncollectable and of such little value that continuance as an asset is not warranted.
The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position.

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the three months ended March 31, 2017 are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		(225,000	)		643,000			130,000			548,000
Charge-offs		(225,000	)		(220,000	)		0			(445,000	)
Recoveries		95,000			60,000			0			155,000
Ending balance	$	15,671,000		$	2,365,000		$	90,000		$	18,126,000
Ending balance: individually evaluated for impairment	$	2,846,000		$	735,000		$	0		$	3,581,000
Ending balance: collectively evaluated for impairment	$	12,825,000		$	1,630,000		$	90,000		$	14,545,000
Total loans:
Ending balance	$	1,803,409,000		$	170,330,000					$	1,973,739,000
Ending balance: individually evaluated for impairment	$	12,060,000		$	2,147,000					$	14,207,000
Ending balance: collectively evaluated for impairment	$	1,791,349,000		$	168,183,000					$	1,959,532,000

Activity in the allowance for loan losses for acquired loans during the three months ended March 31, 2017 is as follows:

	Commercial			Retail
	Loans			Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	75,000		$	18,000	$	0	$	93,000
Provision for loan losses		45,000			7,000		0		52,000
Charge-offs		(11,000	)		0		0		(11,000	)
Recoveries		16,000			0		0		16,000
Ending balance	$	125,000		$	25,000	$	0	$	150,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the twelve months ended December 31, 2016 are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	13,672,000		$	1,421,000		$	140,000		$	15,233,000
Provision for loan losses		2,247,000			1,031,000			(180,000	)		3,098,000
Charge-offs		(980,000	)		(1,153,000	)		0			(2,133,000	)
Recoveries		1,087,000			583,000			0			1,670,000
Ending balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Ending balance: individually evaluated for impairment	$	1,303,000		$	269,000		$	0		$	1,572,000
Ending balance: collectively evaluated for impairment	$	14,723,000		$	1,613,000		$	(40,000	)	$	16,296,000
Total loans:
Ending balance	$	1,728,898,000		$	155,650,000					$	1,884,548,000
Ending balance: individually evaluated for impairment	$	12,070,000		$	1,313,000					$	13,383,000
Ending balance: collectively evaluated for impairment	$	1,716,828,000		$	154,337,000					$	1,871,165,000

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity in the allowance for loan losses for acquired loans during the twelve months ended December 31, 2016 is as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	420,000		$	28,000		$	0	$	448,000
Provision for loan losses		(303,000	)		105,000			0		(198,000	)
Charge-offs		0			(72,000	)		0		(72,000	)
Recoveries		(42,000	)		(43,000	)		0		(85,000	)
Ending balance	$	75,000		$	18,000		$	0	$	93,000

The negative loan recoveries reflected for acquired loans during 2016 resulted from reversals of prior-period recoveries associated with certain purchased credit impaired (“PCI”) loans that were subject to pre-acquisition charge-offs.  Post-acquisition payments received on these PCI loans were incorrectly reported as loan loss recoveries in prior periods; during the first quarter of 2016, these recoveries were reversed and properly reported as recovery income if associated with specifically reviewed PCI loans or retained gains if associated with PCI-pooled loans.

In accordance with acquisition accounting rules, acquired loans were recorded at fair value at the merger date and the prior allowance was eliminated.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Loans modified as troubled debt restructurings during the three months ended March 31, 2017 were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0
Retail:
Home equity and other		4		328,000		329,000
1-4 family mortgages		0		0		0
Total originated retail		4		328,000		329,000
Total originated loans		4	$	328,000	$	329,000
Acquired loans
Commercial:
Commercial and industrial		1	$	31,000	$	31,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		31,000		31,000
Retail:
Home equity and other		2		6,000		7,000
1-4 family mortgages		1		57,000		57,000
Total acquired retail		3		63,000		64,000
Total acquired loans		4	$	94,000	$	95,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Loans modified as troubled debt restructurings during the three months ended March 31, 2016 were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		1	$	20,000	$	20,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		1		20,000		20,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		1	$	20,000	$	20,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		0		0		0
Retail:
Home equity and other		1		26,000		26,000
1-4 family mortgages		1		19,000		19,000
Total acquired retail		2		45,000		45,000
Total acquired loans		2	$	45,000	$	45,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2017 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		2	$	34,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		1		130,000
Total commercial		3		164,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		3	$	164,000

The following acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2017 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	24,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		24,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	24,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following originated loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2016 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

The following acquired loans, modified as troubled debt restructurings within the previous twelve months, became over 30 days past due within the three months ended March 31, 2016 (amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for originated loans categorized as troubled debt restructurings during the three months ended March 31, 2017 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(125,000	)		(529,000	)		(27,000	)		(123,000	)		(113,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		159,000			0			0			(436,000	)		(312,000	)
Ending Balance	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000	$	157,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		321,000		0
Ending Balance	$	706,000	$	154,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for acquired loans categorized as troubled debt restructurings during the three months ended March 31, 2017 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(233,000	)		0		0			(145,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		30,000			0		108,000			0			8,000
Ending Balance	$	922,000		$	0	$	996,000		$	583,000		$	68,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		0			0
Payments		(9,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		7,000			54,000
Ending Balance	$	206,000		$	376,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for originated loans categorized as troubled debt restructurings during the three months ended March 31, 2016 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	2,028,000		$	2,086,000		$	1,400,000		$	10,657,000		$	476,000
Charge-Offs		0			0			0			0			0
Payments		(101,000	)		(24,000	)		(31,000	)		(128,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		19,000			0			0			0			0
Ending Balance	$	1,946,000		$	2,062,000		$	1,369,000		$	10,529,000		$	469,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	146,000	$	128,000
Charge-Offs		0		0
Payments		0		(2,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	146,000	$	126,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Activity for acquired loans categorized as troubled debt restructurings during the three months ended March 31, 2016 is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi- Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,686,000		$	0	$	1,652,000		$	647,000		$	331,000
Charge-Offs		(48,000	)		0		0			0			0
Payments		0			0		(197,000	)		(10,000	)		(53,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		49,000			0		0			0			0
Ending Balance	$	1,687,000		$	0	$	1,455,000		$	637,000		$	278,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	141,000		$	316,000
Charge-Offs		0			0
Payments		(6,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		26,000			19,000
Ending Balance	$	161,000		$	335,000

(Continued)

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(Unaudited)

3.     LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The allowance related to loans categorized as troubled debt restructurings was as follows: 

	March 31,		December 31,
	2017		2016
Commercial:
Commercial and industrial	$	2,000	$	9,000
Vacant land, land development, and residential construction		13,000		28,000
Real estate – owner occupied		90,000		100,000
Real estate – non-owner occupied		157,000		247,000
Real estate – multi-family and residential rental		99,000		258,000
Total commercial		361,000		642,000
Retail:
Home equity and other		47,000		48,000
1-4 family mortgages		4,000		4,000
Total retail		51,000		52,000
Total related allowance	$	412,000	$	694,000

In general, our policy dictates that a renewal or modification of an 8- or 9-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated 8 contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated 9 reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal; we believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe 8- or 9-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

(Continued)

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(Unaudited)

4.     PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	March 31,		December 31,
	2017		2016
Land and improvements	$	17,665,000	$	17,285,000
Buildings		39,836,000		39,691,000
Furniture and equipment		17,719,000		17,195,000
		75,220,000		74,171,000
Less: accumulated depreciation		29,372,000		28,715,000
Premises and equipment, net	$	45,848,000	$	45,456,000

Depreciation expense totaled $0.7 million during the first quarter of 2017 and 2016.

5.     DEPOSITS

Our total deposits at March 31, 2017 totaled $2.28 billion, a decrease of $97.0 million, or 4.1%, from December 31, 2016. The components of our outstanding balances at March 31, 2017 and December 31, 2016, and percentage change in deposits from the end of 2016 to the end of the first quarter of 2017, are as follows:

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	757,706,000		33.3	%	$	810,600,000		34.1	%		(6.5	%)
Interest-bearing checking		371,622,000		16.3			377,929,000		15.9			(1.7	)
Money market		279,120,000		12.3			272,051,000		11.5			2.6
Savings		355,354,000		15.6			344,988,000		14.5			3.0
Time, under $100,000		142,454,000		6.2			146,169,000		6.2			(2.5	)
Time, $100,000 and over		326,694,000		14.3			347,058,000		14.6			(5.9	)
Total local deposits		2,232,950,000		98.0			2,298,795,000		96.8			(2.9	)
Out-of-area time, under $100,000		0		NA			0		NA			NA
Out-of-area time, $100,000 and over		45,066,000		2.0			76,190,000		3.2			(40.9	)
Total out-of-area deposits		45,066,000		2.0			76,190,000		3.2			(40.9	)
Total deposits	$	2,278,016,000		100.0	%	$	2,374,985,000		100.0	%		(4.1	%)

Time deposits of more than $250,000 totaled $201 million and $178 million at March 31, 2017 and March 31, 2016, respectively.

(Continued)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.     SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements follows:

	Three Months Ended			Twelve Months Ended
	March 31, 2017			December 31, 2016
Outstanding balance at end of period	$	126,679,000		$	131,710,000
Average interest rate at end of period		0.16	%		0.16	%
Average daily balance during the period	$	128,933,000		$	149,079,000
Average interest rate during the period		0.16	%		0.14	%
Maximum daily balance during the period	$	142,459,000		$	175,088,000

Repurchase agreements generally have original maturities of less than one year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of our bank and are held in safekeeping by a correspondent bank. Repurchase agreements are secured by securities with an aggregate market value equal to the aggregate outstanding balance.

7.     FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances totaled $205 million at March 31, 2017, and mature at varying dates from May 2017 through April 2024, with fixed rates of interest from 1.04% to 2.39% and averaging 1.59%. FHLBI advances totaled $175 million at December 31, 2016, and were expected to mature at varying dates ranging from March 2017 through April 2023, with fixed rates of interest from 1.04% to 2.11% and averaging 1.48%.

Each advance is payable at its maturity date and is subject to a prepayment fee if paid prior to the maturity date. The advances are collateralized by residential mortgage loans, first mortgage liens on multi-family residential property loans, first mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit as of March 31, 2017 totaled about $541 million, with remaining availability based on collateral approximating $336 million.

Maturities of currently outstanding FHLBI advances are as follows:

2017	$	35,000,000
2018		20,000,000
2019		30,000,000
2020		30,000,000
2021		30,000,000
Thereafter		60,000,000

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.     COMMITMENTS AND OFF-BALANCE SHEET RISK

Our bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan 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. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our bank’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Our bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on our credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and is generally recorded as a liability. There was no reserve or liability balance for these instruments as of March 31, 2017 and December 31, 2016.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at March 31, 2017 and December 31, 2016 follows:

	March 31,		December 31,
	2017		2016
Commercial unused lines of credit	$	533,402,000	$	553,345,000
Unused lines of credit secured by 1 – 4 family residential properties		60,122,000		56,275,000
Credit card unused lines of credit		28,140,000		22,689,000
Other consumer unused lines of credit		8,807,000		8,489,000
Commitments to make loans		216,371,000		154,338,000
Standby letters of credit		26,902,000		26,202,000
	$	873,744,000	$	821,338,000

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 8.    COMMITMENTS AND OFF-BALANCE SHEET RISK (Continued)

Certain of our commercial loan customers have entered into interest rate swap agreements directly with our correspondent banks. To assist our commercial loan customers in these transactions, and to encourage our correspondent banks to enter into the interest rate swap transactions with minimal credit underwriting analyses on their part, we have entered into risk participation agreements with the correspondent banks whereby we agree to make payments to the correspondent banks owed by our commercial loan customers under the interest rate swap agreement in the event that our commercial loan customers do not make the payments. We are not a party to the interest rate swap agreements under these arrangements. As of March 31, 2017, the total notional amount of the underlying interest rate swap agreements was $13.6 million, with a net fair value from our commercial loan customers’ perspective of negative $1.6 million. These risk participation agreements are considered financial guarantees in accordance with applicable accounting guidance and are therefore recorded as liabilities at fair value, generally equal to the fees collected at the time of their execution. These liabilities are accreted into income during the term of the interest rate swap agreements, generally ranging from four to fifteen years.

9.     HEDGING ACTIVITIES

Our interest rate risk policy includes guidelines for measuring and monitoring interest rate risk. Within these guidelines, parameters have been established for maximum fluctuations in net interest income. Possible fluctuations are measured and monitored using net interest income simulation. Our policy provides for the use of certain derivative instruments and hedging activities to aid in managing interest rate risk to within the policy parameters.

In February 2012, we entered into an interest rate swap agreement with a correspondent bank to hedge the floating rate on our subordinated debentures, which became effective in January 2013 and matures in January 2018. Our $32.0 million of subordinated debentures have a rate equal to the 90-Day Libor Rate plus a fixed spread of 218 basis points, and are subject to repricing quarterly. The interest rate swap agreement provides for us to pay our correspondent bank a fixed rate, while our correspondent bank will pay us the 90-Day Libor Rate on a $32.0 million notional amount. The quarterly re-set dates for the floating rate on the interest rate swap agreement are the same as the re-set dates for the floating rate on the subordinated debentures. The interest rate swap agreement does qualify for hedge accounting; therefore, monthly fluctuations in the present value of the interest rate swap agreement, net of tax effect, are recorded to other comprehensive income. As of March 31, 2017 and December 31, 2016, the fair value of the interest rate swap agreement was recorded as a liability in the amount of less than $0.1 million.

Effective January 26, 2016, the notional amount of the interest rate swap agreement was reduced from $32.0 million down to $21.0 million, reflecting the $11.0 million repurchase of the associated trust preferred securities on that date. We reclassified out of accumulated other comprehensive income and recorded interest expense of approximately $0.2 million in January 2016 as part of the transaction, reflecting the market value (i.e., present value of expected future cash flows) of the interest rate swap on that date of the $11.0 million portion.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of March 31, 2017 and December 31, 2016 (dollars in thousands):

	Level in		March 31, 2017				December 31, 2016
	Fair Value		Carrying		Fair		Carrying		Fair
	Hierarchy		Values		Values		Values		Values
Financial assets:
Cash	Level 1		$	11,279	$	11,279	$	11,493	$	11,493
Cash equivalents	Level 2			41,697		41,697		172,103		172,103
Securities available for sale	(1)			332,441		332,441		328,060		328,060
FHLBI stock	(2)			9,236		9,236		8,026		8,026
Loans, net	Level 3			2,421,111		2,410,034		2,359,624		2,353,276
Loans held for sale	Level 2			1,927		1,927		1,035		1,035
Bank owned life insurance	Level 2			66,211		66,211		67,198		67,198
Accrued interest receivable	Level 2			8,542		8,542		7,714		7,714
Financial liabilities:
Deposits	Level 2			2,278,016		2,181,344		2,374,985		2,286,548
Repurchase agreements	Level 2			126,679		126,679		131,710		131,710
FHLBI advances	Level 2			205,000		204,156		175,000		174,734
Subordinated debentures	Level 2			45,006		45,392		44,835		45,220
Accrued interest payable	Level 2			1,465		1,465		1,592		1,592
Interest rate swap		(1)		42		42		84		84

(1) See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

(2) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, bank owned life insurance, noninterest checking deposits, securities sold under agreements to repurchase, and variable rate loans and deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans and deposits and for variable rate loans and deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of subordinated debentures and FHLBI advances is based on current rates for similar financing. Fair value of the interest rate swap is determined primarily utilizing market-consensus forecasted yield curves. Fair value of off-balance sheet items is estimated to be nominal.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES

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

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

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 2 securities include U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, municipal general obligation and revenue bonds and mutual funds. Level 3 securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information becomes known which necessitates a valuation allowance. There was no such valuation allowance as of March 31, 2017 or December 31, 2016. We have no Level 1 securities available for sale.

Derivatives. The interest rate swap is measured at fair value on a recurring basis. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves, and accordingly, the interest rate swap agreement is classified as Level 2.

Mortgage loans held for sale. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of March 31, 2017 and December 31, 2016, we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of $1.9 million and $1.0 million, respectively.

Loans. We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off.

Foreclosed Assets. At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 are as follows:

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	156,011,000		$	0	$	156,011,000		$	0
Mortgage-backed securities		43,704,000			0		43,704,000			0
Municipal general obligation bonds		122,530,000			0		116,131,000			6,399,000
Municipal revenue bonds		8,239,000			0		8,239,000			0
Other investments		1,957,000			0		1,957,000			0
Interest rate swap		(42,000	)		0		(42,000	)		0
Total	$	332,399,000		$	0	$	326,000,000		$	6,399,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during the first three months of 2017.

The balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 are as follows:

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	152,040,000		$	0	$	152,040,000		$	0
Mortgage-backed securities		47,392,000			0		47,392,000			0
Municipal general obligation bonds		119,047,000			0		112,648,000			6,399,000
Municipal revenue bonds		7,631,000			0		7,631,000			0
Other investments		1,950,000			0		1,950,000			0
Interest rate swap		(84,000	)		0		(84,000	)		0
Total	$	327,976,000		$	0	$	321,577,000		$	6,399,000

There were no transfers in or out of Level 1, Level 2 or Level 3 during 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.  FAIR VALUES (Continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2017 are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	8,119,000	$	0	$	0	$	8,119,000
Foreclosed assets		495,000		0		0		495,000
Total	$	8,614,000	$	0	$	0	$	8,614,000

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2016 are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	9,896,000	$	0	$	0	$	9,896,000
Foreclosed assets		469,000		0		0		469,000
Total	$	10,365,000	$	0	$	0	$	10,365,000

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on impaired loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address current distressed market conditions. For real estate dependent loans and foreclosed assets, we generally assign a 15% to 25% discount factor for commercial-related properties, and a 25% to 50% discount factor for residential-related properties. In a vast majority of cases, we assign a 10% discount factor for estimated selling costs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.  REGULATORY MATTERS

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on our financial statements.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution may make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions may be imposed on the institution at the discretion of the federal regulator. At March 31, 2017 and December 31, 2016, our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since March 31, 2017 that we believe have changed our bank’s categorization.

Our actual capital levels (dollars in thousands) and the minimum levels required to be categorized as adequately and well capitalized were:

											Minimum Required
											to be Well
						Minimum Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2017
Total capital (to risk weighted assets)
Consolidated	$	359,984		13.1	%	$	220,614		8.0	%	NA		NA
Bank		356,798		13.0			220,408		8.0			275,509		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		341,708		12.4			165,461		6.0		NA		NA
Bank		338,522		12.3			165,306		6.0			220,408		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		298,776		10.8			124,096		4.5		NA		NA
Bank		338,522		12.3			123,980		4.5			179,081		6.5
Tier 1 capital (to average assets)
Consolidated		341,708		11.5			118,508		4.0		NA		NA
Bank		338,522		11.4			118,462		4.0			148,078		5.0

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.     REGULATORY MATTERS (Continued)

											Minimum Required
											to be Well
						Minimum Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2016
Total capital (to risk weighted assets)
Consolidated	$	354,278		13.1	%	$	215,819		8.0	%	NA		NA
Bank		353,243		13.1			215,605		8.0			269,506		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		336,316		12.5			161,864		6.0		NA		NA
Bank		335,282		12.4			161,704		6.0			215,605		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		293,555		10.9			121,398		4.5		NA		NA
Bank		335,282		12.4			121,278		4.5			175,179		6.5
Tier 1 capital (to average assets)
Consolidated		336,316		11.2			120,486		4.0		NA		NA
Bank		335,282		11.1			120,383		4.0			150,479		5.0

Our consolidated capital levels as of March 31, 2017 and December 31, 2016 include $42.9 million and $42.8 million, respectively, of trust preferred securities subject to certain limitations. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that may be included in our Tier 1 capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Our ability to include the trust preferred securities in Tier 1 capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before May 19, 2010, and (ii) our total consolidated assets as of December 31, 2009 were less than $15.0 billion. As of March 31, 2017 and December 31, 2016, all $42.9 million and $42.8 million, respectively, of the trust preferred securities were included in our consolidated Tier 1 capital.

Under the final BASEL III capital rules that became effective on January 1, 2015, there is a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. We believe that, as of March 31, 2017, our bank would meet all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis as if all such requirements were currently in effect.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.   REGULATORY MATTERS (Continued)

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. On January 12, 2017, our Board of Directors declared a cash dividend on our common stock in the amount of $0.18 per share that was paid on March 22, 2017 to shareholders of record as of March 10, 2017. On April 13, 2017, our Board of Directors declared a cash dividend on our common stock in the amount of $0.18 per share that will be paid on June 21, 2017 to shareholders of record as of June 9, 2017.

On January 30, 2015, we announced that our Board of Directors had authorized a new program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On April 19, 2016, we announced a $15.0 million expansion of the stock repurchase plan. Since inception, we have purchased a total of 956,419 shares at a total price of $19.5 million, at an average price per share of $20.38; no shares were purchased under the authorized plan during the first three months of 2017. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made in future periods under the authorized plan, which would also likely be funded from cash dividends paid to us from our bank.

On January 26, 2016, we closed on a repurchase of trust preferred securities that were auctioned as part of a pooled collateralized debt obligation (“Fund”). The Fund owned $11.0 million of the $32.0 million in trust preferred securities that had been issued by Mercantile Bank Capital Trust I, a wholly-owned business trust subsidiary. The $11.0 million in trust preferred securities was retired upon the repurchase, resulting in a commensurate reduction in the related Floating Rate Junior Subordinate Note, leaving $21.0 million outstanding. Our winning bid equated to 73% of the $11.0 million par value, with the 27% discount resulting in a pre-tax gain of approximately $3.0 million (after-tax gain of approximately $1.8 million, or $0.11 per diluted share). The repurchase was primarily funded via a $9.1 million cash dividend from our bank, resulting in an approximately 35 basis point decline in the bank's regulatory capital ratios. Subsequent to the repurchase, the regulatory capital ratios of both Mercantile and our bank remained well above the minimum thresholds to be categorized as well capitalized.

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

Forward Looking Statements

This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and our company. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “projects,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward looking-statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future Factors include, among others, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies; and risk factors described in our annual report on Form 10-K for the year ended December 31, 2016 or in this report. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

Introduction

The following discussion compares the financial condition of Mercantile Bank Corporation and its consolidated subsidiaries, including Mercantile Bank of Michigan (“our bank”) and our bank’s two subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance company”), at March 31, 2017 and December 31, 2016 and the results of operations for the three months ended March 31, 2017 and March 31, 2016. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included in this report. Unless the text clearly suggests otherwise, references in this report to “us,” “we,” “our” or “the company” include Mercantile Bank Corporation and its consolidated subsidiaries referred to above.

Critical Accounting Policies

Accounting principles generally accepted in the United States of America are complex and require us to apply significant judgment to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurements are not possible or practical. Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited financial statements included in this report. For a discussion of our significant accounting policies, see Note 1 of the Notes to our Consolidated Financial Statements included on pages F-42 through F-49 in our Form 10-K for the fiscal year ended December 31, 2016 (Commission file number 000-26719). Our critical accounting policies are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements, and actual results may differ from those estimates. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

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Allowance for Loan Losses: The allowance for loan losses (“allowance”) is maintained at a level we believe is adequate to absorb probable incurred losses identified and inherent in the originated loan portfolio. Our evaluation of the adequacy of the allowance is an estimate based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, guidance from bank regulatory agencies, and assessments of the impact of current and anticipated economic conditions on the loan portfolio. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. Loan losses are charged against the allowance when we believe the uncollectability of a loan is likely. The balance of the allowance represents our best estimate, but significant downturns in circumstances relating to loan quality or economic conditions could result in a requirement for an increased allowance in the future. Likewise, an upturn in loan quality or improved economic conditions may result in a decline in the required allowance in the future. In either instance, unanticipated changes could have a significant impact on the allowance and operating results.

The allowance is increased through a provision charged to operating expense. Uncollectable loans are charged-off through the allowance. Recoveries of loans previously charged-off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Impairment is evaluated on an individual loan basis. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The timing of obtaining outside appraisals varies, generally depending on the nature and complexity of the property being evaluated, general breadth of activity within the marketplace and the age of the most recent appraisal. For collateral dependent impaired loans, in most cases we obtain and use the “as is” value as indicated in the appraisal report, adjusting for any expected selling costs. In certain circumstances, we may internally update outside appraisals based on recent information impacting a particular or similar property, or due to identifiable trends (e.g., recent sales of similar properties) within our markets. The expected future cash flows exclude potential cash flows from certain guarantors. To the extent these guarantors provide repayments, a recovery would be recorded upon receipt. Loans are evaluated for impairment when payments are delayed, typically 30 days or more, or when serious deficiencies are identified within the credit relationship. Our policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. We put loans into nonaccrual status when the full collection of principal and interest is not expected.

Income Tax Accounting: Current income tax assets and liabilities are established for the amount of taxes payable or refundable for the current year. In the preparation of income tax returns, tax positions are taken based on interpretation of federal and state income tax laws for which the outcome may be uncertain. We periodically review and evaluate the status of our tax positions and make adjustments as necessary. Deferred income tax assets and liabilities are also established for the future tax consequences of events that have been recognized in our financial statements or tax returns. A deferred income tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences that can be carried forward (used) in future years. The valuation of our net deferred income tax asset is considered critical as it requires us to make estimates based on provisions of the enacted tax laws. The assessment of the realizability of the net deferred income tax asset involves the use of estimates, assumptions, interpretations and judgments concerning accounting pronouncements, federal and state tax codes and the extent of future taxable income. There can be no assurance that future events, such as court decisions, positions of federal and state tax authorities, and the extent of future taxable income will not differ from our current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings.

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Accounting guidance requires that we assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, we consider both positive and negative evidence and analyze changes in near-term market conditions as well as other factors which may impact future operating results. Significant weight is given to evidence that can be objectively verified.

Securities and Other Financial Instruments: Securities available for sale consist of bonds and notes which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Securities classified as available for sale are reported at their fair value. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other than temporary losses, management considers: (1) the length of time and extent that fair value has been less than carrying value; (2) the financial condition and near term prospects of the issuer; and (3) the Company’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Fair values for securities available for sale are obtained from outside sources and applied to individual securities within the portfolio. The difference between the amortized cost and the current fair value of securities is recorded as a valuation adjustment and reported in other comprehensive income.

Mortgage Servicing Rights: Mortgage servicing rights are recognized as assets based on the allocated fair value of retained servicing rights on loans sold. Servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing income. We utilize a discounted cash flow model to determine the value of our servicing rights. The valuation model utilizes mortgage prepayment speeds, the remaining life of the mortgage pool, delinquency rates, our cost to service loans, and other factors to determine the cash flow that we will receive from serving each grouping of loans. These cash flows are then discounted based on current interest rate assumptions to arrive at the fair value of the right to service those loans. Impairment is evaluated quarterly based on the fair value of the servicing rights, using groupings of the underlying loans classified by interest rates. Any impairment of a grouping is reported as a valuation allowance.

Goodwill: Generally accepted accounting principles require us to determine the fair value of all of the assets and liabilities of an acquired entity, and record their fair value on the date of acquisition. We employ a variety of means in determination of the fair value, including the use of discounted cash flow analysis, market comparisons, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculation of the value. In other cases, where the value is not easily determined, we consult with outside parties to determine the fair value of the asset or liability. Once valuations have been adjusted, the net difference between the price paid for the acquired company and the value of its balance sheet is recorded as goodwill.

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed if conditions in the market place or changes in the company’s organizational structure occur. We use a discounted income approach and a market valuation model, which compares the inherent value of our company to valuations of recent transactions in the market place to determine if our goodwill has been impaired.

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Financial Overview

We reported net income of $7.6 million, or $0.46 per diluted share, for the first quarter of 2017, compared to $8.5 million, or $0.52 per diluted share, during the first quarter of 2016. A bank owned life insurance benefit claim during the first quarter of 2017 increased diluted earnings per share by $0.06, while the repurchase of $11.0 million in trust preferred securities at a 27% discount during the first quarter of 2016 increased diluted earnings per share by $0.11. Adjusting net income by eliminating these two events, we earned $0.40 per diluted share during the first quarter of 2017, compared to $0.41 per diluted share during the first quarter of 2016.

The overall quality of our loan portfolio remains strong, with nonperforming loans equaling only 0.30% of total loans as of March 31, 2017. Gross loan charge-offs totaled $0.5 million during the first quarter of 2017, while recoveries of prior period loan charge-offs totaled $0.2 million, providing for net loan charge-offs of only $0.3 million, or 0.05% of average total loans on an annualized basis. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries.

New commercial term loan originations totaled approximately $130 million during the first quarter of 2017. Net loan growth for the first quarter of 2017 totaled $62.7 million, reflecting the impact of scheduled monthly payments as well as expected and unexpected commercial loan payoffs. The new loan pipeline remains strong, and at March 31, 2017, we had over $83 million in unfunded loan commitments on commercial construction and development projects that are in the construction phase. We believe our loan portfolio remains well diversified, with commercial and industrial loans equaling 31%, commercial real estate non-owner occupied loans comprising 32%, commercial real estate owner occupied loans comprising 19% and residential mortgage and consumer loans aggregating 13% of total loans at March 31, 2017. As a percent of total commercial loans, commercial and industrial loans and commercial real estate owner occupied loans combined equaled 57% at March 31, 2017.

We believe our funding structure also remains well diversified. As of March 31, 2017, noninterest-bearing checking accounts comprised 29%, interest-bearing checking and securities sold under agreements to repurchase (“sweep accounts”) combined for 19%, savings deposits and money market accounts aggregated to 24% and local time deposits accounted for 18% of total funds. Wholesale funds, comprised of brokered deposits and Federal Home Loan Bank of Indianapolis (“FHLBI”) advances, represented the remaining 10% of total funds.

Financial Condition

Our total assets decreased $63.7 million during the first three months of 2017, and totaled $3.02 billion as of March 31, 2017. Total loans increased $62.7 million and securities available for sale grew $4.4 million, while cash and cash equivalents declined $131 million. Total deposits decreased $97.0 million during the first three months of 2017, while FHLBI advances increased $30.0 million. The decline in cash and cash equivalents, largely reflecting a reduction in our deposit account at the Federal Reserve Bank of Chicago, primarily resulted from the use of on balance sheet liquidity to fund loan growth and deposit withdrawals. Noninterest-bearing deposits declined $52.9 million, in general reflecting federal income tax payments from certain of our commercial customers during the initial few weeks of the quarter. Interest-bearing deposits decreased $44.1 million, of which $31.1 million represents a reduction in our brokered deposit portfolio. The $30.0 million increase in FHLBI advances reflects new advances obtained late in the quarter to fund loan growth.

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Commercial loans increased $58.0 million during the first three months of 2017, and at March 31, 2017 totaled $2.12 billion, or 87.0% of the loan portfolio. As of December 31, 2016, the commercial loan portfolio comprised 86.8% of total loans. The increase in commercial loans during the first three months of 2017 primarily reflects new commercial term loans to existing and new borrowers. Commercial and industrial loans were up $43.3 million, non-owner occupied commercial real estate (“CRE”) loans increased $20.3 million and owner occupied CRE loans increased $1.9 million. Multi-family and residential rental loans declined $4.6 million and vacant land, land development and residential construction loans were down $2.9 million. As a percent of total commercial loans, commercial and industrial loans and commercial real estate owner occupied loans combined equaled 57.0% as of March 31, 2017, compared to 56.4% at December 31, 2016.

We are very pleased with the approximately $1.2 billion in new commercial term loan fundings since the beginning of 2015, including about $130 million during the first three months of 2017. As of March 31, 2017, availability on existing construction and development loans totaled over $83 million, with most of those funds expected to be drawn over the next 12 to 18 months. Our current pipeline reports indicate continued strong commercial loan funding opportunities in future periods, including approximately $216 million in new lending commitments, a majority of which we expect to be accepted and funded over the next 12 to 18 months. Our commercial lenders also report substantial additional opportunities they are currently discussing with existing and potentially new borrowers.

We continue to experience commercial loan principal paydowns and payoffs. While a portion of the principal paydowns and payoffs received have been welcomed, such as on stressed loan relationships, we have also experienced instances where well-performing relationships have been refinanced at other financial institutions or non-bank entities, and other situations where the borrower has sold the underlying asset. In many of those instances where the loans were refinanced elsewhere, we believed the terms and conditions of the new lending arrangements were too aggressive, generally reflecting the very competitive banking environment in our markets. We remain committed to prudent underwriting standards that provide for an appropriate yield and risk relationship, as well as concentration limits we have established within our commercial loan portfolio. Usage of existing commercial lines of credit has remained relatively steady.

One-to-four family mortgage loans and other consumer loans increased a combined $4.7 million during the first three months of 2017, and at March 31, 2017, totaled a combined $318 million, or 13.0% of total loans. One-to-four family mortgage loans and other consumer loans, when combined, equated to 13.2% of total loans as of December 31, 2016.

The following table summarizes our loan portfolio at March 31, 2017:

	3/31/17		12/31/16		9/30/16		6/30/16		3/31/16
Commercial:
Commercial & Industrial	$	757,220,000	$	713,903,000	$	750,330,000	$	750,136,000	$	714,612,000
Land Development & Construction		31,924,000		34,828,000		37,455,000		40,529,000		39,630,000
Owner Occupied Commercial RE		452,382,000		450,464,000		440,704,000		438,798,000		441,662,000
Non-Owner Occupied Commercial RE		768,565,000		748,269,000		741,444,000		716,930,000		666,013,000
Multi-Family & Residential Rental		113,257,000		117,883,000		118,103,000		113,362,000		112,533,000
Total Commercial		2,123,348,000		2,065,347,000		2,088,036,000		2,059,755,000		1,974,450,000
Retail:
1-4 Family Mortgages		112,117,000		118,047,000		190,715,000		189,118,000		185,535,000
Home Equity & Other Consumer Loans		205,849,000		195,226,000		127,626,000		131,067,000		135,683,000
		317,966,000		313,273,000		318,341,000		320,185,000		321,218,000
Total	$	2,441,314,000	$	2,378,620,000	$	2,406,377,000	$	2,379,940,000	$	2,295,668,000

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Our credit policies establish guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to provide effective loan portfolio administration. The credit policies and procedures are meant to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, we must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur quickly because of changing economic conditions. Identified problem loans, which exhibit characteristics (financial or otherwise) that could cause the loans to become nonperforming or require restructuring in the future, are included on an internal watch list. Senior management and the Board of Directors review this list regularly. Market value estimates of collateral on impaired loans, as well as on foreclosed and repossessed assets, are reviewed periodically; however, we have a process in place to monitor whether value estimates at each quarter-end are reflective of current market conditions. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We may also adjust outside and internal valuations based on identifiable trends within our markets, such as recent sales of similar properties or assets, listing prices and offers received. In addition, we may discount certain appraised and internal value estimates to address distressed market conditions.

Nonperforming assets, comprised of nonaccrual loans, loans past due 90 days or more and accruing interest and foreclosed properties, totaled $7.8 million (0.3% of total assets) as of March 31, 2017, compared to $6.4 million (0.2% of total assets) as of December 31, 2016. Given the low level of nonperforming loans and accruing loans 30 to 89 days delinquent, combined with the manageable and steady level of watch list credits and what we believe are strong credit administration practices, we remain pleased with the overall quality of the loan portfolio.

The following tables provide a breakdown of nonperforming assets by collateral type:

NONPERFORMING LOANS
	3/31/17		12/31/16		9/30/16		6/30/16		3/31/16
Residential Real Estate:
Land Development	$	0	$	16,000	$	23,000	$	42,000	$	30,000
Construction		0		0		0		319,000		0
Owner Occupied / Rental		2,787,000		2,739,000		2,661,000		2,638,000		2,484,000
		2,787,000		2,755,000		2,684,000		2,999,000		2,514,000
Commercial Real Estate:
Land Development		80,000		95,000		110,000		125,000		140,000
Construction		0		0		0		0		0
Owner Occupied		911,000		285,000		1,109,000		1,786,000		1,970,000
Non-Owner Occupied		421,000		488,000		673,000		51,000		51,000
		1,412,000		868,000		1,892,000		1,962,000		2,161,000
Non-Real Estate:
Commercial Assets		3,076,000		2,293,000		65,000		165,000		137,000
Consumer Assets		17,000		23,000		28,000		42,000		30,000
		3,093,000		2,316,000		93,000		207,000		167,000
Total	$	7,292,000	$	5,939,000	$	4,669,000	$	5,168,000	$	4,842,000

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OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS
	3/31/17		12/31/16		9/30/16		6/30/16		3/31/16
Residential Real Estate:
Land Development	$	0	$	0	$	0	$	0	$	0
Construction		0		0		0		0		0
Owner Occupied / Rental		185,000		144,000		284,000		255,000		471,000
		185,000		144,000		284,000		255,000		471,000
Commercial Real Estate:
Land Development		0		0		0		0		0
Construction		0		0		0		0		0
Owner Occupied		310,000		325,000		488,000		477,000		907,000
Non-Owner Occupied		0		0		18,000		83,000		100,000
		310,000		325,000		506,000		560,000		1,007,000
Non-Real Estate:
Commercial Assets		0		0		0		0		0
Consumer Assets		0		0		0		0		0
		0		0		0		0		0
Total	$	495,000	$	469,000	$	790,000	$	815,000	$	1,478,000

The following tables provide a reconciliation of nonperforming assets:

NONPERFORMING LOANS RECONCILIATION
	1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
	2017			2016			2016			2016			2016
Beginning balance	$	5,939,000		$	4,669,000		$	5,168,000		$	4,842,000		$	5,444,000
Additions, net of transfers to ORE		2,890,000			2,932,000			1,111,000			1,082,000			528,000
Returns to performing status		(113,000	)		(13,000	)		0			0			0
Principal payments		(1,289,000	)		(1,386,000	)		(1,509,000	)		(495,000	)		(774,000	)
Loan charge-offs		(135,000	)		(263,000	)		(101,000	)		(261,000	)		(356,000	)
Total	$	7,292,000		$	5,939,000		$	4,669,000		$	5,168,000		$	4,842,000

OTHER REAL ESTATE OWNED & REPOSSESSED ASSETS RECONCILIATION
	1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
	2017			2016			2016			2016			2016
Beginning balance	$	469,000		$	790,000		$	815,000		$	1,478,000		$	1,293,000
Additions		97,000			54,000			61,000			14,000			595,000
Sale proceeds		(56,000	)		(308,000	)		(76,000	)		(642,000	)		(402,000	)
Valuation write-downs		(15,000	)		(67,000	)		(10,000	)		(35,000	)		(8,000	)
Total	$	495,000		$	469,000		$	790,000		$	815,000		$	1,478,000

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During the first quarter of 2017, loan charge-offs totaled $0.5 million while recoveries of prior period charge-offs equaled $0.2 million, providing for net loan charge-offs of $0.3 million, or an annualized 0.05% of average total loans. We continue our collection efforts on charged-off loans and expect to record recoveries in future periods; however, given the nature of these efforts, it is not practical to forecast the dollar amount and timing of the recoveries.

In each accounting period, we adjust the allowance to the amount we believe is necessary to maintain the allowance at an adequate level. Through the loan review and credit departments, we establish portions of the allowance based on specifically identifiable problem loans. The evaluation of the allowance is further based on, but not limited to, consideration of the internally prepared allowance analysis, loan loss migration analysis, composition of the loan portfolio, third party analysis of the loan administration processes and portfolio, and general economic conditions.

The allowance analysis applies reserve allocation factors to non-impaired outstanding loan balances, the result of which is combined with specific reserves to calculate an overall allowance dollar amount. For non-impaired commercial loans, reserve allocation factors are based on the loan ratings as determined by our standardized grade paradigms and by loan purpose. Our commercial loan portfolio is segregated into five classes: 1) commercial and industrial loans; 2) vacant land, land development and residential construction loans; 3) owner occupied real estate loans; 4) non-owner occupied real estate loans; and 5) multi-family and residential rental property loans. The reserve allocation factors are primarily based on the historical trends of net loan charge-offs through a migration analysis whereby net loan losses are tracked via assigned grades over various time periods, with adjustments made for environmental factors reflecting the current status of, or recent changes in, items such as: lending policies and procedures; economic conditions; nature and volume of the loan portfolio; experience, ability and depth of management and lending staff; volume and severity of past due, nonaccrual and adversely classified loans; effectiveness of the loan review program; value of underlying collateral; loan concentrations; and other external factors such as competition and regulatory environment. Adjustments for specific lending relationships, particularly impaired loans, are made on a case-by-case basis. Non-impaired retail loan reserve allocations are determined in a similar fashion as those for non-impaired commercial loans, except that retail loans are segmented by type of credit and not a grading system. We regularly review the allowance analysis and make needed adjustments based upon identifiable trends and experience.

A migration analysis is completed quarterly to assist us in determining appropriate reserve allocation factors for non-impaired commercial loans. Our migration analysis takes into account various time periods, with most weight placed on the time frame from December 31, 2010 through March 31, 2017. We believe this time period represents an appropriate range of economic conditions, and that it provides for an appropriate basis in determining reserve allocation factors given current economic conditions and the general consensus of economic conditions in the near future.

Although the migration analysis provides a historical accounting of our net loan losses, it is not able to fully account for environmental factors that will also very likely impact the collectability of our commercial loans as of any quarter-end date. Therefore, we incorporate the environmental factors as adjustments to the historical data. Environmental factors include both internal and external items. We believe the most significant internal environmental factor is our credit culture and the relative aggressiveness in assigning and revising commercial loan risk ratings, with the most significant external environmental factor being the assessment of the current economic environment and the resulting implications on our commercial loan portfolio.

The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers, and we have a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position.

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The allowance for originated loans equaled $18.1 million as of March 31, 2017, or 0.9% of total originated loans outstanding, compared to $17.9 million, or 0.9% of total originated loans outstanding at December 31, 2016. We also had an allowance for acquired loans as of March 31, 2017 and December 31, 2016, equaling $0.2 million and $0.1 million, respectively. The allowance equaled 251% of nonperforming loans as of March 31, 2017, compared to 302% as of December 31, 2016. The decrease in this ratio during the first quarter primarily reflects a $1.4 million increase in nonperforming loans.

As of March 31, 2017, the allowance for originated loans was comprised of $14.5 million in general reserves relating to non-impaired loans, $3.2 million in specific reserve allocations relating to nonaccrual loans, and $0.4 million in specific reserves on other loans, primarily accruing loans designated as troubled debt restructurings. Troubled debt restructurings totaled $12.2 million at March 31, 2017, consisting of $0.7 million that are on nonaccrual status and $11.5 million that are on accrual status. The latter, while considered and accounted for as impaired loans in accordance with accounting guidelines, is not included in our nonperforming loan totals. Impaired loans with an aggregate carrying value of $0.6 million as of March 31, 2017 had been subject to previous partial charge-offs aggregating $0.7 million. Those partial charge-offs were primarily recorded in 2011 and 2010. As of March 31, 2017, there were no specific reserves allocated to impaired loans that had been subject to a previous partial charge-off.

The following table provides a breakdown of our originated and acquired loans categorized as troubled debt restructurings:

	3/31/17		12/31/16		9/30/16		6/30/16		3/31/16
Performing	$	11,497,000	$	12,480,000	$	17,717,000	$	19,403,000	$	19,088,000
Nonperforming		731,000		1,132,000		1,630,000		1,950,000		2,112,000
Total	$	12,228,000	$	13,612,000	$	19,347,000	$	21,353,000	$	21,200,000

Although we believe the allowance is adequate to absorb loan losses in our originated loan portfolio as they arise, there can be no assurance that we will not sustain loan losses in any given period that could be substantial in relation to, or greater than, the size of the allowance.

Securities available for sale increased $4.4 million during the first three months of 2017, totaling $332 million as of March 31, 2017. Purchases during the first three months of 2017, consisting almost exclusively of U.S. Government agency bonds ($10.2 million) and municipal bonds ($4.5 million), totaled $14.7 million. Proceeds from matured and called U.S. Government agency bonds and municipal bonds during the first three months of 2017 totaled $6.5 million and $0.7 million, respectively, with another $3.7 million from principal paydowns on mortgage-backed securities. At March 31, 2017, the portfolio was primarily comprised of U.S. Government agency bonds (47%), municipal bonds (39%) and U.S. Government agency issued or guaranteed mortgage-backed securities (13%). All of our securities are currently designated as available for sale, and are therefore stated at fair value. The fair value of securities designated as available for sale at March 31, 2017 totaled $332 million, including a net unrealized loss of $7.5 million. We maintain the securities portfolio at levels to provide adequate pledging and secondary liquidity for our daily operations. In addition, the securities portfolio serves a primary interest rate risk management function. We expect purchases during the remainder of 2017 to generally consist of U.S. Government agency bonds and municipal bonds, with the securities portfolio maintained at about 11% of total assets.

FHLBI stock totaled $9.2 million as of March 31, 2017, up $1.2 million from the balance at December 31, 2016. The increase reflects additional stock purchased in association with the $30 million increase in outstanding advances during the first quarter. Our investment in FHLBI stock is necessary to engage in their advance and other financing programs. We have regularly received quarterly cash dividends, and we expect a cash dividend will continue to be paid in future quarterly periods.

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Market values on our U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies and municipal bonds are generally determined on a monthly basis with the assistance of a third party vendor. Evaluated pricing models that vary by type of security and incorporate available market data are utilized. Standard inputs include issuer and type of security, benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The market value of certain non-rated securities issued by relatively small municipalities generally located within our markets is estimated at carrying value. We believe our valuation methodology provides for a reasonable estimation of market value, and that it is consistent with the requirements of accounting guidelines.

Interest-earning balances, primarily consisting of excess funds deposited at the Federal Reserve Bank of Chicago, are used to manage daily liquidity needs and interest rate sensitivity. During the first three months of 2017, the average balance of these funds equaled $61.4 million, or 2.2% of average earning assets. We expect the level of these funds to average approximately 1% to 2% of average earning assets in future quarters.

Net premises and equipment equaled $45.8 million at March 31, 2017, an increase of $0.4 million during the first three months of 2017. Purchases totaled $1.1 million, while depreciation expense totaled $0.7 million. Foreclosed and repossessed assets equaled $0.5 million as of March 31, 2017, unchanged from year-end 2016. While we expect periodic transfers from loans to foreclosed and repossessed assets in future periods reflecting our collection efforts on some impaired lending relationships, we believe the overall strong quality of our loan portfolio will limit any overall increase in, and average balance of, this particular nonperforming asset category.

Total deposits decreased $97.0 million during the first three months of 2017, totaling $2.28 billion at March 31, 2017. Out-of-area deposits decreased $31.1 million during the first three months of 2017, and as a percent of total deposits, equaled 2.0% as of March 31, 2017, compared to 3.2% as of December 31, 2016.

Noninterest-bearing checking accounts decreased $52.9 million during the first three months of 2017, generally due to federal income tax payments by certain commercial customers, which more than offset growth from deposit account openings as part of recently established commercial lending relationships and transfers from closed sweep accounts. Interest-bearing checking accounts decreased $6.3 million, money market deposit accounts grew $7.1 million and savings deposits increased $10.4 million during the first three months of 2017. Local time deposits declined $24.1 million, primarily consisting of transfers to non-time deposits at maturity by businesses and consumers, as well as non-renewed maturities from certain municipal customers. The transfers are a continuation of a trend over the past several years due to the low interest rate environment, and we expect this trend to continue at least until deposit rates start to increase in a meaningful way.

Sweep accounts decreased $5.0 million during the first three months of 2017, totaling $127 million as of March 31, 2017. Total balances in this product have been on a declining trend over the past few years, in large part reflecting customers closing sweep accounts and depositing the funds into stand-alone noninterest-bearing checking accounts. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into over-night interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance, and are accounted for as secured borrowings.

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FHLBI advances increased $30.0 million during the first three months of 2017, reflecting new advances obtained to fund loan growth and brokered deposit maturities. As of March 31, 2017, FHLBI advances totaled $205 million. The FHLBI advances are generally collateralized by a blanket lien on our residential mortgage loan portfolio and certain commercial real estate loans. Our borrowing line of credit as of March 31, 2017 totaled about $541 million, with remaining availability approximating $336 million.

Shareholders’ equity was $348 million at March 31, 2017, compared to $341 million at December 31, 2016. The $7.2 million increase during the first three months of 2017 primarily reflects the positive impact of net income totaling $7.6 million and the negative impact of cash dividends on common shares totaling $2.9 million. Also positively impacting shareholders’ equity during the first three months of 2017 was an aggregate $1.1 million issuance of common stock via our dividend reinvestment plan.

Liquidity

Liquidity is measured by our ability to raise funds through deposits, borrowed funds, and capital, or cash flow from the repayment of loans and securities. These funds are used to fund loans, meet deposit withdrawals, maintain reserve requirements and operate our company. Liquidity is primarily achieved through local and out-of-area deposits and liquid assets such as securities available for sale, matured and called securities, federal funds sold and interest-earning deposits. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximizes profitability, while providing adequate liquidity.

To assist in providing needed funds, we periodically obtain monies from wholesale funding sources. Wholesale funds, primarily comprised of deposits from customers outside of our market areas and advances from the FHLBI, totaled $250 million, or 9.6% of combined deposits and borrowed funds, as of March 31, 2017, compared to $251 million, or 9.4% of combined deposits and borrowed funds, as of December 31, 2016.

Sweep accounts decreased $5.0 million during the first three months of 2017, totaling $127 million as of March 31, 2017. Total balances in this product have been on a declining trend over the past few years, in large part reflecting customers closing sweep accounts and depositing the funds into stand-alone noninterest-bearing checking accounts. Our sweep account program entails transferring collected funds from certain business noninterest-bearing checking accounts and savings deposits into over-night interest-bearing repurchase agreements. Such sweep accounts are not deposit accounts and are not afforded federal deposit insurance, and are accounted for as secured borrowings. Information regarding our repurchase agreements as of March 31, 2017 and during the first three months of 2017 is as follows:

Outstanding balance at March 31, 2017	$	126,679,000
Weighted average interest rate at March 31, 2017		0.16	%
Maximum daily balance three months ended March 31, 2017	$	142,459,000
Average daily balance for three months ended March 31, 2017	$	128,933,000
Weighted average interest rate for three months ended March 31, 2017		0.16	%

As a member of FHLBI, we have access to FHLBI advance borrowing programs. FHLBI advances increased $30.0 million during the first three months of 2017, in large part to fund loan growth and brokered deposit maturities. As of March 31, 2017, FHLBI advances totaled $205 million, and based on available collateral we could borrow an additional $336 million.

We also have the ability to borrow up to $30.0 million on a daily basis through a correspondent bank using an established unsecured federal funds purchased line of credit. We accessed this line of credit in one instance during the first three months of 2017, the first time we have accessed any federal funds purchased lines of credit since January of 2010. In contrast, our interest-earning deposit balance with the Federal Reserve Bank of Chicago averaged $59.1 million during the first three months of 2017. We also have a line of credit through the Discount Window of the Federal Reserve Bank of Chicago. Using certain municipal bonds as collateral, we could have borrowed up to $22.0 million as of March 31, 2017. We did not utilize this line of credit during the first three months of 2017 or at any time during the previous eight fiscal years, and do not plan to access this line of credit in future periods.

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The following table reflects, as of March 31, 2017, significant fixed and determinable contractual obligations to third parties by payment date, excluding accrued interest:

	One Year		One to		Three to		Over
	or Less		Three Years		Five Years		Five Years		Total
Deposits without a stated maturity	$	1,763,802,000	$	0	$	0	$	0	$	1,763,802,000
Time deposits		301,221,000		118,660,000		94,333,000		0		514,214,000
Short-term borrowings		126,679,000		0		0		0		126,679,000
Federal Home Loan Bank advances		35,000,000		30,000,000		90,000,000		50,000,000		205,000,000
Subordinated debentures		0		0		0		45,006,000		45,006,000
Other borrowed money		0		0		0		3,324,000		3,324,000
Property leases		519,000		660,000		421,000		353,000		1,953,000

In addition to normal loan funding and deposit flow, we must maintain liquidity to meet the demands of certain unfunded loan commitments and standby letters of credit. As of March 31, 2017, we had a total of $847 million in unfunded loan commitments and $26.9 million in unfunded standby letters of credit. Of the total unfunded loan commitments, $631 million were commitments available as lines of credit to be drawn at any time as customers’ cash needs vary, and $216 million were for loan commitments generally expected to close and become funded within the next 12 to 18 months. We regularly monitor fluctuations in loan balances and commitment levels, and include such data in our overall liquidity management.

We monitor our liquidity position and funding strategies on an ongoing basis, but recognize that unexpected events, changes in economic or market conditions, a reduction in earnings performance, declining capital levels or situations beyond our control could cause liquidity challenges. While we believe it is unlikely that a funding crisis of any significant degree is likely to materialize, we have developed a comprehensive contingency funding plan that provides a framework for meeting liquidity disruptions.

Capital Resources

Shareholders’ equity was $348 million at March 31, 2017, compared to $341 million at December 31, 2016. The $7.2 million increase during the first three months of 2017 primarily reflects the positive impact of net income totaling $7.6 million and the negative impact of cash dividends on common shares totaling $2.9 million. Also positively impacting shareholders’ equity during the first three months of 2017 was an aggregate $1.1 million issuance of common stock via our dividend reinvestment plan.

On January 30, 2015, we announced that our Board of Directors had authorized a new program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On April 19, 2016, we announced a $15.0 million expansion of the stock repurchase plan. Since inception, we have purchased approximately 956,000 shares at a total price of $19.5 million, at an average price per share of $20.38; no shares were purchased under the authorized plan during the first three months of 2017. The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases may be made during in future periods under the authorized plan, which would also likely be funded from cash dividends paid to us from our bank.

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We and our bank are subject to regulatory capital requirements administered by state and federal banking agencies. Failure to meet the various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. Under the final BASEL III capital rules that became effective on January 1, 2015, there is a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over three years beginning in 2016. The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5% and the total capital ratio to 10.5% on a fully phased-in basis on January 1, 2019. We believe that, as of March 31, 2017, our bank would meet all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis as if all such requirements were currently in effect.

As of March 31, 2017, our bank’s total risk-based capital ratio was 13.0%, compared to 13.1% at December 31, 2016. Our bank’s total regulatory capital increased $3.6 million during the first three months of 2017, in large part reflecting the net impact of net income totaling $8.6 million and cash dividends paid to us aggregating $4.0 million. Our bank’s total risk-based capital ratio was also impacted by a $60.0 million increase in total risk-weighted assets, primarily resulting from net loan growth. As of March 31, 2017, our bank’s total regulatory capital equaled $357 million, or approximately $81 million in excess of the 10.0% minimum which is among the requirements to be categorized as “well capitalized.” Our and our bank’s capital ratios as of March 31, 2017 and December 31, 2016 are disclosed in Note 12 of the Notes to Condensed Consolidated Financial Statements.

Results of Operations

We recorded net income of $7.6 million, or $0.46 per basic and diluted share, for the first quarter of 2017, compared to net income of $8.5 million, or $0.52 per basic and diluted share, for the first quarter of 2016. A bank owned life insurance death benefits claim during the first quarter of 2017 increased reported net income by approximately $1.1 million, or $0.06 per diluted share, while the repurchase of $11.0 million in trust preferred securities at a 27% discount during the first quarter of 2016 increased reported net income by approximately $1.8 million, or $0.11 per diluted share. Excluding the impacts of these transactions, diluted earnings per share during the first quarters of 2017 and 2016 equaled $0.40 and $0.41, respectively.

The lower level of net income in the first quarter of 2017 compared to the prior-year first quarter resulted from decreased noninterest income and net interest income, which more than offset reduced overhead costs. Noninterest income during the first quarter of 2016 was elevated mainly as a result of the recording of a gain associated with the trust preferred securities repurchase transaction, which more than offset the impact of the bank owned life insurance death benefits claim recorded during the first quarter of 2017. Excluding these transactions, noninterest income during the current-year first quarter was up compared to the respective 2016 period. The decreased net interest income primarily resulted from a lower net interest margin and the first quarter of 2017 having one less calendar day than the previous year’s first quarter, which more than offset a higher level of earning assets. The reduction in noninterest expense mainly reflects cost savings related to the cost efficiency program that was announced in the latter part of 2015 and lower Federal Deposit Insurance Corporation (“FDIC”) insurance premiums, which more than offset higher salary and benefit costs.

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Interest income during the first quarter of 2017 was $28.7 million, a decrease of $0.2 million, or 0.6%, from the $28.9 million earned during the first quarter of 2016. The decrease in interest income resulted from a lower yield on average earning assets and the first quarter of 2017 having one less calendar day, which more than offset an increase in average earning assets. The yield on average earning assets was 4.20% during the first quarter of 2017, compared to 4.37% during the first quarter of 2016. The lower yield on average earning assets primarily resulted from a decreased yield on loans, which equaled 4.54% and 4.72% during the first quarters of 2017 and 2016, respectively. The decreased yield on loans reflects the ongoing low interest rate environment, competitive pressures and a lower level of purchased loan discount accretion. The negative impact of these factors on the commercial loan yield, which declined from 4.65% in the first quarter of 2016 to 4.49% in the first quarter of 2017, was somewhat mitigated by increased rates on certain variable-rate loans stemming from the Federal Open Market Committee (“FOMC”) raising the targeted federal funds rate by 25 basis points in December of 2016 and again in March of 2017. Accretion of acquired loans amounted to $0.8 million during the first quarter of 2017, compared to $1.3 million during the first quarter of 2016. Purchased loan accretion amounts vary from period to period as a result of periodic cash flow re-estimations, loan payoffs, and payment performance. A decreased yield on securities, which declined from 2.52% during the prior-year first quarter to 2.35% during the current-year first quarter mainly due to a reduced yield on U.S. Government agency bonds, also contributed to the lower yield on average earning assets. The decreased yield on U.S. Government agency bonds largely resulted from a lower level of accelerated unaccreted discount being recorded as interest income; unaccreted discount totaling approximately $0.3 million associated with called bonds was recorded as interest income during the first quarter of 2016, compared to only a nominal amount during the first quarter of 2017. Average earning assets equaled $2.79 billion during the first quarter of 2017, up $120 million, or 4.5%, from the level of $2.67 billion during the first quarter of 2016; average loans were up $116 million, average interest-earning deposit balances were up $19.4 million, and average securities were down $15.0 million during the current-year first quarter compared to the respective 2016 period.

Interest expense during the first quarter of 2017 was $3.2 million, an increase of $0.2 million, or 6.3%, from the $3.0 million expensed during the first quarter of 2016. The increase in interest expense is primarily attributable to a higher weighted average cost of interest-bearing liabilities, which equaled 0.68% in the first quarter of 2017 compared to 0.64% in the first quarter of 2016. The increase in the weighted average cost of interest-bearing liabilities mainly reflects a change in interest-bearing liability mix and higher costs of time deposits and certain non-certificate of deposit account categories. Average higher-costing FHLBI advances represented 9.3% of average interest-bearing liabilities during the first quarter of 2017, up from 4.8% during the prior-year first quarter, while lower-costing non-time deposit accounts represented 52.7% of average interest-bearing liabilities during the first quarter of 2017, down from 53.6% during the respective 2016 period. Longer-term FHLBI advances totaling $107 million were obtained during the twelve months ended March 31, 2017 to meet loan funding and other liquidity needs. The higher cost of time deposits primarily reflects increased rates paid on time deposits over the past twelve months. The cost of interest-bearing non-time deposit accounts increased from 0.09% during the first quarter of 2016 to 0.12% during the first quarter of 2017 in light of rates being raised on certain account categories since March 31, 2016.

Net interest income during the first quarter of 2017 was $25.5 million, a decrease of $0.4 million, or 1.4%, from the $25.9 million earned during the first quarter of 2016. The decrease in net interest income was due to a lower net interest margin and the first quarter of 2017 having one less calendar day, which more than offset an increase in average earning assets. The net interest margin declined from 3.92% in the first quarter of 2016 to 3.73% in the current-year first quarter primarily due to a decreased yield on average earning assets. The decrease in the yield on average earning assets from 4.37% during the first quarter of 2016 to 4.20% during the first quarter of 2017 mainly resulted from a lower yield on loans. The ongoing low interest rate environment and continuing competitive pressures, along with a lower level of purchased loan discount accretion, negatively impacted the yield on loans during the first quarter of 2017. The negative impact of these factors was somewhat mitigated by increased rates on certain variable-rate loans stemming from the FOMC’s two recent rate hikes. As depicted by the results of our interest rate risk measurement system, further FOMC rate hikes should positively impact our net interest margin.

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The net interest margin in the first quarter of 2017 was virtually the same as the 3.72% margin in the linked quarter in light of a relatively stable yield on average earning assets and cost of funds. The yield on average earning assets equaled 4.20% and 4.18%, respectively, during the first quarter of 2017 and the fourth quarter of 2016, while the cost of funds equaled 0.47% and 0.46% during the respective periods. The negative impact of the previously-discussed lower loan yield during the first quarter of 2017 was substantially offset by the positive impact of a change in earning asset mix, resulting in the relatively steady yield on average earning assets. The change in earning asset mix primarily reflects loan growth and a reduction in interest-earning deposit balances. Higher-yielding average loans represented 85.6 percent of average earning assets during the first quarter of 2017, up from 83.6 percent during the linked quarter, while lower-yielding average interest-earning deposit balances represented 2.2 percent of average earning assets during the current-year first quarter, down from 4.5 percent during the linked quarter. The elevated level of interest-earning deposit balances during the fourth quarter of 2016 reflected a combination of a reduction in total loans and growth in local deposits. Purchased loan discount accretion totaled $1.7 million during the fourth quarter of 2016, compared to $0.8 million during the first quarter of 2017. The elevated level of purchased loan discount accretion in the fourth quarter of 2016 reflects a change in the accounting treatment for our pool of purchased CRE impaired loans as of year-end 2016, whereby we switched to the cost recovery methodology. As of December 31, 2016, payments received on CRE-pooled loans since the merger date lowered the recorded investment to $0. In accordance with the cost recovery methodology, the net deferred gain of $1.0 million was immediately recorded as interest income. After December 31, 2016, accretion income was no longer recorded on the CRE pool, but instead all payments received from borrowers were immediately recorded as interest income.

The following table sets forth certain information relating to our consolidated average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and average cost of liabilities for the first quarter of 2017 and 2016. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the period presented. Tax-exempt securities interest income and yield have been computed on a tax equivalent basis using a marginal tax rate of 35%. Securities interest income was increased by $167,000 and $184,000 in the first quarter of 2017 and 2016, respectively, for this non-GAAP, but industry standard, adjustment.  This adjustment equated to a two basis point increase in our net interest margin during the first quarter of 2017, and a three basis point increase in our net interest margin during the first quarter of 2016.

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	Quarters ended March 31,
	2 0 1 7								2 0 1 6
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(dollars in thousands)
ASSETS
Loans	$	2,390,030		$	26,733		4.54	%	$	2,273,960		$	26,779		4.72	%
Investment securities		339,537			1,995		2.35			354,499			2,237		2.52
Other interest-earning assets		61,376			143		0.81			42,008			57		0.54
Total interest - earning assets		2,790,943			28,871		4.20			2,670,467			29,073		4.37
Allowance for loan losses		(18,176	)							(15,938	)
Other assets		244,104								237,700
Total assets	$	3,016,871							$	2,892,229
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	1,542,078		$	1,868		0.49	%	$	1,588,930		$	1,866		0.47	%
Short-term borrowings		129,022			51		0.16			158,281			44		0.11
Federal Home Loan Bank advances		175,333			655		1.49			90,857			350		1.53
Other borrowings		48,258			621		5.15			50,818			747		5.82
Total interest-bearing liabilities		1,894,691			3,195		0.68			1,888,886			3,007		0.64
Noninterest-bearing deposits		766,031								652,338
Other liabilities		12,805								14,135
Shareholders’ equity		343,344								336,870
Total liabilities and shareholders’ equity	$	3,016,871							$	2,892,229
Net interest income				$	25,676							$	26,066
Net interest rate spread							3.52	%							3.73	%
Net interest spread on average assets							3.45	%							3.61	%
Net interest margin on earning assets							3.73	%							3.92	%

A loan loss provision expense of $0.6 million was recorded during both the first quarter of 2017 and the first quarter of 2016. The provision expense recorded during the periods primarily reflects ongoing loan growth. Net loan charge-offs of $0.3 million and less than $0.1 million were recorded during the first quarters of 2017 and 2016, respectively. The allowance for originated loans, as a percentage of total originated loans, was 0.9% as of March 31, 2017, and March 31, 2016. Our allowances for originated loans and acquired loans totaled $18.1 million and $0.2 million, respectively, as of March 31, 2017.

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Noninterest income during the first quarter of 2017 was $5.9 million, a decrease of $1.2 million, or 17.4%, from the $7.1 million earned during the prior-year first quarter. Noninterest income during the first quarter of 2017 included a bank owned life insurance death benefits claim of $1.4 million, while noninterest income during the first quarter of 2016 included a $2.9 million gain associated with a trust preferred securities repurchase transaction and a $0.3 million gain related to the sale of an equity investment; excluding these transactions, noninterest income increased $0.6 million or 16.6 percent in the current-year first quarter compared to the prior-year first quarter. The increase in core noninterest income primarily reflects higher mortgage banking income resulting from the positive impact of strategic initiatives that were implemented in the latter half of 2016, including the hiring of additional loan originators, introduction of new and enhanced products, loan programs and increased marketing efforts. In addition, increased payroll processing fees, debit and credit card fees, and service charges on accounts, also reflecting the success of recently-implemented strategic initiatives, contributed to the higher level of noninterest income.

Noninterest expense during the first quarter of 2017 was $19.8 million, a decrease of $0.1 million, or 0.5%, from the $19.9 million expensed during the first quarter of 2016. The decreased noninterest expense primarily reflected cost savings associated with the cost efficiency program that was announced in the latter part of 2015 and lower FDIC insurance premiums, which more than offset higher salary and benefit costs. The quarterly cost savings related to the cost efficiency program, which saves us approximately $2.7 million per year on a pre-tax basis, were fully realized starting in the second quarter of 2016. FDIC insurance premiums totaled $0.2 million during the first quarter of 2017, down $0.2 million from the prior-year first quarter mainly due to changes to the deposit insurance assessment calculation that became effective in the third quarter of 2016. Salary and benefit costs totaled $11.3 million during the current-year first quarter, up $0.3 million or 2.5 percent from the prior-year first quarter primarily due to employee merit pay increases and higher stock-based compensation expense.

During the first quarter of 2017, we recorded income before federal income tax of $11.0 million and a federal income tax expense of $3.4 million. During the first quarter of 2016, we recorded income before federal income tax of $12.5 million and a federal income tax expense of $4.0 million. The decrease in federal income tax expense resulted from the lower level of income before federal income tax and a higher level of nontaxable bank owned life insurance income stemming from the aforementioned death benefits claim. Our effective tax rate was 30.7% during the first three months of 2017, compared to 31.6% during the respective 2016 period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. We have only limited agricultural-related loan assets and therefore have no significant exposure to changes in commodity prices. Any impact that changes in foreign exchange rates and commodity prices would have on interest rates is assumed to be insignificant. Interest rate risk is the exposure of our financial condition to adverse movements in interest rates. We derive our income primarily from the excess of interest collected on our interest-earning assets over the interest paid on our interest-bearing liabilities. The rates of interest we earn on our assets and owe on our liabilities generally are established contractually for a period of time. Since market interest rates change over time, we are exposed to lower profitability if we cannot adapt to interest rate changes. Accepting interest rate risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to our earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to our safety and soundness.

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Evaluating the exposure to changes in interest rates includes assessing both the adequacy of the process used to control interest rate risk and the quantitative level of exposure. Our interest rate risk management process seeks to ensure that appropriate policies, procedures, management information systems and internal control procedures are in place to maintain interest rate risk at prudent levels with consistency and continuity. In evaluating the quantitative level of interest rate risk, we assess the existing and potential future effects of changes in interest rates on our financial condition, including capital adequacy, earnings, liquidity and asset quality.

We use two interest rate risk measurement techniques. The first, which is commonly referred to as GAP analysis, measures the difference between the dollar amounts of interest sensitive assets and liabilities that will be refinanced or repriced during a given time period. A significant repricing gap could result in a negative impact to our net interest margin during periods of changing market interest rates.

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The following table depicts our GAP position as of March 31, 2017:

	Within			Three to			One to			After
	Three			Twelve			Five			Five
	Months			Months			Years			Years			Total
Assets:
Commercial loans (1)	$	1,033,870,000		$	78,464,000		$	671,751,000		$	309,181,000		$	2,093,266,000
Residential real estate loans		58,681,000			20,132,000			123,591,000			106,849,000			309,253,000
Consumer loans		1,523,000			1,352,000			28,500,000			7,420,000			38,795,000
Securities (2)		31,677,000			13,095,000			117,133,000			179,772,000			341,677,000
Other interest-earning assets		10,663,000			750,000			1,250,000			0			12,663,000
Allowance for loan losses		0			0			0			0			(18,276,000	)
Other assets		0			0			0			0			241,541,000
Total assets		1,136,414,000			113,793,000			942,225,000			603,222,000		$	3,018,919,000
Liabilities:
Interest-bearing checking		371,622,000			0			0			0			371,622,000
Savings deposits		355,354,000			0			0			0			355,354,000
Money market accounts		279,120,000			0			0			0			279,120,000
Time deposits under $100,000		20,496,000			65,791,000			56,167,000			0			142,454,000
Time deposits $100,000 & over		98,717,000			116,216,000			156,827,000			0			371,760,000
Short-term borrowings		126,679,000			0			0			0			126,679,000
Federal Home Loan Bank advances		10,000,000			25,000,000			120,000,000			50,000,000			205,000,000
Other borrowed money		48,330,000			0			0			0			48,330,000
Noninterest-bearing checking		0			0			0			0			757,706,000
Other liabilities		0			0			0			0			12,844,000
Total liabilities		1,310,318,000			207,007,000			332,994,000			50,000,000			2,670,869,000
Shareholders' equity		0			0			0			0			348,050,000
Total liabilities & shareholders' equity		1,310,318,000			207,007,000			332,994,000			50,000,000		$	3,018,919,000
Net asset (liability) GAP	$	(173,904,000	)	$	(93,214,000	)	$	609,231,000		$	553,222,000
Cumulative GAP	$	(173,904,000	)	$	(267,118,000	)	$	342,113,000		$	895,335,000
Percent of cumulative GAP to total assets		(5.8	%)		(8.8	%)		11.3	%		29.7	%

⁽¹⁾ Floating rate loans that are currently at interest rate floors are treated as fixed rate loans and are reflected using maturity date and not repricing frequency.

⁽²⁾ Mortgage-backed securities are categorized by average life calculations based upon prepayment trends as of March 31, 2017.

The second interest rate risk measurement we use is commonly referred to as net interest income simulation analysis. We believe that this methodology provides a more accurate measurement of interest rate risk than the GAP analysis, and therefore, it serves as our primary interest rate risk measurement technique. The simulation model assesses the direction and magnitude of variations in net interest income resulting from potential changes in market interest rates.

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Key assumptions in the model include prepayment speeds on various loan and investment assets; cash flows and maturities of interest sensitive assets and liabilities; and changes in market conditions impacting loan and deposit volume and pricing. These assumptions are inherently uncertain, subject to fluctuation and revision in a dynamic environment; therefore, the model cannot precisely estimate net interest income or exactly predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions and our strategies, among other factors.

We conducted multiple simulations as of March 31, 2017, in which it was assumed that changes in market interest rates occurred ranging from up 400 basis points to down 400 basis points in equal quarterly instalments over the next twelve months. The following table reflects the suggested impact on net interest income over the next twelve months in comparison to estimated net interest income based on our balance sheet structure, including the balances and interest rates associated with our specific loans, securities, deposits and borrowed funds, as of March 31, 2017. The resulting estimates are well within our policy parameters established to manage and monitor interest rate risk.

	Dollar Change			Percent Change
	In Net			In Net
Interest Rate Scenario	Interest Income			Interest Income
Interest rates down 400 basis points	$	(15,100,000	)		(14.6	%)
Interest rates down 300 basis points		(13,000,000	)		(12.6	)
Interest rates down 200 basis points		(10,000,000	)		(9.7	)
Interest rates down 100 basis points		(5,600,000	)		(5.4	)
No change in interest rates		(400,000	)		(0.4	)
Interest rates up 100 basis points		2,100,000			2.0
Interest rates up 200 basis points		4,500,000			4.4
Interest rates up 300 basis points		7,000,000			6.8
Interest rates up 400 basis points		9,400,000			9.1

The resulting estimates have been significantly impacted by the current interest rate and economic environments, as adjustments have been made to critical model inputs with regards to traditional interest rate relationships. This is especially important as it relates to floating rate commercial loans, which comprise a sizable portion of our balance sheet.

In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; level of nonperforming assets; economic and competitive conditions; potential changes in lending, investing, and deposit gathering strategies; client preferences; and other factors.

Item 4. Controls and Procedures

As of March 31, 2017, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2017.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in various legal proceedings that are incidental to our business. In our opinion, we are not a party to any current legal proceedings that are material to our financial condition, either individually or in the aggregate.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those previously disclosed in our annual report on Form 10-K for the year ended December 31, 2016, and incorporated therein by reference.

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

We made no unregistered sales of equity securities during the quarter ended March 31, 2017.

Issuer Purchases of Equity Securities

We announced on January 30, 2015 that our Board of Directors had authorized a new program to repurchase up to $20.0 million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On April 19, 2016, we announced a $15.0 million expansion of the stock repurchase plan. No shares of our common stock were repurchased during the first quarter of 2017.

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares or Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs
January 1 - 31		0	$	NA		0	$	15,505,000
February 1 - 28		0		NA		0		15,505,000
March 1 - 31		0		NA		0		15,505,000
Total		0	$	NA		0	$	15,505,000

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits

Exhibit No.	EXHIBIT DESCRIPTION
2.1	Agreement and Plan of Merger dated August 14, 2013, incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed August 15, 2013
2.2	First Amendment to Merger Agreement dated February 20, 2014, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed February 21, 2014
3.1	Our Articles of Incorporation are incorporated by reference to Exhibit 3.1 of our Form 10-Q for the quarter ended June 30, 2009
3.2	Our Amended and Restated Bylaws dated as of January 16, 2003 are incorporated by reference to Exhibit 3.2 of our Registration Statement on Form S-3 (Commission File No. 333-103376) that became effective on February 21, 2003
31	Rule 13a-14(a) Certifications
32.1	Section 1350 Chief Executive Officer Certification
32.2	Section 1350 Chief Financial Officer Certification
101	The following financial information from Mercantile’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 5, 2017.

MERCANTILE BANK CORPORATION
By:	/s/ Robert B. Kaminski, Jr.
Robert B. Kaminski, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
By:	/s/ Charles E. Christmas
Charles E. Christmas
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	EXHIBIT DESCRIPTION
2.1	Agreement and Plan of Merger dated August 14, 2013, incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed August 15, 2013
2.2	First Amendment to Merger Agreement dated February 20, 2014, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed February 21, 2014
3.1	Our Articles of Incorporation are incorporated by reference to Exhibit 3.1 of our Form 10-Q for the quarter ended June 30, 2009
3.2	Our Amended and Restated Bylaws dated as of January 16, 2003 are incorporated by reference to Exhibit 3.2 of our Registration Statement on Form S-3 (Commission File No. 333-103376) that became effective on February 21, 2003
31	Rule 13a-14(a) Certifications
32.1	Section 1350 Chief Executive Officer Certification
32.2	Section 1350 Chief Financial Officer Certification
101	The following financial information from Mercantile’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements

EX-31

EXHIBIT 31

RULE 13a-14(a) CERTIFICATIONS

I, Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile Bank Corporation, certify that:

1.     I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the "registrant");

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:     May 5, 2017	/s/ Robert B. Kaminski, Jr.
	Robert B. Kaminski, Jr.
	President and Chief Executive Officer

I, Charles E. Christmas, Executive Vice President, Chief Financial Officer and Treasurer of Mercantile Bank Corporation, certify that:

1.     I have reviewed this report on Form 10-Q of Mercantile Bank Corporation (the "registrant");

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:     May 5, 2017	/s/ Charles E. Christmas
	Charles E. Christmas.
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended March 31, 2017 (the "Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

I, Robert B. Kaminski, Jr., President and Chief Executive Officer of the Issuer, certify that to my knowledge:

(i)     the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(ii)     the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: May 5, 2017
	/s/ Robert B. Kaminski, Jr.
	Robert B. Kaminski, Jr.
	President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended March 31, 2017 (the "Form 10-Q") of Mercantile Bank Corporation (the "Issuer").

I, Charles E. Christmas, Executive Vice President, Chief Financial Officer and Treasurer of the Issuer, certify that to my knowledge:

(i)     the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(ii)     the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: May 5, 2017
	/s/ Charles E. Christmas
	Charles E. Christmas
	Executive Vice President, Chief Financial Officer and Treasurer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 30, 2017
Document Information [Line Items]
Entity Registrant Name	MERCANTILE BANK CORPORATION
Entity Central Index Key	0001042729
Trading Symbol	mbwm
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		16,465,988
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
ASSETS
Cash and due from banks	$ 40,313,000	$ 50,200,000
Interest-earning deposits	12,663,000	133,396,000
Total cash and cash equivalents	52,976,000	183,596,000
Securities available for sale	332,441,000	328,060,000
Federal Home Loan Bank stock	9,236,000	8,026,000
Loans	2,441,314,000	2,378,620,000
Allowance for loan losses	(18,276,000)	(17,961,000)
Loans, net	2,423,038,000	2,360,659,000
Premises and equipment, net	45,848,000	45,456,000
Bank owned life insurance	66,211,000	67,198,000
Goodwill	49,473,000	49,473,000
Core deposit intangible	9,321,000	9,957,000
Other assets	30,375,000	30,146,000
Total assets	3,018,919,000	3,082,571,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing	757,706,000	810,600,000
Interest-bearing	1,520,310,000	1,564,385,000
Total deposits	2,278,016,000	2,374,985,000
Securities sold under agreements to repurchase	126,679,000	131,710,000
Federal Home Loan Bank advances	205,000,000	175,000,000
Subordinated debentures	45,006,000	44,835,000
Accrued interest and other liabilities	16,168,000	15,230,000
Total liabilities	2,670,869,000	2,741,760,000
Shareholders' equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued	0	0
Common stock, no par value; 40,000,000 shares authorized; 16,469,108 shares outstanding at March 31, 2017 and 16,416,695 shares outstanding at December 31, 2016	307,371,000	305,488,000
Retained earnings	45,596,000	40,904,000
Accumulated other comprehensive income (loss)	(4,917,000)	(5,581,000)
Total shareholders’ equity	348,050,000	340,811,000
Total liabilities and shareholders’ equity	$ 3,018,919,000	$ 3,082,571,000

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Mar. 31, 2017	Dec. 31, 2016
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, shares outstanding (in shares)	16,469,108	16,416,695

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Interest income
Loans, including fees	$ 26,733,000	$ 26,779,000
Securities, taxable	1,278,000	1,516,000
Securities, tax-exempt	550,000	537,000
Other interest-earning assets	143,000	57,000
Total interest income	28,704,000	28,889,000
Interest expense
Deposits	1,868,000	1,866,000
Short-term borrowings	51,000	44,000
Federal Home Loan Bank advances	655,000	350,000
Subordinated debentures and other borrowings	621,000	747,000
Total interest expense	3,195,000	3,007,000
Net interest income	25,509,000	25,882,000
Provision for loan losses	600,000	600,000
Net interest income after provision for loan losses	24,909,000	25,282,000
Noninterest income
Service charges on deposit and sweep accounts	1,018,000	948,000
Credit and debit card income	1,106,000	1,015,000
Mortgage banking income	1,123,000	598,000
Earnings on bank owned life insurance	1,738,000	286,000
Gain on trust preferred securities repurchase	0	2,970,000
Other income	866,000	1,269,000
Total noninterest income	5,851,000	7,086,000
Noninterest expense
Salaries and benefits	11,272,000	10,995,000
Occupancy	1,554,000	1,604,000
Furniture and equipment depreciation, rent and maintenance	535,000	525,000
Data processing costs	2,011,000	1,992,000
FDIC insurance costs	210,000	392,000
Other expense	4,194,000	4,360,000
Total noninterest expenses	19,776,000	19,868,000
Income before federal income tax expense	10,984,000	12,500,000
Federal income tax expense	3,369,000	3,951,000
Net income	$ 7,615,000	$ 8,549,000
Basic earnings per share (in dollars per share)	$ 0.46	$ 0.52
Diluted earnings per share (in dollars per share)	0.46	0.52
Cash dividends per common share (in dollars per share)	$ 0.18	$ 0.16
Average basic shares outstanding (in shares)	16,434,647	16,291,654
Average diluted shares outstanding (in shares)	16,449,210	16,325,475

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Net income	$ 7,615,000	$ 8,549,000
Other comprehensive income (loss):
Unrealized holding gains on securities available for sale	980,000	1,919,000
Fair value of interest rate swap	42,000	(21,000)
Total other comprehensive income	1,022,000	1,898,000
Tax effect of unrealized holding gains on securities available for sale	(343,000)	(672,000)
Tax effect of fair value of interest rate swap	(15,000)	7,000
Total tax effect of other comprehensive income	(358,000)	(665,000)
Other comprehensive income, net of tax effect	664,000	1,233,000
Comprehensive income	$ 8,279,000	$ 9,782,000

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Beginning Balances at Dec. 31, 2015	$ 0	$ 304,819,000	$ 27,722,000	$ 1,263,000	$ 333,804,000
Employee stock purchase plan		8,000			8,000
Dividend reinvestment plan		411,000			411,000
Stock option exercises		50,000			50,000
Stock-based compensation expense		330,000			330,000
Share repurchase program		(3,258,000)			(3,258,000)
Cash dividends			(2,574,000)		(2,574,000)
Net income			8,549,000		8,549,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				1,247,000	1,247,000
Change in fair value of interest rate swap, net of tax effect				(14,000)	(14,000)
Balances at Mar. 31, 2016	0	302,360,000	33,697,000	2,496,000	338,553,000
Beginning Balances at Dec. 31, 2016	0	305,488,000	40,904,000	(5,581,000)	340,811,000
Employee stock purchase plan		12,000			12,000
Dividend reinvestment plan		1,145,000			1,145,000
Stock option exercises		248,000			248,000
Stock grant for director fees		2,000			2,000
Stock-based compensation expense		476,000			476,000
Cash dividends			(2,923,000)		(2,923,000)
Net income			7,615,000		7,615,000
Change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect				637,000	637,000
Change in fair value of interest rate swap, net of tax effect				27,000	27,000
Balances at Mar. 31, 2017	$ 0	$ 307,371,000	$ 45,596,000	$ (4,917,000)	$ 348,050,000

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Common Stock [Member]
Employee stock purchase plan, shares (in shares)	338	364
Dividend reinvestment plan, shares (in shares)	35,319	17,876
Stock option exercises, shares (in shares)	20,000	4,700
Stock grants to directors (in shares)	62
Share repurchase program, shares (in shares)		147,656
Retained Earnings [Member]
Cash dividends per common share (in dollars per share)	$ 0.18	$ 0.16
Cash dividends per common share (in dollars per share)	$ 0.18	$ 0.16

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Net income	$ 7,615,000	$ 8,549,000
Depreciation and amortization	2,548,000	2,767,000
Accretion of acquired loans	(832,000)	(1,316,000)
Provision for loan losses	600,000	600,000
Stock-based compensation expense	476,000	330,000
Stock grants to directors for retainer fees	2,000	0
Proceeds from sales of mortgage loans held for sale	19,317,000	19,465,000
Origination of mortgage loans held for sale	(19,342,000)	(18,150,000)
Net gain from sales of mortgage loans held for sale	(867,000)	(543,000)
Gain on trust preferred securities repurchase	0	(2,970,000)
Net gain from sales and valuation write-downs of foreclosed assets	(43,000)	(125,000)
Net (gain) loss from sales and valuation write-downs of former bank premises	15,000	(39,000)
Net loss from sales and write-downs of fixed assets	40,000	140,000
Net loss from sales of available for sale securities	0	1,000
Earnings on bank owned life insurance	(1,738,000)	(286,000)
Accrued interest receivable	(828,000)	(366,000)
Other assets	(321,000)	732,000
Accrued interest and other liabilities	980,000	1,278,000
Net cash from operating activities	7,622,000	10,067,000
Loan originations and payments, net	(61,352,000)	(18,011,000)
Purchases of securities available for sale	(14,701,000)	(17,873,000)
Proceeds from maturities, calls and repayments of securities available for sale	10,858,000	22,337,000
Proceeds from sales of securities available for sale	0	264,000
Purchases of Federal Home Loan Bank stock	(1,210,000)	0
Proceeds from sales of foreclosed assets	99,000	529,000
Proceeds from sales of former bank premises	0	45,000
Proceeds from bank owned life insurance cash value release and death benefits	2,720,000	0
Net sales (purchases) of premises and equipment	(1,138,000)	44,000
Net cash for investing activities	(64,724,000)	(12,665,000)
Net decrease in time deposits	(55,203,000)	(24,764,000)
Net increase (decrease) in all other deposits	(41,766,000)	14,504,000
Net increase (decrease) in securities sold under agreements to repurchase	(5,031,000)	7,541,000
Maturities of Federal Home Loan Bank advances	(10,000,000)	0
Proceeds from Federal Home Loan Bank advances	40,000,000	30,000,000
Proceeds from stock option exercises	248,000	50,000
Employee stock purchase plan	12,000	8,000
Dividend reinvestment plan	1,145,000	411,000
Repurchase of common stock shares	0	(3,258,000)
Repurchase of trust preferred securities	0	(8,030,000)
Payment of cash dividends to common shareholders	(2,923,000)	(2,574,000)
Net cash from (for) financing activities	(73,518,000)	13,888,000
Net change in cash and cash equivalents	(130,620,000)	11,290,000
Cash and cash equivalents at beginning of period	183,596,000	89,891,000
Cash and cash equivalents at end of period	52,976,000	101,181,000
Supplemental disclosures of cash flows information
Interest	3,322,000	3,063,000
Federal income tax	0	250,000
Noncash financing and investing activities:
Transfers from loans to foreclosed assets	97,000	224,000
Transfers from bank premises to other real estate owned	$ 0	$ 371,000

XML

Note 1 - Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1.

     

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

: The unaudited financial statements for the

three

months ended

March

31,

2017

include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s

two

subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form

10

-Q and Item

303(b)

of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended

March

31,

2017

should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form

10

-K for the year ended

December

 

31,

2016.

We have

five

separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Earnings Per Share

: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately

225,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March

31,

2017.

In addition, stock options for approximately

34,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March

31,

2017.

Stock options for approximately

7,000

shares of common stock were antidilutive and not included in determining diluted earnings per share for the

three

months ended

March

31,

2017.

Approximately

150,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March

31,

2016.

In addition, stock options for approximately

118,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March

31,

2016.

Stock options for approximately

10,000

shares of common stock were antidilutive and not included in determining diluted earnings per share for the

three

months ended

March

31,

2016.

Securities

: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other than temporary (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into

two

components as follows:

1)

OTTI related to credit loss, which must be recognized in the income statement, and

2)

OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Loans

: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is

90

days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than when they are

120

days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale

: Mortgage loans originated and intended for sale in the

secondary

market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of

March

31,

2017

and

December

31,

2016,

we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of

$1.9

million and

$1.0

million, respectively. Loans held for sale are reported as part of our total loans on the balance sheet.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make a rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in the gain on sale of loans. Mortgage loans serviced for others totaled approximately

$603

million as of

March

31,

2017.

Mortgage Banking Activities

: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Troubled Debt Restructurings

: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring

may

involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings

may

have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these

two

measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

Allowance for Loan Losses

: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of 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 our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered 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. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

Derivatives

: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. In

February

2012,

we entered into an interest rate swap agreement that qualifies for hedge accounting. The current outstanding interest rate swap is discussed in more detail in Note

9.

We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between derivatives as hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

Goodwill and Core Deposit Intangible

: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill

may

not be recoverable. We

may

elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. The quantitative test is a

two

-step process consisting of comparing the carrying value of the reporting unit to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. In

2015

and

2016,

we elected to perform a qualitative assessment for our annual impairment test and concluded it is more likely than not our fair value was greater than its carrying amount; therefore, no further testing was required.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a

ten

-year period using the sum-of-the-years-digits methodology.

Adoption of New Accounting Standards:

In

May

2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers

. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires

five

basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This ASU was originally effective for annual and interim periods beginning after

December

15,

2016,

with

three

transition methods available – full retrospective, retrospective and cumulative effect approach. In

August

2015,

the FASB issued ASU

2015

-

14,

Revenue from Contracts with Customers – Deferral of Effective Date

, which delays the implementation of this guidance by

one

year. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In

January

2016,

the FASB issued ASU

2016

-

1,

Recognition and Measurement of Financial Assets and Financial Liabilities

. This ASU requires an entity to (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses on available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. This ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2017,

and are not expected to have a material effect on our financial position or results of operations when adopted.

In

February

2016,

the FASB issued ASU

2016

-

02,

Leases

. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for annual and interim periods beginning after

December

15,

2018.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In

March

2016,

the FASB issued ASU

2016

-

09,

Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting

. This ASU requires that, prospectively, all tax effects related to share-based payments be made through the income statement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in capital under the current guidance. The ASU also removes the requirement to delay recognition of a tax benefit until it reduces current taxes payable. This change is required to be applied on a modified retrospective basis, with a cumulative-effect adjustment to opening retained earnings. Additionally, all tax related cash flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows, a change from the current requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. Finally, entities will be allowed to withhold an amount up to the employees’ maximum individual tax rate (as opposed to the minimum statutory tax rate) in the relevant jurisdiction without resulting in liability classification of the award. The change in withholding requirements will be applied on a modified retrospective approach. This standard will be effective for annual and interim periods beginning after

December

15,

2016.

Adoption of this ASU did not have a material effect on our financial position or results of operations.

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 are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) 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 ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and 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. This ASU is effective for interim and annual reporting periods beginning after

December

15,

2019,

and 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). We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In

August

2016,

the FASB issued ASU No.

2016

-

15,

Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments

. This ASU will make

eight

targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows and is effective for fiscal years beginning after

December

15,

2017.

The new standard will require adoption on a retrospective basis unless it is impractical to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In

January

2017,

the FASB issued ASU No.

2017

-

04,

Goodwill and Other (Topic

350):

Simplifying the Test for Goodwill Impairment

. This ASU simplifies the subsequent measurement of goodwill by eliminating Step

2

from the goodwill impairment test. Under this ASU, an entity should perform the Step

1

annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. If the carrying amount exceeds the fair value, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective

January

1,

2020

and early adoption is permitted. The ASU should be applied prospectively. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In

March

2017,

the FASB issued ASU No.

2017

-

08,

Premium Amortization on Purchased Callable Debt Securities

. This ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after

December

15,

2018,

and early adoption is permitted. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

XML

Note 2 - Securities

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

2.

     

SECURITIES

The amortized cost and fair value of available for sale securities and the related pre-tax gross unrealized gains and losses recognized in accumulated other comprehensive income are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2017
U.S. Government agency debt obligations	$	162,923,000	$	73,000	$	(6,985,000	)	$	156,011,000
Mortgage-backed securities		43,525,000		472,000		(293,000	)		43,704,000
Municipal general obligation bonds		123,235,000		496,000		(1,201,000	)		122,530,000
Municipal revenue bonds		8,295,000		22,000		(78,000	)		8,239,000
Other investments		1,986,000		0		(29,000	)		1,957,000
	$	339,964,000	$	1,063,000	$	(8,586,000	)	$	332,441,000
December 31, 2016
U.S. Government agency debt obligations	$	159,271,000	$	106,000	$	(7,337,000	)	$	152,040,000
Mortgage-backed securities		47,329,000		486,000		(423,000	)		47,392,000
Municipal general obligation bonds		120,284,000		312,000		(1,549,000	)		119,047,000
Municipal revenue bonds		7,699,000		23,000		(91,000	)		7,631,000
Other investments		1,979,000		0		(29,000	)		1,950,000
	$	336,562,000	$	927,000	$	(9,429,000	)	$	328,060,000

(Continued)

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

     

SECURITIES

(Continued)

Securities with unrealized losses at

March

31,

2017

and

December

31,

2016,

aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
March 31, 2017
U.S. Government agency debt obligations	$	123,657,000	$	6,850,000	$	4,108,000	$	135,000	$	127,765,000	$	6,985,000
Mortgage-backed securities		19,107,000		145,000		15,498,000		148,000		34,605,000		293,000
Municipal general obligation bonds		46,728,000		1,047,000		8,805,000		154,000		55,533,000		1,201,000
Municipal revenue bonds		1,246,000		78,000		0		0		1,246,000		78,000
Other investments		1,486,000		29,000		0		0		1,486,000		29,000
	$	192,224,000	$	8,149,000	$	28,411,000	$	437,000	$	220,635,000	$	8,586,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2016
U.S. Government agency debt obligations	$	110,160,000	$	7,172,000	$	5,073,000	$	165,000	$	115,233,000	$	7,337,000
Mortgage-backed securities		3,670,000		4,000		37,072,000		419,000		40,742,000		423,000
Municipal general obligation bonds		65,895,000		1,360,000		27,734,000		189,000		93,629,000		1,549,000
Municipal revenue bonds		1,921,000		90,000		206,000		1,000		2,127,000		91,000
Other investments		1,479,000		29,000		0		0		1,479,000		29,000
	$	183,125,000	$	8,655,000	$	70,085,000	$	774,000	$	253,210,000	$	9,429,000

(Continued)

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

     

SECURITIES

(Continued) 

We evaluate securities for other-than-temporary impairment at least on a quarterly basis. 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, and the intent and ability we have to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For those debt securities whose fair value is less than their amortized cost basis, we also consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and if we do not expect to recover the entire amortized cost basis of the security. In analyzing an issuer’s financial condition, we

may

consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.

At

March

31,

2017,

316

debt securities and

one

mutual fund with fair values totaling

$221

million have unrealized losses aggregating

$8.6

million. After we considered whether the securities were issued by the federal government or its agencies and whether downgrades by bond rating agencies had occurred, we determined that the unrealized losses were due to changing interest rate environments. As we do not intend to sell our debt securities before recovery of their cost basis and we believe it is more likely than not that we will not be required to sell our debt securities before recovery of the cost basis, no unrealized losses are deemed to be other-than-temporary.

The amortized cost and fair value of debt securities at

March

31,

2017,

by maturity, are shown in the following table. The contractual maturity is utilized for U.S. Government agency debt obligations and municipal bonds. Expected maturities

may

differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Weighted average yields are also reflected, with yields for municipal securities shown at their tax equivalent yield.

	Weighted
	Average		Amortized		Fair
	Yield (%)		Cost		Value
Due in 2017		1.45	$	30,644,000	$	30,670,000
Due in 2018 through 2022		2.24		97,092,000		97,132,000
Due in 2023 through 2027		2.68		93,216,000		90,060,000
Due in 2028 and beyond		2.84		73,501,000		68,918,000
Mortgage-backed securities		1.85		43,525,000		43,704,000
Other investments		0.65		1,986,000		1,957,000
Total available for sale securities		2.36	$	339,964,000	$	332,441,000

(Continued)

MERCANTILE BANK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

   

SECURITIES

(Continued)

Securities issued by the State of Michigan and all its political subdivisions had a combined amortized cost of

$113

million and

$109

million at

March

31,

2017

and

December

31,

2016,

respectively, with estimated market values of

$112

million and

$107

million, respectively. Securities issued by all other states and their political subdivisions had a combined amortized cost of

$18.7

million and

$19.5

million at

March

31,

2017

and

December

31,

2016,

respectively, with estimated market values of

$18.8

million and

$19.5

million, respectively. Total securities of any other specific issuer, other than the U.S. Government and its agencies and the State of Michigan and all its political subdivisions, did not exceed

10%

of shareholders’ equity.

The carrying value of U.S. Government agency debt obligations and mortgage-backed securities that are pledged to secure repurchase agreements was

$127

million and

$132

million at

March

31,

2017

and

December

31,

2016,

respectively. Investments in Federal Home Loan Bank stock are restricted and

may

only be resold or redeemed by the issuer.

XML

Note 3 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

3.

    

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the allowance, and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans primarily using the simple interest method based on the principal balance outstanding. Interest is not accrued on loans where collectability is uncertain. Accrued interest is presented separately in the consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

Acquired loans are those purchased in the Firstbank merger. These loans were recorded at estimated fair value at the merger date with no carryover of the related allowance. The acquired loans were segregated between those considered to be performing (“acquired non-impaired loans”) and those with evidence of credit deterioration (“acquired impaired loans”). Acquired loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, all contractually required payments will not be collected. Acquired loans restructured after acquisition are not considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the merger date and are accounted for in pools.

The fair value estimates for acquired loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the merger date fair value of acquired impaired loans, and in subsequent accounting, we have generally aggregated acquired commercial and consumer loans into pools of loans with common risk characteristics.

The difference between the fair value of an acquired non-impaired loan and contractual amounts due at the merger date is accreted into income over the estimated life of the loan. Contractually required payments represent the total undiscounted amount of all uncollected principal and interest payments. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

The excess of an acquired impaired loan’s undiscounted contractually required payments over the amount of its undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the acquired impaired loan. The excess cash flows expected to be collected over the carrying amount of the acquired loan is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the acquired loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions and changes in expected principal and interest payments over the estimated lives of the acquired impaired loans.

We evaluate quarterly the remaining contractual required payments receivable and estimate cash flows expected to be collected over the lives of the impaired loans. Contractually required payments receivable

may

increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on acquired impaired loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the merger date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not re-forecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of acquired impaired loans subsequent to the merger date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance.

Our total loans at

March

31,

2017

were

$2.44

billion compared to

$2.38

billion at

December

31,

2016,

an increase of

$62.7

million, or

2.6%.

The components of our loan portfolio disaggregated by class of loan within the loan portfolio segments at

March

31,

2017

and

December

31,

2016,

and the percentage change in loans from the end of

2016

to the end of the

first

quarter of

2017,

are as follows:

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	685,227,000		34.7	%	$	636,771,000		33.8	%		7.6	%
Vacant land, land development, and residential construction		23,841,000		1.2			26,519,000		1.4			(10.1	)
Real estate – owner occupied		368,910,000		18.7			363,509,000		19.3			1.5
Real estate – non-owner occupied		678,359,000		34.4			652,054,000		34.6			4.0
Real estate – multi-family and residential rental		47,072,000		2.4			50,045,000		2.6			(5.9	)
Total commercial		1,803,409,000		91.4			1,728,898,000		91.7			4.3
Retail:
Home equity and other		69,032,000		3.5			69,831,000		3.7			(1.1	)
1-4 family mortgages		101,298,000		5.1			85,819,000		4.6			18.0
Total retail		170,330,000		8.6			155,650,000		8.3			9.4
Total originated loans	$	1,973,739,000		100.0	%	$	1,884,548,000		100.0	%		4.7	%

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	71,993,000		15.4	%	$	77,132,000		15.6	%		(6.7	%)
Vacant land, land development, and residential construction		8,083,000		1.7			8,309,000		1.7			(2.7	)
Real estate – owner occupied		83,472,000		17.9			86,955,000		17.6			(4.0	)
Real estate – non-owner occupied		90,206,000		19.3			96,215,000		19.5			(6.2	)
Real estate – multi-family and residential rental		66,185,000		14.1			67,838,000		13.7			(2.4	)
Total commercial		319,939,000		68.4			336,449,000		68.1			(4.9	)
Retail:
Home equity and other		43,085,000		9.2			48,216,000		9.8			(10.6	)
1-4 family mortgages		104,551,000		22.4			109,407,000		22.1			(4.4	)
Total retail		147,636,000		31.6			157,623,000		31.9			(6.3	)
Total acquired loans	$	467,575,000		100.0	%	$	494,072,000		100.0	%		(5.4	%)

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	757,220,000		31.0	%	$	713,903,000		30.0	%		6.1	%
Vacant land, land development, and residential construction		31,924,000		1.3			34,828,000		1.5			(8.3	)
Real estate – owner occupied		452,382,000		18.5			450,464,000		18.9			0.4
Real estate – non-owner occupied		768,565,000		31.5			748,269,000		31.5			2.7
Real estate – multi-family and residential rental		113,257,000		4.7			117,883,000		4.9			(3.9	)
Total commercial		2,123,348,000		87.0			2,065,347,000		86.8			2.8
Retail:
Home equity and other		112,117,000		4.6			118,047,000		5.0			(5.0	)
1-4 family mortgages		205,849,000		8.4			195,226,000		8.2			5.4
Total retail		317,966,000		13.0			313,273,000		13.2			1.5
Total loans	$	2,441,314,000		100.0	%	$	2,378,620,000		100.0	%		2.6	%

The total contractually required payments due on and carrying value of acquired impaired loans were

$14.9

million and

$6.0

million, respectively, as of

March

31,

2017.

The total contractually required payments due on and carrying value of acquired impaired loans were

$15.5

million and

$6.2

million, respectively, as of

December

31,

2016.

Changes in the accretable yield for acquired impaired loans for the

three

months ended

March

31,

2017

and

March

31,

2016

were as follows:

Balance at December 31, 2016	$	1,726,000
Additions		1,000
Accretion income		(147,000	)
Net reclassification from nonaccretable to accretable		63,000
Reductions (1)		(179,000	)
Balance at March 31, 2017	$	1,464,000
Balance at December 31, 2015	$	5,193,000
Additions		21,000
Accretion income		(680,000	)
Net reclassification from nonaccretable to accretable		2,372,000
Reductions (1)		(587,000	)
Balance at March 31, 2016	$	6,319,000

(1)

Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

Nonperforming originated loans as of

March

31,

2017

and

December

31,

2016

were as follows:

	March 31,		December 31,
	2017		2016
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		4,716,000		3,328,000
Total nonperforming originated loans	$	4,716,000	$	3,328,000

Nonperforming acquired loans as of

March

31,

2017

and

December

31,

2016

were as follows:

	March 31,		December 31,
	2017		2016
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,576,000		2,611,000
Total nonperforming acquired loans	$	2,576,000	$	2,611,000

The recorded principal balance of nonperforming loans was as follows:

	March 31,		December 31,
	2017		2016
Commercial:
Commercial and industrial	$	3,073,000	$	2,296,000
Vacant land, land development, and residential construction		80,000		95,000
Real estate – owner occupied		911,000		285,000
Real estate – non-owner occupied		421,000		488,000
Real estate – multi-family and residential rental		163,000		17,000
Total commercial		4,648,000		3,181,000
Retail:
Home equity and other		407,000		496,000
1-4 family mortgages		2,237,000		2,262,000
Total retail		2,644,000		2,758,000
Total nonperforming loans	$	7,292,000	$	5,939,000

Acquired impaired loans are not reported as nonperforming loans based on acquired impaired loan accounting. Acquired non-impaired loans are placed on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

An age analysis of past due loans is as follows as of

March

31,

2017:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	230,000	$	1,661,000	$	0	$	1,891,000	$	683,336,000	$	685,227,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		23,841,000		23,841,000		0
Real estate – owner occupied		0		0		0		0		368,910,000		368,910,000		0
Real estate – non-owner occupied		0		0		0		0		678,359,000		678,359,000		0
Real estate – multi-family and residential rental		130,000		0		0		130,000		46,942,000		47,072,000		0
Total commercial		360,000		1,661,000		0		2,021,000		1,801,388,000		1,803,409,000		0
Retail:
Home equity and other		542,000		13,000		3,000		558,000		68,474,000		69,032,000		0
1-4 family mortgages		0		0		225,000		225,000		101,073,000		101,298,000		0
Total retail		542,000		13,000		228,000		783,000		169,547,000		170,330,000		0
Total past due loans	$	902,000	$	1,674,000	$	228,000	$	2,804,000	$	1,970,935,000	$	1,973,739,000	$	0

													Recorded
	30 – 59		60 – 89		Greater Than 89								Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	25,000	$	0	$	16,000	$	41,000	$	71,952,000	$	71,993,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,083,000		8,083,000		0
Real estate – owner occupied		273,000		0		75,000		348,000		83,124,000		83,472,000		0
Real estate – non-owner occupied		49,000		0		353,000		402,000		89,804,000		90,206,000		0
Real estate – multi-family and residential rental		152,000		37,000		11,000		200,000		65,985,000		66,185,000		0
Total commercial		499,000		37,000		455,000		991,000		318,948,000		319,939,000		0
Retail:
Home equity and other		451,000		63,000		49,000		563,000		42,522,000		43,085,000		0
1-4 family mortgages		826,000		178,000		610,000		1,614,000		102,937,000		104,551,000		0
Total retail		1,277,000		241,000		659,000		2,177,000		145,459,000		147,636,000		0
Total past due loans	$	1,776,000	$	278,000	$	1,114,000	$	3,168,000	$	464,407,000	$	467,575,000	$	0

An age analysis of past due loans is as follows as of

December

31,

2016:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	27,000	$	0	$	27,000	$	636,744,000	$	636,771,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		26,519,000		26,519,000		0
Real estate – owner occupied		0		0		0		0		363,509,000		363,509,000		0
Real estate – non-owner occupied		0		0		0		0		652,054,000		652,054,000		0
Real estate – multi-family and residential rental		0		0		0		0		50,045,000		50,045,000		0
Total commercial		0		27,000		0		27,000		1,728,871,000		1,728,898,000		0
Retail:
Home equity and other		46,000		98,000		0		144,000		69,687,000		69,831,000		0
1-4 family mortgages		758,000		122,000		337,000		1,217,000		84,602,000		85,819,000		0
Total retail		804,000		220,000		337,000		1,361,000		154,289,000		155,650,000		0
Total past due loans	$	804,000	$	247,000	$	337,000	$	1,388,000	$	1,883,160,000	$	1,884,548,000	$	0

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired Loans
Commercial:
Commercial and industrial	$	0	$	11,000	$	16,000	$	27,000	$	77,105,000	$	77,132,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,309,000		8,309,000		0
Real estate – owner occupied		62,000		0		50,000		112,000		86,843,000		86,955,000		0
Real estate – non-owner occupied		0		0		353,000		353,000		95,862,000		96,215,000		0
Real estate – multi-family and residential rental		0		0		17,000		17,000		67,821,000		67,838,000		0
Total commercial		62,000		11,000		436,000		509,000		335,940,000		336,449,000		0
Retail:
Home equity and other		258,000		26,000		45,000		329,000		47,887,000		48,216,000		0
1-4 family mortgages		1,255,000		467,000		439,000		2,161,000		107,246,000		109,407,000		0
Total retail		1,513,000		493,000		484,000		2,490,000		155,133,000		157,623,000		0
Total past due loans	$	1,575,000	$	504,000	$	920,000	$	2,999,000	$	491,073,000	$	494,072,000	$	0

Impaired originated loans as of

March

31,

2017,

and average originated impaired loans for the

three

months ended

March

31,

2017,

were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,680,000	$	1,680,000		$	1,589,000
Vacant land, land development and residential construction		479,000		80,000			88,000
Real estate – owner occupied		227,000		225,000			113,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		264,000		264,000			197,000
Total commercial		2,650,000		2,249,000			1,987,000
Retail:
Home equity and other		386,000		380,000			247,000
1-4 family mortgages		1,316,000		668,000			649,000
Total retail		1,702,000		1,048,000			896,000
Total with no related allowance recorded	$	4,352,000	$	3,297,000		$	2,883,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	3,021,000	$	2,998,000	$	2,368,000	$	2,690,000
Vacant land, land development and residential construction		499,000		499,000		13,000		749,000
Real estate – owner occupied		1,382,000		1,382,000		209,000		1,144,000
Real estate – non-owner occupied		4,470,000		4,470,000		157,000		4,745,000
Real estate – multi-family and residential rental		462,000		462,000		99,000		751,000
Total commercial		9,834,000		9,811,000		2,846,000		10,079,000
Retail:
Home equity and other		997,000		982,000		715,000		697,000
1-4 family mortgages		165,000		117,000		20,000		137,000
Total retail		1,162,000		1,099,000		735,000		834,000
Total with an allowance recorded	$	10,996,000	$	10,910,000	$	3,581,000	$	10,913,000
Total impaired loans:
Commercial	$	12,484,000	$	12,060,000	$	2,846,000	$	12,066,000
Retail		2,864,000		2,147,000		735,000		1,730,000
Total impaired loans	$	15,348,000	$	14,207,000	$	3,581,000	$	13,796,000

Impaired acquired loans as of

March

31,

2017,

and average impaired acquired loans for the

three

months ended

March

31,

2017,

were as follows: 

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	985,000	$	958,000		$	892,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,159,000		1,092,000			1,151,000
Real estate – non-owner occupied		848,000		713,000			751,000
Real estate – multi-family and residential rental		318,000		231,000			160,000
Total commercial		3,310,000		2,994,000			2,954,000
Retail:
Home equity and other		476,000		322,000			336,000
1-4 family mortgages		2,168,000		1,695,000			1,662,000
Total retail		2,644,000		2,017,000			1,998,000
Total with no related allowance recorded	$	5,954,000	$	5,011,000		$	4,952,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	19,000	$	19,000	$	2,000	$	19,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		48,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		67,000		67,000		5,000		67,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		172,000
Total retail		172,000		172,000		4,000		172,000
Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	239,000
Total impaired loans:
Commercial	$	3,377,000	$	3,061,000	$	5,000	$	3,021,000
Retail		2,816,000		2,189,000		4,000		2,170,000
Total impaired loans	$	6,193,000	$	5,250,000	$	9,000	$	5,191,000

Impaired originated loans as of

December

31,

2016,

and average impaired originated loans for the

three

months ended

March

31,

2016,

were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,498,000	$	1,498,000		$	1,695,000
Vacant land, land development and residential construction		487,000		95,000			0
Real estate – owner occupied		0		0			287,000
Real estate – non-owner occupied		0		0			5,678,000
Real estate – multi-family and residential rental		130,000		130,000			0
Total commercial		2,115,000		1,723,000			7,660,000
Retail:
Home equity and other		114,000		114,000			7,000
1-4 family mortgages		1,270,000		630,000			615,000
Total retail		1,384,000		744,000			622,000
Total with no related allowance recorded	$	3,499,000	$	2,467,000		$	8,282,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,405,000	$	2,382,000	$	673,000	$	270,000
Vacant land, land development and residential construction		999,000		999,000		28,000		1,648,000
Real estate – owner occupied		906,000		906,000		97,000		1,307,000
Real estate – non-owner occupied		5,020,000		5,020,000		247,000		4,798,000
Real estate – multi-family and residential rental		1,040,000		1,040,000		258,000		1,017,000
Total commercial		10,370,000		10,347,000		1,303,000		9,040,000
Retail:
Home equity and other		434,000		412,000		203,000		516,000
1-4 family mortgages		204,000		157,000		66,000		127,000
Total retail		638,000		569,000		269,000		643,000
Total with an allowance recorded	$	11,008,000	$	10,916,000	$	1,572,000	$	9,683,000
Total impaired loans:
Commercial	$	12,485,000	$	12,070,000	$	1,303,000	$	16,700,000
Retail		2,022,000		1,313,000		269,000		1,265,000
Total impaired loans	$	14,507,000	$	13,383,000	$	1,572,000	$	17,965,000

Impaired acquired loans as of

December

31,

2016,

and average impaired acquired loans for the

three

months ended

March

31,

2016,

were as follows:

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	853,000	$	826,000		$	1,462,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,281,000		1,210,000			1,811,000
Real estate – non-owner occupied		928,000		789,000			826,000
Real estate – multi-family and residential rental		152,000		89,000			343,000
Total commercial		3,214,000		2,914,000			4,442,000
Retail:
Home equity and other		531,000		351,000			293,000
1-4 family mortgages		2,081,000		1,629,000			1,411,000
Total retail		2,612,000		1,980,000			1,704,000
Total with no related allowance recorded	$	5,826,000	$	4,894,000		$	6,146,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	19,000	$	19,000	$	2,000	$	378,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		50,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		22,000
Total commercial		67,000		67,000		5,000		450,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		88,000
Total retail		172,000		172,000		4,000		88,000
Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	538,000
Total impaired loans:
Commercial	$	3,281,000	$	2,981,000	$	5,000	$	4,892,000
Retail		2,784,000		2,152,000		4,000		1,792,000
Total impaired loans	$	6,065,000	$	5,133,000	$	9,000	$	6,684,000

Impaired loans for which no allocation of the allowance for loan losses has been made generally reflect situations whereby the loans have been charged-down to estimated collateral value. Interest income recognized on accruing troubled debt restructurings totaled

$0.2

million and

$0.3

million during the

first

quarter of

2017

and

2016,

respectively. No interest income was recognized on nonaccrual loans during either the

first

quarter of

2017

or

2016.

Lost interest income on nonaccrual loans totaled

$0.1

million and

$0.2

million during the

first

quarter of

2017

and

2016,

respectively.

Credit Quality Indicators.

We utilize a comprehensive grading system for our commercial loans. All commercial loans are graded on a

ten

grade rating system. The rating system utilizes standardized grade paradigms that analyze several critical factors such as cash flow, operating performance, financial condition, collateral, industry condition and management. All commercial loans are graded at inception and reviewed and, if appropriate, re-graded at various intervals thereafter. The risk assessment for retail loans is primarily based on the type of collateral.

Credit quality indicators were as follows as of

March

31,

2017:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	471,570,000	$	14,994,000	$	266,147,000	$	553,441,000	$	29,421,000
Grades 5 – 7		206,434,000		8,767,000		100,967,000		124,918,000		16,925,000
Grades 8 – 9		7,223,000		80,000		1,796,000		0		726,000
Total commercial	$	685,227,000	$	23,841,000	$	368,910,000	$	678,359,000	$	47,072,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,032,000	$	101,298,000

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	37,236,000	$	1,756,000	$	34,189,000	$	52,796,000	$	38,612,000
Grades 5 – 7		33,417,000		6,002,000		47,471,000		36,001,000		27,274,000
Grades 8 – 9		1,340,000		325,000		1,812,000		1,409,000		299,000
Total commercial	$	71,993,000	$	8,083,000	$	83,472,000	$	90,206,000	$	66,185,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	43,085,000	$	104,551,000

Credit quality indicators were as follows as of

December

31,

2016:

Originated loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	440,219,000	$	16,378,000	$	238,890,000	$	542,294,000	$	29,793,000
Grades 5 – 7		190,170,000		10,046,000		123,517,000		109,304,000		19,082,000
Grades 8 – 9		6,382,000		95,000		1,102,000		456,000		1,170,000
Total commercial	$	636,771,000	$	26,519,000	$	363,509,000	$	652,054,000	$	50,045,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,831,000	$	85,819,000

Acquired loans

Commercial credit exposure – credit risk profiled by internal credit risk grades:

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	40,911,000	$	1,887,000	$	36,246,000	$	57,671,000	$	39,574,000
Grades 5 – 7		35,233,000		6,164,000		49,255,000		37,040,000		28,015,000
Grades 8 – 9		988,000		258,000		1,454,000		1,504,000		249,000
Total commercial	$	77,132,000	$	8,309,000	$	86,955,000	$	96,215,000	$	67,838,000

Retail credit exposure – credit risk profiled by collateral type:

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	48,216,000	$	109,407,000

All commercial loans are graded using the following criteria:
Grade 1.	Excellent credit rating that contain very little, if any, risk of loss.
Grade 2.	Strong sources of repayment and have low repayment risk.
Grade 3.	Good sources of repayment and have limited repayment risk.
Grade 4.	Adequate sources of repayment and acceptable repayment risk; however, characteristics are present that render the credit more vulnerable to a negative event.
Grade 5.	Marginally acceptable sources of repayment and exhibit defined weaknesses and negative characteristics.
Grade 6.	Well defined weaknesses which may include negative current cash flow, high leverage, or operating losses. Generally, if the credit does not stabilize or if further deterioration is observed in the near term, the loan will likely be downgraded and placed on the Watch List (i.e., list of lending relationships that receive increased scrutiny and review by the Board of Directors and senior management).
Grade 7.	Defined weaknesses or negative trends that merit close monitoring through Watch List status.
Grade 8.	Inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral, resulting in a distinct possibility of loss requiring close monitoring through Watch List status.
Grade 9.	Vital weaknesses exist where collection of principal is highly questionable.
Grade 10.	Considered uncollectable and of such little value that continuance as an asset is not warranted.
The primary risk elements with respect to commercial loans are the financial condition of the borrower, the sufficiency of collateral, and timeliness of scheduled payments. We have a policy of requesting and reviewing periodic financial statements from commercial loan customers and employ a disciplined and formalized review of the existence of collateral and its value. The primary risk element with respect to each residential real estate loan and consumer loan is the timeliness of scheduled payments. We have a reporting system that monitors past due loans and have adopted policies to pursue creditor’s rights in order to preserve our collateral position.

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the

three

months ended

March

31,

2017

are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		(225,000	)		643,000			130,000			548,000
Charge-offs		(225,000	)		(220,000	)		0			(445,000	)
Recoveries		95,000			60,000			0			155,000
Ending balance	$	15,671,000		$	2,365,000		$	90,000		$	18,126,000
Ending balance: individually evaluated for impairment	$	2,846,000		$	735,000		$	0		$	3,581,000
Ending balance: collectively evaluated for impairment	$	12,825,000		$	1,630,000		$	90,000		$	14,545,000
Total loans:
Ending balance	$	1,803,409,000		$	170,330,000					$	1,973,739,000
Ending balance: individually evaluated for impairment	$	12,060,000		$	2,147,000					$	14,207,000
Ending balance: collectively evaluated for impairment	$	1,791,349,000		$	168,183,000					$	1,959,532,000

Activity in the allowance for loan losses for acquired loans during the

three

months ended

March

31,

2017

is as follows:

	Commercial			Retail
	Loans			Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	75,000		$	18,000	$	0	$	93,000
Provision for loan losses		45,000			7,000		0		52,000
Charge-offs		(11,000	)		0		0		(11,000	)
Recoveries		16,000			0		0		16,000
Ending balance	$	125,000		$	25,000	$	0	$	150,000

Activity in the allowance for loan losses and the recorded investments in originated loans as of and during the

twelve

months ended

December

31,

2016

are as follows:

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	13,672,000		$	1,421,000		$	140,000		$	15,233,000
Provision for loan losses		2,247,000			1,031,000			(180,000	)		3,098,000
Charge-offs		(980,000	)		(1,153,000	)		0			(2,133,000	)
Recoveries		1,087,000			583,000			0			1,670,000
Ending balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Ending balance: individually evaluated for impairment	$	1,303,000		$	269,000		$	0		$	1,572,000
Ending balance: collectively evaluated for impairment	$	14,723,000		$	1,613,000		$	(40,000	)	$	16,296,000
Total loans:
Ending balance	$	1,728,898,000		$	155,650,000					$	1,884,548,000
Ending balance: individually evaluated for impairment	$	12,070,000		$	1,313,000					$	13,383,000
Ending balance: collectively evaluated for impairment	$	1,716,828,000		$	154,337,000					$	1,871,165,000

Activity in the allowance for loan losses for acquired loans during the

twelve

months ended

December

31,

2016

is as follows:

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	420,000		$	28,000		$	0	$	448,000
Provision for loan losses		(303,000	)		105,000			0		(198,000	)
Charge-offs		0			(72,000	)		0		(72,000	)
Recoveries		(42,000	)		(43,000	)		0		(85,000	)
Ending balance	$	75,000		$	18,000		$	0	$	93,000

The negative loan recoveries reflected for acquired loans during 

2016

resulted from reversals of prior-period recoveries associated with certain purchased credit impaired (“PCI”) loans that were subject to pre-acquisition charge-offs.  Post-acquisition payments received on these PCI loans were incorrectly reported as loan loss recoveries in prior periods; during the

first

quarter of

2016,

these recoveries were reversed and properly reported as recovery income if associated with specifically reviewed PCI loans or retained gains if associated with PCI-pooled loans.

In accordance with acquisition accounting rules, acquired loans were recorded at fair value at the merger date and the prior allowance was eliminated.

Loans modified as troubled debt restructurings during the

three

months ended

March

31,

2017

were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0
Retail:
Home equity and other		4		328,000		329,000
1-4 family mortgages		0		0		0
Total originated retail		4		328,000		329,000
Total originated loans		4	$	328,000	$	329,000
Acquired loans
Commercial:
Commercial and industrial		1	$	31,000	$	31,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		31,000		31,000
Retail:
Home equity and other		2		6,000		7,000
1-4 family mortgages		1		57,000		57,000
Total acquired retail		3		63,000		64,000
Total acquired loans		4	$	94,000	$	95,000

Loans modified as troubled debt restructurings during the

three

months ended

March

31,

2016

were as follows:

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated lo ans
Commercial:
Commercial and industrial		1	$	20,000	$	20,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		1		20,000		20,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		1	$	20,000	$	20,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		0		0		0
Retail:
Home equity and other		1		26,000		26,000
1-4 family mortgages		1		19,000		19,000
Total acquired retail		2		45,000		45,000
Total acquired loans		2	$	45,000	$	45,000

The following originated loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March

31,

2017

(amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		2	$	34,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		1		130,000
Total commercial		3		164,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		3	$	164,000

The following acquired loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March

31,

2017

(amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	24,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		24,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	24,000

The following originated loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March

31,

2016

(amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

The following acquired loans, modified as troubled debt restructurings within the previous

twelve

months, became over

30

days past due within the

three

months ended

March

31,

2016

(amounts as of period end):

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

March

31,

2017

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(125,000	)		(529,000	)		(27,000	)		(123,000	)		(113,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		159,000			0			0			(436,000	)		(312,000	)
Ending Balance	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000	$	157,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		321,000		0
Ending Balance	$	706,000	$	154,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

March

31,

2017

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(233,000	)		0		0			(145,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		30,000			0		108,000			0			8,000
Ending Balance	$	922,000		$	0	$	996,000		$	583,000		$	68,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		0			0
Payments		(9,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		7,000			54,000
Ending Balance	$	206,000		$	376,000

Activity for originated loans categorized as troubled debt restructurings during the

three

months ended

March

31,

2016

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	2,028,000		$	2,086,000		$	1,400,000		$	10,657,000		$	476,000
Charge-Offs		0			0			0			0			0
Payments		(101,000	)		(24,000	)		(31,000	)		(128,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		19,000			0			0			0			0
Ending Balance	$	1,946,000		$	2,062,000		$	1,369,000		$	10,529,000		$	469,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	146,000	$	128,000
Charge-Offs		0		0
Payments		0		(2,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	146,000	$	126,000

Activity for acquired loans categorized as troubled debt restructurings during the

three

months ended

March

31,

2016

is as follows:

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi- Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,686,000		$	0	$	1,652,000		$	647,000		$	331,000
Charge-Offs		(48,000	)		0		0			0			0
Payments		0			0		(197,000	)		(10,000	)		(53,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		49,000			0		0			0			0
Ending Balance	$	1,687,000		$	0	$	1,455,000		$	637,000		$	278,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	141,000		$	316,000
Charge-Offs		0			0
Payments		(6,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		26,000			19,000
Ending Balance	$	161,000		$	335,000

The allowance related to loans categorized as troubled debt restructurings was as follows: 

	March 31,		December 31,
	2017		2016
Commercial:
Commercial and industrial	$	2,000	$	9,000
Vacant land, land development, and residential construction		13,000		28,000
Real estate – owner occupied		90,000		100,000
Real estate – non-owner occupied		157,000		247,000
Real estate – multi-family and residential rental		99,000		258,000
Total commercial		361,000		642,000
Retail:
Home equity and other		47,000		48,000
1-4 family mortgages		4,000		4,000
Total retail		51,000		52,000
Total related allowance	$	412,000	$	694,000

In general, our policy dictates that a renewal or modification of an

8

- or

9

-rated commercial loan meets the criteria of a troubled debt restructuring, although we review and consider all renewed and modified loans as part of our troubled debt restructuring assessment procedures. Loan relationships rated

8

contain significant financial weaknesses, resulting in a distinct possibility of loss, while relationships rated

9

reflect vital financial weaknesses, resulting in a highly questionable ability on our part to collect principal; we believe borrowers warranting such ratings would have difficulty obtaining financing from other market participants. Thus, due to the lack of comparable market rates for loans with similar risk characteristics, we believe

8

- or

9

-rated loans renewed or modified were done so at below market rates. Loans that are identified as troubled debt restructurings are considered impaired and are individually evaluated for impairment when assessing these credits in our allowance for loan losses calculation.

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Note 4 - Premises and Equipment, Net

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.

     

PREMISES AND EQUIPMENT, NET

Premises and equipment are comprised of the following:

	March 31,		December 31,
	2017		2016
Land and improvements	$	17,665,000	$	17,285,000
Buildings		39,836,000		39,691,000
Furniture and equipment		17,719,000		17,195,000
		75,220,000		74,171,000
Less: accumulated depreciation		29,372,000		28,715,000
Premises and equipment, net	$	45,848,000	$	45,456,000

Depreciation expense totaled

$0.7

million during the

first

quarter of

2017

and

2016.

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Note 5 - Deposits

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

5.

     

DEPOSITS

Our total deposits at

March

31,

2017

totaled

$2.28

billion, a decrease of

$97.0

million, or

4.1%,

from

December

 

31,

2016.

The components of our outstanding balances at

March

31,

2017

and

December

31,

2016,

and percentage change in deposits from the end of

2016

to the end of the

first

quarter of

2017,

are as follows:

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	757,706,000		33.3	%	$	810,600,000		34.1	%		(6.5	%)
Interest-bearing checking		371,622,000		16.3			377,929,000		15.9			(1.7	)
Money market		279,120,000		12.3			272,051,000		11.5			2.6
Savings		355,354,000		15.6			344,988,000		14.5			3.0
Time, under $100,000		142,454,000		6.2			146,169,000		6.2			(2.5	)
Time, $100,000 and over		326,694,000		14.3			347,058,000		14.6			(5.9	)
Total local deposits		2,232,950,000		98.0			2,298,795,000		96.8			(2.9	)
Out-of-area time, under $100,000		0		NA			0		NA			NA
Out-of-area time, $100,000 and over		45,066,000		2.0			76,190,000		3.2			(40.9	)
Total out-of-area deposits		45,066,000		2.0			76,190,000		3.2			(40.9	)
Total deposits	$	2,278,016,000		100.0	%	$	2,374,985,000		100.0	%		(4.1	%)

Time deposits of more than

$250,000

totaled

$201

million and

$178

million at

March

31,

2017

and

March

31,

2016,

respectively.

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Note 6 - Securities Sold Under Agreements to Repurchase

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]

6.

     

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (“repurchase agreements”) are offered principally to certain large deposit customers. Information relating to our repurchase agreements follows:

	Three Months Ended			Twelve Months Ended
	March 31, 2017			December 31, 2016
Outstanding balance at end of period	$	126,679,000		$	131,710,000
Average interest rate at end of period		0.16	%		0.16	%
Average daily balance during the period	$	128,933,000		$	149,079,000
Average interest rate during the period		0.16	%		0.14	%
Maximum daily balance during the period	$	142,459,000		$	175,088,000

Repurchase agreements generally have original maturities of less than

one

year. Repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities. Securities involved with the agreements are recorded as assets of our bank and are held in safekeeping by a correspondent bank. Repurchase agreements are secured by securities with an aggregate market value equal to the aggregate outstanding balance.

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Note 7 - Federal Home Loan Bank of Indianapolis Advances

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Federal Home Loan Bank Advances, Disclosure [Text Block]

7.

     

FEDERAL HOME LOAN BANK OF INDIANAPOLIS ADVANCES

Federal Home Loan Bank of Indianapolis (“FHLBI”) advances totaled

$205

million at

March

31,

2017,

and mature at varying dates from

May

2017

through

April

2024,

with fixed rates of interest from

1.04%

to

2.39%

and averaging

1.59%.

FHLBI advances totaled

$175

million at

December

31,

2016,

and were expected to mature at varying dates ranging from

March

2017

through

April

2023,

with fixed rates of interest from

1.04%

to

2.11%

and averaging

1.48%.

Each advance is payable at its maturity date and is subject to a prepayment fee if paid prior to the maturity date. The advances are collateralized by residential mortgage loans,

first

mortgage liens on multi-family residential property loans,

first

mortgage liens on commercial real estate property loans, and substantially all other assets of our bank, under a blanket lien arrangement. Our borrowing line of credit as of

March

31,

2017

totaled about

$541

million, with remaining availability based on collateral approximating

$336

million.

Maturities of currently outstanding FHLBI advances are as follows:

2017	$	35,000,000
2018		20,000,000
2019		30,000,000
2020		30,000,000
2021		30,000,000
Thereafter		60,000,000

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Note 8 - Commitments and Off-balance Sheet Risk

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

8.

     

COMMITMENTS AND OFF-BALANCE SHEET RISK

Our bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Loan 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. Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a

third

party. Commitments generally have fixed expiration dates or other termination clauses and

may

require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized, if any, in the balance sheet. Our bank’s maximum exposure to loan loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Our bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral, such as accounts receivable, securities, inventory, and property and equipment, is generally obtained based on our credit assessment of the borrower. If required, estimated loss exposure resulting from these instruments is expensed and is generally recorded as a liability. There was

no

reserve or liability balance for these instruments as of

March

31,

2017

and

December

31,

2016.

A summary of the contractual amounts of our financial instruments with off-balance sheet risk at

March

31,

2017

and

December

31,

2016

follows:

	March 31,		December 31,
	2017		2016
Commercial unused lines of credit	$	533,402,000	$	553,345,000
Unused lines of credit secured by 1 – 4 family residential properties		60,122,000		56,275,000
Credit card unused lines of credit		28,140,000		22,689,000
Other consumer unused lines of credit		8,807,000		8,489,000
Commitments to make loans		216,371,000		154,338,000
Standby letters of credit		26,902,000		26,202,000
	$	873,744,000	$	821,338,000

Certain of our commercial loan customers have entered into interest rate swap agreements directly with our correspondent banks. To assist our commercial loan customers in these transactions, and to encourage our correspondent banks to enter into the interest rate swap transactions with minimal credit underwriting analyses on their part, we have entered into risk participation agreements with the correspondent banks whereby we agree to make payments to the correspondent banks owed by our commercial loan customers under the interest rate swap agreement in the event that our commercial loan customers do not make the payments. We are not a party to the interest rate swap agreements under these arrangements. As of

March

31,

2017,

the total notional amount of the underlying interest rate swap agreements was

$13.6

million, with a net fair value from our commercial loan customers’ perspective of negative

$1.6

million. These risk participation agreements are considered financial guarantees in accordance with applicable accounting guidance and are therefore recorded as liabilities at fair value, generally equal to the fees collected at the time of their execution. These liabilities are accreted into income during the term of the interest rate swap agreements, generally ranging from

four

to

fifteen

years.

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Note 9 - Hedging Activities

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

9.

     

HEDGING ACTIVITIES

Our interest rate risk policy includes guidelines for measuring and monitoring interest rate risk. Within these guidelines, parameters have been established for maximum fluctuations in net interest income. Possible fluctuations are measured and monitored using net interest income simulation. Our policy provides for the use of certain derivative instruments and hedging activities to aid in managing interest rate risk to within the policy parameters.

In

February

2012,

we entered into an interest rate swap agreement with a correspondent bank to hedge the floating rate on our subordinated debentures, which became effective in

January

2013

and matures in

January

2018.

Our

$32.0

million of subordinated debentures have a rate equal to the

90

-Day Libor Rate plus a fixed spread of

218

basis points, and are subject to repricing quarterly. The interest rate swap agreement provides for us to pay our correspondent bank a fixed rate, while our correspondent bank will pay us the

90

-Day Libor Rate on a

$32.0

million notional amount. The quarterly re-set dates for the floating rate on the interest rate swap agreement are the same as the re-set dates for the floating rate on the subordinated debentures. The interest rate swap agreement does qualify for hedge accounting; therefore, monthly fluctuations in the present value of the interest rate swap agreement, net of tax effect, are recorded to other comprehensive income. As of

March

31,

2017

and

December

31,

2016,

the fair value of the interest rate swap agreement was recorded as a liability in the amount of less than

$0.1

million.

Effective

January

26,

2016,

the notional amount of the interest rate swap agreement was reduced from

$32.0

million down to

$21.0

million, reflecting the

$11.0

million repurchase of the associated trust preferred securities on that date. We reclassified out of accumulated other comprehensive income and recorded interest expense of approximately

$0.2

million in

January

2016

as part of the transaction, reflecting the market value (i.e., present value of expected future cash flows) of the interest rate swap on that date of the

$11.0

million portion.

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Note 10 - Fair Values of Financial Instruments

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

10.

  

FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts, estimated fair values and level within the fair value hierarchy of financial instruments were as follows as of

March

31,

2017

and

December

31,

2016

(dollars in thousands):

	Level in		March 31, 2017				December 31, 2016
	Fair Value		Carrying		Fair		Carrying		Fair
	Hierarchy		Values		Values		Values		Values
Financial assets:
Cash	Level 1		$	11,279	$	11,279	$	11,493	$	11,493
Cash equivalents	Level 2			41,697		41,697		172,103		172,103
Securities available for sale	(1)			332,441		332,441		328,060		328,060
FHLBI stock	(2)			9,236		9,236		8,026		8,026
Loans, net	Level 3			2,421,111		2,410,034		2,359,624		2,353,276
Loans held for sale	Level 2			1,927		1,927		1,035		1,035
Bank owned life insurance	Level 2			66,211		66,211		67,198		67,198
Accrued interest receivable	Level 2			8,542		8,542		7,714		7,714
Financial liabilities:
Deposits	Level 2			2,278,016		2,181,344		2,374,985		2,286,548
Repurchase agreements	Level 2			126,679		126,679		131,710		131,710
FHLBI advances	Level 2			205,000		204,156		175,000		174,734
Subordinated debentures	Level 2			45,006		45,392		44,835		45,220
Accrued interest payable	Level 2			1,465		1,465		1,592		1,592
Interest rate swap		(1)		42		42		84		84

(1) See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

(2) It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, bank owned life insurance, noninterest checking deposits, securities sold under agreements to repurchase, and variable rate loans and deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans and deposits and for variable rate loans and deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of subordinated debentures and FHLBI advances is based on current rates for similar financing. Fair value of the interest rate swap is determined primarily utilizing market-consensus forecasted yield curves. Fair value of off-balance sheet items is estimated to be nominal.

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Note 11 - Fair Values

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

11.

 

FAIR VALUES

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

We are required to use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs

may

be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. In that regard, we utilize a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level

1:

Quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access as of the measurement date.

Level

2:

Significant other observable inputs other than Level

1

prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level

3:

Significant unobservable inputs that reflect our own conclusions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of our valuation methodologies used to measure and disclose the fair values of our financial assets and liabilities that are recorded at fair value on a recurring or nonrecurring basis:

Securities available for sale.

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level

2

securities include U.S. Government agency bonds, mortgage-backed securities issued or guaranteed by U.S. Government agencies, municipal general obligation and revenue bonds and mutual funds. Level

3

securities include bonds issued by certain relatively small municipalities located within our markets that have very limited marketability due to their size and lack of ratings from a recognized rating service. We carry these bonds at historical cost, which we believe approximates fair value, unless our periodic financial analysis or other information becomes known which necessitates a valuation allowance. There was

no

such valuation allowance as of

March

31,

2017

or

December

31,

2016.

We have

no

Level

1

securities available for sale.

Derivatives

. The interest rate swap is measured at fair value on a recurring basis. We measure fair value utilizing models that use primarily market observable inputs, such as forecasted yield curves, and accordingly, the interest rate swap agreement is classified as Level

2.

Mortgage loans held for sale

. Mortgage loans originated and intended for sale in the

secondary

market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors, and are measured on a nonrecurring basis. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics. As of

March

31,

2017

and

December

31,

2016,

we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of

$1.9

million and

$1.0

million, respectively.

Loans

. We do not record loans at fair value on a recurring basis. However, from time to time, we record nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs or specific reserves that are based on the observable market price or current estimated value of the collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off.

Foreclosed Assets.

At time of foreclosure or repossession, foreclosed and repossessed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed and repossessed assets, establishing a new cost basis. We subsequently adjust estimated fair value of foreclosed assets on a nonrecurring basis to reflect write-downs based on revised fair value estimates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The balances of assets and liabilities measured at fair value on a recurring basis as of

March

31,

2017

are as follows:

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	156,011,000		$	0	$	156,011,000		$	0
Mortgage-backed securities		43,704,000			0		43,704,000			0
Municipal general obligation bonds		122,530,000			0		116,131,000			6,399,000
Municipal revenue bonds		8,239,000			0		8,239,000			0
Other investments		1,957,000			0		1,957,000			0
Interest rate swap		(42,000	)		0		(42,000	)		0
Total	$	332,399,000		$	0	$	326,000,000		$	6,399,000

There were no transfers in or out of Level

1,

Level

2

or Level

3

during the

first

three

months of

2017.

The balances of assets and liabilities measured at fair value on a recurring basis as of

December

31,

2016

are as follows:

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	152,040,000		$	0	$	152,040,000		$	0
Mortgage-backed securities		47,392,000			0		47,392,000			0
Municipal general obligation bonds		119,047,000			0		112,648,000			6,399,000
Municipal revenue bonds		7,631,000			0		7,631,000			0
Other investments		1,950,000			0		1,950,000			0
Interest rate swap		(84,000	)		0		(84,000	)		0
Total	$	327,976,000		$	0	$	321,577,000		$	6,399,000

There were no transfers in or out of Level

1,

Level

2

or Level

3

during

2016.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of

March

31,

2017

are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	8,119,000	$	0	$	0	$	8,119,000
Foreclosed assets		495,000		0		0		495,000
Total	$	8,614,000	$	0	$	0	$	8,614,000

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of

December

31,

2016

are as follows:

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	9,896,000	$	0	$	0	$	9,896,000
Foreclosed assets		469,000		0		0		469,000
Total	$	10,365,000	$	0	$	0	$	10,365,000

The carrying values are based on the estimated value of the property or other assets. Fair value estimates of collateral on impaired loans and foreclosed assets are reviewed periodically. Our credit policies establish criteria for obtaining appraisals and determining internal value estimates. We

may

also adjust outside appraisals and internal evaluations based on identifiable trends within our markets, such as sales of similar properties or assets, listing prices and offers received. In addition, we

may

discount certain appraised and internal value estimates to address current distressed market conditions. For real estate dependent loans and foreclosed assets, we generally assign a

15%

to

25%

discount factor for commercial-related properties, and a

25%

to

50%

discount factor for residential-related properties. In a vast majority of cases, we assign a

10%

discount factor for estimated selling costs.

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Note 12 - Regulatory Matters

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

12.

  

REGULATORY MATTERS

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on our financial statements.

The prompt corrective action regulations provide

five

classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is not well capitalized, regulatory approval is required to accept brokered deposits. Subject to limited exceptions, no institution

may

make a capital distribution if, after making the distribution, it would be undercapitalized. If an institution is undercapitalized, it is subject to close monitoring by its principal federal regulator, its asset growth and expansion are restricted, and plans for capital restoration are required. In addition, further specific types of restrictions

may

be imposed on the institution at the discretion of the federal regulator. At

March

31,

2017

and

December

31,

2016,

our bank was in the well capitalized category under the regulatory framework for prompt corrective action. There are no conditions or events since

March

31,

2017

that we believe have changed our bank’s categorization.

Our actual capital levels (dollars in thousands) and the minimum levels required to be categorized as adequately and well capitalized were:

											Minimum Required
											to be Well
						Minimum Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2017
Total capital (to risk weighted assets)
Consolidated	$	359,984		13.1	%	$	220,614		8.0	%	NA		NA
Bank		356,798		13.0			220,408		8.0			275,509		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		341,708		12.4			165,461		6.0		NA		NA
Bank		338,522		12.3			165,306		6.0			220,408		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		298,776		10.8			124,096		4.5		NA		NA
Bank		338,522		12.3			123,980		4.5			179,081		6.5
Tier 1 capital (to average assets)
Consolidated		341,708		11.5			118,508		4.0		NA		NA
Bank		338,522		11.4			118,462		4.0			148,078		5.0

											Minimum Required
											to be Well
						Minimum Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2016
Total capital (to risk weighted assets)
Consolidated	$	354,278		13.1	%	$	215,819		8.0	%	NA		NA
Bank		353,243		13.1			215,605		8.0			269,506		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		336,316		12.5			161,864		6.0		NA		NA
Bank		335,282		12.4			161,704		6.0			215,605		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		293,555		10.9			121,398		4.5		NA		NA
Bank		335,282		12.4			121,278		4.5			175,179		6.5
Tier 1 capital (to average assets)
Consolidated		336,316		11.2			120,486		4.0		NA		NA
Bank		335,282		11.1			120,383		4.0			150,479		5.0

Our consolidated capital levels as of

March

31,

2017

and

December

31,

2016

include

$42.9

million and

$42.8

million, respectively, of trust preferred securities subject to certain limitations. Under applicable Federal Reserve guidelines, the trust preferred securities constitute a restricted core capital element. The guidelines provide that the aggregate amount of restricted core elements that

may

be included in our Tier

1

capital must not exceed

25%

of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Our ability to include the trust preferred securities in Tier

1

capital in accordance with the guidelines is not affected by the provision of the Dodd-Frank Act generally restricting such treatment, because (i) the trust preferred securities were issued before

May

19,

2010,

and (ii) our total consolidated assets as of

December

31,

2009

were less than

$15.0

billion. As of

March

31,

2017

and

December

31,

2016,

all

$42.9

million and

$42.8

million, respectively, of the trust preferred securities were included in our consolidated Tier

1

capital.

Under the final BASEL III capital rules that became effective on

January

1,

2015,

there is a requirement for a common equity Tier

1

capital conservation buffer of

2.5%

of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not meet this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in cash dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over

three

years beginning in

2016.

The capital buffer requirement effectively raises the minimum required common equity Tier

1

capital ratio to

7.0%,

the Tier

1

capital ratio to

8.5%

and the total capital ratio to

10.5%

on a fully phased-in basis on

January

1,

2019.

We believe that, as of

March

31,

2017,

our bank would meet all capital adequacy requirements under the BASEL III capital rules on a fully phased-in basis as if all such requirements were currently in effect.

Our and our bank’s ability to pay cash and stock dividends is subject to limitations under various laws and regulations and to prudent and sound banking practices. On

January

12,

2017,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.18

per share that was paid on

March

22,

2017

to shareholders of record as of

March

10,

2017.

On

April

13,

2017,

our Board of Directors declared a cash dividend on our common stock in the amount of

$0.18

per share that will be paid on

June

21,

2017

to shareholders of record as of

June

9,

2017.

On

January

30,

2015,

we announced that our Board of Directors had authorized a new program to repurchase up to

$20.0

million of our common stock from time to time in open market transactions at prevailing market prices or by other means in accordance with applicable regulations. On

April

19,

2016,

we announced a

$15.0

million expansion of the stock repurchase plan. Since inception, we have purchased a total of

956,419

shares at a total price of

$19.5

million, at an average price per share of

$20.38;

no shares were purchased under the authorized plan during the

first

three

months of

2017.

The stock buybacks have been funded from cash dividends paid to us from our bank. Additional repurchases

may

be made in future periods under the authorized plan, which would also likely be funded from cash dividends paid to us from our bank.

On

January

26,

2016,

we closed on a repurchase of trust preferred securities that were auctioned as part of a pooled collateralized debt obligation (“Fund”). The Fund owned

$11.0

million of the

$32.0

million in trust preferred securities that had been issued by Mercantile Bank Capital Trust I, a wholly-owned business trust subsidiary. The

$11.0

million in trust preferred securities was retired upon the repurchase, resulting in a commensurate reduction in the related Floating Rate Junior Subordinate Note, leaving

$21.0

million outstanding. Our winning bid equated to

73%

of the

$11.0

million par value, with the

27%

discount resulting in a pre-tax gain of approximately

$3.0

million (after-tax gain of approximately

$1.8

million, or

$0.11

per diluted share). The repurchase was primarily funded via a

$9.1

million cash dividend from our bank, resulting in an approximately

35

basis point decline in the bank's regulatory capital ratios. Subsequent to the repurchase, the regulatory capital ratios of both Mercantile and our bank remained well above the minimum thresholds to be categorized as well capitalized.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

: The unaudited financial statements for the

three

months ended

March

31,

2017

include the consolidated results of operations of Mercantile Bank Corporation and its consolidated subsidiaries. These subsidiaries include Mercantile Bank of Michigan (“our bank”) and our bank’s

two

subsidiaries, Mercantile Bank Real Estate Co., LLC (“our real estate company”) and Mercantile Insurance Center, Inc. (“our insurance center”). These consolidated financial statements have been prepared in accordance with the instructions for Form

10

-Q and Item

303(b)

of Regulation S-K and do not include all disclosures required by accounting principles generally accepted in the United States of America for a complete presentation of our financial condition and results of operations. In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair presentation of the results of operations for such periods. The results for the period ended

March

31,

2017

should not be considered as indicative of results for a full year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form

10

-K for the year ended

December

 

31,

2016.

We have

five

separate business trusts that were formed to issue trust preferred securities. Subordinated debentures were issued to the trusts in return for the proceeds raised from the issuance of the trust preferred securities. The trusts are not consolidated, but instead we report the subordinated debentures issued to the trusts as a liability.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share

: Basic earnings per share is based on the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings per share include the dilutive effect of additional potential common shares issuable under our stock-based compensation plans and are determined using the treasury stock method. Our unvested restricted shares, which contain non-forfeitable rights to dividends whether paid or accrued (i.e., participating securities), are included in the number of shares outstanding for both basic and diluted earnings per share calculations. In the event of a net loss, our unvested restricted shares are excluded from the calculation of both basic and diluted earnings per share.

Approximately

225,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March

31,

2017.

In addition, stock options for approximately

34,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March

31,

2017.

Stock options for approximately

7,000

shares of common stock were antidilutive and not included in determining diluted earnings per share for the

three

months ended

March

31,

2017.

Approximately

150,000

unvested restricted shares were included in determining both basic and diluted earnings per share for the

three

months ended

March

31,

2016.

In addition, stock options for approximately

118,000

shares of common stock were included in determining diluted earnings per share for the

three

months ended

March

31,

2016.

Stock options for approximately

10,000

shares of common stock were antidilutive and not included in determining diluted earnings per share for the

three

months ended

March

31,

2016.

Marketable Securities, Policy [Policy Text Block]

Securities

: Debt securities classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold prior to maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Federal Home Loan Bank stock is carried at cost.

Interest income includes amortization of purchase premiums and accretion of discounts. Premiums and discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of debt securities below their amortized cost that are other than temporary (“OTTI”) are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost, we consider our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery and whether we expect to recover the entire amortized cost of the security based on our assessment of the issuer’s financial condition. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, and whether downgrades by bond rating agencies have occurred. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into

two

components as follows:

1)

OTTI related to credit loss, which must be recognized in the income statement, and

2)

OTTI related to other factors, such as liquidity conditions in the market or changes in market interest rates, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost.

Finance, Loan and Lease Receivables, Held-for-investment, Policy [Policy Text Block]

Loans

: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on commercial loans and mortgage loans is discontinued at the time the loan is

90

days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than when they are

120

days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Finance, Loan and Lease Receivables, Held-for-sale, Policy [Policy Text Block]

Loans Held for Sale

: Mortgage loans originated and intended for sale in the

secondary

market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of

March

31,

2017

and

December

31,

2016,

we determined that the fair value of our mortgage loans held for sale approximated the recorded cost of

$1.9

million and

$1.0

million, respectively. Loans held for sale are reported as part of our total loans on the balance sheet.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold, which is reduced by the cost allocated to the servicing right. We generally lock in the sale price to the purchaser of the loan at the same time we make a rate commitment to the borrower. These mortgage banking activities are not designated as hedges and are carried at fair value. The net gain or loss on mortgage banking derivatives is included in the gain on sale of loans. Mortgage loans serviced for others totaled approximately

$603

million as of

March

31,

2017.

Loans and Leases Receivable, Mortgage Banking Activities, Policy [Policy Text Block]

Mortgage Banking Activities

: Mortgage loan servicing rights are recognized as assets based on the allocated value of retained servicing rights on mortgage loans sold. Mortgage loan servicing rights are carried at the lower of amortized cost or fair value and are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights using groupings of the underlying mortgage loans as to interest rates. Any impairment of a grouping is reported as a valuation allowance.

Servicing fee income is recorded for fees earned for servicing mortgage loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Amortization of mortgage loan servicing rights is netted against mortgage loan servicing income and recorded in mortgage banking activities in the income statement.

Loans and Leases Receivable, Troubled Debt Restructuring Policy [Policy Text Block]

Troubled Debt Restructurings

: A loan is accounted for as a troubled debt restructuring if we, for economic or legal reasons, grant a concession to a borrower considered to be experiencing financial difficulties that we would not otherwise consider. A troubled debt restructuring

may

involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or balance of the loan, a reduction of accrued interest, an extension of the maturity date or renewal of the loan at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings can be in either accrual or nonaccrual status. Nonaccrual troubled debt restructurings are included in nonperforming loans. Accruing troubled debt restructurings are generally excluded from nonperforming loans as it is considered probable that all contractual principal and interest due under the restructured terms will be collected.

In accordance with current accounting guidance, loans modified as troubled debt restructurings are, by definition, considered to be impaired loans. Impairment for these loans is measured on a loan-by-loan basis similar to other impaired loans as described below under “Allowance for Loan Losses.” Certain loans modified as troubled debt restructurings

may

have been previously measured for impairment under a general allowance methodology (i.e., pooling), thus at the time the loan is modified as a troubled debt restructuring the allowance will be impacted by the difference between the results of these

two

measurement methodologies. Loans modified as troubled debt restructurings that subsequently default are factored into the determination of the allowance in the same manner as other defaulted loans.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Allowance for Loan Losses

: The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when we believe the uncollectability of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of 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 our judgment, should be charged-off.

A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered 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. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of collateral if the loan is collateral dependent.

Derivatives, Policy [Policy Text Block]

Derivatives

: Derivative financial instruments are recognized as assets or liabilities at fair value. The accounting for changes in the fair value of derivatives depends on the use of the derivatives and whether the derivatives qualify for hedge accounting. Used as part of our asset and liability management to help manage interest rate risk, our derivatives have generally consisted of interest rate swap agreements that qualified for hedge accounting. In

February

2012,

we entered into an interest rate swap agreement that qualifies for hedge accounting. The current outstanding interest rate swap is discussed in more detail in Note

9.

We do not use derivatives for trading purposes.

Changes in the fair value of derivatives that are designated, for accounting purposes, as a hedge of the variability of cash flows to be received on various assets and liabilities and are effective are reported in other comprehensive income. They are later reclassified into earnings in the same periods during which the hedged transaction affects earnings and are included in the line item in which the hedged cash flows are recorded. If hedge accounting does not apply, changes in the fair value of derivatives are recognized immediately in current earnings as interest income or expense.

If designated as a hedge, we formally document the relationship between derivatives as hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet. If designated as a hedge, we also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in cash flows of the hedged items. Ineffective hedge gains and losses are recognized immediately in current earnings as noninterest income or expense. We discontinue hedge accounting when we determine the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative is settled or terminates, or treatment of the derivative as a hedge is no longer appropriate or intended.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Core Deposit Intangible

: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified. A more frequent assessment is performed should events or changes in circumstances indicate the carrying value of the goodwill

may

not be recoverable. We

may

elect to perform a qualitative assessment for the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. The quantitative test is a

two

-step process consisting of comparing the carrying value of the reporting unit to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. In

2015

and

2016,

we elected to perform a qualitative assessment for our annual impairment test and concluded it is more likely than not our fair value was greater than its carrying amount; therefore, no further testing was required.

The core deposit intangible that arose from the Firstbank Corporation acquisition was initially measured at fair value and is being amortized into noninterest expense over a

ten

-year period using the sum-of-the-years-digits methodology.

New Accounting Pronouncements, Policy [Policy Text Block]

Adoption of New Accounting Standards:

In

May

2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers

. This ASU establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires

five

basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This ASU was originally effective for annual and interim periods beginning after

December

15,

2016,

with

three

transition methods available – full retrospective, retrospective and cumulative effect approach. In

August

2015,

the FASB issued ASU

2015

-

14,

Revenue from Contracts with Customers – Deferral of Effective Date

, which delays the implementation of this guidance by

one

year. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In

January

2016,

the FASB issued ASU

2016

-

1,

Recognition and Measurement of Financial Assets and Financial Liabilities

. This ASU requires an entity to (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses on available for sale debt securities in combination with other deferred tax assets. This ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. This ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2017,

and are not expected to have a material effect on our financial position or results of operations when adopted.

In

February

2016,

the FASB issued ASU

2016

-

02,

Leases

. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

12

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The ASU is effective for annual and interim periods beginning after

December

15,

2018.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In

March

2016,

the FASB issued ASU

2016

-

09,

Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting

. This ASU requires that, prospectively, all tax effects related to share-based payments be made through the income statement at the time of settlement as opposed to excess tax benefits being recognized in additional paid-in capital under the current guidance. The ASU also removes the requirement to delay recognition of a tax benefit until it reduces current taxes payable. This change is required to be applied on a modified retrospective basis, with a cumulative-effect adjustment to opening retained earnings. Additionally, all tax related cash flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows, a change from the current requirement to present tax benefits as an inflow from financing activities and an outflow from operating activities. Finally, entities will be allowed to withhold an amount up to the employees’ maximum individual tax rate (as opposed to the minimum statutory tax rate) in the relevant jurisdiction without resulting in liability classification of the award. The change in withholding requirements will be applied on a modified retrospective approach. This standard will be effective for annual and interim periods beginning after

December

15,

2016.

Adoption of this ASU did not have a material effect on our financial position or results of operations.

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 are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (i) financial assets subject to credit losses and measured at amortized cost, and (ii) 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 ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans, and 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. This ASU is effective for interim and annual reporting periods beginning after

December

15,

2019,

and 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). We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In

August

2016,

the FASB issued ASU No.

2016

-

15,

Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments

. This ASU will make

eight

targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows and is effective for fiscal years beginning after

December

15,

2017.

The new standard will require adoption on a retrospective basis unless it is impractical to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

In

January

2017,

the FASB issued ASU No.

2017

-

04,

Goodwill and Other (Topic

350):

Simplifying the Test for Goodwill Impairment

. This ASU simplifies the subsequent measurement of goodwill by eliminating Step

2

from the goodwill impairment test. Under this ASU, an entity should perform the Step

1

annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value. If the carrying amount exceeds the fair value, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective

January

1,

2020

and early adoption is permitted. The ASU should be applied prospectively. Adoption of this ASU is not expected to have a material effect on our financial position or results of operations.

In

March

2017,

the FASB issued ASU No.

2017

-

08,

Premium Amortization on Purchased Callable Debt Securities

. This ASU requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Previously, entities were allowed to amortize to contractual maturity or to call date. This ASU is effective for annual reporting periods beginning after

December

15,

2018,

and early adoption is permitted. We are currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on our consolidated financial statements.

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Note 2 - Securities (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Available-for-sale Securities [Table Text Block]

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2017
U.S. Government agency debt obligations	$	162,923,000	$	73,000	$	(6,985,000	)	$	156,011,000
Mortgage-backed securities		43,525,000		472,000		(293,000	)		43,704,000
Municipal general obligation bonds		123,235,000		496,000		(1,201,000	)		122,530,000
Municipal revenue bonds		8,295,000		22,000		(78,000	)		8,239,000
Other investments		1,986,000		0		(29,000	)		1,957,000
	$	339,964,000	$	1,063,000	$	(8,586,000	)	$	332,441,000
December 31, 2016
U.S. Government agency debt obligations	$	159,271,000	$	106,000	$	(7,337,000	)	$	152,040,000
Mortgage-backed securities		47,329,000		486,000		(423,000	)		47,392,000
Municipal general obligation bonds		120,284,000		312,000		(1,549,000	)		119,047,000
Municipal revenue bonds		7,699,000		23,000		(91,000	)		7,631,000
Other investments		1,979,000		0		(29,000	)		1,950,000
	$	336,562,000	$	927,000	$	(9,429,000	)	$	328,060,000

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Table Text Block]

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
March 31, 2017
U.S. Government agency debt obligations	$	123,657,000	$	6,850,000	$	4,108,000	$	135,000	$	127,765,000	$	6,985,000
Mortgage-backed securities		19,107,000		145,000		15,498,000		148,000		34,605,000		293,000
Municipal general obligation bonds		46,728,000		1,047,000		8,805,000		154,000		55,533,000		1,201,000
Municipal revenue bonds		1,246,000		78,000		0		0		1,246,000		78,000
Other investments		1,486,000		29,000		0		0		1,486,000		29,000
	$	192,224,000	$	8,149,000	$	28,411,000	$	437,000	$	220,635,000	$	8,586,000

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2016
U.S. Government agency debt obligations	$	110,160,000	$	7,172,000	$	5,073,000	$	165,000	$	115,233,000	$	7,337,000
Mortgage-backed securities		3,670,000		4,000		37,072,000		419,000		40,742,000		423,000
Municipal general obligation bonds		65,895,000		1,360,000		27,734,000		189,000		93,629,000		1,549,000
Municipal revenue bonds		1,921,000		90,000		206,000		1,000		2,127,000		91,000
Other investments		1,479,000		29,000		0		0		1,479,000		29,000
	$	183,125,000	$	8,655,000	$	70,085,000	$	774,000	$	253,210,000	$	9,429,000

Investments Classified by Contractual Maturity Date [Table Text Block]

	Weighted
	Average		Amortized		Fair
	Yield (%)		Cost		Value
Due in 2017		1.45	$	30,644,000	$	30,670,000
Due in 2018 through 2022		2.24		97,092,000		97,132,000
Due in 2023 through 2027		2.68		93,216,000		90,060,000
Due in 2028 and beyond		2.84		73,501,000		68,918,000
Mortgage-backed securities		1.85		43,525,000		43,704,000
Other investments		0.65		1,986,000		1,957,000
Total available for sale securities		2.36	$	339,964,000	$	332,441,000

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Note 3 - Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Originated loans
Commercial:
Commercial and industrial	$	685,227,000		34.7	%	$	636,771,000		33.8	%		7.6	%
Vacant land, land development, and residential construction		23,841,000		1.2			26,519,000		1.4			(10.1	)
Real estate – owner occupied		368,910,000		18.7			363,509,000		19.3			1.5
Real estate – non-owner occupied		678,359,000		34.4			652,054,000		34.6			4.0
Real estate – multi-family and residential rental		47,072,000		2.4			50,045,000		2.6			(5.9	)
Total commercial		1,803,409,000		91.4			1,728,898,000		91.7			4.3
Retail:
Home equity and other		69,032,000		3.5			69,831,000		3.7			(1.1	)
1-4 family mortgages		101,298,000		5.1			85,819,000		4.6			18.0
Total retail		170,330,000		8.6			155,650,000		8.3			9.4
Total originated loans	$	1,973,739,000		100.0	%	$	1,884,548,000		100.0	%		4.7	%

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Acquired loans
Commercial:
Commercial and industrial	$	71,993,000		15.4	%	$	77,132,000		15.6	%		(6.7	%)
Vacant land, land development, and residential construction		8,083,000		1.7			8,309,000		1.7			(2.7	)
Real estate – owner occupied		83,472,000		17.9			86,955,000		17.6			(4.0	)
Real estate – non-owner occupied		90,206,000		19.3			96,215,000		19.5			(6.2	)
Real estate – multi-family and residential rental		66,185,000		14.1			67,838,000		13.7			(2.4	)
Total commercial		319,939,000		68.4			336,449,000		68.1			(4.9	)
Retail:
Home equity and other		43,085,000		9.2			48,216,000		9.8			(10.6	)
1-4 family mortgages		104,551,000		22.4			109,407,000		22.1			(4.4	)
Total retail		147,636,000		31.6			157,623,000		31.9			(6.3	)
Total acquired loans	$	467,575,000		100.0	%	$	494,072,000		100.0	%		(5.4	%)

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Total loans
Commercial:
Commercial and industrial	$	757,220,000		31.0	%	$	713,903,000		30.0	%		6.1	%
Vacant land, land development, and residential construction		31,924,000		1.3			34,828,000		1.5			(8.3	)
Real estate – owner occupied		452,382,000		18.5			450,464,000		18.9			0.4
Real estate – non-owner occupied		768,565,000		31.5			748,269,000		31.5			2.7
Real estate – multi-family and residential rental		113,257,000		4.7			117,883,000		4.9			(3.9	)
Total commercial		2,123,348,000		87.0			2,065,347,000		86.8			2.8
Retail:
Home equity and other		112,117,000		4.6			118,047,000		5.0			(5.0	)
1-4 family mortgages		205,849,000		8.4			195,226,000		8.2			5.4
Total retail		317,966,000		13.0			313,273,000		13.2			1.5
Total loans	$	2,441,314,000		100.0	%	$	2,378,620,000		100.0	%		2.6	%

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Accretable Yield Movement [Table Text Block]

Balance at December 31, 2016	$	1,726,000
Additions		1,000
Accretion income		(147,000	)
Net reclassification from nonaccretable to accretable		63,000
Reductions (1)		(179,000	)
Balance at March 31, 2017	$	1,464,000
Balance at December 31, 2015	$	5,193,000
Additions		21,000
Accretion income		(680,000	)
Net reclassification from nonaccretable to accretable		2,372,000
Reductions (1)		(587,000	)
Balance at March 31, 2016	$	6,319,000

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

	March 31,		December 31,
	2017		2016
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		4,716,000		3,328,000
Total nonperforming originated loans	$	4,716,000	$	3,328,000

	March 31,		December 31,
	2017		2016
Loans past due 90 days or more still accruing interest	$	0	$	0
Nonaccrual loans		2,576,000		2,611,000
Total nonperforming acquired loans	$	2,576,000	$	2,611,000

	March 31,		December 31,
	2017		2016
Commercial:
Commercial and industrial	$	3,073,000	$	2,296,000
Vacant land, land development, and residential construction		80,000		95,000
Real estate – owner occupied		911,000		285,000
Real estate – non-owner occupied		421,000		488,000
Real estate – multi-family and residential rental		163,000		17,000
Total commercial		4,648,000		3,181,000
Retail:
Home equity and other		407,000		496,000
1-4 family mortgages		2,237,000		2,262,000
Total retail		2,644,000		2,758,000
Total nonperforming loans	$	7,292,000	$	5,939,000

Past Due Financing Receivables [Table Text Block]

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	230,000	$	1,661,000	$	0	$	1,891,000	$	683,336,000	$	685,227,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		23,841,000		23,841,000		0
Real estate – owner occupied		0		0		0		0		368,910,000		368,910,000		0
Real estate – non-owner occupied		0		0		0		0		678,359,000		678,359,000		0
Real estate – multi-family and residential rental		130,000		0		0		130,000		46,942,000		47,072,000		0
Total commercial		360,000		1,661,000		0		2,021,000		1,801,388,000		1,803,409,000		0
Retail:
Home equity and other		542,000		13,000		3,000		558,000		68,474,000		69,032,000		0
1-4 family mortgages		0		0		225,000		225,000		101,073,000		101,298,000		0
Total retail		542,000		13,000		228,000		783,000		169,547,000		170,330,000		0
Total past due loans	$	902,000	$	1,674,000	$	228,000	$	2,804,000	$	1,970,935,000	$	1,973,739,000	$	0

													Recorded
	30 – 59		60 – 89		Greater Than 89								Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired loans
Commercial:
Commercial and industrial	$	25,000	$	0	$	16,000	$	41,000	$	71,952,000	$	71,993,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,083,000		8,083,000		0
Real estate – owner occupied		273,000		0		75,000		348,000		83,124,000		83,472,000		0
Real estate – non-owner occupied		49,000		0		353,000		402,000		89,804,000		90,206,000		0
Real estate – multi-family and residential rental		152,000		37,000		11,000		200,000		65,985,000		66,185,000		0
Total commercial		499,000		37,000		455,000		991,000		318,948,000		319,939,000		0
Retail:
Home equity and other		451,000		63,000		49,000		563,000		42,522,000		43,085,000		0
1-4 family mortgages		826,000		178,000		610,000		1,614,000		102,937,000		104,551,000		0
Total retail		1,277,000		241,000		659,000		2,177,000		145,459,000		147,636,000		0
Total past due loans	$	1,776,000	$	278,000	$	1,114,000	$	3,168,000	$	464,407,000	$	467,575,000	$	0

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Balance > 89 Days and Accruing
Originated loans
Commercial:
Commercial and industrial	$	0	$	27,000	$	0	$	27,000	$	636,744,000	$	636,771,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		26,519,000		26,519,000		0
Real estate – owner occupied		0		0		0		0		363,509,000		363,509,000		0
Real estate – non-owner occupied		0		0		0		0		652,054,000		652,054,000		0
Real estate – multi-family and residential rental		0		0		0		0		50,045,000		50,045,000		0
Total commercial		0		27,000		0		27,000		1,728,871,000		1,728,898,000		0
Retail:
Home equity and other		46,000		98,000		0		144,000		69,687,000		69,831,000		0
1-4 family mortgages		758,000		122,000		337,000		1,217,000		84,602,000		85,819,000		0
Total retail		804,000		220,000		337,000		1,361,000		154,289,000		155,650,000		0
Total past due loans	$	804,000	$	247,000	$	337,000	$	1,388,000	$	1,883,160,000	$	1,884,548,000	$	0

	30 – 59		60 – 89		Greater Than 89								Recorded Balance > 89
	Days		Days		Days		Total				Total		Days and
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Accruing
Acquired Loans
Commercial:
Commercial and industrial	$	0	$	11,000	$	16,000	$	27,000	$	77,105,000	$	77,132,000	$	0
Vacant land, land development, and residential construction		0		0		0		0		8,309,000		8,309,000		0
Real estate – owner occupied		62,000		0		50,000		112,000		86,843,000		86,955,000		0
Real estate – non-owner occupied		0		0		353,000		353,000		95,862,000		96,215,000		0
Real estate – multi-family and residential rental		0		0		17,000		17,000		67,821,000		67,838,000		0
Total commercial		62,000		11,000		436,000		509,000		335,940,000		336,449,000		0
Retail:
Home equity and other		258,000		26,000		45,000		329,000		47,887,000		48,216,000		0
1-4 family mortgages		1,255,000		467,000		439,000		2,161,000		107,246,000		109,407,000		0
Total retail		1,513,000		493,000		484,000		2,490,000		155,133,000		157,623,000		0
Total past due loans	$	1,575,000	$	504,000	$	920,000	$	2,999,000	$	491,073,000	$	494,072,000	$	0

Impaired Financing Receivables [Table Text Block]

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,680,000	$	1,680,000		$	1,589,000
Vacant land, land development and residential construction		479,000		80,000			88,000
Real estate – owner occupied		227,000		225,000			113,000
Real estate – non-owner occupied		0		0			0
Real estate – multi-family and residential rental		264,000		264,000			197,000
Total commercial		2,650,000		2,249,000			1,987,000
Retail:
Home equity and other		386,000		380,000			247,000
1-4 family mortgages		1,316,000		668,000			649,000
Total retail		1,702,000		1,048,000			896,000
Total with no related allowance recorded	$	4,352,000	$	3,297,000		$	2,883,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	3,021,000	$	2,998,000	$	2,368,000	$	2,690,000
Vacant land, land development and residential construction		499,000		499,000		13,000		749,000
Real estate – owner occupied		1,382,000		1,382,000		209,000		1,144,000
Real estate – non-owner occupied		4,470,000		4,470,000		157,000		4,745,000
Real estate – multi-family and residential rental		462,000		462,000		99,000		751,000
Total commercial		9,834,000		9,811,000		2,846,000		10,079,000
Retail:
Home equity and other		997,000		982,000		715,000		697,000
1-4 family mortgages		165,000		117,000		20,000		137,000
Total retail		1,162,000		1,099,000		735,000		834,000
Total with an allowance recorded	$	10,996,000	$	10,910,000	$	3,581,000	$	10,913,000
Total impaired loans:
Commercial	$	12,484,000	$	12,060,000	$	2,846,000	$	12,066,000
Retail		2,864,000		2,147,000		735,000		1,730,000
Total impaired loans	$	15,348,000	$	14,207,000	$	3,581,000	$	13,796,000

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	985,000	$	958,000		$	892,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,159,000		1,092,000			1,151,000
Real estate – non-owner occupied		848,000		713,000			751,000
Real estate – multi-family and residential rental		318,000		231,000			160,000
Total commercial		3,310,000		2,994,000			2,954,000
Retail:
Home equity and other		476,000		322,000			336,000
1-4 family mortgages		2,168,000		1,695,000			1,662,000
Total retail		2,644,000		2,017,000			1,998,000
Total with no related allowance recorded	$	5,954,000	$	5,011,000		$	4,952,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	19,000	$	19,000	$	2,000	$	19,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		48,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		0
Total commercial		67,000		67,000		5,000		67,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		172,000
Total retail		172,000		172,000		4,000		172,000
Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	239,000
Total impaired loans:
Commercial	$	3,377,000	$	3,061,000	$	5,000	$	3,021,000
Retail		2,816,000		2,189,000		4,000		2,170,000
Total impaired loans	$	6,193,000	$	5,250,000	$	9,000	$	5,191,000

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	1,498,000	$	1,498,000		$	1,695,000
Vacant land, land development and residential construction		487,000		95,000			0
Real estate – owner occupied		0		0			287,000
Real estate – non-owner occupied		0		0			5,678,000
Real estate – multi-family and residential rental		130,000		130,000			0
Total commercial		2,115,000		1,723,000			7,660,000
Retail:
Home equity and other		114,000		114,000			7,000
1-4 family mortgages		1,270,000		630,000			615,000
Total retail		1,384,000		744,000			622,000
Total with no related allowance recorded	$	3,499,000	$	2,467,000		$	8,282,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	2,405,000	$	2,382,000	$	673,000	$	270,000
Vacant land, land development and residential construction		999,000		999,000		28,000		1,648,000
Real estate – owner occupied		906,000		906,000		97,000		1,307,000
Real estate – non-owner occupied		5,020,000		5,020,000		247,000		4,798,000
Real estate – multi-family and residential rental		1,040,000		1,040,000		258,000		1,017,000
Total commercial		10,370,000		10,347,000		1,303,000		9,040,000
Retail:
Home equity and other		434,000		412,000		203,000		516,000
1-4 family mortgages		204,000		157,000		66,000		127,000
Total retail		638,000		569,000		269,000		643,000
Total with an allowance recorded	$	11,008,000	$	10,916,000	$	1,572,000	$	9,683,000
Total impaired loans:
Commercial	$	12,485,000	$	12,070,000	$	1,303,000	$	16,700,000
Retail		2,022,000		1,313,000		269,000		1,265,000
Total impaired loans	$	14,507,000	$	13,383,000	$	1,572,000	$	17,965,000

						First Quarter
	Unpaid					Average
	Contractual		Recorded			Recorded
	Principal		Principal		Related	Principal
	Balance		Balance		Allowance	Balance
With no related allowance recorded:
Commercial:
Commercial and industrial	$	853,000	$	826,000		$	1,462,000
Vacant land, land development and residential construction		0		0			0
Real estate – owner occupied		1,281,000		1,210,000			1,811,000
Real estate – non-owner occupied		928,000		789,000			826,000
Real estate – multi-family and residential rental		152,000		89,000			343,000
Total commercial		3,214,000		2,914,000			4,442,000
Retail:
Home equity and other		531,000		351,000			293,000
1-4 family mortgages		2,081,000		1,629,000			1,411,000
Total retail		2,612,000		1,980,000			1,704,000
Total with no related allowance recorded	$	5,826,000	$	4,894,000		$	6,146,000

							First Quarter
	Unpaid						Average
	Contractual		Recorded				Recorded
	Principal		Principal		Related		Principal
	Balance		Balance		Allowance		Balance
With an allowance recorded:
Commercial:
Commercial and industrial	$	19,000	$	19,000	$	2,000	$	378,000
Vacant land, land development and residential construction		0		0		0		0
Real estate – owner occupied		48,000		48,000		3,000		50,000
Real estate – non-owner occupied		0		0		0		0
Real estate – multi-family and residential rental		0		0		0		22,000
Total commercial		67,000		67,000		5,000		450,000
Retail:
Home equity and other		0		0		0		0
1-4 family mortgages		172,000		172,000		4,000		88,000
Total retail		172,000		172,000		4,000		88,000
Total with an allowance recorded	$	239,000	$	239,000	$	9,000	$	538,000
Total impaired loans:
Commercial	$	3,281,000	$	2,981,000	$	5,000	$	4,892,000
Retail		2,784,000		2,152,000		4,000		1,792,000
Total impaired loans	$	6,065,000	$	5,133,000	$	9,000	$	6,684,000

Financing Receivable Credit Quality Indicators [Table Text Block]

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	471,570,000	$	14,994,000	$	266,147,000	$	553,441,000	$	29,421,000
Grades 5 – 7		206,434,000		8,767,000		100,967,000		124,918,000		16,925,000
Grades 8 – 9		7,223,000		80,000		1,796,000		0		726,000
Total commercial	$	685,227,000	$	23,841,000	$	368,910,000	$	678,359,000	$	47,072,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	37,236,000	$	1,756,000	$	34,189,000	$	52,796,000	$	38,612,000
Grades 5 – 7		33,417,000		6,002,000		47,471,000		36,001,000		27,274,000
Grades 8 – 9		1,340,000		325,000		1,812,000		1,409,000		299,000
Total commercial	$	71,993,000	$	8,083,000	$	83,472,000	$	90,206,000	$	66,185,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	440,219,000	$	16,378,000	$	238,890,000	$	542,294,000	$	29,793,000
Grades 5 – 7		190,170,000		10,046,000		123,517,000		109,304,000		19,082,000
Grades 8 – 9		6,382,000		95,000		1,102,000		456,000		1,170,000
Total commercial	$	636,771,000	$	26,519,000	$	363,509,000	$	652,054,000	$	50,045,000

	Commercial and Industrial		Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-Owner Occupied		Commercial Real Estate - Multi-Family and Residential Rental
Internal credit risk grade groupings:
Grades 1 – 4	$	40,911,000	$	1,887,000	$	36,246,000	$	57,671,000	$	39,574,000
Grades 5 – 7		35,233,000		6,164,000		49,255,000		37,040,000		28,015,000
Grades 8 – 9		988,000		258,000		1,454,000		1,504,000		249,000
Total commercial	$	77,132,000	$	8,309,000	$	86,955,000	$	96,215,000	$	67,838,000

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Provision for loan losses		(225,000	)		643,000			130,000			548,000
Charge-offs		(225,000	)		(220,000	)		0			(445,000	)
Recoveries		95,000			60,000			0			155,000
Ending balance	$	15,671,000		$	2,365,000		$	90,000		$	18,126,000
Ending balance: individually evaluated for impairment	$	2,846,000		$	735,000		$	0		$	3,581,000
Ending balance: collectively evaluated for impairment	$	12,825,000		$	1,630,000		$	90,000		$	14,545,000
Total loans:
Ending balance	$	1,803,409,000		$	170,330,000					$	1,973,739,000
Ending balance: individually evaluated for impairment	$	12,060,000		$	2,147,000					$	14,207,000
Ending balance: collectively evaluated for impairment	$	1,791,349,000		$	168,183,000					$	1,959,532,000

	Commercial			Retail
	Loans			Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	75,000		$	18,000	$	0	$	93,000
Provision for loan losses		45,000			7,000		0		52,000
Charge-offs		(11,000	)		0		0		(11,000	)
Recoveries		16,000			0		0		16,000
Ending balance	$	125,000		$	25,000	$	0	$	150,000

	Commercial			Retail
	Loans			Loans			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	13,672,000		$	1,421,000		$	140,000		$	15,233,000
Provision for loan losses		2,247,000			1,031,000			(180,000	)		3,098,000
Charge-offs		(980,000	)		(1,153,000	)		0			(2,133,000	)
Recoveries		1,087,000			583,000			0			1,670,000
Ending balance	$	16,026,000		$	1,882,000		$	(40,000	)	$	17,868,000
Ending balance: individually evaluated for impairment	$	1,303,000		$	269,000		$	0		$	1,572,000
Ending balance: collectively evaluated for impairment	$	14,723,000		$	1,613,000		$	(40,000	)	$	16,296,000
Total loans:
Ending balance	$	1,728,898,000		$	155,650,000					$	1,884,548,000
Ending balance: individually evaluated for impairment	$	12,070,000		$	1,313,000					$	13,383,000
Ending balance: collectively evaluated for impairment	$	1,716,828,000		$	154,337,000					$	1,871,165,000

	Commercial			Retail
	Loans			Loans			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	420,000		$	28,000		$	0	$	448,000
Provision for loan losses		(303,000	)		105,000			0		(198,000	)
Charge-offs		0			(72,000	)		0		(72,000	)
Recoveries		(42,000	)		(43,000	)		0		(85,000	)
Ending balance	$	75,000		$	18,000		$	0	$	93,000

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		0		0		0
Retail:
Home equity and other		4		328,000		329,000
1-4 family mortgages		0		0		0
Total originated retail		4		328,000		329,000
Total originated loans		4	$	328,000	$	329,000
Acquired loans
Commercial:
Commercial and industrial		1	$	31,000	$	31,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		1		31,000		31,000
Retail:
Home equity and other		2		6,000		7,000
1-4 family mortgages		1		57,000		57,000
Total acquired retail		3		63,000		64,000
Total acquired loans		4	$	94,000	$	95,000

			Pre-		Post-
			Modification		Modification
			Recorded		Recorded
	Number of		Principal		Principal
	Contracts		Balance		Balance
Originated lo ans
Commercial:
Commercial and industrial		1	$	20,000	$	20,000
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total originated commercial		1		20,000		20,000
Retail:
Home equity and other		0		0		0
1-4 family mortgages		0		0		0
Total originated retail		0		0		0
Total originated loans		1	$	20,000	$	20,000
Acquired loans
Commercial:
Commercial and industrial		0	$	0	$	0
Vacant land, land development and residential construction		0		0		0
Real estate – owner occupied		0		0		0
Real estate – non-owner occupied		0		0		0
Real estate – multi-family and residential rental		0		0		0
Total acquired commercial		0		0		0
Retail:
Home equity and other		1		26,000		26,000
1-4 family mortgages		1		19,000		19,000
Total acquired retail		2		45,000		45,000
Total acquired loans		2	$	45,000	$	45,000

Troubled Debt Restructurings on Financing Receivables with in Previous Twelve Months that Became Over Thirty Days Past Due [Table Text Block]

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		2	$	34,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		1		130,000
Total commercial		3		164,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		3	$	164,000

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		1	$	24,000
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		1		24,000
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		1	$	24,000

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

			Recorded
	Number of		Principal
	Contracts		Balance
Commercial:
Commercial and industrial		0	$	0
Vacant land, land development and residential construction		0		0
Real estate – owner occupied		0		0
Real estate – non-owner occupied		0		0
Real estate – multi-family and residential rental		0		0
Total commercial		0		0
Retail:
Home equity and other		0		0
1-4 family mortgages		0		0
Total retail		0		0
Total		0	$	0

Trouble Debt Restructuring Activity [Table Text Block]

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,503,000		$	1,488,000		$	906,000		$	5,110,000		$	716,000
Charge-Offs		0			0			0			0			0
Payments		(125,000	)		(529,000	)		(27,000	)		(123,000	)		(113,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		159,000			0			0			(436,000	)		(312,000	)
Ending Balance	$	1,537,000		$	959,000		$	879,000		$	4,551,000		$	291,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	385,000	$	157,000
Charge-Offs		0		0
Payments		0		(3,000	)
Transfers to ORE		0		0
Net Additions/Deletions		321,000		0
Ending Balance	$	706,000	$	154,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,125,000		$	0	$	900,000		$	728,000		$	60,000
Charge-Offs		0			0		(12,000	)		0			0
Payments		(233,000	)		0		0			(145,000	)		0
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		30,000			0		108,000			0			8,000
Ending Balance	$	922,000		$	0	$	996,000		$	583,000		$	68,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	208,000		$	326,000
Charge-Offs		0			0
Payments		(9,000	)		(4,000	)
Transfers to ORE		0			0
Net Additions/Deletions		7,000			54,000
Ending Balance	$	206,000		$	376,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction			Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi-Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	2,028,000		$	2,086,000		$	1,400,000		$	10,657,000		$	476,000
Charge-Offs		0			0			0			0			0
Payments		(101,000	)		(24,000	)		(31,000	)		(128,000	)		(7,000	)
Transfers to ORE		0			0			0			0			0
Net Additions/Deletions		19,000			0			0			0			0
Ending Balance	$	1,946,000		$	2,062,000		$	1,369,000		$	10,529,000		$	469,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Retail Loan Portfolio:
Beginning Balance	$	146,000	$	128,000
Charge-Offs		0		0
Payments		0		(2,000	)
Transfers to ORE		0		0
Net Additions/Deletions		0		0
Ending Balance	$	146,000	$	126,000

	Commercial and Industrial			Commercial Vacant Land, Land Development, and Residential Construction		Commercial Real Estate - Owner Occupied			Commercial Real Estate - Non-Owner Occupied			Commercial Real Estate - Multi- Family and Residential Rental
Commercial Loan Portfolio:
Beginning Balance	$	1,686,000		$	0	$	1,652,000		$	647,000		$	331,000
Charge-Offs		(48,000	)		0		0			0			0
Payments		0			0		(197,000	)		(10,000	)		(53,000	)
Transfers to ORE		0			0		0			0			0
Net Additions/Deletions		49,000			0		0			0			0
Ending Balance	$	1,687,000		$	0	$	1,455,000		$	637,000		$	278,000

	Retail			Retail
	Home Equity			1-4 Family
	and Other			Mortgages
Retail Loan Portfolio:
Beginning Balance	$	141,000		$	316,000
Charge-Offs		0			0
Payments		(6,000	)		0
Transfers to ORE		0			0
Net Additions/Deletions		26,000			19,000
Ending Balance	$	161,000		$	335,000

Allowance Related to Loans Categorized as Troubled Debt Restructurings [Table Text Block]

	March 31,		December 31,
	2017		2016
Commercial:
Commercial and industrial	$	2,000	$	9,000
Vacant land, land development, and residential construction		13,000		28,000
Real estate – owner occupied		90,000		100,000
Real estate – non-owner occupied		157,000		247,000
Real estate – multi-family and residential rental		99,000		258,000
Total commercial		361,000		642,000
Retail:
Home equity and other		47,000		48,000
1-4 family mortgages		4,000		4,000
Total retail		51,000		52,000
Total related allowance	$	412,000	$	694,000

Retail Portfolio Segment [Member]

Notes Tables

Financing Receivable Credit Quality Indicators [Table Text Block]

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,032,000	$	101,298,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	43,085,000	$	104,551,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	69,831,000	$	85,819,000

	Retail		Retail
	Home Equity		1-4 Family
	and Other		Mortgages
Total retail	$	48,216,000	$	109,407,000

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Note 4 - Premises and Equipment, Net (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	March 31,		December 31,
	2017		2016
Land and improvements	$	17,665,000	$	17,285,000
Buildings		39,836,000		39,691,000
Furniture and equipment		17,719,000		17,195,000
		75,220,000		74,171,000
Less: accumulated depreciation		29,372,000		28,715,000
Premises and equipment, net	$	45,848,000	$	45,456,000

XML

Note 5 - Deposits (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Summary of Deposits and Percentage Change in Deposits [Table Text Block]

											Percent
	March 31, 2017					December 31, 2016					Increase
	Balance		%			Balance		%			(Decrease)
Noninterest-bearing demand	$	757,706,000		33.3	%	$	810,600,000		34.1	%		(6.5	%)
Interest-bearing checking		371,622,000		16.3			377,929,000		15.9			(1.7	)
Money market		279,120,000		12.3			272,051,000		11.5			2.6
Savings		355,354,000		15.6			344,988,000		14.5			3.0
Time, under $100,000		142,454,000		6.2			146,169,000		6.2			(2.5	)
Time, $100,000 and over		326,694,000		14.3			347,058,000		14.6			(5.9	)
Total local deposits		2,232,950,000		98.0			2,298,795,000		96.8			(2.9	)
Out-of-area time, under $100,000		0		NA			0		NA			NA
Out-of-area time, $100,000 and over		45,066,000		2.0			76,190,000		3.2			(40.9	)
Total out-of-area deposits		45,066,000		2.0			76,190,000		3.2			(40.9	)
Total deposits	$	2,278,016,000		100.0	%	$	2,374,985,000		100.0	%		(4.1	%)

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Note 6 - Securities Sold Under Agreements to Repurchase (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Repurchase Agreements [Table Text Block]

	Three Months Ended			Twelve Months Ended
	March 31, 2017			December 31, 2016
Outstanding balance at end of period	$	126,679,000		$	131,710,000
Average interest rate at end of period		0.16	%		0.16	%
Average daily balance during the period	$	128,933,000		$	149,079,000
Average interest rate during the period		0.16	%		0.14	%
Maximum daily balance during the period	$	142,459,000		$	175,088,000

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Note 7 - Federal Home Loan Bank of Indianapolis Advances (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Maturities of Currently Outstanding FHLB Advances [Table Text Block]

2017	$	35,000,000
2018		20,000,000
2019		30,000,000
2020		30,000,000
2021		30,000,000
Thereafter		60,000,000

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Note 8 - Commitments and Off-balance Sheet Risk (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Summary of Contractual Amounts of Financial Instruments With Off Balance Sheet Risk [Table Text Block]

	March 31,		December 31,
	2017		2016
Commercial unused lines of credit	$	533,402,000	$	553,345,000
Unused lines of credit secured by 1 – 4 family residential properties		60,122,000		56,275,000
Credit card unused lines of credit		28,140,000		22,689,000
Other consumer unused lines of credit		8,807,000		8,489,000
Commitments to make loans		216,371,000		154,338,000
Standby letters of credit		26,902,000		26,202,000
	$	873,744,000	$	821,338,000

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Note 10 - Fair Values of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Level in		March 31, 2017				December 31, 2016
	Fair Value		Carrying		Fair		Carrying		Fair
	Hierarchy		Values		Values		Values		Values
Financial assets:
Cash	Level 1		$	11,279	$	11,279	$	11,493	$	11,493
Cash equivalents	Level 2			41,697		41,697		172,103		172,103
Securities available for sale	(1)			332,441		332,441		328,060		328,060
FHLBI stock	(2)			9,236		9,236		8,026		8,026
Loans, net	Level 3			2,421,111		2,410,034		2,359,624		2,353,276
Loans held for sale	Level 2			1,927		1,927		1,035		1,035
Bank owned life insurance	Level 2			66,211		66,211		67,198		67,198
Accrued interest receivable	Level 2			8,542		8,542		7,714		7,714
Financial liabilities:
Deposits	Level 2			2,278,016		2,181,344		2,374,985		2,286,548
Repurchase agreements	Level 2			126,679		126,679		131,710		131,710
FHLBI advances	Level 2			205,000		204,156		175,000		174,734
Subordinated debentures	Level 2			45,006		45,392		44,835		45,220
Accrued interest payable	Level 2			1,465		1,465		1,592		1,592
Interest rate swap		(1)		42		42		84		84

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Note 11 - Fair Values (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	156,011,000		$	0	$	156,011,000		$	0
Mortgage-backed securities		43,704,000			0		43,704,000			0
Municipal general obligation bonds		122,530,000			0		116,131,000			6,399,000
Municipal revenue bonds		8,239,000			0		8,239,000			0
Other investments		1,957,000			0		1,957,000			0
Interest rate swap		(42,000	)		0		(42,000	)		0
Total	$	332,399,000		$	0	$	326,000,000		$	6,399,000

				Quoted
				Prices in
				Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Available for sale securities
U.S. Government agency debt obligations	$	152,040,000		$	0	$	152,040,000		$	0
Mortgage-backed securities		47,392,000			0		47,392,000			0
Municipal general obligation bonds		119,047,000			0		112,648,000			6,399,000
Municipal revenue bonds		7,631,000			0		7,631,000			0
Other investments		1,950,000			0		1,950,000			0
Interest rate swap		(84,000	)		0		(84,000	)		0
Total	$	327,976,000		$	0	$	321,577,000		$	6,399,000

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	8,119,000	$	0	$	0	$	8,119,000
Foreclosed assets		495,000		0		0		495,000
Total	$	8,614,000	$	0	$	0	$	8,614,000

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	9,896,000	$	0	$	0	$	9,896,000
Foreclosed assets		469,000		0		0		469,000
Total	$	10,365,000	$	0	$	0	$	10,365,000

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Note 12 - Regulatory Matters (Tables)

3 Months Ended

Mar. 31, 2017

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

											Minimum Required
											to be Well
						Minimum Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2017
Total capital (to risk weighted assets)
Consolidated	$	359,984		13.1	%	$	220,614		8.0	%	NA		NA
Bank		356,798		13.0			220,408		8.0			275,509		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		341,708		12.4			165,461		6.0		NA		NA
Bank		338,522		12.3			165,306		6.0			220,408		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		298,776		10.8			124,096		4.5		NA		NA
Bank		338,522		12.3			123,980		4.5			179,081		6.5
Tier 1 capital (to average assets)
Consolidated		341,708		11.5			118,508		4.0		NA		NA
Bank		338,522		11.4			118,462		4.0			148,078		5.0

											Minimum Required
											to be Well
						Minimum Required					Capitalized Under
						for Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2016
Total capital (to risk weighted assets)
Consolidated	$	354,278		13.1	%	$	215,819		8.0	%	NA		NA
Bank		353,243		13.1			215,605		8.0			269,506		10.0	%
Tier 1 capital (to risk weighted assets)
Consolidated		336,316		12.5			161,864		6.0		NA		NA
Bank		335,282		12.4			161,704		6.0			215,605		8.0
Common equity tier 1 (to risk weighted assets)
Consolidated		293,555		10.9			121,398		4.5		NA		NA
Bank		335,282		12.4			121,278		4.5			175,179		6.5
Tier 1 capital (to average assets)
Consolidated		336,316		11.2			120,486		4.0		NA		NA
Bank		335,282		11.1			120,383		4.0			150,479		5.0

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Note 1 - Significant Accounting Policies (Details Textual) $ in Millions	3 Months Ended
	Mar. 31, 2017 USD ($) shares	Mar. 31, 2016 shares	Dec. 31, 2016 USD ($)
Number of Unconsolidated Business Trusts Formed to Issue Trust Preferred Securities	5
Interest Income on Commercial and Mortgage Loans Discontinued Period	90 days
Maximum Delinquency Period for Consumer and Credit Card Loans to be Charged Off	120 days
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Mortgage | $	$ 1.9		$ 1.0
Servicing Asset | $	$ 603.0
Core Deposits [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	10 years
Restricted Stock [Member]
Incremental Common Shares Attributable to Participating Nonvested Shares with Non-forfeitable Dividend Rights	225,000	150,000
Employee Stock Option [Member]
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	34,000	118,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	7,000	10,000

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Note 2 - Securities (Details Textual)	3 Months Ended
	Mar. 31, 2017 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 220,635,000		$ 253,210,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	8,586,000		9,429,000
Available-for-sale Debt Securities, Amortized Cost Basis	339,964,000
Available-for-sale Securities	332,441,000		328,060,000
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held	0
Proceeds from Sale of Available-for-sale Securities	$ 0	$ 264,000
Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	316
Mutual Funds [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1
State of Michigan and All Its Political Subdivisions [Member]
Available-for-sale Debt Securities, Amortized Cost Basis	$ 113,000,000		109,000,000
Available-for-sale Securities	112,000,000		107,000,000
All Other States and Their Political Subdivisions [Member]
Available-for-sale Debt Securities, Amortized Cost Basis	18,700,000		19,500,000
Available-for-sale Securities	$ 18,800,000		19,500,000
Securities Other Than US Government Agencies and the State of Michigan and Political Subdivisions [Member] | Stockholders' Equity, Total [Member] | Securities Issued Concentration Risk [Member]
Concentration Risk, Percentage	10.00%
US Government Agency Debt Obligations and Mortgage Backed Securities [Member]
Available-for-sale Securities, Restricted	$ 127,000,000		132,000,000
Municipal General Obligation Bonds [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	55,533,000		93,629,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	1,201,000		1,549,000
Available-for-sale Securities	122,530,000		$ 119,047,000
Proceeds from Sale of Available-for-sale Securities	$ 0	$ 0

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Note 2 - Securities - Available-for-sale Securities (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Amortized Cost	$ 339,964,000	$ 336,562,000
Gross Unrealized Gains	1,063,000	927,000
Gross Unrealized Losses	(8,586,000)	(9,429,000)
Fair Value	332,441,000	328,060,000
US Government Agencies Debt Securities [Member]
Amortized Cost	162,923,000	159,271,000
Gross Unrealized Gains	73,000	106,000
Gross Unrealized Losses	(6,985,000)	(7,337,000)
Fair Value	156,011,000	152,040,000
Collateralized Mortgage Backed Securities [Member]
Amortized Cost	43,525,000	47,329,000
Gross Unrealized Gains	472,000	486,000
Gross Unrealized Losses	(293,000)	(423,000)
Fair Value	43,704,000	47,392,000
Municipal General Obligation Bonds [Member]
Amortized Cost	123,235,000	120,284,000
Gross Unrealized Gains	496,000	312,000
Gross Unrealized Losses	(1,201,000)	(1,549,000)
Fair Value	122,530,000	119,047,000
Municipal Revenue Bonds [Member]
Amortized Cost	8,295,000	7,699,000
Gross Unrealized Gains	22,000	23,000
Gross Unrealized Losses	(78,000)	(91,000)
Fair Value	8,239,000	7,631,000
Other Debt and Equity Securities [Member]
Amortized Cost	1,986,000	1,979,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(29,000)	(29,000)
Fair Value	$ 1,957,000	$ 1,950,000

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Note 2 - Securities - Securities in a Continuous Loss Position (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Securities available for sale, continuous unrealized loss position, less than 12 months	$ 192,224,000	$ 183,125,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	8,149,000	8,655,000
Securities available for sale, continuous unrealized loss position, 12 months or more	28,411,000	70,085,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	437,000	774,000
Securities available for sale, continuous unrealized loss position	220,635,000	253,210,000
Securities available for sale, continuous unrealized loss position, unrealized loss	8,586,000	9,429,000
US Government Agencies Debt Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	123,657,000	110,160,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	6,850,000	7,172,000
Securities available for sale, continuous unrealized loss position, 12 months or more	4,108,000	5,073,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	135,000	165,000
Securities available for sale, continuous unrealized loss position	127,765,000	115,233,000
Securities available for sale, continuous unrealized loss position, unrealized loss	6,985,000	7,337,000
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	19,107,000	3,670,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	145,000	4,000
Securities available for sale, continuous unrealized loss position, 12 months or more	15,498,000	37,072,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	148,000	419,000
Securities available for sale, continuous unrealized loss position	34,605,000	40,742,000
Securities available for sale, continuous unrealized loss position, unrealized loss	293,000	423,000
Municipal General Obligation Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	46,728,000	65,895,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	1,047,000	1,360,000
Securities available for sale, continuous unrealized loss position, 12 months or more	8,805,000	27,734,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	154,000	189,000
Securities available for sale, continuous unrealized loss position	55,533,000	93,629,000
Securities available for sale, continuous unrealized loss position, unrealized loss	1,201,000	1,549,000
Municipal Revenue Bonds [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	1,246,000	1,921,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	78,000	90,000
Securities available for sale, continuous unrealized loss position, 12 months or more	0	206,000
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	0	1,000
Securities available for sale, continuous unrealized loss position	1,246,000	2,127,000
Securities available for sale, continuous unrealized loss position, unrealized loss	78,000	91,000
Other Debt and Equity Securities [Member]
Securities available for sale, continuous unrealized loss position, less than 12 months	1,486,000	1,479,000
Securities available for sale, continuous unrealized loss position, less than 12 months, unrealized loss	29,000	29,000
Securities available for sale, continuous unrealized loss position, 12 months or more	0	0
Securities available for sale, continuous unrealized loss position, 12 months or more, unrealized loss	0	0
Securities available for sale, continuous unrealized loss position	1,486,000	1,479,000
Securities available for sale, continuous unrealized loss position, unrealized loss	$ 29,000	$ 29,000

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Note 2 - Securities - Debt Securities by Maturity (Details)	Mar. 31, 2017 USD ($)
Due in 2017	1.45%
Due in 2017	$ 30,644,000
Due in 2017	$ 30,670,000
Due in 2018 through 2022	2.24%
Due in 2018 through 2022	$ 97,092,000
Due in 2018 through 2022	$ 97,132,000
Due in 2023 through 2027	2.68%
Due in 2023 through 2027	$ 93,216,000
Due in 2023 through 2027	$ 90,060,000
Due in 2028 and beyond	2.84%
Due in 2028 and beyond	$ 73,501,000
Due in 2028 and beyond	$ 68,918,000
Total available for sale securities	2.36%
Available-for-sale Debt Securities, Amortized Cost Basis	$ 339,964,000
Total available for sale securities	$ 332,441,000
Collateralized Mortgage Backed Securities [Member]
No single maturity, weighted average yield	1.85%
No single maturity, amortized cost	$ 43,525,000
No single maturity, fair value	$ 43,704,000
Other Debt and Equity Securities [Member]
No single maturity, weighted average yield	0.65%
No single maturity, amortized cost	$ 1,986,000
No single maturity, fair value	$ 1,957,000

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Note 3 - Loans and Allowance for Loan Losses (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Loans and Leases Receivable, Net of Deferred Income	$ 2,441,314,000		$ 2,378,620,000
Loans and Leases Receivable Period Increase (Decrease)	$ 62,700,000
Loans and Leases Receivable, Percentage Period Increase (Decrease)	2.60%
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Outstanding Balance	$ 14,900,000		15,500,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Carrying Amount, Net	6,000,000		$ 6,200,000
Impaired Financing Receivable, Interest Income, Accrual Method	200,000	$ 300,000
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	$ 100,000	200,000
Minimum Number of Days Past Due at Period End For Loans Modified as Troubled Debt Restructurings	30 days
Loans and Leases Receivable Nonaccrual Loans Interest Income Recognized	$ 0	$ 0

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Note 3 - Loans and Allowance for Loan Losses - Components of Loan Portfolio (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Loans	$ 2,441,314,000	$ 2,378,620,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	2.60%
Commercial Portfolio Segment [Member]
Loans	$ 2,123,348,000	$ 2,065,347,000
Percent of portfolio	87.00%	86.80%
Period increase (decrease)	2.80%
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 757,220,000	$ 713,903,000
Percent of portfolio	31.00%	30.00%
Period increase (decrease)	6.10%
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 31,924,000	$ 34,828,000
Percent of portfolio	1.30%	1.50%
Period increase (decrease)	(8.30%)
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 452,382,000	$ 450,464,000
Percent of portfolio	18.50%	18.90%
Period increase (decrease)	0.40%
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 768,565,000	$ 748,269,000
Percent of portfolio	31.50%	31.50%
Period increase (decrease)	2.70%
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 113,257,000	$ 117,883,000
Percent of portfolio	4.70%	4.90%
Period increase (decrease)	(3.90%)
Retail Portfolio Segment [Member]
Loans	$ 317,966,000	$ 313,273,000
Percent of portfolio	13.00%	13.20%
Period increase (decrease)	1.50%
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 112,117,000	$ 118,047,000
Percent of portfolio	4.60%	5.00%
Period increase (decrease)	(5.00%)
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 205,849,000	$ 195,226,000
Percent of portfolio	8.40%	8.20%
Period increase (decrease)	5.40%
Originated Loan [Member]
Loans	$ 1,973,739,000	$ 1,884,548,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	4.70%
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Loans	$ 1,803,409,000	$ 1,728,898,000
Percent of portfolio	91.40%	91.70%
Period increase (decrease)	4.30%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 685,227,000	$ 636,771,000
Percent of portfolio	34.70%	33.80%
Period increase (decrease)	7.60%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 23,841,000	$ 26,519,000
Percent of portfolio	1.20%	1.40%
Period increase (decrease)	(10.10%)
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 368,910,000	$ 363,509,000
Percent of portfolio	18.70%	19.30%
Period increase (decrease)	1.50%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 678,359,000	$ 652,054,000
Percent of portfolio	34.40%	34.60%
Period increase (decrease)	4.00%
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 47,072,000	$ 50,045,000
Percent of portfolio	2.40%	2.60%
Period increase (decrease)	(5.90%)
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans	$ 170,330,000	$ 155,650,000
Percent of portfolio	8.60%	8.30%
Period increase (decrease)	9.40%
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 69,032,000	$ 69,831,000
Percent of portfolio	3.50%	3.70%
Period increase (decrease)	(1.10%)
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 101,298,000	$ 85,819,000
Percent of portfolio	5.10%	4.60%
Period increase (decrease)	18.00%
Acquired Loan [Member]
Loans	$ 467,575,000	$ 494,072,000
Percent of portfolio	100.00%	100.00%
Period increase (decrease)	(5.40%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Loans	$ 319,939,000	$ 336,449,000
Percent of portfolio	68.40%	68.10%
Period increase (decrease)	(4.90%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	$ 71,993,000	$ 77,132,000
Percent of portfolio	15.40%	15.60%
Period increase (decrease)	(6.70%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	$ 8,083,000	$ 8,309,000
Percent of portfolio	1.70%	1.70%
Period increase (decrease)	(2.70%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	$ 83,472,000	$ 86,955,000
Percent of portfolio	17.90%	17.60%
Period increase (decrease)	(4.00%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	$ 90,206,000	$ 96,215,000
Percent of portfolio	19.30%	19.50%
Period increase (decrease)	(6.20%)
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	$ 66,185,000	$ 67,838,000
Percent of portfolio	14.10%	13.70%
Period increase (decrease)	(2.40%)
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans	$ 147,636,000	$ 157,623,000
Percent of portfolio	31.60%	31.90%
Period increase (decrease)	(6.30%)
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	$ 43,085,000	$ 48,216,000
Percent of portfolio	9.20%	9.80%
Period increase (decrease)	(10.60%)
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 104,551,000	$ 109,407,000
Percent of portfolio	22.40%	22.10%
Period increase (decrease)	(4.40%)

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Note 3 - Loans and Allowance for Loan Losses - Acquired Impaired Loans Accretable Yield (Details) - USD ($)		3 Months Ended
		Mar. 31, 2017	Mar. 31, 2016
Balance at beginning of period		$ 1,726,000	$ 5,193,000
Additions		1,000	21,000
Accretion income		(147,000)	(680,000)
Net reclassification from nonaccretable to accretable		63,000	2,372,000
Reductions	[1]	(179,000)	(587,000)
Balance at end of period		$ 1,464,000	$ 6,319,000

[1] Reductions primarily reflect the result of exit events, including loan payoffs and charge-offs.

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Note 3 - Loans and Allowance for Loan Losses - Nonperforming Loans (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Originated Loan [Member]
Loans past due 90 days or more still accruing interest	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans past due 90 days or more still accruing interest	0	0
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonperforming Financial Instruments [Member]
Total nonperforming loans	7,292,000	5,939,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Total nonperforming loans	4,648,000	3,181,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Total nonperforming loans	3,073,000	2,296,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Total nonperforming loans	80,000	95,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Total nonperforming loans	911,000	285,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Total nonperforming loans	421,000	488,000
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Total nonperforming loans	163,000	17,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member]
Total nonperforming loans	2,644,000	2,758,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Total nonperforming loans	407,000	496,000
Nonperforming Financial Instruments [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Total nonperforming loans	2,237,000	2,262,000
Nonperforming Financial Instruments [Member] | Originated Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	4,716,000	3,328,000
Total nonperforming loans	4,716,000	3,328,000
Nonperforming Financial Instruments [Member] | Acquired Loan [Member]
Loans past due 90 days or more still accruing interest	0	0
Nonaccrual loans	2,576,000	2,611,000
Total nonperforming loans	$ 2,576,000	$ 2,611,000

XML

Note 3 - Loans and Allowance for Loan Losses - Age Analysis of Past Due Loans (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Loans	$ 2,441,314,000	$ 2,378,620,000
Originated Loan [Member]
Past due loans	2,804,000	1,388,000
Current loans	1,970,935,000	1,883,160,000
Loans	1,973,739,000	1,884,548,000
Loans past due 90 days or more still accruing interest	0	0
Acquired Loan [Member]
Past due loans	3,168,000	2,999,000
Current loans	464,407,000	491,073,000
Loans	467,575,000	494,072,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member]
Loans	2,123,348,000	2,065,347,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	757,220,000	713,903,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	31,924,000	34,828,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	452,382,000	450,464,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	768,565,000	748,269,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	113,257,000	117,883,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	2,021,000	27,000
Current loans	1,801,388,000	1,728,871,000
Loans	1,803,409,000	1,728,898,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	1,891,000	27,000
Current loans	683,336,000	636,744,000
Loans	685,227,000	636,771,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Current loans	23,841,000	26,519,000
Loans	23,841,000	26,519,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Current loans	368,910,000	363,509,000
Loans	368,910,000	363,509,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Current loans	678,359,000	652,054,000
Loans	678,359,000	652,054,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	130,000	0
Current loans	46,942,000	50,045,000
Loans	47,072,000	50,045,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	991,000	509,000
Current loans	318,948,000	335,940,000
Loans	319,939,000	336,449,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	41,000	27,000
Current loans	71,952,000	77,105,000
Loans	71,993,000	77,132,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Current loans	8,083,000	8,309,000
Loans	8,083,000	8,309,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	348,000	112,000
Current loans	83,124,000	86,843,000
Loans	83,472,000	86,955,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	402,000	353,000
Current loans	89,804,000	95,862,000
Loans	90,206,000	96,215,000
Loans past due 90 days or more still accruing interest	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	200,000	17,000
Current loans	65,985,000	67,821,000
Loans	66,185,000	67,838,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member]
Loans	317,966,000	313,273,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	112,117,000	118,047,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	205,849,000	195,226,000
Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	783,000	1,361,000
Current loans	169,547,000	154,289,000
Loans	170,330,000	155,650,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	558,000	144,000
Current loans	68,474,000	69,687,000
Loans	69,032,000	69,831,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	225,000	1,217,000
Current loans	101,073,000	84,602,000
Loans	101,298,000	85,819,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	2,177,000	2,490,000
Current loans	145,459,000	155,133,000
Loans	147,636,000	157,623,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	563,000	329,000
Current loans	42,522,000	47,887,000
Loans	43,085,000	48,216,000
Loans past due 90 days or more still accruing interest	0	0
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	1,614,000	2,161,000
Current loans	102,937,000	107,246,000
Loans	104,551,000	109,407,000
Loans past due 90 days or more still accruing interest	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Originated Loan [Member]
Past due loans	902,000	804,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	1,776,000	1,575,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	360,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	230,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	130,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	499,000	62,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	25,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	273,000	62,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	49,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	152,000	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	542,000	804,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	542,000	46,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	0	758,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	1,277,000	1,513,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	451,000	258,000
Financing Receivables, 30 to 59 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	826,000	1,255,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Originated Loan [Member]
Past due loans	1,674,000	247,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	278,000	504,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	1,661,000	27,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	1,661,000	27,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	37,000	11,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	11,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	37,000	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	13,000	220,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	13,000	98,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	0	122,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	241,000	493,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	63,000	26,000
Financing Receivables, 60 to 89 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	178,000	467,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Originated Loan [Member]
Past due loans	228,000	337,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Acquired Loan [Member]
Past due loans	1,114,000	920,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	455,000	436,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Past due loans	16,000	16,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Past due loans	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Past due loans	75,000	50,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Past due loans	353,000	353,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Past due loans	11,000	17,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member]
Past due loans	228,000	337,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Past due loans	3,000	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	225,000	337,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member]
Past due loans	659,000	484,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Past due loans	49,000	45,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Past due loans	$ 610,000	$ 439,000

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Note 3 - Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Originated Loan [Member]
With no related allowance recorded, unpaid principal balance	$ 4,352,000		$ 3,499,000
With no related allowance recorded, principal balance	3,297,000		2,467,000
With no related allowance recorded, average recorded principal balance	2,883,000	$ 8,282,000
With related allowance recorded, unpaid principal balance	10,996,000		11,008,000
With related allowance recorded, principal balance	10,910,000		10,916,000
Related allowance	3,581,000		1,572,000
With related allowance recorded, average recorded principal balance	10,913,000	9,683,000
Total unpaid principal balance	15,348,000		14,507,000
Total principal balance	14,207,000		13,383,000
Total average recorded principal balance	13,796,000	17,965,000
Originated Loan [Member] | Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	2,650,000		2,115,000
With no related allowance recorded, principal balance	2,249,000		1,723,000
With no related allowance recorded, average recorded principal balance	1,987,000	7,660,000
With related allowance recorded, unpaid principal balance	9,834,000		10,370,000
With related allowance recorded, principal balance	9,811,000		10,347,000
Related allowance	2,846,000		1,303,000
With related allowance recorded, average recorded principal balance	10,079,000	9,040,000
Total unpaid principal balance	12,484,000		12,485,000
Total principal balance	12,060,000		12,070,000
Total average recorded principal balance	12,066,000	16,700,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	1,680,000		1,498,000
With no related allowance recorded, principal balance	1,680,000		1,498,000
With no related allowance recorded, average recorded principal balance	1,589,000	1,695,000
With related allowance recorded, unpaid principal balance	3,021,000		2,405,000
With related allowance recorded, principal balance	2,998,000		2,382,000
Related allowance	2,368,000		673,000
With related allowance recorded, average recorded principal balance	2,690,000	270,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
With no related allowance recorded, unpaid principal balance	479,000		487,000
With no related allowance recorded, principal balance	80,000		95,000
With no related allowance recorded, average recorded principal balance	88,000	0
With related allowance recorded, unpaid principal balance	499,000		999,000
With related allowance recorded, principal balance	499,000		999,000
Related allowance	13,000		28,000
With related allowance recorded, average recorded principal balance	749,000	1,648,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	227,000		0
With no related allowance recorded, principal balance	225,000		0
With no related allowance recorded, average recorded principal balance	113,000	287,000
With related allowance recorded, unpaid principal balance	1,382,000		906,000
With related allowance recorded, principal balance	1,382,000		906,000
Related allowance	209,000		97,000
With related allowance recorded, average recorded principal balance	1,144,000	1,307,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0
With no related allowance recorded, principal balance	0		0
With no related allowance recorded, average recorded principal balance	0	5,678,000
With related allowance recorded, unpaid principal balance	4,470,000		5,020,000
With related allowance recorded, principal balance	4,470,000		5,020,000
Related allowance	157,000		247,000
With related allowance recorded, average recorded principal balance	4,745,000	4,798,000
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
With no related allowance recorded, unpaid principal balance	264,000		130,000
With no related allowance recorded, principal balance	264,000		130,000
With no related allowance recorded, average recorded principal balance	197,000	0
With related allowance recorded, unpaid principal balance	462,000		1,040,000
With related allowance recorded, principal balance	462,000		1,040,000
Related allowance	99,000		258,000
With related allowance recorded, average recorded principal balance	751,000	1,017,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	1,702,000		1,384,000
With no related allowance recorded, principal balance	1,048,000		744,000
With no related allowance recorded, average recorded principal balance	896,000	622,000
With related allowance recorded, unpaid principal balance	1,162,000		638,000
With related allowance recorded, principal balance	1,099,000		569,000
Related allowance	735,000		269,000
With related allowance recorded, average recorded principal balance	834,000	643,000
Total unpaid principal balance	2,864,000		2,022,000
Total principal balance	2,147,000		1,313,000
Total average recorded principal balance	1,730,000	1,265,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	386,000		114,000
With no related allowance recorded, principal balance	380,000		114,000
With no related allowance recorded, average recorded principal balance	247,000	7,000
With related allowance recorded, unpaid principal balance	997,000		434,000
With related allowance recorded, principal balance	982,000		412,000
Related allowance	715,000		203,000
With related allowance recorded, average recorded principal balance	697,000	516,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	1,316,000		1,270,000
With no related allowance recorded, principal balance	668,000		630,000
With no related allowance recorded, average recorded principal balance	649,000	615,000
With related allowance recorded, unpaid principal balance	165,000		204,000
With related allowance recorded, principal balance	117,000		157,000
Related allowance	20,000		66,000
With related allowance recorded, average recorded principal balance	137,000	127,000
Acquired Loan [Member]
With no related allowance recorded, unpaid principal balance	5,954,000		5,826,000
With no related allowance recorded, principal balance	5,011,000		4,894,000
With no related allowance recorded, average recorded principal balance	4,952,000	6,146,000
With related allowance recorded, unpaid principal balance	239,000		239,000
With related allowance recorded, principal balance	239,000		239,000
Related allowance	9,000		9,000
With related allowance recorded, average recorded principal balance	239,000	538,000
Total unpaid principal balance	6,193,000		6,065,000
Total principal balance	5,250,000		5,133,000
Total average recorded principal balance	5,191,000	6,684,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	3,310,000		3,214,000
With no related allowance recorded, principal balance	2,994,000		2,914,000
With no related allowance recorded, average recorded principal balance	2,954,000	4,442,000
With related allowance recorded, unpaid principal balance	67,000		67,000
With related allowance recorded, principal balance	67,000		67,000
Related allowance	5,000		5,000
With related allowance recorded, average recorded principal balance	67,000	450,000
Total unpaid principal balance	3,377,000		3,281,000
Total principal balance	3,061,000		2,981,000
Total average recorded principal balance	3,021,000	4,892,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
With no related allowance recorded, unpaid principal balance	985,000		853,000
With no related allowance recorded, principal balance	958,000		826,000
With no related allowance recorded, average recorded principal balance	892,000	1,462,000
With related allowance recorded, unpaid principal balance	19,000		19,000
With related allowance recorded, principal balance	19,000		19,000
Related allowance	2,000		2,000
With related allowance recorded, average recorded principal balance	19,000	378,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
With no related allowance recorded, unpaid principal balance	0		0
With no related allowance recorded, principal balance	0		0
With no related allowance recorded, average recorded principal balance	0	0
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	1,159,000		1,281,000
With no related allowance recorded, principal balance	1,092,000		1,210,000
With no related allowance recorded, average recorded principal balance	1,151,000	1,811,000
With related allowance recorded, unpaid principal balance	48,000		48,000
With related allowance recorded, principal balance	48,000		48,000
Related allowance	3,000		3,000
With related allowance recorded, average recorded principal balance	48,000	50,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
With no related allowance recorded, unpaid principal balance	848,000		928,000
With no related allowance recorded, principal balance	713,000		789,000
With no related allowance recorded, average recorded principal balance	751,000	826,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
With no related allowance recorded, unpaid principal balance	318,000		152,000
With no related allowance recorded, principal balance	231,000		89,000
With no related allowance recorded, average recorded principal balance	160,000	343,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	22,000
Acquired Loan [Member] | Retail Portfolio Segment [Member]
With no related allowance recorded, unpaid principal balance	2,644,000		2,612,000
With no related allowance recorded, principal balance	2,017,000		1,980,000
With no related allowance recorded, average recorded principal balance	1,998,000	1,704,000
With related allowance recorded, unpaid principal balance	172,000		172,000
With related allowance recorded, principal balance	172,000		172,000
Related allowance	4,000		4,000
With related allowance recorded, average recorded principal balance	172,000	88,000
Total unpaid principal balance	2,816,000		2,784,000
Total principal balance	2,189,000		2,152,000
Total average recorded principal balance	2,170,000	1,792,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
With no related allowance recorded, unpaid principal balance	476,000		531,000
With no related allowance recorded, principal balance	322,000		351,000
With no related allowance recorded, average recorded principal balance	336,000	293,000
With related allowance recorded, unpaid principal balance	0		0
With related allowance recorded, principal balance	0		0
Related allowance	0		0
With related allowance recorded, average recorded principal balance	0	0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
With no related allowance recorded, unpaid principal balance	2,168,000		2,081,000
With no related allowance recorded, principal balance	1,695,000		1,629,000
With no related allowance recorded, average recorded principal balance	1,662,000	1,411,000
With related allowance recorded, unpaid principal balance	172,000		172,000
With related allowance recorded, principal balance	172,000		172,000
Related allowance	4,000		$ 4,000
With related allowance recorded, average recorded principal balance	$ 172,000	$ 88,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans by Credit Quality Indicators (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Loans	$ 2,441,314,000	$ 2,378,620,000
Originated Loan [Member]
Loans	1,973,739,000	1,884,548,000
Acquired Loan [Member]
Loans	467,575,000	494,072,000
Commercial Portfolio Segment [Member]
Loans	2,123,348,000	2,065,347,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Loans	1,803,409,000	1,728,898,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Loans	319,939,000	336,449,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans	757,220,000	713,903,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	685,227,000	636,771,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	71,993,000	77,132,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Loans	31,924,000	34,828,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	23,841,000	26,519,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	8,083,000	8,309,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Loans	452,382,000	450,464,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	368,910,000	363,509,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	83,472,000	86,955,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Loans	768,565,000	748,269,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	678,359,000	652,054,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	90,206,000	96,215,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Loans	113,257,000	117,883,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	47,072,000	50,045,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	66,185,000	67,838,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	471,570,000	440,219,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	37,236,000	40,911,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	14,994,000	16,378,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	1,756,000	1,887,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	266,147,000	238,890,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	34,189,000	36,246,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	553,441,000	542,294,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	52,796,000	57,671,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	29,421,000	29,793,000
Grades 1-4 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	38,612,000	39,574,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	206,434,000	190,170,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	33,417,000	35,233,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	8,767,000	10,046,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	6,002,000	6,164,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	100,967,000	123,517,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	47,471,000	49,255,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	124,918,000	109,304,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	36,001,000	37,040,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	16,925,000	19,082,000
Grades 5-7 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	27,274,000	28,015,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Originated Loan [Member]
Loans	7,223,000	6,382,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Acquired Loan [Member]
Loans	1,340,000	988,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Originated Loan [Member]
Loans	80,000	95,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member] | Acquired Loan [Member]
Loans	325,000	258,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	1,796,000	1,102,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	1,812,000	1,454,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Originated Loan [Member]
Loans	0	456,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member] | Acquired Loan [Member]
Loans	1,409,000	1,504,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Originated Loan [Member]
Loans	726,000	1,170,000
Grades 8-9 [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member] | Acquired Loan [Member]
Loans	$ 299,000	$ 249,000

XML

Note 3 - Loans and Allowance for Loan Losses - Retail Credit Exposure (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Loans	$ 2,441,314,000	$ 2,378,620,000
Retail Portfolio Segment [Member]
Loans	317,966,000	313,273,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	112,117,000	118,047,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	205,849,000	195,226,000
Originated Loan [Member]
Loans	1,973,739,000	1,884,548,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
Loans	170,330,000	155,650,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	69,032,000	69,831,000
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	101,298,000	85,819,000
Acquired Loan [Member]
Loans	467,575,000	494,072,000
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Loans	147,636,000	157,623,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Loans	43,085,000	48,216,000
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Loans	$ 104,551,000	$ 109,407,000

XML

Note 3 - Loans and Allowance for Loan Losses - Activity in Allowance for Loan Losses and the Recorded Investments in Loans (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Provision for loan losses	$ 600,000	$ 600,000
Loans	2,441,314,000		$ 2,378,620,000
Commercial Portfolio Segment [Member]
Loans	2,123,348,000		2,065,347,000
Retail Portfolio Segment [Member]
Loans	317,966,000		313,273,000
Originated Loan [Member]
Beginning balance	17,868,000	15,233,000	15,233,000
Provision for loan losses	548,000		3,098,000
Charge-offs	(445,000)		(2,133,000)
Recoveries	155,000		1,670,000
Ending balance	18,126,000		17,868,000
Ending balance: individually evaluated for impairment	3,581,000		1,572,000
Ending balance: collectively evaluated for impairment	14,545,000		16,296,000
Loans	1,973,739,000		1,884,548,000
Ending balance: individually evaluated for impairment	14,207,000		13,383,000
Ending balance: collectively evaluated for impairment	1,959,532,000		1,871,165,000
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Beginning balance	16,026,000	13,672,000	13,672,000
Provision for loan losses	(225,000)		2,247,000
Charge-offs	(225,000)		(980,000)
Recoveries	95,000		1,087,000
Ending balance	15,671,000		16,026,000
Ending balance: individually evaluated for impairment	2,846,000		1,303,000
Ending balance: collectively evaluated for impairment	12,825,000		14,723,000
Loans	1,803,409,000		1,728,898,000
Ending balance: individually evaluated for impairment	12,060,000		12,070,000
Ending balance: collectively evaluated for impairment	1,791,349,000		1,716,828,000
Originated Loan [Member] | Retail Portfolio Segment [Member]
Beginning balance	1,882,000	1,421,000	1,421,000
Provision for loan losses	643,000		1,031,000
Charge-offs	(220,000)		(1,153,000)
Recoveries	60,000		583,000
Ending balance	2,365,000		1,882,000
Ending balance: individually evaluated for impairment	735,000		269,000
Ending balance: collectively evaluated for impairment	1,630,000		1,613,000
Loans	170,330,000		155,650,000
Ending balance: individually evaluated for impairment	2,147,000		1,313,000
Ending balance: collectively evaluated for impairment	168,183,000		154,337,000
Originated Loan [Member] | Unallocated Financing Receivables [Member]
Beginning balance	(40,000)	140,000	140,000
Provision for loan losses	130,000		(180,000)
Charge-offs	0		0
Recoveries	0		0
Ending balance	90,000		(40,000)
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	90,000		(40,000)
Loans
Ending balance: individually evaluated for impairment
Ending balance: collectively evaluated for impairment
Acquired Loan [Member]
Beginning balance	93,000	448,000	448,000
Provision for loan losses	52,000		(198,000)
Charge-offs	(11,000)		(72,000)
Recoveries	16,000
Recoveries			(85,000)
Ending balance	150,000		93,000
Loans	467,575,000		494,072,000
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Beginning balance	75,000	420,000	420,000
Provision for loan losses	45,000		(303,000)
Charge-offs	(11,000)		0
Recoveries	16,000
Recoveries			(42,000)
Ending balance	125,000		75,000
Loans	319,939,000		336,449,000
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Beginning balance	18,000	28,000	28,000
Provision for loan losses	7,000		105,000
Charge-offs	0		(72,000)
Recoveries	0
Recoveries			(43,000)
Ending balance	25,000		18,000
Loans	147,636,000		157,623,000
Acquired Loan [Member] | Unallocated Financing Receivables [Member]
Beginning balance	0	$ 0	0
Provision for loan losses	0		0
Charge-offs	0		0
Recoveries	0
Recoveries			0
Ending balance	$ 0		$ 0

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified as Troubled Debt Restructurings (Details)	3 Months Ended
	Mar. 31, 2017 USD ($)	Mar. 31, 2016 USD ($)
Originated Loan [Member]
Number of Contracts	4	1
Pre- Modification Recorded Principal Balance	$ 328,000	$ 20,000
Post- Modification Recorded Principal Balance	$ 329,000	$ 20,000
Acquired Loan [Member]
Number of Contracts	4	2
Pre- Modification Recorded Principal Balance	$ 94,000	$ 45,000
Post- Modification Recorded Principal Balance	$ 95,000	$ 45,000
Commercial Portfolio Segment [Member] | Originated Loan [Member]
Number of Contracts	0	1
Pre- Modification Recorded Principal Balance	$ 0	$ 20,000
Post- Modification Recorded Principal Balance	$ 0	$ 20,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Number of Contracts	0	1
Pre- Modification Recorded Principal Balance	$ 0	$ 20,000
Post- Modification Recorded Principal Balance	$ 0	$ 20,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member]
Number of Contracts	1	0
Pre- Modification Recorded Principal Balance	$ 31,000	$ 0
Post- Modification Recorded Principal Balance	$ 31,000	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Number of Contracts	1	0
Pre- Modification Recorded Principal Balance	$ 31,000	$ 0
Post- Modification Recorded Principal Balance	$ 31,000	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Retail Portfolio Segment [Member] | Originated Loan [Member]
Number of Contracts	4	0
Pre- Modification Recorded Principal Balance	$ 328,000	$ 0
Post- Modification Recorded Principal Balance	$ 329,000	$ 0
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Number of Contracts	4	0
Pre- Modification Recorded Principal Balance	$ 328,000	$ 0
Post- Modification Recorded Principal Balance	$ 329,000	$ 0
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0
Pre- Modification Recorded Principal Balance	$ 0	$ 0
Post- Modification Recorded Principal Balance	$ 0	$ 0
Retail Portfolio Segment [Member] | Acquired Loan [Member]
Number of Contracts	3	2
Pre- Modification Recorded Principal Balance	$ 63,000	$ 45,000
Post- Modification Recorded Principal Balance	$ 64,000	$ 45,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Number of Contracts	2	1
Pre- Modification Recorded Principal Balance	$ 6,000	$ 26,000
Post- Modification Recorded Principal Balance	$ 7,000	$ 26,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Number of Contracts	1	1
Pre- Modification Recorded Principal Balance	$ 57,000	$ 19,000
Post- Modification Recorded Principal Balance	$ 57,000	$ 19,000

XML

Note 3 - Loans and Allowance for Loan Losses - Loans Modified as Troubled Debt Restructurings Within the Previous Twelve Months That Became Over 30 Days Past Due (Details)	3 Months Ended
	Mar. 31, 2017 USD ($)	Mar. 31, 2016 USD ($)
Originated Loan [Member]
Number of Contracts	3	0
Recorded Principal Balance	$ 164,000	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member]
Number of Contracts	3	0
Recorded Principal Balance	$ 164,000	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	2	0
Recorded Principal Balance	$ 34,000	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	1	0
Recorded Principal Balance	$ 130,000	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Originated Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member]
Number of Contracts	1	0
Recorded Principal Balance	$ 24,000	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member]
Number of Contracts	1	0
Recorded Principal Balance	$ 24,000	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Number of Contracts	1	0
Recorded Principal Balance	$ 24,000	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0
Acquired Loan [Member] | Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Number of Contracts	0	0
Recorded Principal Balance	$ 0	$ 0

XML

Note 3 - Loans and Allowance for Loan Losses - Activity for Troubled Debt Restructurings (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Commercial and Industrial [Member]
Beginning Balance	$ 1,503,000	$ 2,028,000
Charge-Offs	0	0
Payments	(125,000)	(101,000)
Transfers to ORE	0	0
Net Additions/Deletions	159,000	19,000
Ending Balance	1,537,000	1,946,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	1,488,000	2,086,000
Charge-Offs	0	0
Payments	(529,000)	(24,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	959,000	2,062,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	906,000	1,400,000
Charge-Offs	0	0
Payments	(27,000)	(31,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	879,000	1,369,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	5,110,000	10,657,000
Charge-Offs	0	0
Payments	(123,000)	(128,000)
Transfers to ORE	0	0
Net Additions/Deletions	(436,000)	0
Ending Balance	4,551,000	10,529,000
Commercial Portfolio Segment [Member] | Originated Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	716,000	476,000
Charge-Offs	0	0
Payments	(113,000)	(7,000)
Transfers to ORE	0	0
Net Additions/Deletions	(312,000)	0
Ending Balance	291,000	469,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Commercial and Industrial [Member]
Beginning Balance	1,125,000	1,686,000
Charge-Offs	0	(48,000)
Payments	(233,000)	0
Transfers to ORE	0	0
Net Additions/Deletions	30,000	49,000
Ending Balance	922,000	1,687,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Beginning Balance	0	0
Charge-Offs	0	0
Payments	0	0
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	0	0
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Owner Occupied Loan [Member]
Beginning Balance	900,000	1,652,000
Charge-Offs	(12,000)	0
Payments	0	(197,000)
Transfers to ORE	0	0
Net Additions/Deletions	108,000	0
Ending Balance	996,000	1,455,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Non Owner Occupied Loan [Member]
Beginning Balance	728,000	647,000
Charge-Offs	0	0
Payments	(145,000)	(10,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	583,000	637,000
Commercial Portfolio Segment [Member] | Acquired Loan [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Beginning Balance	60,000	331,000
Charge-Offs	0	0
Payments	0	(53,000)
Transfers to ORE	0	0
Net Additions/Deletions	8,000	0
Ending Balance	68,000	278,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | Home Equity and Other [Member]
Beginning Balance	385,000	146,000
Charge-Offs	0	0
Payments	0	0
Transfers to ORE	0	0
Net Additions/Deletions	321,000	0
Ending Balance	706,000	146,000
Retail Portfolio Segment [Member] | Originated Loan [Member] | One to Four Family Mortgages [Member]
Beginning Balance	157,000	128,000
Charge-Offs	0	0
Payments	(3,000)	(2,000)
Transfers to ORE	0	0
Net Additions/Deletions	0	0
Ending Balance	154,000	126,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | Home Equity and Other [Member]
Beginning Balance	208,000	141,000
Charge-Offs	0	0
Payments	(9,000)	(6,000)
Transfers to ORE	0	0
Net Additions/Deletions	7,000	26,000
Ending Balance	206,000	161,000
Retail Portfolio Segment [Member] | Acquired Loan [Member] | One to Four Family Mortgages [Member]
Beginning Balance	326,000	316,000
Charge-Offs	0	0
Payments	(4,000)	0
Transfers to ORE	0	0
Net Additions/Deletions	54,000	19,000
Ending Balance	$ 376,000	$ 335,000

XML

Note 3 - Loans and Allowance for Loan Losses - Allowance Related to Troubled Debt Restructurings (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Related allowance	$ 412,000	$ 694,000
Commercial Portfolio Segment [Member]
Related allowance	361,000	642,000
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Related allowance	2,000	9,000
Commercial Portfolio Segment [Member] | Vacant Land and Land Development and Residential Construction Loan [Member]
Related allowance	13,000	28,000
Commercial Portfolio Segment [Member] | Real Estate Owner Occupied Loan [Member]
Related allowance	90,000	100,000
Commercial Portfolio Segment [Member] | Real Estate Non Owner Occupied Loan [Member]
Related allowance	157,000	247,000
Commercial Portfolio Segment [Member] | Real Estate Multi Family and Residential Rental Loan [Member]
Related allowance	99,000	258,000
Retail Portfolio Segment [Member]
Related allowance	51,000	52,000
Retail Portfolio Segment [Member] | Home Equity and Other [Member]
Related allowance	47,000	48,000
Retail Portfolio Segment [Member] | One to Four Family Mortgages [Member]
Related allowance	$ 4,000	$ 4,000

XML

Note 4 - Premises and Equipment, Net (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Depreciation	$ 0.7	$ 0.7

XML

Note 4 - Premises and Equipment, Net - Summary of Premises and Equipment (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Property, plant and equipment, gross	$ 75,220,000	$ 74,171,000
Less: accumulated depreciation	29,372,000	28,715,000
Premises and equipment, net	45,848,000	45,456,000
Land and Land Improvements [Member]
Property, plant and equipment, gross	17,665,000	17,285,000
Building [Member]
Property, plant and equipment, gross	39,836,000	39,691,000
Furniture and Fixtures [Member]
Property, plant and equipment, gross	$ 17,719,000	$ 17,195,000

XML

Note 5 - Deposits (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Deposits	$ 2,278,016,000	$ 2,374,985,000
Increase (Decrease) in Deposits	$ (97,000,000)
Aggregate Increase (Decrease) in Percentage of Deposits	(4.10%)
Time Deposits, at or Above FDIC Insurance Limit	$ 201,000,000		$ 178,000,000

XML

Note 5 - Deposits - Summary of Deposits (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Noninterest-bearing demand	$ 757,706,000	$ 810,600,000
Noninterest-bearing demand	33.30%	34.10%
Noninterest-bearing demand	(6.50%)
Interest-bearing checking	$ 371,622,000	$ 377,929,000
Interest-bearing checking	16.30%	15.90%
Interest-bearing checking	(1.70%)
Money market	$ 279,120,000	$ 272,051,000
Money market	12.30%	11.50%
Money market	2.60%
Savings	$ 355,354,000	$ 344,988,000
Savings	15.60%	14.50%
Savings	3.00%
Time, under $100,000	$ 142,454,000	$ 146,169,000
Time, under $100,000	6.20%	6.20%
Time, under $100,000	(2.50%)
Total local deposits	$ 2,232,950,000	$ 2,298,795,000
Total local deposits	98.00%	96.80%
Total local deposits	(2.90%)
Out-of-area time, under $100,000	$ 0	$ 0
Out-of-area time, $100,000 and over	$ 45,066,000	$ 76,190,000
Out-of-area time, $100,000 and over	2.00%	3.20%
Out-of-area time, $100,000 and over	(40.90%)
Total out-of-area deposits	$ 45,066,000	$ 76,190,000
Total out-of-area deposits	2.00%	3.20%
Total out-of-area deposits	(40.90%)
Deposits	$ 2,278,016,000	$ 2,374,985,000
Total deposits	100.00%	100.00%
Aggregate Increase (Decrease) in Percentage of Deposits	(4.10%)
Geographic Distribution, Domestic [Member]
Time, $100,000 and over	$ 326,694,000	$ 347,058,000
Time, $100,000 and over	14.30%	14.60%
Time, $100,000 and over	(5.90%)

XML

Note 6 - Securities Sold Under Agreements to Repurchase (Details Textual)	3 Months Ended
	Mar. 31, 2017
Maximum [Member]
Repurchase Agreement Counterparty, Weighted Average Maturity of Agreements	1 year

XML

Note 6 - Securities Sold Under Agreements to Repurchase - Securities Sold Under Agreement to Repurchase (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Securities sold under agreements to repurchase	$ 126,679,000	$ 131,710,000
Average interest rate at end of period	0.16%	0.16%
Average daily balance during the period	$ 128,933,000	$ 149,079,000
Average interest rate during the period	0.16%	0.14%
Maximum daily balance during the period	$ 142,459,000	$ 175,088,000

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances (Details Textual) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Long-term Federal Home Loan Bank Advances	$ 205,000,000	$ 175,000,000
Line of Credit Facility, Maximum Borrowing Capacity	541,000,000
Line of Credit Facility, Remaining Borrowing Capacity	$ 336,000,000
Federal Home Loan Bank of Indianapolis [Member]
Long-term Federal Home Loan Bank Advances		$ 175,000,000
Federal Home Loan Bank of Indianapolis [Member] | Minimum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	1.04%	1.04%
Federal Home Loan Bank of Indianapolis [Member] | Maximum [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate at Period End	2.39%	2.11%
Federal Home Loan Bank of Indianapolis [Member] | Weighted Average [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate	1.59%	1.48%

XML

Note 7 - Federal Home Loan Bank of Indianapolis Advances - Maturities of Currently Outstanding FHLB Advances (Details)	Mar. 31, 2017 USD ($)
2017	$ 35,000,000
2018	20,000,000
2019	30,000,000
2020	30,000,000
2021	30,000,000
Thereafter	$ 60,000,000

XML

Note 8 - Commitments and Off-balance Sheet Risk (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Reserve or Liability Balance for Financial Instruments With Off Balance Sheet Risk	$ 0	$ 0
Minimum [Member]
Fees Accreted Into Income During Interest Rate Swap Agreements Term	4 years
Maximum [Member]
Fees Accreted Into Income During Interest Rate Swap Agreements Term	15 years
Interest Rate Swap [Member]
Derivative, Notional Amount	$ 13,600
Derivative, Fair Value, Net	$ (1,600)

XML

Note 8 - Commitments and Off-balance Sheet Risk - Exposure to Credit Losses (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Contractual amounts of financial instruments with off-balance sheet risk	$ 873,744,000	$ 821,338,000
Standby Letters of Credit [Member]
Contractual amounts of financial instruments with off-balance sheet risk	26,902,000	26,202,000
Unused lines of Credit [Member] | Commercial Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	533,402,000	553,345,000
Unused lines of Credit [Member] | One to Four Family Mortgages [Member]
Contractual amounts of financial instruments with off-balance sheet risk	60,122,000	56,275,000
Unused lines of Credit [Member] | Consumer Portfolio Segment [Member]
Contractual amounts of financial instruments with off-balance sheet risk	28,140,000	22,689,000
Unused lines of Credit [Member] | Consumer Other Financing Receivable 1 [Member]
Contractual amounts of financial instruments with off-balance sheet risk	8,807,000	8,489,000
Loan Origination Commitments [Member]
Contractual amounts of financial instruments with off-balance sheet risk	$ 216,371,000	$ 154,338,000

XML

Note 9 - Hedging Activities (Details Textual) - USD ($)	1 Months Ended
	Jan. 31, 2016	Feb. 29, 2012	Mar. 31, 2017	Dec. 31, 2016	Jan. 26, 2016	Jan. 25, 2016
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust		$ 32,000,000	$ 45,006,000	$ 44,835,000
Fair Value of Interest Rate Swap Agreement Liability			$ 100,000	$ 100,000
Junior Subordinated Debt [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		2.18%
Derivative, Notional Amount		$ 32,000,000			$ 21,000,000	$ 32,000,000
Debt Instrument, Repurchased Face Amount					$ 11,000,000
Interest Expense, Debt	$ 200,000
Debt Instrument, Repurchase Amount	$ 11,000,000

XML

Note 10 - Fair Values of Financial Instruments - Fair Value Hierarchy of Financial Instruments (Details) - USD ($)		Mar. 31, 2017	Dec. 31, 2016
Available-for-sale Securities		$ 332,441,000	$ 328,060,000
Reported Value Measurement [Member]
Available-for-sale Securities	[1]	332,441,000	328,060,000
FHLBI stock	[2]	9,236	8,026
Reported Value Measurement [Member] | Interest Rate Swap [Member]
Interest rate swap	[1]	42,000	84,000
Estimate of Fair Value Measurement [Member]
Available-for-sale Securities	[1]	332,441,000	328,060,000
FHLBI stock	[2]	9,236	8,026
Estimate of Fair Value Measurement [Member] | Interest Rate Swap [Member]
Interest rate swap	[1]	42,000	84,000
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities		0
Fair Value, Inputs, Level 1 [Member] | Reported Value Measurement [Member]
Cash		11,279,000	11,493,000
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value Measurement [Member]
Cash		11,279,000	11,493,000
Fair Value, Inputs, Level 2 [Member] | Reported Value Measurement [Member]
Cash equivalents		41,697,000	172,103,000
Loans held for sale		1,927	1,035
Bank owned life insurance		66,211,000	67,198,000
Accrued interest receivable		8,542,000	7,714,000
Deposits		2,278,016,000	2,374,985,000
Repurchase agreements		126,679	131,710
FHLBI advances		205,000	175,000
Subordinated debentures		45,006,000	44,835,000
Accrued interest payable		1,465,000	1,592,000
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value Measurement [Member]
Cash equivalents		41,697,000	172,103,000
Loans held for sale		1,927	1,035
Bank owned life insurance		66,211,000	67,198,000
Accrued interest receivable		8,542,000	7,714,000
Deposits		2,181,344,000	2,286,548,000
Repurchase agreements		126,679	131,710
FHLBI advances		204,156	174,734
Subordinated debentures		45,392,000	45,220,000
Accrued interest payable		1,465,000	1,592,000
Fair Value, Inputs, Level 3 [Member] | Reported Value Measurement [Member]
Loans, net		2,421,111,000	2,359,624,000
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value Measurement [Member]
Loans, net		$ 2,410,034,000	$ 2,353,276,000

[1] See Note 11 for a description of the fair value hierarchy as well as a disclosure of levels for classes of financial assets and liabilities.

[2] It is not practical to determine the fair value of FHLBI stock due to transferability restrictions.

XML

Note 11 - Fair Values (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Mortgage	$ 1,900,000	$ 1,000,000
Available-for-sale Securities	332,441,000	328,060,000
Available-for-sale Securities [Member]
Valuation Allowances and Reserves, Balance	0	$ 0
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	$ 0
Real Estate Dependent Loans and Foreclosed Assets Estimated Selling Costs [Member]
Fair Value Inputs, Discount Factor	10.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Commercial Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Discount Factor	15.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Commercial Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Discount Factor	25.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Residential Real Estate [Member] | Minimum [Member]
Fair Value Inputs, Discount Factor	25.00%
Real Estate Dependent Loans and Foreclosed Assets [Member] | Residential Real Estate [Member] | Maximum [Member]
Fair Value Inputs, Discount Factor	50.00%

XML

Note 11 - Fair Values - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Available-for-sale Securities	$ 332,441,000	$ 328,060,000
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	0
US Government Agencies Debt Securities [Member]
Available-for-sale Securities	156,011,000	152,040,000
Collateralized Mortgage Backed Securities [Member]
Available-for-sale Securities	43,704,000	47,392,000
Municipal General Obligation Bonds [Member]
Available-for-sale Securities	122,530,000	119,047,000
Municipal Revenue Bonds [Member]
Available-for-sale Securities	8,239,000	7,631,000
Fair Value, Measurements, Recurring [Member]
Total	332,399,000	327,976,000
Fair Value, Measurements, Recurring [Member] | Interest Rate Swap [Member]
Interest rate swap	(42,000)	(84,000)
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Interest rate swap	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total	326,000,000	321,577,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Interest rate swap	(42,000)	(84,000)
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total	6,399,000	6,399,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
Interest rate swap	0	0
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale Securities	156,011,000	152,040,000
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	156,011,000	152,040,000
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]
Available-for-sale Securities	43,704,000	47,392,000
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	43,704,000	47,392,000
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member]
Available-for-sale Securities	122,530,000	119,047,000
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	116,131,000	112,648,000
Fair Value, Measurements, Recurring [Member] | Municipal General Obligation Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	6,399,000	6,399,000
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member]
Available-for-sale Securities	8,239,000	7,631,000
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	8,239,000	7,631,000
Fair Value, Measurements, Recurring [Member] | Municipal Revenue Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Other Debt Obligations [Member]
Available-for-sale Securities	1,957,000	1,950,000
Fair Value, Measurements, Recurring [Member] | Other Debt Obligations [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	0	0
Fair Value, Measurements, Recurring [Member] | Other Debt Obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	1,957,000	1,950,000
Fair Value, Measurements, Recurring [Member] | Other Debt Obligations [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	$ 0	$ 0

XML

Note 11 - Fair Values - Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Impaired loans	$ 8,119,000	$ 9,896,000
Foreclosed assets	495,000	469,000
Total	8,614,000	10,365,000
Fair Value, Inputs, Level 1 [Member]
Impaired loans	0	0
Foreclosed assets	0	0
Total	0	0
Fair Value, Inputs, Level 2 [Member]
Impaired loans	0	0
Foreclosed assets	0	0
Total	0	0
Fair Value, Inputs, Level 3 [Member]
Impaired loans	8,119,000	9,896,000
Foreclosed assets	495,000	469,000
Total	$ 8,614,000	$ 10,365,000

XML

Note 12 - Regulatory Matters (Details Textual) - USD ($)						3 Months Ended		26 Months Ended
	Jun. 21, 2017	Apr. 13, 2017	Mar. 22, 2017	Jan. 12, 2017	Jan. 26, 2016	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Jan. 01, 2019	Dec. 31, 2016	Apr. 19, 2016	Jan. 30, 2015	Feb. 29, 2012
Preferred Securities of Subsidiary Trust						$ 42,900,000		$ 42,900,000		$ 42,800,000
Maximum Restricted Core Element Allowed in Tier One Capital Percent						25.00%
Maximum Level of Consolidated Aggregate Assets Allowing for Inclusion of Trust Preferred Securities in Tier One Capital						$ 15,000,000,000		15,000,000,000
Trust Preferred Securities Included in Tier One Capital						$ 42,900,000		$ 42,900,000		42,800,000
Capital Conservation Buffer						2.50%		2.50%
Common Stock, Dividends, Per Share, Declared				$ 0.18
Stock Repurchase Program, Authorized Amount												$ 20,000,000
Stock Repurchase Program Additional Authorized Amount											$ 15,000,000
Stock Repurchased During Period, Shares								956,419
Stock Repurchased During Period, Value								$ 19,500,000
Treasury Stock Acquired, Average Cost Per Share								$ 20.38
Payments for Repurchase of Trust Preferred Securities						$ 0	$ 8,030,000
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust						45,006,000		$ 45,006,000		$ 44,835,000			$ 32,000,000
Gain (Loss) on Repurchase of Trust Preferred Securities						$ 0	$ 2,970,000
Dividends, Cash					$ 9,100,000
Increase (Decrease) in Capital Ratio Basis Point					(0.35%)
Common Stock, Dividends, Per Share, Cash Paid			$ 0.18			$ 0.18	$ 0.16
Mercantile Bank Capital Trust I [Member]
Preferred Securities of Subsidiary Trust					$ 32,000,000
Payments for Repurchase of Trust Preferred Securities					11,000,000
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust					$ 21,000,000
Percentage of Trust Preferred Securities Face Amount Paid					73.00%
Discount Rate of Trust Preferred Securities					27.00%
Gain (Loss) on Repurchase of Trust Preferred Securities, Before Tax					$ 3,000,000
Gain (Loss) on Repurchase of Trust Preferred Securities					$ 1,800,000
Gain (Loss) on Repurchase of Trust Preferred Securities Per Diluted Share					$ 0.11
Fund [Member] | Mercantile Bank Capital Trust I [Member]
Preferred Securities of Subsidiary Trust					$ 11,000,000
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared		$ 0.18
Scenario, Forecast [Member]
Common Equity Tier 1 Risk Based Capital Required For Capital Adequacy to Risk Weighted Assets									7.00%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets									8.50%
Capital Required for Capital Adequacy to Risk Weighted Assets									10.50%
Common Stock, Dividends, Per Share, Cash Paid	$ 0.18

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Note 12 - Regulatory Matters - Actual Capital Levels and Minimum Levels (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Consolidated Entities [Member]
Total capital, amount	$ 359,984	$ 354,278
Total capital, ratio	13.10%	13.10%
Total capital minimum required for capital adequacy, amount	$ 220,614	$ 215,819
Total capital minimum required for capital adequacy, ratio	8.00%	8.00%
Tier 1 capital, amount	$ 341,708	$ 336,316
Tier 1 capital, ratio	12.40%	12.50%
Tier 1 capital minimum required for capital adequacy, amount	$ 165,461	$ 161,864
Tier 1 capital minimum required for capital adequacy, ratio	6.00%	6.00%
Common equity tier 1, amount	$ 298,776	$ 293,555
Common equity tier 1, ratio	10.80%	10.90%
Common equity tier 1 minimum required for capital adequacy, amount	$ 124,096	$ 121,398
Common equity tier 1 capital minimum required for capital adequacy, ratio	4.50%	4.50%
Tier 1 capital, amount	$ 341,708	$ 336,316
Tier 1 capital to average assets, ratio	11.50%	11.20%
Tier 1 capital minimum required for capital adequacy, amount	$ 118,508	$ 120,486
Tier 1 capital to average assets minimum required for capital adequacy, ratio	4.00%	4.00%
Bank [Member]
Total capital, amount	$ 356,798	$ 353,243
Total capital, ratio	13.00%	13.10%
Total capital minimum required for capital adequacy, amount	$ 220,408	$ 215,605
Total capital minimum required for capital adequacy, ratio	8.00%	8.00%
Total capital to be well capitalized, amount	$ 275,509	$ 269,506
Total capital to be well capitalized, ratio	10.00%	10.00%
Tier 1 capital, amount	$ 338,522	$ 335,282
Tier 1 capital, ratio	12.30%	12.40%
Tier 1 capital minimum required for capital adequacy, amount	$ 165,306	$ 161,704
Tier 1 capital minimum required for capital adequacy, ratio	6.00%	6.00%
Tier 1 capital to be well capitalized, amount	$ 220,408	$ 215,605
Tier 1 capital to be well capitalized, ratio	8.00%	8.00%
Common equity tier 1, amount	$ 338,522	$ 335,282
Common equity tier 1, ratio	12.30%	12.40%
Common equity tier 1 minimum required for capital adequacy, amount	$ 123,980	$ 121,278
Common equity tier 1 capital minimum required for capital adequacy, ratio	4.50%	4.50%
Common equity tier 1 capital to be well capitalized, amount	$ 179,081	$ 175,179
Common equity tier 1 capital to be well capitalized, ratio	6.50%	6.50%
Tier 1 capital, amount	$ 338,522	$ 335,282
Tier 1 capital to average assets, ratio	11.40%	11.10%
Tier 1 capital minimum required for capital adequacy, amount	$ 118,462	$ 120,383
Tier 1 capital to average assets minimum required for capital adequacy, ratio	4.00%	4.00%
Tier 1 capital to be well capitalized, amount	$ 148,078	$ 150,479
Tier 1 capital to average assets to be well capitalized, ratio	5.00%	5.00%