10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 September 30, 2016
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from  ___________________  to  ___________________

Commission File Number 000-27905

MutualFirst Financial, Inc.

(Exact name of registrant as specified in its charter)

Maryland	35-2085640
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
110 E. Charles Street, Muncie, Indiana	47305-2419
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (765) 747-2800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.01 per share	Nasdaq Global Market

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨    No x

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x     No ¨

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

Large accelerated filer  ¨	Accelerated filer  x	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if smaller reporting company)

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date. As of November 7, 2016, there were 7,324,233 shares of the registrant’s common stock outstanding. 

MutualFirst Financial, Inc.

Form 10-Q Quarterly Report for the Period Ended September 30, 2016

Table of Contents

		Page
		Number
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets	1
	Consolidated Condensed Statements of Income	2
	Consolidated Condensed Statements of Comprehensive Income	3
	Consolidated Condensed Statement of Stockholders’ Equity	4
	Consolidated Condensed Statements of Cash Flows	5
	Notes to Unaudited Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	45
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosure	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
Signature Page		49
Exhibits		50

MutualFirst Financial, Inc.

Consolidated Condensed Balance Sheets

(In Thousands, Except Share and Per Share Data)

	September 30,		December 31,
	2016		2015
	(Unaudited)
Assets
Cash and due from banks	$	7,066	$	8,610
Interest-bearing demand deposits		18,077		12,305
Cash and cash equivalents		25,143		20,915
Interest-bearing time deposits		980		-
Investment securities available for sale (carried at fair value)		256,865		261,138
Loans held for sale		8,311		5,991
Loans, net of allowance for loan losses of $12,587 and $12,641, at September 30, 2016 and December 31, 2015, respectively		1,122,289		1,068,204
Premises and equipment, net		31,668		31,048
Federal Home Loan Bank stock		10,751		10,482
Deferred tax asset, net		10,723		12,084
Cash value of life insurance		51,309		51,209
Goodwill		1,800		1,800
Other real estate owned and repossessed assets		876		2,456
Other assets		13,107		12,938
Total assets	$	1,533,822	$	1,478,265
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing	$	174,061	$	179,542
Interest-bearing		951,699		911,840
Total deposits		1,125,760		1,091,382
Federal Home Loan Bank advances		239,091		225,617
Other borrowings		8,921		9,458
Other liabilities		16,840		14,783
Total liabilities		1,390,612		1,341,240
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding - 7,324,233 and 7,422,061 shares at September 30, 2016 and December 31, 2015, respectively		73		74
Additional paid-in capital		74,164		77,363
Retained earnings		64,996		58,098
Accumulated other comprehensive income		3,977		1,490
Total stockholders' equity		143,210		137,025
Total liabilities and stockholders' equity	$	1,533,822	$	1,478,265

See notes to consolidated condensed financial statements

1

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Income

(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Three Months Ended September 30,						Nine Months Ended September, 30,
	2016			2015			2016			2015
Interest and Dividend Income
Loans receivable	$	11,866		$	11,190		$	34,601		$	32,974
Investment securities		1,572			1,739			4,871			5,101
Federal Home Loan Bank stock		111			118			327			377
Deposits with financial institutions		18			2			60			10
Total interest and dividend income		13,567			13,049			39,859			38,462
Interest Expense
Deposits		1,332			1,277			3,900			3,983
Federal Home Loan Bank advances		901			822			2,693			2,211
Other		97			134			280			395
Total interest expense		2,330			2,233			6,873			6,589
Net Interest Income		11,237			10,816			32,986			31,873
Provision for loan losses		250			-			600			-
Net Interest Income After Provision for Loan Losses		10,987			10,816			32,386			31,873
Non-interest Income
Service fee income		1,515			1,496			4,417			4,318
Net realized gain on sales of available for sale securities		92			57			862			423
Commissions		1,259			1,164			3,762			3,427
Net gains on sales of loans		1,548			1,238			3,895			3,266
Net servicing fees		91			67			239			205
Increase in cash value of life insurance		284			292			874			893
Gain (loss) on sale of other real estate and repossessed assets		72			(30	)		(145	)		(81	)
Other income		205			109			1,052			325
Total non-interest income		5,066			4,393			14,956			12,776
Non-interest Expenses
Salaries and employee benefits		6,941			6,341			20,092			18,955
Net occupancy expenses		592			553			1,839			1,671
Equipment expenses		448			479			1,419			1,342
Data processing fees		486			432			1,467			1,304
ATM and debit card expenses		391			381			1,127			1,064
Deposit insurance		165			225			624			669
Professional fees		419			378			1,269			1,291
Advertising and promotion		350			296			1,046			1,007
Software subscriptions and maintenance		540			443			1,569			1,303
Other real estate and repossessed assets		(39	)		92			47			305
Other expenses		1,070			1,034			3,520			3,134
Total non-interest expenses		11,363			10,654			34,019			32,045
Income Before Income Tax		4,690			4,555			13,323			12,604
Income tax expense		1,208			1,330			3,319			3,681
Net Income	$	3,482		$	3,225		$	10,004		$	8,923
Earnings Per Common Share
Basic	$	0.48		$	0.44		$	1.35		$	1.21
Diluted	$	0.47		$	0.43		$	1.32		$	1.18
Dividends Per Common Share	$	0.14		$	0.12		$	0.42		$	0.36

See notes to consolidated condensed financial statements

2

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Comprehensive Income

(Unaudited)

(In Thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net Income	$	3,482		$	3,225		$	10,004		$	8,923
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale		(1,260	)		2,668			4,606			529
Reclassification adjustment for realized gains included in net income		(92	)		(57	)		(862	)		(423	)
Net unrealized gain (loss) on derivative used for cash flow hedges		19			15			(9	)		72
		(1,333	)		2,626			3,735			178
Income tax (expense) benefit related to other comprehensive income		481			(889	)		(1,248	)		(45	)
Other comprehensive income (loss), net of tax		(852	)		1,737			2,487			133
Comprehensive Income	$	2,630		$	4,962		$	12,491		$	9,056

See notes to consolidated condensed financial statements

3

MutualFirst Financial, Inc.

Consolidated Condensed Statement of Changes in Stockholders’ Equity
For the Period Ended September 30, 2016

(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Common Stock			Paid-in Capital Common			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balances December 31, 2015	$	74		$	77,363		$	58,098		$	1,490	$	137,025
Net income								10,004					10,004
Other comprehensive income, net of taxes											2,487		2,487
Stock repurchased		(2	)		(4,352	)							(4,354	)
Stock options, exercised		1			975								976
Tax benefit on stock options					178								178
Cash dividends, common stock ($.42 per share)								(3,106	)				(3,106	)
Balances September 30, 2016	$	73		$	74,164		$	64,996		$	3,977	$	143,210

See notes to consolidated condensed financial statements

4

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Nine Months Ended
	September 30,
	2016			2015
Operating Activities
Net income	$	10,004		$	8,923
Items not requiring cash
Provision for loan losses		600			-
Depreciation and amortization		3,833			3,152
Deferred income tax		113			1,963
Loans originated for sale		(113,087	)		(115,103	)
Proceeds from sales of loans held for sale		114,314			118,097
Gain on sale of loans held for sale		(3,895	)		(3,266	)
Net gain on sale of securities, available for sale		(862	)		(423	)
Gain on bank owned life insurance		(346	)		-
Loss on sale of other real estate and repossessed assets		145			81
Change in
Interest receivable and other assets		610			(321	)
Interest payable and other liabilities		633			978
Cash value of life insurance		(874	)		(893	)
Other adjustments		107			107
Net cash provided by operating activities		11,295			13,295
Investing Activities
Net change in interest-bearing time deposits		(980	)		-
Purchases of securities, available for sale		(57,170	)		(49,105	)
Proceeds from maturities and paydowns of securities, available for sale		27,707			28,800
Proceeds from sales of securities, available for sale		38,167			14,112
Redemption of Federal Home Loan Bank stock		-			2,154
Purchase of Federal Home Loan Bank stock		(269	)		-
Net change in loans		(56,934	)		(43,521	)
Purchases of premises and equipment		(1,914	)		(1,080	)
Proceeds from real estate owned sales		2,350			2,008
Proceeds from bank owned life insurance		1,121			-
Other investing activities		56			-
Net cash used in investing activities		(47,866	)		(46,632	)
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		46,122			38,772
Certificates of deposit		(11,744	)		(38,506	)
Proceeds from FHLB advances		240,200			279,800
Repayments of FHLB advances		(226,726	)		(256,025	)
Repayments of other borrowings		(569	)		(569	)
Cash dividends		(3,106	)		(2,660	)
Stock options exercised		976			1,593
Stock repurchased		(4,354	)		-
Net cash provided by financing activities		40,799			22,405
Net Change in Cash and Cash Equivalents		4,228			(10,932	)
Cash and Cash Equivalents, Beginning of Period		20,915			29,575
Cash and Cash Equivalents, End of Period	$	25,143		$	18,643
Additional Cash Flows Information
Interest paid	$	6,781		$	6,589
Income tax paid		1,400			2,050
Transfers from loans to foreclosed assets		915			1,011
Mortgage servicing rights capitalized		348			360
Purchase of securities, due to broker		751			-

See notes to consolidated condensed financial statements

5

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(In Thousands, Except Share and Per Share Data)

Note 1:  Basis of Presentation

The consolidated condensed financial statements include the accounts of MutualFirst Financial, Inc. (MutualFirst or the “Company”), its wholly owned subsidiaries, MFBC Statutory Trust, MutualFirst Risk Management, Inc., Mutual Risk Advisors, Inc., and MutualBank, an Indiana commercial bank (“Mutual” or the “Bank”), Mutual’s wholly owned subsidiaries, First MFSB Corporation, Mishawaka Financial Services, Summit Service Corp. and the wholly owned subsidiary of Summit Service Corp., Summit Mortgage Inc. (“Summit”), Mutual Federal Investment Company (“MFIC”), and MFIC majority owned subsidiary, Mutual Federal REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. These companies conform to accounting principles generally accepted in the United States of America and reporting practices followed by the banking industry. The more significant of the policies are described below.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 15, 2016.

The interim consolidated condensed financial statements at and for the three and nine months ended September 30, 2016 and 2015, have not been audited by independent accountants, but in the opinion of management, reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Condensed Balance Sheet of the Company as of December 31, 2015 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

Note 2:Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended September 30,
	2016						2015
	Net Income		Weighted- Average Shares		Per-Share Amount		Net Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	3,482		7,324,233	$	0.48	$	3,225		7,394,061	$	0.44
Effect of Dilutive Securities
Stock options		-		146,344				-		168,438
Diluted Earnings Per Share
Net income available and assumed conversions	$	3,482		7,470,577	$	0.47	$	3,225		7,562,499	$	0.43

	Nine Months Ended September 30,
	2016						2015
	Net Income		Weighted- Average Shares		Per-Share Amount		Net Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	10,004		7,414,328	$	1.35	$	8,923		7,364,035	$	1.21
Effect of Dilutive Securities
Stock options		-		146,255				-		175,900
Diluted Earnings Per Share
Net income available and assumed conversions	$	10,004		7,560,583	$	1.32	$	8,923		7,539,935	$	1.18

6

As of September 30, 2016, the exercise price for all options was lower than the average market price of the common shares. Options to purchase 37,161 shares of common stock were outstanding at September 30, 2015, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares.

Note 3: Impact of Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU is intended to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.

This Accounting Standards Update addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020), for calendar year entities. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating what impact this pronouncement will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.

Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.

For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.

The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

7

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options.

Derivatives and Hedging, requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract (the “clearly and closely related” criterion).

U.S. GAAP provides specific guidance for assessing whether call (put) options that can accelerate the repayment of principal on a debt instrument meet the clearly and closely related criterion. The guidance states that for contingent call (put) options to be considered clearly and closely related, they can be indexed only to interest rates or credit risk.

The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.

Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases. The objective of the amendment is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.

The most significant changes under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

· A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and

· A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating what impact this pronouncement will have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).

The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.

The new guidance is effective for fiscal years beginning of December 15, 2017, including interim periods within those fiscal years. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In December 2015, the FASB issued ASU 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustments. The objective of this Update was to simplify the accounting for adjustments made to provisional amounts recognized in a business combination. The amendments eliminate the requirement to retrospectively account for those adjustments. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

8

Note 4: Investment Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below. All mortgage-backed securities and collateralized mortgage obligations held as of September 30, 2016 and December 31, 2015 were guaranteed by government sponsored entities, government corporations or federal agencies.

	September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	95,834	$	2,400	$	(9	)	$	98,225
Collateralized mortgage obligations		70,838		869		(60	)		71,647
Municipal obligations		71,235		4,277		(75	)		75,437
Corporate obligations		12,808		35		(1,287	)		11,556
Total investment securities	$	250,715	$	7,581	$	(1,431	)	$	256,865

	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	106,524	$	1,562	$	(248	)	$	107,838
Collateralized mortgage obligations		84,976		537		(861	)		84,652
Municipal obligations		54,427		2,781		(20	)		57,188
Corporate obligations		12,805		1		(1,346	)		11,460
Total investment securities	$	258,732	$	4,881	$	(2,475	)	$	261,138

The amortized cost and fair value of securities available for sale at September 30, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
Description Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	-	$	-
One to five years		9,846		9,894
Five to ten years		8,073		8,758
After ten years		66,124		68,341
		84,043		86,993
Mortgage-backed securities		95,834		98,225
Collateralized mortgage obligations		70,838		71,647
Totals	$	250,715	$	256,865

Proceeds from sales of securities available for sale for the three and nine months ended September 30, 2016 and 2015 were $8.3 million and $38.2 million and $730,000 and $14.1 million, respectively. Gross gains of $92,000 and $911,000 and $57,000 and $423,000 for the three and nine months ended September 30, 2016 and 2015, respectively, were recognized on those sales. Gross losses of $49,000 for the nine months ended September 30, 2016 were also recognized on those sales. There were no gross losses recognized on the sales of securities for the three months ended September 30, 2016 nor the three and nine months ended September 30, 2015.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2016 and December 31, 2015 was $25.9 million and $97.6 million, respectively, which was approximately 10.1 percent and 37.4 percent, respectively, of the Company’s investment portfolio at those dates.

Based on our evaluation of available evidence, including recent changes in market interest rates, management believes the fair value for the securities at less than historical cost for the periods presented, are temporary.

9

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

During the first nine months of 2016 and 2015, the Bank determined that its security holdings had no other-than-temporary impairment.

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015:

	September 30, 2016
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	1,138	$	(9	)	$	-	$	-		$	1,138	$	(9	)
Collateralized mortgage obligations		6,229		(13	)		5,014		(47	)		11,243		(60	)
Municipal obligations		6,198		(74	)		338		(1	)		6,536		(75	)
Corporate obligations		-		-			7,021		(1,287	)		7,021		(1,287	)
Total temporarily impaired securities	$	13,565	$	(96	)	$	12,373	$	(1,335	)	$	25,938	$	(1,431	)

	December 31, 2015
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	38,649	$	(248	)	$	-	$	-		$	38,649	$	(248	)
Collateralized mortgage obligations		27,457		(281	)		21,271		(580	)	$	48,728	$	(861	)
Municipal obligations		2,739		(17	)		491		(3	)		3,230		(20	)
Corporate obligations		4,425		(75	)		2,534		(1,271	)		6,959		(1,346	)
Total temporarily impaired securities	$	73,270	$	(621	)	$	24,296	$	(1,854	)	$	97,566	$	(2,475	)

Mortgage-Backed Securities (MBS) and Collateralized Mortgage Obligations (CMO)

The unrealized losses on the Company’s investment in MBSs and CMOs were caused by interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because (1) the decline in market value is attributable to changes in interest rates and not credit quality, (2) the Company does not intend to sell the investments and (3) it is more likely than not the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company does not consider any of these investments to be other-than-temporarily impaired at September 30, 2016.

Municipals

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by changes in interest rates.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments. The Corporation does not consider any of these investment securities to be other-than-temporarily impaired at September 30, 2016.

Corporate Obligations

The Company’s unrealized losses on investments in corporate obligations primarily relates to two investments in pooled trust preferred securities. The unrealized losses were primarily caused by (1) a decrease in performance and regulatory capital resulting from exposure to subprime mortgages and (2) a sector downgrade by industry analysts. The Company recognized losses, in 2011 and earlier, equal to the credit losses for these securities, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell these investments and it is likely that the Company will not be required to sell the investments before recovery of its new, lower amortized cost basis, which may be at maturity, it does not consider the remainder of these investments to be other-than-temporarily impaired at September 30, 2016.

10

Other-Than-Temporary Impairment (OTTI)

Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or whether it will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities. For securities that are a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model. For securities that are not a beneficial interest in securitized financial assets, the Company uses debt and equity securities impairment accounting model.

The Company conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities. While all securities are considered, the securities primarily impacted by other-than-temporary impairment testing are private-label mortgage-backed securities and trust preferred securities.

MutualFirst Financial uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific trust preferred securities. The primary focus is on the returns a fixed income investor would require in order to allocate capital on a risk adjusted basis. There is currently little demand for pooled trust preferred securities; however, the Company looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market. The next step is to make a series of adjustments to reflect the differences that exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred security. Importantly, as part of the analysis described above, MutualFirst considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and makes adjustments as necessary to reflect this additional risk.

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired.

The following tables provide information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Credit losses on debt securities held
Beginning of period	$	109	$	109	$	109	$	109
Reductions related to actual losses incurred		-		-		-		-
As of September 30,	$	109	$	109	$	109	$	109

11

Pooled Trust Preferred Securities. The Company has invested in pooled trust preferred securities. At September 30, 2016, the current book balance of our pooled trust preferred securities was $3.8 million. The original par value of these securities was $4.0 million prior to the OTTI write-downs in 2011 and earlier. OTTI taken on trust preferred securities previously was the result of deterioration in the performance of the underlying collateral. The deterioration was the result of increased defaults and deferrals of dividend payments in that year, creating credit impairment along with weakening financial performance of performing collateral, increasing the risk of future deferrals of dividends and defaults. No additional OTTI was determined in the first nine months of 2016. All pooled trust preferred securities owned by the Company are exempt from the Volcker Rule.

The following table provides additional information related to the Company’s investment in pooled trust preferred securities as of September 30, 2016:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized loss			Realized Losses YTD		Lowest Current Rating	Number of Banks / Insurance Cos. Currently Performing		Total Number of Banks and Insurance Cos. In Issuance (Unique)		Actual Deferrals/ Defaults (as a % of original collateral)			Total Projected Defaults (as a % of performing collateral) (1)			Excess subordination (after taking into account best estimate of future deferrals/ defaults) (2)
	(Dollars in Thousands)
Alesco Preferred Funding IX	A1	$	1,000	$	917	$	548	$	(369	)	$	-	CCC-		43		50		6.75	%		10.68	%		54.87	%
U.S. Capital Funding I	B3		3,000		2,891		1,986		(905	)		-	C		29		33		7.95	%		6.45	%		11.81	%
		$	4,000	$	3,808	$	2,534	$	(1,274	)	$	-

(1) A 10% recovery is applied to all projected defaults by depository institutions. A 15% recovery is applied to all projected defaults by insurance companies. No recovery is applied to current defaults.

(2) Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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Note 5: Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	September 30,			December 31,
	2016			2015
Net unrealized gain on securities available-for-sale	$	7,055		$	3,311
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		(905	)		(905	)
Net unrealized loss on derivative used for cash flow hedges		(10	)		(1	)
Net unrealized loss relating to defined benefit plan liability		(32	)		(32	)
		6,108			2,373
Tax expense		2,131			883
Net of tax amount	$	3,977		$	1,490

The following table presents the reclassification adjustments out of accumulated other comprehensive income that were included in net income in the Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	September 30,
Details about Accumulated Other Comprehensive Income Components	2016			2015			Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	92		$	57		Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(31	)		(19	)	Income tax expense
Total reclassifications for the period, net of tax	$	61		$	38

	Amount Reclassified from Accumulated Other Comprehensive Income For the Nine Months Ended
	September 30,
Details about Accumulated Other Comprehensive Income Components	2016			2015			Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	862		$	423		Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(293	)		(144	)	Income tax expense
Total reclassifications for the period, net of tax	$	569		$	279

13

Note 6: Fair Values of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

Items Measured at Fair Value on a Recurring Basis

Following is a description of the valuation methodologies and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying comparative balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company uses a third-party provider to provide market prices on its securities. Pooled trust preferred securities prices are evaluated by a third party. Level 1 securities include marketable equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include mortgage-backed, collateralized mortgage obligations, small business administration, marketable equity, municipal, federal agency and certain corporate obligation securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain corporate obligation securities.

Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on investment securities relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.

The following table presents the fair value measurements of assets measured on a recurring basis and level within the ASC 820 fair value hierarchy.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2016
Mortgage-backed securities	$	98,225	$	-	$	98,225	$	-
Collateralized mortgage obligations		71,647		-		71,647		-
Municipal obligations		75,437		-		75,437		-
Corporate obligations		11,556		-		9,022		2,534
Available-for-sale securities	$	256,865	$	-	$	254,331	$	2,534

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2015
Mortgage-backed securities	$	107,838	$	-	$	107,838	$	-
Collateralized mortgage obligations		84,652		-		84,652		-
Municipal obligations		57,188		-		57,188		-
Corporate obligations		11,460		-		8,926		2,534
Available-for-sale securities	$	261,138	$	-	$	258,604	$	2,534

14

The following is a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2016 and 2015 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Beginning balance	$	2,534	$	2,522	$	2,534	$	2,522
Total realized and unrealized gains (losses)
Included in net income		-		-		-		-
Included in other comprehensive income (loss)		-		-		-		-
Purchases, issuances and settlements		-		-		-		-
Ending balance	$	2,534	$	2,522	$	2,534	$	2,522
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-	$	-	$	-

Items Measured at Fair Value on a Non-Recurring Basis

From time to time, certain assets may be recorded at fair value on a non-recurring basis. These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period. The following is a description of the valuation methodologies used for certain assets that are recorded at fair value.

The following table presents the fair value measurement of assets measured on a nonrecurring basis and the level within the ASC 820 fair value hierarchy.

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Bank will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2016
Impaired loans	$	23	$	-	$	-	$	23

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2015
Impaired loans	$	676	$	-	$	-	$	676

15

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

September 30, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,534	Discounted cash flow	Discount rate		7.0 - 8.0	%
				Constant prepayment rate		2.0	%
				Cumulative projected prepayments		40.0	%
				Probability of default		1.7 - 1.8	%
				Projected cures given deferral		0 - 15.0	%
				Loss severity		33.8 - 40.2	%
Impaired loans (collateral dependent)	$	23	Third party valuations	Discount to reflect realizable value		20.0 - 50.0	%

December 31, 2015	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,534	Discounted cash flow	Discount rate		7.0 - 8.0	%
				Constant prepayment rate		2.0	%
				Cumulative projected prepayments		40.0	%
				Probability of default		1.7 - 1.8	%
				Projected cures given deferral		0 - 15.0	%
				Loss severity		33.8 - 40.2	%
Impaired loans (collateral dependent)	$	676	Third party valuations	Discount to reflect realizable value		20.0 - 50.0	%

The following methods and assumptions were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value:

Cash and Cash Equivalents - The fair value of cash and cash-equivalents approximates carrying value.

Interest Bearing Time Deposits – The fair value of interest bearing time deposits approximates carrying value.

Loans Held For Sale - Fair values are based on quoted market prices.

Loans - The fair value for loans is estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

FHLB Stock - Fair value of FHLB stock is based on the price at which it may be resold to the FHLB.

Interest Receivable/Payable - The fair values of interest receivable/payable approximate carrying values.

Deposits - The fair values of noninterest-bearing, interest-bearing demand and savings accounts are equal to the amount payable on demand at the balance sheet date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on such time deposits.

FHLB Advances - The fair value of these borrowings is estimated using a discounted cash flow calculation, based on current rates for similar debt for periods comparable to the remaining terms to maturity of these advances.

Other Borrowings - The fair value of these borrowings is estimated using discounted cash flow analyses using interest rates for similar financial instruments.

16

Off-Balance Sheet Commitments - Commitments include commitments to purchase and originate mortgage loans, commitments to sell mortgage loans, and standby letters of credit and are generally of a short-term nature. The fair values of such commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is insignificant.

The estimated fair values of the Company’s financial instruments not carried at fair value in the consolidated balance sheets as of the dates noted below are as follows:

					Fair Value Measurements Using
September 30, 2016	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	25,143	$	25,143	$	25,143	$	-	$	-
Interest-bearing time deposits		980		980		980		-		-
Loans held for sale		8,311		8,428		-		8,428		-
Loans, net		1,122,289		1,123,837		-		-		1,123,837
FHLB stock		10,751		10,751		-		10,751		-
Interest receivable		4,173		4,173		-		4,173		-
Liabilities
Deposits		1,125,760		1,128,807		767,076		-		361,731
FHLB advances		239,091		241,612		-		241,612		-
Other borrowings		8,921		8,931		-		8,931		-
Interest payable		291		291		-		291		-

					Fair Value Measurements Using
December 31, 2015	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	20,915	$	20,915	$	20,915	$	-	$	-
Loans held for sale		5,991		6,058		-		6,058		-
Loans, net		1,068,204		1,056,357		-		-		1,056,357
FHLB stock		10,482		10,482		-		10,482		-
Interest receivable		4,201		4,201		-		4,201		-
Liabilities
Deposits		1,091,382		1,090,975		740,759		-		350,216
FHLB advances		225,617		224,621		-		224,621		-
Other borrowings		9,458		9,459		-		9,459		-
Interest payable		199		199		-		199		-

Note 7: Loans and Allowance

Classes of loans at September 30, 2016 and December 31, 2015 include:

	September 30,			December 31,
	2016			2015
Real estate
Commercial	$	271,797		$	236,895
Commercial construction and development		20,415			15,744
Consumer closed end first mortgage		477,386			491,451
Consumer open end and junior liens		70,411			70,990
		840,009			815,080
Other loans
Consumer loans
Auto		18,560			15,480
Boat/RVs		142,045			123,621
Other		5,943			6,171
Commercial and industrial		133,390			123,043
		299,938			268,315
Total loans		1,139,947			1,083,395
Undisbursed loans in process		(10,607	)		(7,432	)
Unamortized deferred loan costs, net		5,536			4,882
Allowance for loan losses		(12,587	)		(12,641	)
Net loans	$	1,122,289		$	1,068,204

17

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Construction and Development

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates and financial analyses of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Commercial and Industrial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

18

Consumer Real Estate and Other Consumer Loans

With respect to residential loans that are secured by consumer closed end first mortgages and are primarily owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires PMI if that ratio is exceeded. Consumer open end and junior lien loans are typically secured by a subordinate interest in 1-4 family residences, and other consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Nonaccrual Loans and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions, but never greater than 90 days past due.

All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these 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 and generally only after six months of satisfactory performance.

Nonaccrual loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 are as follows:

	September 30,		December 31,
	2016		2015
Real estate
Commercial	$	1,230	$	2,356
Commercial construction and development		-		-
Consumer closed end first mortgage		3,704		3,592
Consumer open end and junior liens		231		783
Consumer loans
Auto		3		-
Boat/RVs		113		81
Other		62		67
Commercial and industrial		13		25
Total nonaccrual loans	$	5,356	$	6,904

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An age analysis of the Company’s past due loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	96	$	-	$	1,098	$	1,194	$	270,603	$	271,797	$	-
Commercial construction and development		-		-		-		-		20,415		20,415		-
Consumer closed end first mortgage		9,147		1,200		3,920		14,267		463,119		477,386		444
Consumer open end and junior liens		758		120		174		1,052		69,359		70,411		-
Consumer loans
Auto		95		35		16		146		18,414		18,560		13
Boat/RVs		1,170		361		98		1,629		140,416		142,045		21
Other		104		17		26		147		5,796		5,943		-
Commercial and industrial		74		462		24		560		132,830		133,390		-
Total	$	11,444	$	2,195	$	5,356	$	18,995	$	1,120,952	$	1,139,947	$	478

	December 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	922	$	20	$	2,212	$	3,154	$	233,741	$	236,895	$	-
Commercial construction and development		-		-		-		-		15,744		15,744		-
Consumer closed end first mortgage		7,272		1,328		3,091		11,691		479,760		491,451		267
Consumer open end and junior liens		296		187		765		1,248		69,742		70,990		-
Consumer loans
Auto		89		-		-		89		15,391		15,480		-
Boat/RVs		1,135		102		71		1,308		122,313		123,621		-
Other		89		14		62		165		6,006		6,171		-
Commercial and industrial		192		383		5		580		122,463		123,043		-
Total	$	9,995	$	2,034	$	6,206	$	18,235	$	1,065,160	$	1,083,395	$	267

Impaired Loans

Loans are considered impaired in accordance with the impairment accounting guidance (ASC 310-10-35-16), when, based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

20

Interest on impaired loans is recorded based on the performance of the loan. All interest received on impaired loans that are on nonaccrual status is accounted for on the cash-basis method until qualifying for return to accrual status. Interest is accrued per the contract for impaired loans that are performing.

The following tables present impaired loans as of and for the three and nine month periods ended September 30, 2016 and 2015 and the year ended December 31, 2015.

	September 30, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - QTR		Average Investment in Impaired Loans - YTD		Interest Income Recognized - QTR		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Real estate
Commercial	$	1,143	$	1,143	$	-	$	2,018	$	2,596	$	19	$	67
Commercial construction and development		827		827		-		841		887		9		30
Consumer closed end first mortgage		1,396		1,396		-		1,262		1,194		-		-
Consumer open end and junior liens		-		-		-		-		241		-		-
Commercial and industrial		194		194		-		197		204		-		-
Loans with a specific valuation allowance
Real estate
Commercial		284		284		123		359		491		-		1
Total
Real estate
Commercial	$	1,427	$	1,427	$	123	$	2,377	$	3,087	$	19	$	68
Commercial construction and development	$	827	$	827	$	-	$	841	$	887	$	9	$	30
Consumer closed end first mortgage	$	1,396	$	1,396	$	-	$	1,262	$	1,194	$	-	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	-	$	241	$	-	$	-
Commercial and industrial	$	194	$	194	$	-	$	197	$	204	$	-	$	-
Total	$	3,844	$	3,844	$	123	$	4,677	$	5,613	$	28	$	98

21

	December 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	3,608	$	3,608	$	-	$	4,115	$	172
Commercial construction and development		595		595		-		735		31
Consumer closed end first mortgage		1,126		1,126		-		1,131		-
Consumer open end and junior liens		481		481		-		381		-
Commercial and industrial		214		214		-		423		2
Loans with a specific valuation allowance
Real estate
Commercial		676		676		100		793		20
Total
Real estate
Commercial	$	4,284	$	4,284	$	100	$	4,908	$	192
Commercial construction and development	$	595	$	595	$	-	$	735	$	31
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,131	$	-
Consumer open end and junior liens	$	481	$	481	$	-	$	381	$	-
Commercial and industrial	$	214	$	214	$	-	$	423	$	2
Total	$	6,700	$	6,700	$	100	$	7,578	$	225

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	September 30, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - QTR		Average Investment in Impaired Loans - YTD		Interest Income Recognized - QTR		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Real estate
Commercial	$	4,105	$	4,105	$	-	$	4,228	$	4,241	$	40	$	135
Commercial construction and development		649		1,155		-		648		770		8		23
Consumer closed end first mortgage		1,126		1,126		-		1,127		1,133		-		-
Consumer open end and junior liens		476		476		-		476		357		-		-
Commercial and industrial		219		219		-		221		475		-		2
Loans with a specific valuation allowance
Real estate
Commercial		820		820		100		820		822		-		20
Total
Real estate
Commercial	$	4,925	$	4,925	$	100	$	5,048	$	5,063	$	40	$	155
Commercial construction and development	$	649	$	1,155	$	-	$	648	$	770	$	8	$	23
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,127	$	1,133	$	-	$	-
Consumer open end and junior liens	$	476	$	476	$	-	$	476	$	357	$	-	$	-
Commercial and industrial	$	219	$	219	$	-	$	221	$	475	$	-	$	2
Total	$	7,395	$	7,901	$	100	$	7,520	$	7,798	$	48	$	180

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The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2016.

Commercial Loan Grades

Definition of Loan Grades. Loan grades are numbered 1 through 8. Grades 1-4 are "pass" credits, grade 5 [Special Mention] loans are "criticized" assets, and grades 6 [Substandard], 7 [Doubtful] and 8 [Loss] are "classified" assets. The use and application of these grades by the Bank conform to the Bank's policy and regulatory definitions.

Pass. Pass credits are loans in grades prime through fair. These are at least considered to be credits with acceptable risks and would be granted in the normal course of lending operations.

Special Mention. Special mention credits have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credits or in the Bank’s credit position at some future date. If weaknesses cannot be identified, classifying as special mention is not appropriate. Special mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant an adverse classification. No apparent loss of principal or interest is expected.

Substandard. Substandard credits are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged. Financial statements normally reveal some or all of the following:  poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Credits so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. A doubtful extension of credit has all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. Doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded Substandard.

Retail Loan Grades

Pass. Pass credits are loans that are currently performing as agreed and are not troubled debt restructurings.

Special Mention. Special mention credits have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credits or in the Bank’s credit position at some future date. If weaknesses cannot be identified, classifying as special mention is not appropriate. Special mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant an adverse classification. No apparent loss of principal or interest is expected.

Substandard. Substandard credits are loans that have reason to be considered to have a weakness and placed on non-accrual. This would include all retail loans over 90 days and troubled debt restructurings.

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	September 30, 2016
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial	$	263,502	$	4,416	$	3,850	$	29							$	271,797
Commercial construction and development		19,696		298		421		-								20,415
Consumer closed end first mortgage									$	471,773	$	-	$	5,613		477,386
Consumer open end and junior liens										70,065		-		346		70,411
Other loans
Consumer loans
Auto										18,553		-		7		18,560
Boat/RVs										141,847		-		198		142,045
Other										5,887		-		56		5,943
Commercial and industrial		130,751		2,477		162		-								133,390
	$	413,949	$	7,191	$	4,433	$	29	$	708,125	$	-	$	6,220	$	1,139,947

	December 31, 2015
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial	$	226,439	$	4,137	$	6,319	$	-							$	236,895
Commercial construction and development		13,986		1,309		449		-								15,744
Consumer closed end first mortgage									$	484,658	$	-	$	6,793		491,451
Consumer open end and junior liens										70,086		-		904		70,990
Other loans
Consumer loans
Auto										15,480		-		-		15,480
Boat/RVs										123,490		-		131		123,621
Other										6,097		-		74		6,171
Commercial and industrial		119,540		3,300		203		-								123,043
	$	359,965	$	8,746	$	6,971	$	-	$	699,811	$	-	$	7,902	$	1,083,395

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Allowance for Loan Losses.

We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated losses inherent in the loan portfolio.  Our methodology for assessing the appropriateness of the allowance consists of several key elements, including the general allowance and specific allowances for identified problem loans and portfolio segments.  In addition, the allowance incorporates the results of measuring impaired loans as provided in FASB ASC 310, Receivables.  These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans. The general allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of such loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the general allowance. Loss factors are based on our historical loss experience as well as on significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date.

The appropriateness of the allowance is reviewed by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in non-performing loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan.  Senior management reviews these conditions quarterly in discussions with our senior credit officers.  To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment.  Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the loss related to this condition is reflected in the general allowance for loan losses.  The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio.  Actual losses can vary significantly from the estimated amounts.  Our methodology as described permits adjustments to any loss factor used in the computation of the general allowance in the event that, in management’s judgment, significant factors which affect the collectability of the portfolio as of the evaluation date are not reflected in the loss factors.  By assessing the probable incurred losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available. 

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine month periods ended September 30, 2016 and 2015, respectively. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

	Three Months Ended September 30, 2016
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	7,132		$	2,589		$	2,883		$	12,604
Provision charged (credited) to expense		97			(47	)		200			250
Losses charged off		(55	)		(125	)		(225	)		(405	)
Recoveries		75			4			59			138
Balance, end of period	$	7,249		$	2,421		$	2,917		$	12,587

	Nine Months Ended September 30, 2016
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	7,090		$	2,683		$	2,868		$	12,641
Provision charged to expense		168			38			394			600
Losses charged off		(88	)		(309	)		(563	)		(960	)
Recoveries		79			9			218			306
Balance, end of period	$	7,249		$	2,421		$	2,917		$	12,587

26

	Three Months Ended September 30, 2015
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	6,825		$	3,318		$	2,763		$	12,906
Provision charged (credited) to expense		(248	)		83			165			-
Losses charged off		(4	)		(154	)		(140	)		(298	)
Recoveries		76			33			40			149
Balance, end of period	$	6,649		$	3,280		$	2,828		$	12,757

	Nine Months Ended September 30, 2015
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	7,085		$	3,471		$	2,612		$	13,168
Provision charged (credited) to expense		(846	)		321			525			-
Losses charged off		(4	)		(545	)		(461	)		(1,010	)
Recoveries		414			33			152			599
Balance, end of period	$	6,649		$	3,280		$	2,828		$	12,757

The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of September 30, 2016 and 2015, and December 31, 2015.

	September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	123	$	-	$	-	$	123
Collectively evaluated for impairment		7,126		2,421		2,917		12,464
Total allowance for loan losses	$	7,249	$	2,421	$	2,917	$	12,587
Loan balances
Individually evaluated for impairment	$	2,448	$	1,396	$	-	$	3,844
Collectively evaluated for impairment		423,154		475,990		236,959		1,136,103
Gross loans	$	425,602	$	477,386	$	236,959	$	1,139,947

	September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		6,549		3,280		2,828		12,657
Total allowance for loan losses	$	6,649	$	3,280	$	2,828	$	12,757
Loan balances
Individually evaluated for impairment	$	5,793	$	1,126	$	476	$	7,395
Collectively evaluated for impairment		341,122		498,697		214,242		1,054,061
Gross loans	$	346,915	$	499,823	$	214,718	$	1,061,456

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	December 31, 2015
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		6,990		2,683		2,868		12,541
Total allowance for loan losses	$	7,090	$	2,683	$	2,868	$	12,641
Loan balances
Individually evaluated for impairment	$	5,093	$	1,126	$	481	$	6,700
Collectively evaluated for impairment		370,589		490,325		215,781		1,076,695
Gross loans	$	375,682	$	491,451	$	216,262	$	1,083,395

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral.

For all loan portfolio segments except consumer real estate and other consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off consumer real estate and other consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge-down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged-off.

Troubled Debt Restructurings

Certain categories of impaired loans include loans that have been modified in a troubled debt restructuring; that involves granting economic concessions to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Modifications of terms for our loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances.

When we modify loans in a troubled debt restructuring, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or we use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through a specific reserve or a charge-off to the allowance.

Loans retain their accrual status at the time of their modification. As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual until a period of satisfactory performance, generally nine months, is obtained. If a loan is on accrual at the time of the modification, the loan is evaluated to determine if the collection of principal and interest is reasonably assured and generally stays on accrual.

At September 30, 2016, the Company had a number of loans that were modified in troubled debt restructurings. The modification of terms of such loans included one or a combination of the following: an extension of maturity or a reduction of the stated interest rate.

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The following tables describe troubled debts restructured during the three and nine month periods ended September 30, 2016 and 2015:

	Three Months Ended
	September 30, 2016						September 30, 2015
	No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Real estate
Commercial		1	$	406	$	406		-	$	-	$	-
Consumer closed end first mortgage		1		11		12		1		11		11
Consumer open end and junior liens		1		39		39		3		51		51

	Nine Months Ended
	September 30, 2016						September 30, 2015
	No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Real estate
Commercial		1	$	406	$	406		3	$	1,992	$	1,990
Construction and development		-		-		-		1		155		134
Consumer closed end first mortgage		10		565		581		6		254		251
Consumer open end and junior liens		1		39		39		3		51		51
Other loans
Consumer loans
Auto		1		4		4		-		-		-
Boat/RVs		3		56		56		-		-		-
Commercial and industrial		1		83		83		1		88		83

The impact on the allowance for loan losses was insignificant as a result of these modifications.

Newly restructured loans by type for the three and nine months ended September 30, 2016 and 2015 are as follows:

	Three Months Ended September 30, 2016
	Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Consumer closed end first mortgage		-		-		12		12
Consumer open end and junior liens		-		-		39		39

	Three Months Ended September 30, 2015
	Rate		Term		Combination		Total Modification
Real Estate
Consumer closed end first mortgage	$	-	$	11	$	-	$	11
Consumer open end and junior liens		-		51		-		51

29

	Nine Months Ended September 30, 2016
	Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Construction and development		-		-		-		-
Consumer closed end first mortgage		-		47		534		581
Consumer open end and junior liens		-		-		39		39
Other loans
Consumer loans
Auto		-		-		4		4
Boat/RVs		-		48		8		56
Commercial and industrial		-		83		-		83

	Nine Months Ended September 30, 2015
	Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	1,990	$	-	$	1,990
Construction and development		-		-		134		134
Consumer closed end first mortgage		-		11		240		251
Consumer open end and junior liens		-		51		-		51
Commercial and industrial		-		83		-		83

The following tables describe troubled debts restructured that defaulted during the three and nine month periods ended September 30, 2016. There were no defaults on loans modified as troubled debt restructurings made in the three and nine months ended September 30, 2015. Defaults are defined as any loans that become 90 days past due.

	Three Months Ended September 30, 2016
	No. of Loans		Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage		4	$	133

	Nine Months Ended September 30, 2016
	No. of Loans		Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage		4	$	133

At September 30, 2016, the Company had residential real estate held for sale as a result of foreclosure totaling $547,000 and real estate in the process of foreclosure of $1.4 million.

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

The following should be read in conjunction with the Management’s Discussion and Analysis in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 15, 2016.

MutualFirst is a Maryland corporation and a bank holding company headquartered in Muncie, Indiana, with operations in Allen, Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties in Indiana. It owns MutualBank, an Indiana commercial bank with 31 bank branches in Indiana, trust offices in Fishers and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. MutualBank’s wholly owned subsidiary, Summit Service Corp, owns Summit Mortgage, a mortgage banking company located in Ft. Wayne, Indiana. The Company is subject to examination, supervision and regulation by the FRB, and the Bank is subject to regulation, supervision and examination by the Indiana Department of Financial Institutions (IDFI) and the Federal Deposit Insurance Corporation (FDIC).

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Our principal business consists of attracting retail and commercial deposits from the general public and businesses, including some brokered deposits, and investing those funds primarily in loans secured by consumer closed end first mortgages and consumer open end and junior liens on owner-occupied, one- to four-family residences, a variety of other consumer loans, loans secured by commercial real estate, commercial construction and development and commercial and industrial loans. Funds not invested in loans generally are invested in investment securities, including mortgage-backed, mortgage-related, and municipal. We also obtain funds from FHLB advances and other borrowings.

Our results of operations depend primarily on the level of our net interest income, which is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, primarily deposits and borrowings. The structure of our interest-earning assets versus the structure of interest-bearing liabilities, along with the shape of the yield curve, has a direct impact on our net interest income. Historically, our interest-earning assets have been longer term in nature (i.e., fixed-rate mortgage loans) and interest-bearing liabilities have been shorter term (i.e., certificates of deposit, regular savings accounts, etc.). This structure would impact net interest income favorably in a decreasing rate environment, assuming a normally shaped yield curve, as the rates on interest-bearing liabilities would decrease more rapidly than rates on interest-earning assets. Conversely, in an increasing rate environment, assuming a normally shaped yield curve, net interest income would be impacted unfavorably as rates on interest-earning assets would increase at a slower rate than rates on interest-bearing liabilities.

Third Quarter Highlights. At September 30, 2016, we had $1.5 billion in assets, $1.1 billion in net loans, $1.1 billion in deposits and $143.2 million in stockholders’ equity. The Company’s total risk-based capital ratio at September 30, 2016 was 13.3%, exceeding the 10.0% requirement for a well-capitalized institution. Tangible common equity, as a percentage of tangible assets, increased to 9.2% as of September 30, 2016 compared to 9.1% at both December 31, 2015 and September 30, 2015. For the quarter ended September 30, 2016, net income was $3.5 million, or $0.47 diluted earnings per common share, compared with net income of $3.2 million, or $0.43 diluted earnings per common share for the quarter ended September 30, 2015.

Financial highlights for the three and the nine months ended September 30, 2016 included:

· Commercial loan balances increased $25.0 million, or 25.0% on an annualized basis in the third quarter of 2016, which is the sixth consecutive quarter of double digit growth on an annualized basis.

· Non-real estate consumer loan balances increased $9.1 million, or 23.2% on an annualized basis, in the third quarter of 2016.

· Mortgage loans sold in the third quarter of 2016 of $49.2 million generated net gains of $1.5 million compared to mortgage loans sold in the third quarter of 2015 of $49.6 million, which generated net gains of $1.2 million.

· Deposits increased $29.3 million, or 10.7% on an annualized basis in the third quarter of 2016.

· Tangible common equity to total assets was 9.20% and tangible book value per common share was $19.24 as of September 30, 2016 compared to tangible common equity to total assets of 9.11% and tangible book value per common share of $18.11 as of December 31, 2015.

· Net interest income for the third quarter of 2016 increased by $250,000 on a linked quarter basis and increased by $421,000 compared to the third quarter of 2015.

· Provision for loan losses increased $100,000 in the third quarter of 2016 compared to the linked quarter and increased $250,000 compared to the third quarter of 2015.

· Net interest margin was 3.19% for the third quarter of 2016 compared to 3.16% in the second quarter of 2016 and 3.22% in the third quarter of 2015. Tax equivalent net interest margin was 3.29% for the third quarter of 2016 compared to 3.25% in the second quarter of 2016 and 3.31% in the third quarter of 2015.

· Non-interest income in the third quarter of 2016 decreased by $827,000 on a linked quarter basis and increased by $673,000 when compared to the third quarter of 2015.

· Non-interest expense increased in the third quarter of 2016 by $123,000 on a linked quarter basis and increased by $709,000 when compared to the third quarter of 2015.

· The efficiency ratio improved to 69.7% in the third quarter 2016 compared to 70.0% in the third quarter of 2015.

The Management’s Discussion and Analysis in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, contains a summary of our management’s strategic plan for 2015-2019. The financial highlights of our strategic progress during the quarter include:

· Growing commercial and non-real estate consumer lending by $34.1 million, or 6.1%, in the third quarter and $71.2 million, or 13.7%, in the first nine months of 2016.

· Commission income from wealth and investment services increased $95,000, or 8.2%, during the third quarter 2016 compared to the same period in 2015 and increased $335,000, or 9.8%, during the first nine months of 2016 compared to the same period in 2015.

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2015 contains a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses, the valuation of foreclosed assets, mortgage servicing rights, valuation of intangible assets and securities, deferred tax asset and income tax accounting.

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The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. A worsening or protracted economic decline would increase the likelihood of additional losses due to credit and market risk and could create the need for additional loss reserves.

Allowance for Loan Losses. The allowance for loan losses is a significant estimate that can and does change based on management’s assumptions about specific borrowers and current general economic and business conditions, among other factors. Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis. The evaluation by management includes consideration of past loss experience, changes in the composition of the loan portfolio, the current condition and amount of loans outstanding, identified problem loans and the probability of collecting all amounts due.

Foreclosed Assets. Foreclosed assets are carried at the lower of cost or fair value less estimated selling costs. Management estimates the fair value of the properties based on current appraisal information. Fair value estimates are particularly susceptible to significant changes in the economic environment, market conditions, and real estate market. A worsening or protracted economic decline would increase the likelihood of a decline in property values and could create the need to write down the properties through current operations.

Mortgage Servicing Rights. Mortgage servicing rights (“MSRs”) associated with loans originated and sold, where servicing is retained, are capitalized and included in other assets in the consolidated balance sheet. The value of the capitalized servicing rights represents the fair value of the right to service loans in the portfolio. Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance. Events that may significantly affect the estimates used are changes in interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans. The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value. For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates. Impairment, if any, is recognized through a valuation allowance and is recorded as a reduction in loan servicing fee income.

Goodwill and Intangible Assets. MutualFirst periodically assesses the impairment of its goodwill and the recoverability of its core deposit intangible. Impairment is the condition that exists when the carrying amount exceeds its implied fair value. If actual external conditions and future operating results differ from MutualFirst’s judgments, impairment and/or increased amortization charges may be necessary to reduce the carrying value of these assets to the appropriate value.

Securities. Under FASB Codification Topic 320 (ASC 320), Investments-Debt and Equity Securities, investment securities must be classified as held-to-maturity, available-for-sale or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. Securities not classified as held-to-maturity are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and do not affect earnings until realized.

The fair values of the Company’s securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs. Certain of the Company’s fair values of securities are determined using models whose significant value drivers or assumptions are unobservable and are significant to the fair value of the securities. These models are utilized when quoted prices are not available for certain securities or in markets where trading activity has slowed or ceased. When quoted prices are not available and are not provided by third party pricing services, management judgment is necessary to determine fair value. As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities.

The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an other-than-temporary impairment (“OTTI”) exists pursuant to guidelines established in ASC 320. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

If management determines that an investment experienced an OTTI, management must then determine the amount of the OTTI to be recognized in earnings. If management does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the OTTI related to other factors will be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment. If management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Any subsequent recoveries related to the value of these securities are recorded as an unrealized gain (as other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.

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The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Deferred Tax Asset. The Company has evaluated its deferred tax asset to determine if it is more likely than not that the asset will be utilized in the future. The Company’s most recent evaluation has determined that, except for the amounts represented by the valuation allowance in Note 14 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2015, the Company will more likely than not be able to utilize the remaining deferred tax asset. As of year-end 2015, the Company had generated average annual positive pre-tax pre-provision earnings of $16.1 million, or 1.1% of pre-tax pre-provision ROA over the previous five years. This level of earnings, if maintained in the future, would be sufficient to utilize portions of the operating losses, tax credit carryforwards and temporary tax differences over the allowable periods. The analysis as of September 30, 2016, supports no additional valuation reserve is needed.

The valuation allowances established are the result of net operating losses for state franchise tax purposes totaling $29.8 million and capital losses realized on the sale of investment securities as well as the recognition of other than temporary impairment on investment securities where the loss, while recognized for financial statement purposes, has not yet been realized.

At the end of 2015, the Company had $139,000 in capital losses, a decrease of $5,000 in capital losses from 2014, as capital gains from the sale of available for sale securities were generated. See Note 14 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2015.

Income Tax Accounting. We file a consolidated federal income tax return. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.

Forward-Looking Statements

This Form 10-Q contains and our future filings with the SEC, Company press releases, other public pronouncements, stockholder communications and oral statements made by or with the approval of an authorized executive officer, will contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements include, but are not limited to: (i) statements of our goals, intentions and expectations; (ii) statements regarding our business plans, prospects, growth and operating strategies; (iii) statements regarding the asset quality of our loan and investment portfolios; and (iv) estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (i) the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; (ii) changes in general economic conditions, either nationally or in our market areas; (iii) changes in the levels of general interest rates and the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin and funding sources; (v) fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; (vi) decreases in the secondary market for the sale of loans that we originate; (vii) results of examinations of us by the IDFI, FDIC, Federal Reserve Board (FRB) or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; (viii) legislative or regulatory changes that adversely affect our business including the effect of Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act”), changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including changes that increase our capital requirements; (ix) our ability to attract and retain deposits; (x) increases in premiums for deposit insurance; (xi) management’s assumptions in determining the adequacy of the allowance for loan losses; (xii) our ability to control operating costs and expenses; (xiii) the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; (xiv) difficulties in reducing risks associated with the loans on our balance sheet; (xv) staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; (xvi) a failure or security breach in the computer systems on which we depend; (xvii) our ability to retain key members of our senior management team; (xviii) costs and effects of litigation, including settlements and judgments; (xix) our ability to successfully integrate into our operations any assets, liabilities, customers, systems, and management personnel we may in the future acquire and our ability to realize related revenue synergies and cost savings within expected time frames or at all and any goodwill charges related thereto; (xx) increased competitive pressures among financial services companies; (xxi) changes in consumer spending, borrowing and savings habits; (xxii) the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; (xxiii) adverse changes in the securities markets; (xxiv) inability of key third-party providers to perform their obligations to us; (xv) changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; and (xvi) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in this report.

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The Company wishes to advise readers that these factors could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. 

Financial Condition

General. Total assets at September 30, 2016 were $1.5 billion, reflecting a $55.6 million increase since December 31, 2015, primarily as a result of a $54.1 million increase in net loans. Average interest-earning assets increased $55.4 million, or 4.1%, to $1.4 billion for the nine months ended September 30, 2016 compared to the year ended December 31, 2015, reflecting an increase in the average loan portfolio of $58.2 million. Average interest-bearing liabilities increased by $31.1 million, or 2.7% to $1.2 billion at September 30, 2016 reflecting an increase in average transaction accounts by $23.5 million and borrowings of $29.7 million, partially offset by a decrease in average certificates of deposit of $22.0 million. Average stockholders’ equity increased by $8.8 million, or 6.6%, during the nine months ended September 30, 2016 compared the year-ended December 31, 2015.

Loans. Our gross loan portfolio, excluding loans held for sale, increased $56.6 million at September 30, 2016 to $1.1 billion. The following table reflects the changes in the gross amount of loans, excluding loans held for sale, by type during the nine month period:

	September 30,		December 31,		Amount			Percent
	2016		2015		Change			Change
Real estate
Commercial	$	271,797	$	236,895	$	34,902			14.73	%
Commercial construction and development		20,415		15,744		4,671			29.67
Consumer closed end first mortgage		477,386		491,451		(14,065	)		(2.86	)
Consumer open end and junior liens		70,411		70,990		(579	)		(0.82	)
Total real estate loans		840,009		815,080		24,929			3.06
Consumer loans
Auto		18,560		15,480		3,080			19.90
Boat/RV		142,045		123,621		18,424			14.90
Other		5,943		6,171		(228	)		(3.69	)
Total consumer other		166,548		145,272		21,276			14.65
Commercial and industrial		133,390		123,043		10,347			8.41
Total other loans		299,938		268,315		31,623			11.79
Total Gross Loans	$	1,139,947	$	1,083,395	$	56,552			5.22	%

The Company’s strategy to increase commercial and consumer loans remains a primary focus as we continued to see growth in these areas during the first nine months of 2016 as commercial and non-real estate consumer loans grew by $71.2 million. We continue to seek to provide sound commercial borrowers opportunities for new loans to meet their growing demands, refinance loans currently served by other financial institutions and build relationships with commercial clients in our footprint. The increase in the commercial and other consumer portfolios was partially offset by a $14.6 million decrease in the consumer real estate portfolios during the period. The Company continues to sell longer term fixed-rate mortgage loans to reduce related interest rate risk.

Delinquencies and Non-performing Assets. As of September 30, 2016, our total loans delinquent 30-to-89 days were $13.6 million or 1.2% of total loans, up slightly from $12.0 million or 1.1% of total loans at the year-end of 2015. This was primarily due to an increase in consumer mortgage loans. The Company has already started to see a reduction of the delinquencies in these areas in the October 2016.

At September 30, 2016, our non-performing assets totaled $6.7 million or 0.4% of total assets, compared to $9.6 million or 0.7% of total assets at December 31, 2015. This $2.9 million, or 30.3% decrease was primarily due to a reduction in non-performing commercial real estate loans and foreclosed assets. These decreases are mostly due to sales of foreclosed real estate, and payoffs of previous non-performing loans. The table below sets forth the amounts and categories of non-performing assets at the dates indicated.

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	September 30,		December 31,		Amount			Percent
	2016		2015		Change			Change
Non-accruing loans	$	5,356	$	6,904	$	(1,548	)		(22.42	)%
Accruing loans delinquent 90 days		478		267		211			79.03
Foreclosed assets		876		2,455		(1,579	)		(64.32	)
Total	$	6,710	$	9,626	$	(2,916	)		(30.29	)%

The Company continues to diligently monitor and write down loans that appear to have irreversible weakness. The Company works to ensure possible problem loans have been identified and steps have been taken to reduce loss by restructuring loans to improve cash flow or by increasing collateral. In addition to the decrease in non-performing assets, the Company has seen improvement during the first nine months of 2016 in total classified assets. Total classified assets decreased by 33.1% from $17.5 million at December 31, 2015 to $11.7 million at September 30, 2016 due to improvements in the economy in the local communities we serve and the sales of foreclosed assets.

At September 30, 2016, foreclosed real estate totaled $547,000. The Company has seen a decrease in this area as overall real estate owned sales volumes are up and the number of foreclosures is down. At September 30, 2016, all foreclosed real estate owned was in consumer real estate. As of September 30, 2016, the Company also held $329,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

Allowance for Loan Losses. Allowance for loan losses was constant at $12.6 million as of September 30, 2016 compared to December 31, 2015. Net charge-offs in the first nine months of 2016 were $654,000, or 0.08% of total loans on an annualized basis, compared to $411,000, or 0.05% of total loans on an annualized basis in the first nine months of 2015. The allowance for loan losses to non-performing loans as of September 30, 2016 was 215.8% compared to 176.3% as of December 31, 2015. The allowance for loan losses to total loans as of September 30, 2016 was 1.11% compared to 1.17% as of December 31, 2015. Non-performing loans to total loans at September 30, 2016 were 0.51% compared to 0.66% at December 31, 2015. Non-performing assets to total assets were 0.44% at September 30, 2016 compared to 0.65% at December 31, 2015.

Deposits. Deposits increased by $34.4 million in the first nine months of 2016. The increase in deposits was a result of an increase in core deposits of $26.4 million and $8.0 million in certificates of deposit. Core deposits increased to 69% of the Bank’s total deposits as of September 30, 2016 compared to 68% as of December 31, 2015.

	At
	September 30, 2016					December 31, 2015
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Type of Account:
Non-interest Checking	$	174,061		0.00	%	$	179,542		0.00	%
Interest-bearing NOW		284,482		0.23			267,089		0.23
Savings		136,012		0.01			131,578		0.01
Money Market		172,521		0.21			162,551		0.20
Certificates of Deposit		358,684		1.13			350,622		1.14
Total	$	1,125,760		0.45	%	$	1,091,382		0.45	%

Borrowings. Total borrowings increased to $248.0 million at September 30, 2016, up $12.9 million, or 5.5%, since year-end 2015 primarily due to $13.5 million increase in FHLB advances. This increase was primarily to fund a portion of the $56.6 million growth in loans during the period. Other borrowings, consisting of a bank loan and a subordinated debenture, decreased $537,000 to $8.9 million at September 30, 2016 due to regular loan payments.

The Company borrowed $7.6 million from First Tennessee Bank, N.A. to refinance existing long-term debt. The loan was originated at a variable rate of LIBOR plus 2.80%; however the Company entered into an interest rate swap that fixed the rate of the note at 3.915% for its term. The balance of the loan at September 30, 2016 was $4.7 million and it matures in December 2017.

The Company acquired $5.0 million of issuer trust preferred securities in the 2008 acquisition of MFB Corp., which had a net balance of $4.2 million at September 30, 2016 due to the purchase accounting adjustment in the acquisition. These securities mature 30 years from the date of issuance, or September 15, 2035. The securities bear a rate of interest of the prevailing three-month LIBOR rate plus 170 basis points. The Company has the right to redeem the trust preferred securities, in whole or in part, without penalty.

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Stockholders’ Equity. Stockholders’ equity was $143.2 million at September 30, 2016, an increase of $6.2 million from December 31, 2015. The increase was primarily due to net income available to common shareholders of $10.0 million, an increase in accumulated other comprehensive income of $2.5 million and an increase of $976,000 due to exercises of stock options. These increases were partially offset by stock repurchases of $4.4 million, or 175,428 shares repurchased and cash dividends on common stock of $3.1 million for the first nine months of 2016. The Company’s tangible book value per common share as of September 30, 2016 increased to $19.24 compared to $18.11 as of December 31, 2015 and the tangible common equity ratio increased to 9.20% as of September 30, 2016 compared to 9.11% as of December 31, 2015. MFSF’s and the Bank’s risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of September 30, 2016.

Comparison of Results of Operations for the Three Months Ended September 30, 2016 and 2015.

General. Net income for the three months ended September 30, 2016 was $3.5 million, or $0.47 diluted earnings per common share compared to net income of $3.2 million, or $0.43 diluted earnings per common share for the three months ended September 30, 2015. Annualized return on average assets was 0.92% and annualized return on average tangible common equity was 9.96% for the third quarter of 2016 compared to 0.89% and 9.92% respectively, for the same period of last year.

Net Interest Margin and Average Balance Sheet. The following table presents the Company’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets for the periods indicated. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

	Three Months Ended
	September 30, 2016								September 30, 2015
	Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate
Interest-Earning Assets:
Interest -bearing deposits	$	21,601		$	18		0.33	%	$	16,112		$	2		0.05	%
Investment securities, available for sale (1):
MBS/CMO		167,784			950		2.26			193,271			1,253		2.59
Other		79,392			622		3.13			68,262			486		2.85
Loans receivable		1,128,407			11,866		4.21			1,057,538			11,190		4.23
Stock in FHLB of Indianapolis		10,644			111		4.17			9,810			118		4.81
Total interest-earning assets (1)		1,407,828			13,567		3.85			1,344,993			13,049		3.88
Non-interest earning assets, net of allowance for loan losses and unrealized gain/loss		112,120								108,173
Total assets	$	1,519,947							$	1,453,166
Interest-Bearing Liabilities:
Demand and NOW accounts	$	276,636			163		0.24		$	254,024			146		0.23
Savings deposits		135,867			4		0.01			130,913			3		0.01
Money market accounts		172,041			116		0.27			167,461			104		0.25
Certificate accounts		360,463			1,049		1.16			364,804			1,024		1.12
Total deposits		945,007			1,332		0.56			917,202			1,277		0.56
Borrowings		232,687			998		1.72			215,142			956		1.78
Total interest-bearing liabilities		1,177,694			2,330		0.79			1,132,344			2,233		0.79
Non-interest bearing deposit accounts		183,428								172,985
Other liabilities		16,668								15,183
Total liabilities		1,377,790								1,320,512
Stockholders' equity		142,157								132,654
Total liabilities and stockholders' equity	$	1,519,947							$	1,453,166
Net earning assets	$	230,134							$	212,649
Net interest income				$	11,237							$	10,816
Net interest rate spread (3)							3.06	%							3.09	%
Net interest margin (3)							3.19	%							3.22	%
Net interest margin, tax equivalent (2) (3)							3.29	%							3.31	%
Average interest-earning assets to average interest-bearing liabilities		119.54	%							118.78	%

⁽¹⁾ Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments.

⁽²⁾ Tax equivalent margin is calculated by taking non-taxable interest and grossing up by 34% applicable tax rate.

⁽³⁾ Ratios for the three month periods have been annualized.

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Interest Income. Total interest income increased $518,000, or 4.0%, to $13.6 million during the three months ended September 30, 2016 from $13.0 million during the same period in 2015. The increase was a result of an increase of $62.8 million in average earning assets due to an increase in the average loan portfolio of $70.9 million partially offset by a decrease of three basis points in the average interest rate for the quarter ended September 30, 2016 compared to the same period in 2015.

Interest Expense. Interest expense increased $97,000, or 4.3%, to $2.3 million during the three months ended September 30, 2016. The primary reason for this increase was an increase of $45.3 million in interest-bearing liabilities. This was due to an increase in average interest-bearing deposits of $27.8 million and borrowings of $17.5 million. The average rate paid for interest-bearing liabilities was unchanged for the three months ended September 30, 2016 compared to the same period in 2015.

Net Interest Income and Net Interest Margin. Net interest income before the provision for loan losses increased $421,000 for the quarter ended September 30, 2016 compared to the same period in 2015. The increase in net interest income was primarily a result of an increase of $62.8 million in average interest earning assets, due to an increase of $70.9 million in average loans. This increase was partially offset by a 3 basis point decrease in net interest margin to 3.19%, while the tax equivalent margin decreased 2 basis points. The decrease in the margin was the result of average interest earning assets, primarily loans, repricing downward faster than average interest bearing liabilities. On a linked quarter basis, net interest income before the provision for loan losses increased $250,000 as net interest margin increased by 3 basis points and average interest earning assets increased by $15.6 million primarily due to increases in the average loan portfolio. For more information on our asset/liability management especially as it relates to interest rate risk, see “Item 7A - Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K for the year ended December 31, 2015.

Provision for Loan Losses. Provision for loan losses in the third quarter of 2016 was $250,000 compared to no provision during last year’s comparable period. The increase was due to management’s ongoing evaluation of the adequacy of the allowance for loan losses, which was partially attributable to an increasing loan portfolio and a low, but consistent level in net charge offs of $267,000, or 0.09% of loans on an annualized basis, in the third quarter of 2016 compared to net charge offs of $149,000, or 0.06% of loans on an annualized basis, in the third quarter of 2015.

Non-Interest Income. Non-interest income for the third quarter of 2016 was $5.1 million, an increase of $673,000 compared to the third quarter of 2015.

	Three Months Ended September 30,					Amount			Percent
	2016		2015			Change			Change
Service fee income	$	1,515	$	1,496		$	19			1.27	%
Net realized gain on sale of securities		92		57			35			61.40
Commissions		1,259		1,164			95			8.16
Net gains on sales of loans		1,548		1,238			310			25.04
Net servicing fees		91		67			24			35.82
Increase in cash surrender value of life insurance		284		292			(8	)		(2.74	)
Gain (loss) on sale of other real estate and repossessed assets		72		(30	)		102			(340.00	)
Other income		205		109			96			88.07
Total	$	5,066	$	4,393		$	673			15.32	%

Increases in non-interest income included an increase of $310,000 on gain on sale of loans as mortgage production remained strong, an increase of $102,000 on gain on sale of repossessed property primarily due to the sale of a commercial construction and development property that was sold at an amount higher than its carrying value, and an increase of $95,000 in commission income due to increases in our trust and wealth management business. On a linked quarter basis, non-interest income decreased $827,000 due to a decrease of $560,000 in security gains and a decrease of $501,000 in other income primarily due to life insurance proceeds from a death benefit in the second quarter of 2016.

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Non-Interest Expense. Non-interest expenses increased $709,000, to $11.4 million, for the third quarter of 2016.

	Three Months Ended September 30,					Amount			Percent
	2016			2015		Change			Change
Salaries and employee benefits	$	6,941		$	6,341	$	600			9.46	%
Net occupancy expenses		592			553		39			7.05
Equipment expenses		448			479		(31	)		(6.47	)
Data processing fees		486			432		54			12.50
ATM and debit card expense		391			381		10			2.62
Deposit insurance		165			225		(60	)		(26.67	)
Professional fees		419			378		41			10.85
Advertising and promotion		350			296		54			18.24
Software subscriptions and publications		540			443		97			21.90
Other real estate and repossessed assets		(39	)		92		(131	)		(142.39	)
Other expenses		1,070			1,034		36			3.48
Total	$	11,363		$	10,654	$	709			6.65	%

The increase in non-interest expense was primarily due to an increase of $600,000 in salaries and benefits as health insurance increased along with normal merit increases in compensation and new additions to staff as we entered into the Fort Wayne market at the end of 2015. Other increases included an increase of $97,000 in software subscriptions and maintenance due to investments in software. These expenses were partially offset with a decrease in expenses on other real estate and repossessed assets due to expense recoveries for two foreclosed real estate properties in combination with a real estate tax accrual adjustment of $91,000. On a linked quarter basis, non-interest expense increased $123,000 partially due to an increase in salaries and benefits due to increased health insurance expenses and commission expense for mortgage originators.

Income Tax Expense. The effective tax rate for the third quarter of 2016 was 25.8% compared to 29.2% in the same quarter of 2015. The reason for the decline was due to an increase in tax free income from municipal securities in the investment portfolio and a new ongoing tax benefit from the pooled captive insurance company.

Comparison of Results of Operations for the Nine months Ended September 30, 2016 and 2015.

General. Net income available to common shareholders for the nine months ended September 30, 2016 was $10.0 million, or $1.32 diluted earnings per common share compared to net income available to common shareholders of $8.9 million, or $1.18 diluted earnings per common share for the nine months ended September 30, 2015. Annualized return on average assets was 0.89% and annualized return on average tangible common equity was 9.64% for the first nine months of 2016 compared to 0.83% and 9.30% respectively, for the same period of last year.

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Net Interest Margin and Average Balance Sheet. The following table presents the Company’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets for the periods indicated. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

	Nine Months Ended
	September 30, 2016								September 30, 2015
	Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate
Interest-Earning Assets:
Interest -bearing deposits	$	24,650		$	60		0.32	%	$	19,099		$	10		0.07	%
Investment securities, available for sale (1):
MBS/CMO		177,341			3,115		2.34			198,201			3,822		2.57
Other		73,946			1,756		3.17			61,185			1,279		2.79
Loans receivable		1,105,501			34,601		4.17			1,038,492			32,974		4.23
Stock in FHLB of Indianapolis		10,539			327		4.14			10,986			377		4.58
Total interest-earning assets (1)		1,391,977			39,859		3.82			1,327,963			38,462		3.86
Non-interest earning assets, net of allowance for loan losses and unrealized gain/loss		113,806								108,500
Total assets	$	1,505,783							$	1,436,463
Interest-Bearing Liabilities:
Demand and NOW accounts	$	271,901			481		0.24		$	255,280			436		0.23
Savings deposits		135,649			11		0.01			128,976			10		0.01
Money market accounts		168,424			333		0.26			158,402			295		0.25
Certificate accounts		353,080			3,075		1.16			380,570			3,242		1.14
Total deposits		929,053			3,900		0.56			923,228			3,983		0.58
Borrowings		234,733			2,973		1.69			199,631			2,606		1.74
Total interest-bearing liabilities		1,163,786			6,873		0.79			1,122,859			6,589		0.78
Non-interest bearing deposit accounts		185,448								167,739
Other liabilities		15,811								15,222
Total liabilities		1,365,045								1,305,820
Stockholders' equity		140,738								130,643
Total liabilities and stockholders' equity	$	1,505,783							$	1,436,463
Net earning assets	$	228,190							$	205,104
Net interest income				$	32,986							$	31,873
Net interest rate spread (3)							3.03	%							3.08	%
Net interest margin (3)							3.16	%							3.20	%
Net interest margin, tax equivalent (2) (3)							3.25	%							3.27	%
Average interest-earning assets to average interest-bearing liabilities		119.61	%							118.27	%

⁽¹⁾ Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments.

⁽²⁾ Tax equivalent margin is calculated by taking non-taxable interest and grossing up by 34% applicable tax rate.

⁽³⁾ Ratios for the six month periods have been annualized.

Interest Income. Total interest income increased $1.4 million, or 3.6%, to $39.9 million during the nine months ended September 30, 2016 from $38.5 million during the same period in 2015. The increase was a result of an increase of $64.0 million in average earning assets due to an increase in the average loan portfolio of $67.0 million partially offset by a decrease of four basis points in the average interest rate for the nine months ended September 30, 2016 compared to the same period in 2015.

Interest Expense. Interest expense increased $284,000, or 4.3%, to $6.9 million during the nine months ended September 30, 2016. The primary reason for this increase was an increase of $40.9 million in interest-bearing liabilities. This was primarily due to an increase in average borrowings of $35.1 million. The average rate paid for interest-bearing liabilities increased one basis point for the nine months ended September 30, 2016 compared to the same period in 2015.

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Net Interest Income and Net Interest Margin. Net interest income before the provision for loan losses increased $1.1 million for the first nine months of 2016 compared to the same period in 2015. The increase was a result of an increase of $64.0 million in average interest earning assets due to an increase in the average loan portfolio of $67.0 million. This increase was partially offset by the net interest margin decreasing to 3.16% in the first nine months of 2016 compared to 3.20% in the first nine months of 2015, while the tax equivalent net interest margin declined to 3.25% in the first nine months of 2016 compared to 3.27% in the comparable period in 2015. For more information on our asset/liability management especially as it relates to interest rate risk, see “Item 7A - Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K for the year ended December 31, 2015.

Provision for Loan Losses. The provision for loan losses for the first nine months of 2016 was $600,000 compared to no provision during last year’s comparable period. The increase was primarily due to our loan portfolio growing $77.1 million, or 7.3% over the last year. Net charge-offs for the first nine months of 2016 equaled $654,000, or 0.08% of loans on an annualized basis compared to $411,000, or 0.05% in the same period of 2015.

Non-Interest Income. Non-interest income increased by $2.2 million in the first nine months of 2016 compared to same period in 2015.

	Nine Months Ended September 30,						Amount			Percent
	2016			2015			Change			Change
Service fee income	$	4,417		$	4,318		$	99			2.29	%
Net realized gain on sale of securities		862			423			439			103.78
Commissions		3,762			3,427			335			9.78
Net gains on sales of loans		3,895			3,266			629			19.26
Net servicing fees		239			205			34			16.59
Increase in cash surrender value of life insurance		874			893			(19	)		(2.13	)
Loss on sale of other real estate and repossessed assets		(145	)		(81	)		(64	)		79.01
Other income		1,052			325			727			223.69
Total	$	14,956		$	12,776		$	2,180			17.06	%

The reasons for the increase in non-interest income included an increase of $629,000 on gain on sale of mortgage loans due to strong mortgage production and an increase of $335,000 in commission income due to growth in the trust and wealth management business. Other increases included an increase of $439,000 on gain on sale of securities and an increase of $727,000 in other income primarily related to one-time income received in the second quarter of 2016 due to an insurance death benefit.

Non-Interest Expense. Non-interest expenses increased $2.0 million, to $34.0 million, for the first nine months of 2016.

	Nine Months Ended September 30,				Amount			Percent
	2016		2015		Change			Change
Salaries and employee benefits	$	20,092	$	18,955	$	1,137			6.00	%
Net occupancy expenses		1,839		1,671		168			10.05
Equipment expenses		1,419		1,342		77			5.74
Data processing fees		1,467		1,304		163			12.50
ATM and debit card expense		1,127		1,064		63			5.92
Deposit insurance		624		669		(45	)		(6.73	)
Professional fees		1,269		1,291		(22	)		(1.70	)
Advertising and promotion		1,046		1,007		39			3.87
Software subscriptions and publications		1,569		1,303		266			20.41
Other real estate and repossessed assets		47		305		(258	)		(84.59	)
Other expenses		3,520		3,134		386			12.32
Total	$	34,019	$	32,045	$	1,974			6.16	%

Salaries and employee benefits increased $1.1 million as health insurance increased along with normal merit increases in compensation and new additions to staff as we entered into the Fort Wayne market at the end of 2015. Other expenses increased $386,000 due to increased charge-offs and fraud activity on debit cards and bad checks along with non-recurring expenses in the first quarter, occupancy and equipment expenses increased $245,000 due to a new office in Fort Wayne, Indiana and an update to an existing location, software subscriptions and maintenance increased $266,000 due to investments in software, and data processing expenses increased $163,000 primarily due to increased services being provided. These increases were partially offset by a decrease of $258,000 in foreclosed real estate and repossessed assets expense due to a recovery of fees for foreclosed real estate and a reduction in the total foreclosed assets due to market stabilization and increased sales.

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Income Tax Expense. The effective tax rate for the first nine months of 2016 was 24.9% compared to 29.2% for the same period in 2015. The decrease was related to an increase in tax free income from municipal securities in the investment portfolio and a new ongoing tax benefit from the pooled captive insurance company.

Liquidity

We are required to have enough cash and investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound operation. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

Liquidity management involves the matching of cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and the ability of the Company to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will cover adequately any reasonably anticipated, immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short-term notice if needed. Our liquidity, represented by cash and cash-equivalents and investment securities, is a product of our operating, investing and financing activities.

Liquidity management is both a daily and long-term function of the management of the Company and the Bank. It is overseen by the Asset and Liability Management Committee. The Board of Directors required the Bank to maintain a minimum liquidity ratio of 10% of deposits. At September 30, 2016, our ratio was 24.5%. The Company is currently in excess of the minimum liquidity ratio set by the Board due to a larger investment portfolio. Management continues to seek to utilize liquidity off of the investment portfolio to fund loan growth over the next few years as demand for loans increases. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities. The Bank uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan commitments.

We hold cash and investments that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operation and meet demands for funds (particularly withdrawals of deposits). At September 30, 2016, on a consolidated basis, the Company had $283.0 million in cash and investment securities available for sale and $8.3 million in loans held for sale generally available for its cash needs. We can also generate funds from borrowings, primarily FHLB advances, and, to a lesser degree, third party loans. At September 30, 2016, the Bank had the ability to borrow an additional $33.6 million in FHLB advances. In addition, we have historically sold 15- and 30-year, fixed-rate mortgage loans in the secondary market in order to reduce interest rate risk and to create another source of liquidity. The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to the Bank), the Company is responsible for paying amounts owed on its trust preferred securities, any dividends declared to its common stockholders, and interest and principal on outstanding debt. The Company’s primary source of funds is Bank dividends, the payment of which is subject to regulatory limits. At September 30, 2016, the Company, on an unconsolidated basis, had $1.6 million in cash, interest-bearing deposits and liquid investments generally available for its cash needs.

Our liquidity, represented by cash and cash equivalents and investment securities, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize FHLB advances to leverage our capital base and provide funds for our lending and investment activities, and to enhance our interest rate risk management.

We use our sources of funds primarily to meet ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At September 30, 2016, the approved outstanding loan commitments, including unused lines of credit, amounted to $254.7 million. Certificates of deposit scheduled to mature in one year or less as of September 30, 2016, totaled $154.9 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with the Bank.

Except as set forth above, management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on liquidity, capital resources or operations. Further, management is not aware of any current recommendations by regulatory agencies, which, if they were to be implemented, would have this effect.

Off-Balance Sheet Activities

In the normal course of operations, the Bank engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We also have off-balance sheet obligations to repay borrowings and deposits. For the quarter ended September 30, 2016, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows. At September 30, 2016, the Bank had $146.3 million in commitments to make loans, $10.7 million in undisbursed portions of closed loans, $95.1 million in unused lines of credit and $2.6 million in standby letters of credit. In addition, on a consolidated basis, at September 30, 2016, the Company had $248.0 million in outstanding non-deposit borrowings, of which $60.8 million is due in the next twelve months.

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Capital Resources

The Bank is subject to minimum capital requirements imposed by the FDIC. See ‘Item 1 - Business- How We Are Regulated - Regulatory Capital Requirements’ of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The FDIC may require the Bank to have additional capital above the specific regulatory levels if it believes the Bank is subject to increased risk due to asset problems, high interest rate risk and other risks. The Company is subject to minimum capital requirements imposed by the FRB, which are substantially similar to those imposed on the Bank, including guidelines for bank holding companies to be considered well-capitalized.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier I and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). As of September 30, 2016, the Company and Bank meet all capital adequacy requirements to which it is subject.

In July 2013, the three federal bank regulatory agencies jointly published final rules (the Basel III Capital Rules) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. These rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. These rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules were effective for the Company and Bank on January 1, 2015 (subject to a four-year phase-in period). January 1, 2016 started the second year of phase-in requirements.

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The Basel III Capital Rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (CET1), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and will phase in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and will continue to phase in over a four-year period (increasing by that amount on each subsequent January 1 until it reaches 2.5% on January 1, 2019). As of September 30, 2016, the Bank and Company exceeded the minimum buffer requirement.

The Company’s and Bank’s actual capital amounts and ratios as of September 30, 2016, are presented in the table below.

	Actual Capital Levels					Minimum Regulatory Capital Levels					Minimum Required To be Considered Well- Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Leverage Capital Level(1):
MutualFirst Consolidated	$	136,693		9.0	%	$	60,529		4.0	%		N/A		N/A
MutualBank		138,504		9.2			60,387		4.0		$	75,484		5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	134,406		11.9	%	$	50,674		4.5	%		N/A		N/A
MutualBank		138,504		12.3			50,611		4.5		$	73,104		6.5	%
Tier 1 Risk-Based Capital Level (3) :
MutualFirst Consolidated	$	136,693		12.1	%	$	67,565		6.0	%		N/A		N/A
MutualBank		138,504		12.3			67,481		6.0		$	89,974		8.0	%
Total Risk-Based Capital Level (4) :
MutualFirst Consolidated	$	149,280		13.3	%	$	90,086		8.0	%		N/A		N/A
MutualBank		151,091		13.4			89,974		8.0		$	112,468		10.0	%

⁽¹⁾Tier 1 Capital to Assets for Leverage Ratio of $1.5 billion for the Bank and Company at September 30, 2016.

⁽²⁾Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at September 30, 2016.

⁽³⁾Tier 1 Capital to Risk-Weighted Assets.

⁽⁴⁾Total Capital to Risk-Weighted Assets.

Impact of Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the economic value of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the consumer price index (“CPI”) coincides with changes in interest rates. For example, the price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of those goods and services normally purchased by us. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information about the Company’s asset and liability management and market and interest-rate risks is included in Item 7A of the Form 10-K for the year ended December 31, 2015, filed with the SEC on March 15, 2016.

Asset and Liability Management and Market Risk

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally is established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is one of our most significant market risks.

Management continues to evaluate options to mitigate interest rate risk in an increasing interest rate environment during this cycle of extremely low interest rates. This includes shortening assets and lengthening liabilities when possible.

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How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates, we monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and their sensitivity to actual or potential changes in market interest rates. In order to minimize the potential for adverse effects of material and prolonged changes in interest rates on our results of operations, the Bank’s board of directors establishes asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities.

These asset and liability policies are implemented by the Asset and Liability Management Committee, which is chaired by the Chief Financial Officer and is comprised of members of our senior management team. The purpose of the Asset and Liability Management Committee is to communicate, coordinate and control asset/liability management issues consistent with our business plan and board-approved policies. The committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objective of these actions is to manage assets and funding sources consistent with liquidity, capital adequacy, growth, risk and profitability goals. The Asset and Liability Management Committee generally meets monthly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to a net present value of portfolio equity analysis and income simulations. At each meeting, the Asset and Liability Management Committee recommends appropriate strategy changes based on this review. The Chief Financial Officer is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors, at least quarterly.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have sought to:

· originate and purchase adjustable rate mortgage loans and commercial business loans;

· originate shorter-duration consumer loans,

· manage our deposits to establish stable deposit relationships,

· acquire longer-term borrowings at fixed rates, when appropriate, to offset the negative impact of longer-term fixed rate loans in our loan portfolio, and

· limit the percentage of long-term fixed-rate loans in our portfolio.

Depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Asset and Liability Management Committee may increase our interest rate risk position somewhat in order to maintain our net interest margin and improve earnings. We will continue to increase our emphasis on the origination of relatively short-term and/or adjustable rate loans. In addition, in an effort to avoid an increase in the percentage of long-term, fixed-rate loans in our portfolio, during the first nine months of 2016 we sold in the secondary market $110.4 million of primarily fixed rate, one- to four-family mortgage loans with a term to maturity of 15 years or greater.

If past rate movements are an indication of future changes, they usually are neither instantaneous nor do a majority of core deposits reprice at the same level as rates change. The following chart reflects the Bank’s percentage change in net interest income, over a one year time period, and net portfolio value (NPV) assuming an instantaneous parallel rate shock in a range from down 100 basis points to up 400 basis points as of September 30, 2016.

	Percentage Change in
	Net Interest Income			NPV
Rate Shock:
Up 400 basis points		(6.5	)%		(8.1	)%
Up 300 basis points		(4.2	)%		(5.2	)%
Up 200 basis points		(2.2	)%		(1.8	)%
Up 100 basis points		(0.8	)%		0.6	%
Down 100 basis points		(6.5	)%		(20.3	)%

The following chart indicates the Company’s percentage change in net interest income and NPV assuming rate movements that are not instantaneous, but change gradually over one year.

	Percentage Change in
	Net Interest Income			NPV
Rate Shock:
Up 400 basis points		(2.2	)%		(5.0	)%
Up 300 basis points		(2.0	)%		(3.5	)%
Up 200 basis points		(1.4	)%		(1.1	)%
Up 100 basis points		(0.6	)%		0.8	%
Down 100 basis points		(6.5	)%		(20.3	)%

44

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the chart. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the tables. Therefore, the Company also considers potential interest rate shocks that are not immediate parallel shocks in various rate scenarios. Management currently believes that interest rate risk is managed appropriately in more practical rate shock scenarios than those in the chart above.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and (as defined in sec Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that is designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate. An evaluation of the Company’s disclosure controls and procedures as of September 30, 2016, was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management preceding the filing date of this annual report. Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company’s management (including our Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within MutualFirst have been detected. These inherent limitations include the realities that judgment in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in SEC Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A.  Risk Factors

There are no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

45

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

On February 19, 2016, the Company announced that its Board of Directors had authorized the repurchase of up to 375,000 shares of common stock, or approximately 5% of its then-outstanding shares over a one-year period. As of September 30, 2016, the Company had repurchased 175,428 shares at a weighted average price of $24.82 per share for a total of $4.4 million, and there were 199,572 remaining shares that may be repurchased under the current authorization. These stock repurchases may be made from time-to-time in open market or negotiated transactions as deemed appropriate by the Company and will depend on market conditions. The following provides more detail on the stock repurchases during the quarter ended September 30, 2016.

	Total Number of Shares Purchased		Average Price Paid Per Share		Number of Shares Purchased As Part of Publicly Announced Plan or Programs		Maximum Number of Shares That May Yet  Be Purchased Under the Publicly Announced Plans or Programs
Jul		-	$	-		-		199,572
Aug		-		-		-		199,572
Sep		-		-		-		199,572
		-	$	-		-

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

46

Item 6. Exhibits.

Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto
3.1	Articles of Incorporation	b
3.1a	Articles Supplementary to Charter	p
3.2	Articles Supplementary for the Series A Preferred Stock	c
3.3	Articles Supplementary for the SBLF Preferred Stock	a
3.4	Amended Bylaws	k
3.4a	Amended and Restated Bylaws	q
3.5	Articles Supplementary to the Company’s Charter re: term of appointed directors	l
4.1	Form of Common Stock Certificate	b
4.2	Form of Certificate for the Series A Preferred Stock	c
4.3	Form of Certificate for the SBLF Preferred Stock	a
9	Voting Trust Agreement	None
10.1	Employment Agreement with David W. Heeter	e
10.2	Employment Agreement with Patrick C. Botts	e
10.3	Form of Supplemental Retirement Plan Income Agreements for Patrick C. Botts and David W. Heeter	f
10.4	Named Executive Officer Salaries and Bonus Arrangements for 2013	n
10.5	Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D. McVicker	g
10.6	Form of Agreements for Executive Deferred Compensation Plan for Patrick C. Botts and David W. Heeter	f
10.7	Registrant’s 2001 Stock Option and Incentive Plan	h
10.8	Registrant’s 2001 Recognition and Retention Plan	h
10.9	Director Fee Arrangements for 2015	10.9
10.10	Director Deferred Compensation Plan	i
10.11	MutualFirst Financial, Inc. 2008 Stock Option and Incentive Plan	d
10.12	MFB Corp. 2002 Stock Option Plan	d
10.13	MFB Corp. 1997 Stock Option Plan	d
10.14	Employment Agreement with Charles J. Viater	e
10.15	Salary Continuation Agreement with Charles J. Viater	d
10.16	Loan Agreement with First Tennessee Bank National Association dated December 21, 2009.	m
10.17	Form of Incentive Stock Option Agreement for 2008 Stock Option and Incentive Plan	j
10.18	Form of Non-Qualified Stock Option Agreement for 2008 Stock Option and Incentive Plan	j
10.19	Small Business Lending Fund - Securities Purchase Agreement, dated August 25, 2011, between MutualFirst Financial, Inc. and the Secretary of the Treasury, with respect to the issuance and sale of the SBLF Preferred Stock	a
10.20	Repurchase Agreement dated August 25, 2012, between MutualFirst Financial, Inc. and the United States Department of the Treasury, with respect to the repurchase and redemption of the TARP Preferred Stock	a
10.21	Employment Agreement with Christopher D. Cook.	e
10.22	Agreement with Richard J. Lashley and PL Capital Group	q
11	Statement re computation of per share earnings	None
12	Statements re computation of ratios	None
14	Code of Ethics	o
16	Letter re change in certifying accountant	None
18	Letter re change in accounting principles	None

47

21	Subsidiaries of the registrant	21
22	Published report regarding matters submitted to vote of security holders	None
23	Consents of experts and counsel	23
24	Power of Attorney	None
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)	31.1
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)	31.2
32	Section 1350 Certification	32
101	Financial Statements from the Company’s Form 10-Q for the three and nine months ended September 30, 2016 and 2015 and year ended December 31, 2015, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of September 30, 2016 and December 31, 2015; (ii) Consolidated Condensed Statements of Income for the Three and Nine months Ended September 30, 2016 and 2015; (iii) Consolidated Condensed Statement of Stockholders’ Equity for the Period Ended September 30, 2016; (iv) Consolidated Condensed Statements of Cash Flows for the Nine months Ended September 30, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements for the Three and Nine months Ended September 30, 2016 and 2015, as follows:

101.INS	XBRL Instance Document	101.INS
101.SCH	XBRL Taxonomy Extension Schema Document	101.SCH
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	101.CAL
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	101.DEF
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document	101.LAB
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	101.PRE

a	Filed as an exhibit to the Company’s Form 8-K filed on August 26, 2011 and incorporated herein by reference.
b	Filed as an exhibit to the Company’s Form S-1 registration statement filed on September 16, 1999 and incorporated herein by reference.
c	Filed as an exhibit to the Company’s Form 8-K filed on December 23, 2008 and incorporated herein by reference.
d	Filed as an Exhibit to the Company’s Annual Report on Form 10-K filed on March 23, 2009 and incorporated herein by reference.
e	Filed as an exhibit to the Company’s Form 10-Q filed on November 9, 2016 and incorporated herein by reference.
f	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 30, 2001 and incorporated herein by reference.
g	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on April 2, 2002 and incorporated herein by reference.
h	Filed as an Appendix to the Company’s Form S-4/A Registration Statement filed on October 19, 2001 and incorporated herein by reference.
i	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2007 and incorporated herein by reference.
j	Filed as an exhibit to the Company’s Form 10-K filed on March 23, 2010 and incorporated herein by reference.
k	Filed as an exhibit to the Company’s Form 8-K filed on October 15, 2007 and incorporated herein by reference.
l	Filed as an exhibit to the Company’s Form 8-K filed on July 15, 2008 and incorporated herein by reference.
m	Filed as an exhibit to the Company’s Form 8-K filed on December 24, 2009 and incorporated herein by reference.
n	Filed as an exhibit to the Company’s Form 8-K filed on February 15, 2012 and incorporated herein by reference.
o	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 15, 2004 and incorporated herein by reference.
p	Filed as an exhibit to the Company’s Form 8-K filed on July 15, 2008 and incorporated herein by reference.
q	Filed as an exhibit to the Company’s Form 8-K filed on February 27, 2015 and incorporated herein by reference.

(b) Exhibits - See list in (a)(3) and the Exhibit Index following the signature page.

(c) Financial Statements Schedules - None

48

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:  November 9, 2016	By:	/s/David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date:  November 9, 2016	By:	/s/Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

49

INDEX TO EXHIBITS

Number	Description
10.1	Employment Agreement with David W. Heeter
10.2	Employment Agreement with Patrick C. Botts
10.14	Employment Agreement with Charles J. Viater
10.22	Employment Agreement with Christopher D. Cook
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)
32	Section 1350 Certification
101	Financial Statements from the Company’s Form 10-Q for the three and nine months ended September 30, 2016 and 2015 and year ended December 31, 2015, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of September 30, 2016 and December 31, 2015; (ii) Consolidated Condensed Statements of Income for the Three and Nine months Ended September 30, 2016 and 2015; (iii) Consolidated Condensed Statement of Stockholders’ Equity for the Period Ended September 30, 2016; (iv) Consolidated Condensed Statements of Cash Flows for the Nine months Ended September 30, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements for the Three and Nine months Ended September 30, 2016 and 2015, as follows:
	101.INS   XBRL Instance Document
	101.SCH  XBRL Taxonomy Extension Schema Document
	101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF  XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB  XBRL Taxonomy Extension Labels Linkbase Document
	101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

50

EX-10.1

Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of this 21st day of September, 2016 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and David W. Heeter (the "Employee").

WHEREAS, the Employee is currently serving as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company; and

WHEREAS, the Employee, the Bank and the Company have previously executed an employment agreement; and

WHEREAS, the Boards of Directors of the Bank and the Company believe it is in the best interests of the Bank to enter into this Amended and Restated Agreement (the “Agreement”) with the Employee in order to ensure compliance with Section 409A of the Code; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.           Definitions.

(a)          The term "Change in Control" includes any of the following events: (1) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company or the Bank possessing 30% or more of the total voting power of the outstanding stock of the Company or the Bank; (2) individuals who are members of the board of directors of the Company on the date hereof (the "Incumbent Board") cease for any reason during any 12-month period to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least a majority of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (3) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets of the Company or the Bank that have a gross fair market value of 40% or more of the total gross fair market value of all of the assets of the Company or the Bank immediately before such acquisition or acquisitions; or (4) any other event which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event constitutes a Change in Control for purposes of the Agreement; provided that with respect to each of the events covered by clauses (1) through (4) above, the event must also be deemed to be either a change in the ownership of the Company or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank within the meaning of Section 409A of the Code. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company.

(b)          The term "Commencement Date" means October 1, 2016.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

(d)          The term "Involuntary Termination" means a termination of the employment of the Employee without the Employee’s express written consent, and shall include a termination by the Employee as a result of any of the following: (1) a material diminution of or interference with the Employee’s duties, titles, responsibilities and benefits as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company, (2) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank’s headquarters office as of the date hereof, (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a material reduction in the Employee’s salary or a material adverse change in the Employee’s perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company, or (5) a material permanent increase in the required hours of work or the workload of the Employee; provided in each case that Involuntary Termination shall mean a cessation or reduction in the Employee’s services for the Bank and the Company (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3) that constitutes a “Separation from Service” as determined under Section 409A of the Code, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h) and that also constitutes an involuntary Separation from Service under Treasury Regulation §1.409A-1(n). In addition, before the Employee terminates his employment pursuant to clauses (1) through (5) of the preceding sentence, the Employee must first provide written notice to the Company and the Bank within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Company and the Bank shall thereafter have the right to remedy the condition within thirty (30) days of the date they received the written notice from the Employee. If the Company and the Bank remedy the condition within such thirty (30) day cure period, then the Employee shall not have the right to terminate his employment as the result of such event. If the Company and the Bank do not remedy the condition within such thirty (30) day cure period, then the Employee may terminate his employment as the result of such event at any time within sixty (60) days following the expiration of such cure period. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank’s affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

Page 2 of 9

(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.           Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.           Employment. The Employee is employed as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.           Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $385,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

Page 3 of 9

(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.           Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.           Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

Page 4 of 9

7.           Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee’s employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee’s right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than concurrently with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee’s salary at the rate in effect immediately prior to the Involuntary Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Involuntary Termination, including Bank-paid dependent medical and dental coverage, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date. If the Employee is a “Specified Employee” (as defined in Section 409A of the Code) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation §1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A of the Code, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A of the Code. To the extent permitted by Section 409A of the Code, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

(d)          Change in Control. In the event of Involuntary Termination of the Employee concurrently with or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Involuntary Termination an amount equal to 299% of the Employee’s "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

Page 5 of 9

(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)           Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

(j)           Notwithstanding any other provision contained in this Agreement, if either (i) the time period for making any cash payment under this Section 7 commences in one calendar year and ends in the succeeding calendar year or (ii) in the event any payment under this Section 7 is made contingent upon the execution of a general release and the time period that the Employee has to consider the terms of such general release (including any revocation period under such release) commences in one calendar year and ends in the succeeding calendar year, then the payment shall not be paid until the succeeding calendar year.

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8.           Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. If the payments and benefits to the Employee are required to be reduced pursuant to this Section 8(a), then the cash severance payable pursuant to Section 7(d) of this Agreement shall be reduced first.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

9.           No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.         Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 18 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.         Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.         No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 12(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

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(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.         Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.         Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.         Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.         Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.         Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

18.         Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.         Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under this Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.         Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	Patrick C. Botts
	Its:	President
	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	Patrick C. Botts
	Its:	Executive Vice President
	EMPLOYEE
	David W. Heeter

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EX-10.2

Exhibit 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of this 21st day of September, 2016 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and Patrick C. Botts (the "Employee").

WHEREAS, the Employee is currently serving as President of the Bank and Executive Vice President of the Company; and

WHEREAS, the Employee, the Bank and the Company have previously executed an employment agreement; and

WHEREAS, the Boards of Directors of the Bank and the Company believe it is in the best interests of the Bank to enter into this Amended and Restated Agreement (the “Agreement”) with the Employee in order to ensure compliance with Section 409A of the Code; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.           Definitions.

(a)          The term "Change in Control" includes any of the following events: (1) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company or the Bank possessing 30% or more of the total voting power of the outstanding stock of the Company or the Bank; (2) individuals who are members of the board of directors of the Company on the date hereof (the "Incumbent Board") cease for any reason during any 12-month period to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least a majority of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (3) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets of the Company or the Bank that have a gross fair market value of 40% or more of the total gross fair market value of all of the assets of the Company or the Bank immediately before such acquisition or acquisitions; or (4) any other event which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event constitutes a Change in Control for purposes of the Agreement; provided that with respect to each of the events covered by clauses (1) through (4) above, the event must also be deemed to be either a change in the ownership of the Company or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank within the meaning of Section 409A of the Code. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company.

(b)          The term "Commencement Date" means October 1, 2016.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

(d)          The term "Involuntary Termination" means a termination of the employment of the Employee without the Employee’s express written consent, and shall include a termination by the Employee as a result of any of the following: (1) a material diminution of or interference with the Employee’s duties, titles, responsibilities and benefits as President of the Bank and Executive Vice President of the Company, (2) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank’s headquarters office as of the date hereof, (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a material reduction in the Employee’s salary or a material adverse change in the Employee’s perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company, or (5) a material permanent increase in the required hours of work or the workload of the Employee; provided in each case that Involuntary Termination shall mean a cessation or reduction in the Employee’s services for the Bank and the Company (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3) that constitutes a “Separation from Service” as determined under Section 409A of the Code, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h) and that also constitutes an involuntary Separation from Service under Treasury Regulation §1.409A-1(n). In addition, before the Employee terminates his employment pursuant to clauses (1) through (5) of the preceding sentence, the Employee must first provide written notice to the Company and the Bank within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Company and the Bank shall thereafter have the right to remedy the condition within thirty (30) days of the date they received the written notice from the Employee. If the Company and the Bank remedy the condition within such thirty (30) day cure period, then the Employee shall not have the right to terminate his employment as the result of such event. If the Company and the Bank do not remedy the condition within such thirty (30) day cure period, then the Employee may terminate his employment as the result of such event at any time within sixty (60) days following the expiration of such cure period. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank’s affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

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(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.           Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.           Employment. The Employee is employed as President of the Bank and Executive Vice President of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.           Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $315,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

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(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.           Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.           Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7.           Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee’s employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee’s right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than concurrently with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee’s salary at the rate in effect immediately prior to the Involuntary Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Involuntary Termination, including Bank-paid dependent medical and dental coverage, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date. If the Employee is a “Specified Employee” (as defined in Section 409A of the Code) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation §1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A of the Code, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A of the Code. To the extent permitted by Section 409A of the Code, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

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(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

(d)          Change in Control. In the event of Involuntary Termination of the Employee concurrently with or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Involuntary Termination an amount equal to 299% of the Employee’s "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

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(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)           Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

(j)           Notwithstanding any other provision contained in this Agreement, if either (i) the time period for making any cash payment under this Section 7 commences in one calendar year and ends in the succeeding calendar year or (ii) in the event any payment under this Section 7 is made contingent upon the execution of a general release and the time period that the Employee has to consider the terms of such general release (including any revocation period under such release) commences in one calendar year and ends in the succeeding calendar year, then the payment shall not be paid until the succeeding calendar year.

8.           Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. If the payments and benefits to the Employee are required to be reduced pursuant to this Section 8(a), then the cash severance payable pursuant to Section 7(d) of this Agreement shall be reduced first.

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(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

9.           No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.         Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 18 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.         Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.         No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 12(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

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(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.         Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.         Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.         Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.         Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.         Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

18.         Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.         Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under this Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.         Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	David W. Heeter
	Its:	Chief Executive Officer
	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	David W. Heeter
	Its:	President and CEO
	EMPLOYEE
	Patrick C. Botts

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EX-10.14

Exhibit 10.14

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of this 21st day of September 2016 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and Charles J. Viater (the "Employee").

WHEREAS, the Employee is currently serving as Northern Region President of the Bank and Senior Vice President of the Company; and

WHEREAS, the Employee, the Bank and the Company have previously executed an employment agreement; and

WHEREAS, the Boards of Directors of the Bank and the Company believe it is in the best interests of the Bank to enter into this Amended and Restated Agreement (the “Agreement”) with the Employee in order to ensure compliance with Section 409A of the Code; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.           Definitions.

(a)          The term "Change in Control" includes any of the following events: (1) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company or the Bank possessing 30% or more of the total voting power of the outstanding stock of the Company or the Bank; (2) individuals who are members of the board of directors of the Company on the date hereof (the "Incumbent Board") cease for any reason during any 12-month period to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least a majority of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (3) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets of the Company or the Bank that have a gross fair market value of 40% or more of the total gross fair market value of all of the assets of the Company or the Bank immediately before such acquisition or acquisitions; or (4) any other event which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event constitutes a Change in Control for purposes of the Agreement; provided that with respect to each of the events covered by clauses (1) through (4) above, the event must also be deemed to be either a change in the ownership of the Company or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank within the meaning of Section 409A of the Code. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company.

(b)          The term "Commencement Date" means October 1, 2016.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

(d)          The term "Involuntary Termination" means a termination of the employment of the Employee without the Employee’s express written consent, and shall include a termination by the Employee as a result of any of the following: (1) a material diminution of or interference with the Employee’s duties, titles, responsibilities and benefits as Northern Region President of the Bank and Senior Vice President of the Company, (2) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Employee’s office as of the date hereof, (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a material reduction in the Employee’s salary or a material adverse change in the Employee’s perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company, or (5) a material permanent increase in the required hours of work or the workload of the Employee; provided in each case that Involuntary Termination shall mean a cessation or reduction in the Employee’s services for the Bank and the Company (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3) that constitutes a “Separation from Service” as determined under Section 409A of the Code, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h) and that also constitutes an involuntary Separation from Service under Treasury Regulation §1.409A-1(n). In addition, before the Employee terminates his employment pursuant to clauses (1) through (5) of the preceding sentence, the Employee must first provide written notice to the Company and the Bank within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Company and the Bank shall thereafter have the right to remedy the condition within thirty (30) days of the date they received the written notice from the Employee. If the Company and the Bank remedy the condition within such thirty (30) day cure period, then the Employee shall not have the right to terminate his employment as the result of such event. If the Company and the Bank do not remedy the condition within such thirty (30) day cure period, then the Employee may terminate his employment as the result of such event at any time within sixty (60) days following the expiration of such cure period. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank’s affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

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(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.           Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.           Employment. The Employee is employed as Northern Region President of the Bank and Senior Vice President of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.           Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $298,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

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(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.           Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.           Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

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7.           Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee’s employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee’s right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than concurrently with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee’s salary at the rate in effect immediately prior to the Involuntary Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Involuntary Termination, including Bank-paid dependent medical and dental coverage, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date. If the Employee is a “Specified Employee” (as defined in Section 409A of the Code) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation §1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A of the Code, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A of the Code. To the extent permitted by Section 409A of the Code, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

(d)          Change in Control. In the event of Involuntary Termination of the Employee concurrently with or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Involuntary Termination an amount equal to 299% of the Employee’s "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

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(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)           Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

(j)           Notwithstanding any other provision contained in this Agreement, if either (i) the time period for making any cash payment under this Section 7 commences in one calendar year and ends in the succeeding calendar year or (ii) in the event any payment under this Section 7 is made contingent upon the execution of a general release and the time period that the Employee has to consider the terms of such general release (including any revocation period under such release) commences in one calendar year and ends in the succeeding calendar year, then the payment shall not be paid until the succeeding calendar year.

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8.           Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. If the payments and benefits to the Employee are required to be reduced pursuant to this Section 8(a), then the cash severance payable pursuant to Section 7(d) of this Agreement shall be reduced first.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

9.           No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.         Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 18 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.         Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.         No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 12(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

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(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.         Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.         Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.         Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.         Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.         Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

18.         Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.         Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under this Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.         Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	David W. Heeter
	Its:	Chief Executive Officer
	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	David W. Heeter
	Its:	President and CEO
	EMPLOYEE
	Charles J. Viater

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EX-10.22

Exhibit 10.22

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into as of this 21st day of September, 2016 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and Christopher D. Cook (the "Employee").

WHEREAS, the Employee is currently serving as Senior Vice President and Chief Financial Officer of the Bank and Chief Financial Officer of the Company; and

WHEREAS, the Employee, the Bank and the Company have previously executed an employment agreement; and

WHEREAS, the Boards of Directors of the Bank and the Company believe it is in the best interests of the Bank to enter into this Amended and Restated Agreement (the “Agreement”) with the Employee in order to ensure compliance with Section 409A of the Code; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.           Definitions.

(a)          The term "Change in Control" includes any of the following events: (1) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company or the Bank possessing 30% or more of the total voting power of the outstanding stock of the Company or the Bank; (2) individuals who are members of the board of directors of the Company on the date hereof (the "Incumbent Board") cease for any reason during any 12-month period to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least a majority of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (3) any person or persons acting as a group (within the meaning of Section 409A of the Code) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets of the Company or the Bank that have a gross fair market value of 40% or more of the total gross fair market value of all of the assets of the Company or the Bank immediately before such acquisition or acquisitions; or (4) any other event which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event constitutes a Change in Control for purposes of the Agreement; provided that with respect to each of the events covered by clauses (1) through (4) above, the event must also be deemed to be either a change in the ownership of the Company or the Bank, a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank within the meaning of Section 409A of the Code. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company.

(b)          The term "Commencement Date" means October 1, 2016.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

(d)          The term "Involuntary Termination" means a termination of the employment of the Employee without the Employee’s express written consent, and shall include a termination by the Employee as a result of any of the following: (1) a material diminution of or interference with the Employee’s duties, titles, responsibilities and benefits as Senior Vice President and Chief Financial Officer of the Bank and Chief Financial Officer of the Company, (2) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank’s headquarters office as of the date hereof, (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a material reduction in the Employee’s salary or a material adverse change in the Employee’s perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company, or (5) a material permanent increase in the required hours of work or the workload of the Employee; provided in each case that Involuntary Termination shall mean a cessation or reduction in the Employee’s services for the Bank and the Company (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3) that constitutes a “Separation from Service” as determined under Section 409A of the Code, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h) and that also constitutes an involuntary Separation from Service under Treasury Regulation §1.409A-1(n). In addition, before the Employee terminates his employment pursuant to clauses (1) through (5) of the preceding sentence, the Employee must first provide written notice to the Company and the Bank within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Company and the Bank shall thereafter have the right to remedy the condition within thirty (30) days of the date they received the written notice from the Employee. If the Company and the Bank remedy the condition within such thirty (30) day cure period, then the Employee shall not have the right to terminate his employment as the result of such event. If the Company and the Bank do not remedy the condition within such thirty (30) day cure period, then the Employee may terminate his employment as the result of such event at any time within sixty (60) days following the expiration of such cure period. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank’s affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

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(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.           Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.           Employment. The Employee is employed as Senior Vice President and Chief Financial Officer of the Bank and Chief Financial Officer of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.           Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $232,500 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

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(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.           Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.           Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

Page 4 of 9

7.           Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee’s employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee’s right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than concurrently with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee’s salary at the rate in effect immediately prior to the Involuntary Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Involuntary Termination, including Bank-paid dependent medical and dental coverage, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date. If the Employee is a “Specified Employee” (as defined in Section 409A of the Code) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation §1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A of the Code, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A of the Code. To the extent permitted by Section 409A of the Code, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

(d)          Change in Control. In the event of Involuntary Termination of the Employee concurrently with or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Involuntary Termination an amount equal to 299% of the Employee’s "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control, provided that if either the Bank is unable to provide such insurance coverage in-kind or the continuation of such insurance coverage would trigger excise taxes under Section 4980D of the Code, then the Bank shall make a lump sum cash payment to the Employee equal to the projected cost of providing such insurance coverage for the remaining term of this Agreement, with the projected cost to be based on the costs being incurred immediately prior to the Involuntary Termination as increased by 10% on each scheduled renewal date.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

Page 5 of 9

(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)           Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

(j)           Notwithstanding any other provision contained in this Agreement, if either (i) the time period for making any cash payment under this Section 7 commences in one calendar year and ends in the succeeding calendar year or (ii) in the event any payment under this Section 7 is made contingent upon the execution of a general release and the time period that the Employee has to consider the terms of such general release (including any revocation period under such release) commences in one calendar year and ends in the succeeding calendar year, then the payment shall not be paid until the succeeding calendar year.

Page 6 of 9

8.           Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. If the payments and benefits to the Employee are required to be reduced pursuant to this Section 8(a), then the cash severance payable pursuant to Section 7(d) of this Agreement shall be reduced first.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

9.           No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.         Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 18 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.         Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.         No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 12(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

Page 7 of 9

(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.         Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.         Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.         Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.         Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.         Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

18.         Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.         Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under this Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.         Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

Page 8 of 9

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	David W. Heeter
	Its:	Chief Executive Officer
	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	David W. Heeter
	Its:	President and CEO
	EMPLOYEE
	Christopher D. Cook

Page 9 of 9

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, David W. Heeter, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MutualFirst Financial, Inc.;

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(s) 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 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(s) 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 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: November 9, 2016	By:	/s/ David W. Heeter
		David W. Heeter
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Christopher D. Cook, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MutualFirst Financial, Inc.;

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(s) 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 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(s) 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 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: November 9, 2016	By:	/s/ Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATION

Each of the undersigned hereby certifies in his capacity as an officer of MutualFirst Financial, Inc. (the “Registrant”) that the Quarterly Report of the Registrant on Form 10-Q for the period ended September 30, 2016 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the consolidated financial condition of the Registrant at the end of such period and the results of operations of the Registrant for such period.

Date: November 9, 2016	By:	/s/ David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date: November 9, 2016	By:	/s/ Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 07, 2016
Document Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	mfsf
Entity Registrant Name	MUTUALFIRST FINANCIAL INC
Entity Central Index Key	0001094810
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,324,233

XML

Consolidated Condensed Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 7,066	$ 8,610
Interest-bearing demand deposits	18,077	12,305
Cash and cash equivalents	25,143	20,915
Interest-bearing time deposits	980
Investment securities available for sale (carried at fair value)	256,865	261,138
Loans held for sale	8,311	5,991
Loans, net of allowance for loan losses of $12,587 and $12,641, at September 30, 2016 and December 31, 2015, respectively	1,122,289	1,068,204
Premises and equipment, net	31,668	31,048
Federal Home Loan Bank stock	10,751	10,482
Deferred tax asset, net	10,723	12,084
Cash value of life insurance	51,309	51,209
Goodwill	1,800	1,800
Other real estate owned and repossessed assets	876	2,456
Other assets	13,107	12,938
Total assets	1,533,822	1,478,265
Deposits
Noninterest-bearing	174,061	179,542
Interest-bearing	951,699	911,840
Total deposits	1,125,760	1,091,382
Federal Home Loan Bank advances	239,091	225,617
Other borrowings	8,921	9,458
Other liabilities	16,840	14,783
Total liabilities	1,390,612	1,341,240
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value Authorized - 20,000,000 shares Issued and outstanding - 7,324,233 and 7,422,061 shares at September 30, 2016 and December 31, 2015, respectively	73	74
Additional paid-in capital	74,164	77,363
Retained earnings	64,996	58,098
Accumulated other comprehensive income	3,977	1,490
Total stockholders' equity	143,210	137,025
Total liabilities and stockholders' equity	$ 1,533,822	$ 1,478,265

XML

Consolidated Condensed Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Allowance for loan losses	$ 12,587,000	$ 12,641,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, Authorized	20,000,000	20,000,000
Common stock, shares Issued	7,324,233	7,422,061
Common stock, shares outstanding	7,324,233	7,422,061

XML

Consolidated Condensed Statements of Income - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest and Dividend Income
Loans receivable	$ 11,866,000	$ 11,190,000	$ 34,601,000	$ 32,974,000
Investment securities	1,572,000	1,739,000	4,871,000	5,101,000
Federal Home Loan Bank stock	111,000	118,000	327,000	377,000
Deposits with financial institutions	18,000	2,000	60,000	10,000
Total interest and dividend income	13,567,000	13,049,000	39,859,000	38,462,000
Interest Expense
Deposits	1,332,000	1,277,000	3,900,000	3,983,000
Federal Home Loan Bank advances	901,000	822,000	2,693,000	2,211,000
Other	97,000	134,000	280,000	395,000
Total interest expense	2,330,000	2,233,000	6,873,000	6,589,000
Net Interest Income	11,237,000	10,816,000	32,986,000	31,873,000
Provision for loan losses	250,000		600,000
Net Interest Income After Provision for Loan Losses	10,987,000	10,816,000	32,386,000	31,873,000
Non-interest Income
Service fee income	1,515,000	1,496,000	4,417,000	4,318,000
Net realized gain on sales of available for sale securities	92,000	57,000	862,000	423,000
Commissions	1,259,000	1,164,000	3,762,000	3,427,000
Net gains on sales of loans	1,548,000	1,238,000	3,895,000	3,266,000
Net servicing fees	91,000	67,000	239,000	205,000
Increase in cash value of life insurance	284,000	292,000	874,000	893,000
Gain (loss) on sale of other real estate and repossessed assets	72,000	(30,000)	(145,000)	(81,000)
Other income	205,000	109,000	1,052,000	325,000
Total non-interest income	5,066,000	4,393,000	14,956,000	12,776,000
Non-interest Expenses
Salaries and employee benefits	6,941,000	6,341,000	20,092,000	18,955,000
Net occupancy expenses	592,000	553,000	1,839,000	1,671,000
Equipment expenses	448,000	479,000	1,419,000	1,342,000
Data processing fees	486,000	432,000	1,467,000	1,304,000
Advertising and promotion	350,000	296,000	1,046,000	1,007,000
ATM and debit card expenses	391,000	381,000	1,127,000	1,064,000
Deposit insurance	165,000	225,000	624,000	669,000
Professional fees	419,000	378,000	1,269,000	1,291,000
Software subscriptions and maintenance	540,000	443,000	1,569,000	1,303,000
Other real estate and repossessed assets	(39,000)	92,000	47,000	305,000
Other expenses	1,070,000	1,034,000	3,520,000	3,134,000
Total non-interest expenses	11,363,000	10,654,000	34,019,000	32,045,000
Income Before Income Tax	4,690,000	4,555,000	13,323,000	12,604,000
Income tax expense	1,208,000	1,330,000	3,319,000	3,681,000
Net Income	$ 3,482,000	$ 3,225,000	$ 10,004,000	$ 8,923,000
Earnings Per Common Share
Basic	$ 0.48	$ 0.44	$ 1.35	$ 1.21
Diluted	0.47	0.43	1.32	1.18
Dividends Per Common Share	$ 0.14	$ 0.12	$ 0.42	$ 0.36

XML

Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 3,482	$ 3,225	$ 10,004	$ 8,923
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale	(1,260)	2,668	4,606	529
Reclassification adjustment for realized gains included in net income	(92)	(57)	(862)	(423)
Net unrealized gain (loss) on derivative used for cash flow hedges	19	15	(9)	72
Other comprehensive income, before tax, total	(1,333)	2,626	3,735	178
Income tax (expense) benefit related to other comprehensive income	481	(889)	(1,248)	(45)
Other comprehensive income (loss), net of tax	(852)	1,737	2,487	133
Comprehensive Income	$ 2,630	$ 4,962	$ 12,491	$ 9,056

XML

Consolidated Condensed Statement of Stockholders' Equity - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Common Stock [Member]	Paid-in capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Total
Beginning Balance at Dec. 31, 2015	$ 74	$ 77,363	$ 58,098	$ 1,490	$ 137,025
Net income			10,004		10,004
Other comprehensive income, net of taxes				2,487	2,487
Stock repurchased	(2)	(4,352)			(4,354)
Stock options, exercised	1	975			976
Tax benefit on stock options		178			178
Cash dividends, common stock			(3,106)		(3,106)
Ending Balance at Sep. 30, 2016	$ 73	$ 74,164	$ 64,996	$ 3,977	$ 143,210

XML

Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Stockholders Equity [Abstract]
Cash dividends, common stock, per share	$ 0.14	$ 0.12	$ 0.42	$ 0.36

XML

Consolidated Condensed Statements of Cash Flows - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Operating Activities
Net income	$ 10,004,000	$ 8,923,000
Items not requiring cash
Provision for loan losses	600,000
Depreciation and amortization	3,833,000	3,152,000
Deferred income tax	113,000	1,963,000
Loans originated for sale	(113,087,000)	(115,103,000)
Proceeds from sales of loans held for sale	114,314,000	118,097,000
Gain on bank owned life insurance	(346,000)
Gain on sale of loans held for sale	(3,895,000)	(3,266,000)
Net gain on sale of securities, available for sale	(862,000)	(423,000)
Loss on sale of other real estate and repossessed assets	145,000	81,000
Change in
Interest receivable and other assets	610,000	(321,000)
Interest payable and other liabilities	633,000	978,000
Cash value of life insurance	(874,000)	(893,000)
Other adjustments	107,000	107,000
Net cash provided by operating activities	11,295,000	13,295,000
Investing Activities
Net change in interest-bearing time deposits	(980,000)
Purchases of securities
Available for sale	(57,170,000)	(49,105,000)
Proceeds from maturities and paydowns of securities
Available for sale	27,707,000	28,800,000
Proceeds from sales of securities, available for sale	38,167,000	14,112,000
Redemption of Federal Home Loan Bank stock		2,154,000
Purchase of Federal Home Loan Bank stock	(269,000)
Net change in loans	(56,934,000)	(43,521,000)
Purchases of premises and equipment	(1,914,000)	(1,080,000)
Proceeds from real estate owned sales	2,350,000	2,008,000
Proceeds from bank owned life insurance benefit	1,121,000
Other investing activities	56,000
Net cash used in investing activities	(47,866,000)	(46,632,000)
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits	46,122,000	38,772,000
Certificates of deposit	(11,744,000)	(38,506,000)
Proceeds from FHLB advances	240,200,000	279,800,000
Repayments of FHLB advances	(226,726,000)	(256,025,000)
Repayments of other borrowings	(569,000)	(569,000)
Cash dividends	(3,106,000)	(2,660,000)
Stock options exercised	976,000	1,593,000
Stock repurchased	(4,354,000)
Net cash provided by financing activities	40,799,000	22,405,000
Net Change in Cash and Cash Equivalents	4,228,000	(10,932,000)
Cash and Cash Equivalents, Beginning of Period	20,915,000	29,575,000
Cash and Cash Equivalents, End of Period	25,143,000	18,643,000
Additional Cash Flows Information
Interest paid	6,781,000	6,589,000
Income tax paid	1,400,000	2,050,000
Transfers from loans to foreclosed real estate	915,000	1,011,000
Mortgage servicing rights capitalized	348,000	$ 360,000
Purchase of securities, due to broker	$ 751,000

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Basis of Presentation

9 Months Ended

Sep. 30, 2016

Basis of Presentation

Basis of Presentation

Note 1:Basis of Presentation

The consolidated condensed financial statements include the accounts ofMutualFirst Financial, Inc. (MutualFirst or the “Company”), its wholly owned subsidiaries, MFBC Statutory Trust, MutualFirst Risk Management, Inc., Mutual Risk Advisors, Inc., and MutualBank, an Indiana commercial bank (“Mutual” or the “Bank”), Mutual’s wholly owned subsidiaries, First MFSB Corporation, Mishawaka Financial Services, Summit Service Corp. and the wholly owned subsidiary of Summit Service Corp., Summit Mortgage Inc. (“Summit”), Mutual Federal Investment Company (“MFIC”), and MFIC majority owned subsidiary, Mutual Federal REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.  These companies conform to accounting principles generally accepted in the United States of America and reporting practices followed by the banking industry. The more significant of the policies are described below.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 15, 2016.

The interim consolidated condensed financial statements at and for the three and nine months ended September 30, 2016 and 2015, have not been audited by independent accountants, but in the opinion of management, reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Condensed Balance Sheet of the Company as of December 31, 2015 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

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Earnings Per Share

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Share

Note 2:Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended September 30,
	2016					2015
		Net Income	Weighted- Average Shares		Per-Share Amount		Net Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	3,482	7,324,233	$	0.48	$	3,225	7,394,061	$	0.44
Effect of Dilutive Securities
Stock options		-	146,344				-	168,438
Diluted Earnings Per Share
Net income available and assumed conversions	$	3,482	7,470,577	$	0.47	$	3,225	7,562,499	$	0.43

	Nine Months Ended September 30,
	2016					2015
		Net Income	Weighted- Average Shares		Per-Share Amount		Net Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	10,004	7,414,328	$	1.35	$	8,923	7,364,035	$	1.21
Effect of Dilutive Securities
Stock options		-	146,255				-	175,900
Diluted Earnings Per Share
Net income available and assumed conversions	$	10,004	7,560,583	$	1.32	$	8,923	7,539,935	$	1.18

As of September 30, 2016, the exercise price for all options was lower than the average market price of the common shares.  Options to purchase37,161shares of common stock were outstanding at September 30, 2015, but were not included in the computation of diluted EPS because the options’ exercise prices  were greater than the average market price of the common shares.

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Impact of Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

Impact of Accounting Pronouncements [Abstract]

Impact of Accounting Pronouncements

Note 3:Impact of Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.  The ASU is intended to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.

This Accounting Standards Update addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.  The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements.  Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.  The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020), for calendar year entities.  Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company is currently evaluating what impact this pronouncement will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting.  The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.

Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.

For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period.  The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In March 2016, the FASB issued ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence.

The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. 

The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted.  The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options.

Derivatives and Hedging, requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract (the “clearly and closely related” criterion).

U.S. GAAP provides specific guidance for assessing whether call (put) options that can accelerate the repayment of principal on a debt instrument meet the clearly and closely related criterion. The guidance states that for contingent call (put) options to be considered clearly and closely related, they can be indexed only to interest rates or credit risk.

The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.

Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period.  The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases. The objective of the amendment is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease.

The most significant changes under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

· A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and

· A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating what impact this pronouncement will have on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall:  Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).

The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.

The new guidance is effective for fiscal years beginning of December 15, 2017, including interim periods within those fiscal years. The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

In December 2015, the FASB issued ASU 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustments. The objective of this Update was to simplify the accounting for adjustments made to provisional amounts recognized in a business combination. The amendments eliminate the requirement to retrospectively account for those adjustments.  The Company does not anticipate that this ASU will have a material effect on its financial position or results of operations.

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Investment Securities

9 Months Ended

Sep. 30, 2016

Investment Securities [Abstract]

Investment Securities

Note 4: Investment Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below.  All mortgage-backed securities and collateralized mortgage obligations held as of September 30, 2016 and December 31, 2015 were guaranteed by government sponsored entities, government corporations or federal agencies.

	September 30, 2016
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	95,834	$	2,400	$	(9)	$	98,225
Collateralized mortgage obligations		70,838		869		(60)		71,647
Municipal obligations		71,235		4,277		(75)		75,437
Corporate obligations		12,808		35		(1,287)		11,556
Total investment securities	$	250,715	$	7,581	$	(1,431)	$	256,865

	December 31, 2015
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	106,524	$	1,562	$	(248)	$	107,838
Collateralized mortgage obligations		84,976		537		(861)		84,652
Municipal obligations		54,427		2,781		(20)		57,188
Corporate obligations		12,805		1		(1,346)		11,460
Total investment securities	$	258,732	$	4,881	$	(2,475)	$	261,138

The amortized cost and fair value of securities available for sale at September 30, 2016, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
Description Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	-	$	-
One to five years		9,846		9,894
Five to ten years		8,073		8,758
After ten years		66,124		68,341
		84,043		86,993
Mortgage-backed securities		95,834		98,225
Collateralized mortgage obligations		70,838		71,647
Totals	$	250,715	$	256,865

Proceeds from sales of securities available for sale for the three and nine months ended September 30, 2016 and 2015 were $8.3 million and $38.2 million and $730,000 and $14.1 million, respectively.  Gross gains of $92,000 and $911,000 and $57,000 and $423,000 for the three and nine months ended September 30, 2016 and 2015, respectively, were recognized on those sales.  Gross losses of $49,000 for the nine months ended September 30, 2016 were also recognized on those sales.  There were no gross losses recognized on the sales of securities for the three months ended September 30, 2016 nor the three and nine months ended September 30, 2015.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.  Total fair value of these investments at September 30, 2016 and December 31, 2015 was $25.9 million and $97.6million, respectively, which was approximately 10.1 percent and 37.4 percent, respectively, of the Company’s investment portfolio at those dates. 

Based on our evaluation of available evidence, including recent changes in market interest rates, management believes the fair value for the securities at less than historical cost for the periods presented, are temporary.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

During the first nine months of 2016 and 2015, the Bank determined that its security holdings had no other-than-temporary impairment. 

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015:

	September 30, 2016
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	1,138	$	(9)	$	-	$	-	$	1,138	$	(9)
Collateralized mortgage obligations		6,229		(13)		5,014		(47)		11,243		(60)
Municipal obligations		6,198		(74)		338		(1)		6,536		(75)
Corporate obligations		-		-		7,021		(1,287)		7,021		(1,287)
Total temporarily impaired securities	$	13,565	$	(96)	$	12,373	$	(1,335)	$	25,938	$	(1,431)

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	38,649	$	(248)	$	-	$	-	$	38,649	$	(248)
Collateralized mortgage obligations		27,457		(281)		21,271		(580)	$	48,728	$	(861)
Municipal obligations		2,739		(17)		491		(3)		3,230		(20)
Corporate obligations		4,425		(75)		2,534		(1,271)		6,959		(1,346)
Total temporarily impaired securities	$	73,270	$	(621)	$	24,296	$	(1,854)	$	97,566	$	(2,475)

Mortgage-Backed Securities (MBS) and Collateralized Mortgage Obligations (CMO)

The unrealized losses on the Company’s investment in MBSs and CMOs were caused by interest rate changes.  The Company expects to recover the amortized cost basis over the term of the securities.  Because (1) the decline in market value is attributable to changes in interest rates and not credit quality, (2) the Company does not intend to sell the investments and (3) it is more likely than not the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be at maturity, the Company does not consider any of these investments to be other-than-temporarily impaired at September 30, 2016.

Municipals

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by changes in interest rates.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments.  The Corporation does not consider any of these investment securities to be other-than-temporarily impaired at September 30, 2016.

Corporate Obligations

The Company’s unrealized losses on investments in corporate obligations primarily relates to two investments in pooled trust preferred securities.  The unrealized losses were primarily caused by (1) a decrease in performance and regulatory capital resulting from exposure to subprime mortgages and (2) a sector downgrade by industry analysts.  The Company recognized losses, in 2011 and earlier, equal to the credit losses for these securities, establishing a new, lower amortized cost basis.  The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment.  Because the Company does not intend to sell these investments and it is likely that the Company will not be required to sell the investments before recovery of its new, lower amortized cost basis, which may be at maturity, it does not consider the remainder of these investments to be other-than-temporarily impaired at September 30, 2016.

Other-Than-Temporary Impairment (OTTI)

Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or whether it will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.

The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities.  For securities that are a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitizedfinancial asset impairment model.  For securities that are not a beneficial interest in securitized financial assets, the Company uses debt and equity securities impairment accounting model.

The Company conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities.  While all securities are considered, the securities primarily impacted by other-than-temporary impairment testing are private-label mortgage-backed securities and trust preferred securities. 

MutualFirst Financial uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific trust preferred securities.  The primary focus is on the returns a fixed income investor would require in order to allocate capital on a risk adjusted basis.  There is currently little demand for pooled trust preferred securities; however, the Company looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market.  The next step is to make a series of adjustments to reflect the differences that exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred security.  Importantly, as part of the analysis described above, MutualFirst considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and makes adjustments as necessary to reflect this additional risk.

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses, as well as due to other market factors, but are not otherwise other-than-temporarily impaired.

The following tables provide information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Credit losses on debt securities held
Beginning of period	$	109	$	109	$	109	$	109
Reductions related to actual losses incurred		-		-		-		-
As of September 30,	$	109	$	109	$	109	$	109

Pooled Trust Preferred Securities.  The Company has invested in pooled trust preferred securities.  At September 30, 2016, the current book balance of our pooled trust preferred securities was $3.8 million.  The original par value of these securities was $4.0 million prior to the OTTI write-downs in 2011 and earlier.  OTTI taken on trust preferred securities previously was the result of deterioration in the performance of the underlying collateral.  The deterioration was the result of increased defaults and deferrals of dividend payments in that year, creating credit impairment along with weakening financial performance of performing collateral, increasing the risk of future deferrals of dividends and defaults.  No additional OTTI was determined in the first nine months of 2016.  All pooled trust preferred securities owned by the Company are exempt from the Volcker Rule.

The following table provides additional information related to the Company’s investment in pooled trust preferred securities as of September 30, 2016:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized loss		Realized Losses YTD		Lowest Current Rating	Number of Banks / Insurance Cos. Currently Performing	Total Number of Banks and Insurance Cos. In Issuance (Unique)	Actual Deferrals/ Defaults (as a % of original collateral)		Total Projected Defaults (as a % of performing collateral) (1)		Excess subordination (after taking into account best estimate of future deferrals/ defaults) (2)
	(Dollars in Thousands)
Alesco Preferred Funding IX	A1	$	1,000	$	917	$	548	$	(369)	$	-	CCC-	43	50	6.75	%	10.68	%	54.87	%
U.S. Capital Funding I	B3		3,000		2,891		1,986		(905)		-	C	29	33	7.95	%	6.45	%	11.81	%
		$	4,000	$	3,808	$	2,534	$	(1,274)	$	-

(1)  A 10% recovery is applied to all projected defaults by depository institutions. A 15% recovery is applied to all projected defaults by insurance companies.  No recovery is applied to current defaults.

(2)  Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2016

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

Note 5: Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	September 30,		December 31,
	2016		2015
Net unrealized gain on securities available-for-sale	$	7,055	$	3,311
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		(905)		(905)
Net unrealized loss on derivative used for cash flow hedges		(10)		(1)
Net unrealized loss relating to defined benefit plan liability		(32)		(32)
		6,108		2,373
Tax expense		2,131		883
Net of tax amount	$	3,977	$	1,490

The following table presents the reclassification adjustments out of accumulated other comprehensive income that were included in net income in the Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	September 30,
Details about Accumulated Other Comprehensive Income Components	2016		2015		Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	92	$	57	Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(31)		(19)	Income tax expense
Total reclassifications for the period, net of tax	$	61	$	38

	Amount Reclassified from Accumulated Other Comprehensive Income For the Nine Months Ended
	September 30,
Details about Accumulated Other Comprehensive Income Components	2016		2015		Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	862	$	423	Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(293)		(144)	Income tax expense
Total reclassifications for the period, net of tax	$	569	$	279

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Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2016

Fair Values of Financial Instruments [Abstract]

Fair Values of Financial Instruments

Note 6:Fair Values of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.  There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1Quoted prices in active markets for identical assets or liabilities

Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

Items Measured at Fair Value on a Recurring Basis

Following is a description of the valuation methodologies and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying comparative balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  The Company uses a third-party provider to provide market prices on its securities.  Pooled trust preferred securities prices are evaluated by a third party.  Level 1 securities include marketable equity securities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include mortgage-backed, collateralized mortgage obligations, small business administration, marketable equity, municipal, federal agency and certain corporate obligation securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain corporate obligation securities.

Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2).  Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on investment securities relationship to other benchmark quoted investment securities.  Any investment security not valued based upon the methods above are considered Level 3.

The following table presents the fair value measurements of assets measured on a recurring basis and level within the ASC 820 fair value hierarchy.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2016
Mortgage-backed securities	$	98,225	$	-	$	98,225	$	-
Collateralized mortgage obligations		71,647		-		71,647		-
Municipal obligations		75,437		-		75,437		-
Corporate obligations		11,556		-		9,022		2,534
Available-for-sale securities	$	256,865	$	-	$	254,331	$	2,534

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2015
Mortgage-backed securities	$	107,838	$	-	$	107,838	$	-
Collateralized mortgage obligations		84,652		-		84,652		-
Municipal obligations		57,188		-		57,188		-
Corporate obligations		11,460		-		8,926		2,534
Available-for-sale securities	$	261,138	$	-	$	258,604	$	2,534

The following is a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2016 and 2015 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2016		2015		2016		2015
Beginning balance	$	2,534	$	2,522	$	2,534	$	2,522
Total realized and unrealized gains (losses)
Included in net income		-		-		-		-
Included in other comprehensive income (loss)		-		-		-		-
Purchases, issuances and settlements		-		-		-		-
Ending balance	$	2,534	$	2,522	$	2,534	$	2,522
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-	$	-	$	-

Items Measured at Fair Value on a Non-Recurring Basis

From time to time, certain assets may be recorded at fair value on a non-recurring basis.  These non-recurring fair value adjustments typically are a result of the application of lower of cost or fair value accounting or a write-down occurring during the period.  The following is a description of the valuation methodologies used for certain assets that are recorded at fair value.

The following table presents the fair value measurement of assets measured on a nonrecurring basis and the level within the ASC 820 fair value hierarchy. 

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Bank will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2016
Impaired loans	$	23	$	-	$	-	$	23

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2015
Impaired loans	$	676	$	-	$	-	$	676

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

September 30, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,534	Discounted cash flow	Discount rate	7.0 - 8.0	%
				Constant prepayment rate	2.0	%
				Cumulative projected prepayments	40.0	%
				Probability of default	1.7 - 1.8	%
				Projected cures given deferral	0 - 15.0	%
				Loss severity	33.8 - 40.2	%
Impaired loans (collateral dependent)	$	23	Third party valuations	Discount to reflect realizable value	20.0 - 50.0	%

December 31, 2015	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,534	Discounted cash flow	Discount rate	7.0 - 8.0	%
				Constant prepayment rate	2.0	%
				Cumulative projected prepayments	40.0	%
				Probability of default	1.7 - 1.8	%
				Projected cures given deferral	0 - 15.0	%
				Loss severity	33.8 - 40.2	%
Impaired loans (collateral dependent)	$	676	Third party valuations	Discount to reflect realizable value	20.0 - 50.0	%

The following methods and assumptions were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value:  

Cash and Cash Equivalents - The fair value of cash and cash-equivalents approximates carrying value.

Interest Bearing Time Deposits – The fair value of interest bearing time deposits approximates carrying value.

Loans Held For Sale - Fair values are based on quoted market prices.

Loans - The fair value for loans is estimated using discounted cash flow analyses using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

FHLB Stock - Fair value of FHLB stock is based on the price at which it may be resold to the FHLB.

Interest Receivable/Payable - The fair values of interest receivable/payable approximate carrying values.

Deposits - The fair values of noninterest-bearing, interest-bearing demand and savings accounts are equal to the amount payable on demand at the balance sheet date.  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on such time deposits.

FHLB Advances - The fair value of these borrowings is estimated using a discounted cash flow calculation, based on current rates for similar debt for periods comparable to the remaining terms to maturity of these advances.

Other Borrowings - The fair value of these borrowings is estimated using discounted cash flow analyses using interest rates for similar financial instruments. 

Off-Balance Sheet Commitments - Commitments include commitments to purchase and originate mortgage loans, commitments to sell mortgage loans, and standby letters of credit and are generally of a short-term nature.  The fair values of such commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.  The fair value of these instruments is insignificant.

The estimated fair values of the Company’s financial instruments not carried at fair value in the consolidated balance sheets as of the dates noted below are as follows: 

					Fair Value Measurements Using
September 30, 2016		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	25,143	$	25,143	$	25,143	$	-	$	-
Interest-bearing time deposits		980		980		980		-		-
Loans held for sale		8,311		8,428		-		8,428		-
Loans, net		1,122,289		1,123,837		-		-		1,123,837
FHLB stock		10,751		10,751		-		10,751		-
Interest receivable		4,173		4,173		-		4,173		-
Liabilities
Deposits		1,125,760		1,128,807		767,076		-		361,731
FHLB advances		239,091		241,612		-		241,612		-
Other borrowings		8,921		8,931		-		8,931		-
Interest payable		291		291		-		291		-

					Fair Value Measurements Using
December 31, 2015		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	20,915	$	20,915	$	20,915	$	-	$	-
Loans held for sale		5,991		6,058		-		6,058		-
Loans, net		1,068,204		1,056,357		-		-		1,056,357
FHLB stock		10,482		10,482		-		10,482		-
Interest receivable		4,201		4,201		-		4,201		-
Liabilities
Deposits		1,091,382		1,090,975		740,759		-		350,216
FHLB advances		225,617		224,621		-		224,621		-
Other borrowings		9,458		9,459		-		9,459		-
Interest payable		199		199		-		199		-

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Loans and Allowance

9 Months Ended

Sep. 30, 2016

Loans and Allowance [Abstract]

Loans and Allowance

Note 7: Loans and Allowance

Classes of loans at September 30, 2016 and December 31, 2015include:

	September 30,		December 31,
	2016		2015
Real estate
Commercial	$	271,797	$	236,895
Commercial construction and development		20,415		15,744
Consumer closed end first mortgage		477,386		491,451
Consumer open end and junior liens		70,411		70,990
		840,009		815,080
Other loans
Consumer loans
Auto		18,560		15,480
Boat/RVs		142,045		123,621
Other		5,943		6,171
Commercial and industrial		133,390		123,043
		299,938		268,315
Total loans		1,139,947		1,083,395
Undisbursed loans in process		(10,607)		(7,432)
Unamortized deferred loan costs, net		5,536		4,882
Allowance for loan losses		(12,587)		(12,641)
Net loans	$	1,122,289	$	1,068,204

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.  Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.  The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria.  As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk.  In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Construction and Development

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates and financial analyses of the developers and property owners.  Construction loans are generally based on estimates of costs and value associated with the complete project.  These estimates may be inaccurate.  Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project.  Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Commercial and Industrial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.  Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Consumer Real Estate and Other Consumer Loans

With respect to residential loans that are secured by consumer closed end first mortgages and are primarily owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires PMI if that ratio is exceeded.  Consumer open end and junior lien loans are typically secured by a subordinate interest in 1-4 family residences, and other consumer loans are secured by consumer assets such as automobiles or recreational vehicles.  Some consumer loans are unsecured such as small installment loans and certain lines of credit.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels.  Repayment can also be impacted by changes in property values on residential properties.  Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Nonaccrual Loans and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions, but never greater than 90 days past due. 

All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income.  The interest on these 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 and generally only after six months of satisfactory performance.

Nonaccrual loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 are as follows:

	September 30,		December 31,
	2016		2015
Real estate
Commercial	$	1,230	$	2,356
Commercial construction and development		-		-
Consumer closed end first mortgage		3,704		3,592
Consumer open end and junior liens		231		783
Consumer loans
Auto		3		-
Boat/RVs		113		81
Other		62		67
Commercial and industrial		13		25
Total nonaccrual loans	$	5,356	$	6,904

An age analysis of the Company’s past due loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	96	$	-	$	1,098	$	1,194	$	270,603	$	271,797	$	-
Commercial construction and development		-		-		-		-		20,415		20,415		-
Consumer closed end first mortgage		9,147		1,200		3,920		14,267		463,119		477,386		444
Consumer open end and junior liens		758		120		174		1,052		69,359		70,411		-
Consumer loans
Auto		95		35		16		146		18,414		18,560		13
Boat/RVs		1,170		361		98		1,629		140,416		142,045		21
Other		104		17		26		147		5,796		5,943		-
Commercial and industrial		74		462		24		560		132,830		133,390		-
Total	$	11,444	$	2,195	$	5,356	$	18,995	$	1,120,952	$	1,139,947	$	478

	December 31, 2015
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	922	$	20	$	2,212	$	3,154	$	233,741	$	236,895	$	-
Commercial construction and development		-		-		-		-		15,744		15,744		-
Consumer closed end first mortgage		7,272		1,328		3,091		11,691		479,760		491,451		267
Consumer open end and junior liens		296		187		765		1,248		69,742		70,990		-
Consumer loans
Auto		89		-		-		89		15,391		15,480		-
Boat/RVs		1,135		102		71		1,308		122,313		123,621		-
Other		89		14		62		165		6,006		6,171		-
Commercial and industrial		192		383		5		580		122,463		123,043		-
Total	$	9,995	$	2,034	$	6,206	$	18,235	$	1,065,160	$	1,083,395	$	267

Impaired Loans

Loans are considered impaired in accordance with the impairment accounting guidance (ASC 310-10-35-16), when, based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Interest on impaired loans is recorded based on the performance of the loan.  All interest received on impaired loans that are on nonaccrual status is accounted for on the cash-basis method until qualifying for return to accrual status.  Interest is accrued per the contract for impaired loans that are performing.

The following tables present impaired loans as of and for the three and nine month periods ended September 30, 2016 and 2015 and the year ended December 31, 2015. 

	September 30, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - QTR		Average Investment in Impaired Loans - YTD		Interest Income Recognized - QTR		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Real estate
Commercial	$	1,143	$	1,143	$	-	$	2,018	$	2,596	$	19	$	67
Commercial construction and development		827		827		-		841		887		9		30
Consumer closed end first mortgage		1,396		1,396		-		1,262		1,194		-		-
Consumer open end and junior liens		-		-		-		-		241		-		-
Commercial and industrial		194		194		-		197		204		-		-
Loans with a specific valuation allowance
Real estate
Commercial		284		284		123		359		491		-		1
Total
Real estate
Commercial	$	1,427	$	1,427	$	123	$	2,377	$	3,087	$	19	$	68
Commercial construction and development	$	827	$	827	$	-	$	841	$	887	$	9	$	30
Consumer closed end first mortgage	$	1,396	$	1,396	$	-	$	1,262	$	1,194	$	-	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	-	$	241	$	-	$	-
Commercial and industrial	$	194	$	194	$	-	$	197	$	204	$	-	$	-
Total	$	3,844	$	3,844	$	123	$	4,677	$	5,613	$	28	$	98

	December 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	3,608	$	3,608	$	-	$	4,115	$	172
Commercial construction and development		595		595		-		735		31
Consumer closed end first mortgage		1,126		1,126		-		1,131		-
Consumer open end and junior liens		481		481		-		381		-
Commercial and industrial		214		214		-		423		2
Loans with a specific valuation allowance
Real estate
Commercial		676		676		100		793		20
Total
Real estate
Commercial	$	4,284	$	4,284	$	100	$	4,908	$	192
Commercial construction and development	$	595	$	595	$	-	$	735	$	31
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,131	$	-
Consumer open end and junior liens	$	481	$	481	$	-	$	381	$	-
Commercial and industrial	$	214	$	214	$	-	$	423	$	2
Total	$	6,700	$	6,700	$	100	$	7,578	$	225

	September 30, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - QTR		Average Investment in Impaired Loans - YTD		Interest Income Recognized - QTR		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Real estate
Commercial	$	4,105	$	4,105	$	-	$	4,228	$	4,241	$	40	$	135
Commercial construction and development		649		1,155		-		648		770		8		23
Consumer closed end first mortgage		1,126		1,126		-		1,127		1,133		-		-
Consumer open end and junior liens		476		476		-		476		357		-		-
Commercial and industrial		219		219		-		221		475		-		2
Loans with a specific valuation allowance
Real estate
Commercial		820		820		100		820		822		-		20
Total
Real estate
Commercial	$	4,925	$	4,925	$	100	$	5,048	$	5,063	$	40	$	155
Commercial construction and development	$	649	$	1,155	$	-	$	648	$	770	$	8	$	23
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,127	$	1,133	$	-	$	-
Consumer open end and junior liens	$	476	$	476	$	-	$	476	$	357	$	-	$	-
Commercial and industrial	$	219	$	219	$	-	$	221	$	475	$	-	$	2
Total	$	7,395	$	7,901	$	100	$	7,520	$	7,798	$	48	$	180

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2016.

Commercial Loan Grades

Definition of Loan Grades.  Loan grades are numbered 1 through 8.  Grades 1-4 are "pass" credits, grade 5 [Special Mention] loans are "criticized" assets, and grades 6 [Substandard], 7 [Doubtful] and 8 [Loss] are "classified" assets.  The use and application of these grades by the Bank conform to the Bank's policy and regulatory definitions.

Pass.  Pass credits are loans in grades prime through fair.  These are at least considered to be credits with acceptable risks and would be granted in the normal course of lending operations. 

Special Mention.  Special mention credits have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credits or in the Bank’s credit position at some future date.  If weaknesses cannot be identified, classifying as special mention is not appropriate.  Special mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant an adverse classification.  No apparent loss of principal or interest is expected. 

Substandard.  Substandard credits are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged.  Financial statements normally reveal some or all of the following:  poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection.  Credits so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful.  A doubtful extension of credit has all the weaknesses inherent in a substandard asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.  Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.  Doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded Substandard.  

Retail Loan Grades

Pass.  Pass credits are loans that are currently performing as agreed and are not troubled debt restructurings. 

Special Mention.  Special mention credits have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credits or in the Bank’s credit position at some future date.  If weaknesses cannot be identified, classifying as special mention is not appropriate.  Special mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant an adverse classification.  No apparent loss of principal or interest is expected. 

Substandard.  Substandard credits are loans that have reason to be considered to have a weakness and placed on non-accrual.  This would include all retail loans over 90 days and troubled debt restructurings.

	September 30, 2016
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	263,502	$	4,416	$	3,850	$	29							$	271,797
Commercial construction and development			19,696		298		421		-								20,415
Consumer closed end first mortgage										$	471,773	$	-	$	5,613		477,386
Consumer open end and junior liens											70,065		-		346		70,411
Other loans
Consumer loans
Auto											18,553		-		7		18,560
Boat/RVs											141,847		-		198		142,045
Other											5,887		-		56		5,943
Commercial and industrial			130,751		2,477		162		-								133,390
		$	413,949	$	7,191	$	4,433	$	29	$	708,125	$	-	$	6,220	$	1,139,947

	December 31, 2015
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	226,439	$	4,137	$	6,319	$	-							$	236,895
Commercial construction and development			13,986		1,309		449		-								15,744
Consumer closed end first mortgage										$	484,658	$	-	$	6,793		491,451
Consumer open end and junior liens											70,086		-		904		70,990
Other loans
Consumer loans
Auto											15,480		-		-		15,480
Boat/RVs											123,490		-		131		123,621
Other											6,097		-		74		6,171
Commercial and industrial			119,540		3,300		203		-								123,043
		$	359,965	$	8,746	$	6,971	$	-	$	699,811	$	-	$	7,902	$	1,083,395

Allowance for Loan Losses.

We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated losses inherent in the loan portfolio.  Our methodology for assessing the appropriateness of the allowance consists of several key elements, including the general allowance and specific allowances for identified problem loans and portfolio segments.  In addition, the allowance incorporates the results of measuring impaired loans as provided in FASB ASC 310, Receivables.  These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans.  The general allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of such loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the general allowance. Loss factors are based on our historical loss experience as well as on significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date.

The appropriateness of the allowance is reviewed by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in non-performing loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan.  Senior management reviews these conditions quarterly in discussions with our senior credit officers.  To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment.  Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the loss related to this condition is reflected in the general allowance for loan losses.  The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio.  Actual losses can vary significantly from the estimated amounts.  Our methodology as described permits adjustments to any loss factor used in the computation of the general allowance in the event that, in management’s judgment, significant factors which affect the collectability of the portfolio as of the evaluation date are not reflected in the loss factors.  By assessing the probable incurred losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.  

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine month periods ended September 30, 2016 and 2015, respectively.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

	Three Months Ended September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,132	$	2,589	$	2,883	$	12,604
Provision charged (credited) to expense		97		(47)		200		250
Losses charged off		(55)		(125)		(225)		(405)
Recoveries		75		4		59		138
Balance, end of period	$	7,249	$	2,421	$	2,917	$	12,587

	Nine Months Ended September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	7,090	$	2,683	$	2,868	$	12,641
Provision charged to expense		168		38		394		600
Losses charged off		(88)		(309)		(563)		(960)
Recoveries		79		9		218		306
Balance, end of period	$	7,249	$	2,421	$	2,917	$	12,587

	Three Months Ended September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	6,825	$	3,318	$	2,763	$	12,906
Provision charged (credited) to expense		(248)		83		165		-
Losses charged off		(4)		(154)		(140)		(298)
Recoveries		76		33		40		149
Balance, end of period	$	6,649	$	3,280	$	2,828	$	12,757

	Nine Months Ended September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	7,085	$	3,471	$	2,612	$	13,168
Provision charged (credited) to expense		(846)		321		525		-
Losses charged off		(4)		(545)		(461)		(1,010)
Recoveries		414		33		152		599
Balance, end of period	$	6,649	$	3,280	$	2,828	$	12,757

The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of September 30, 2016 and 2015, and December 31, 2015.

	September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	123	$	-	$	-	$	123
Collectively evaluated for impairment		7,126		2,421		2,917		12,464
Total allowance for loan losses	$	7,249	$	2,421	$	2,917	$	12,587
Loan balances
Individually evaluated for impairment	$	2,448	$	1,396	$	-	$	3,844
Collectively evaluated for impairment		423,154		475,990		236,959		1,136,103
Gross loans	$	425,602	$	477,386	$	236,959	$	1,139,947

	September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		6,549		3,280		2,828		12,657
Total allowance for loan losses	$	6,649	$	3,280	$	2,828	$	12,757
Loan balances
Individually evaluated for impairment	$	5,793	$	1,126	$	476	$	7,395
Collectively evaluated for impairment		341,122		498,697		214,242		1,054,061
Gross loans	$	346,915	$	499,823	$	214,718	$	1,061,456

	December 31, 2015
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		6,990		2,683		2,868		12,541
Total allowance for loan losses	$	7,090	$	2,683	$	2,868	$	12,641
Loan balances
Individually evaluated for impairment	$	5,093	$	1,126	$	481	$	6,700
Collectively evaluated for impairment		370,589		490,325		215,781		1,076,695
Gross loans	$	375,682	$	491,451	$	216,262	$	1,083,395

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral.

For all loan portfolio segments except consumer real estate and other consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off consumer real estate and other consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge-down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged-off.

Troubled Debt Restructurings

Certain categories of impaired loans include loans that have been modified in a troubled debt restructuring; that involves granting economic concessions to borrowers who have experienced financial difficulties.  These concessions typically result from our loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.  Modifications of terms for our loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances.  

When we modify loans in a troubled debt restructuring, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or we use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through a specific reserve or a charge-off to the allowance.

Loans retain their accrual status at the time of their modification.  As a result, if a loan is on nonaccrual at the time it is modified, it stays as nonaccrual until a period of satisfactory performance, generally nine months, is obtained.  If a loan is on accrual at the time of the modification, the loan is evaluated to determine if the collection of principal and interest is reasonably assured and generally stays on accrual.

At September 30, 2016, the Company had a number of loans that were modified in troubled debt restructurings.  The modification of terms of such loans included one or a combination of the following:  an extension of maturity or a reduction of the stated interest rate.  

The following tables describe troubled debts restructured during the three and nine month periods ended September 30, 2016 and 2015:

	Three Months Ended
	September 30, 2016					September 30, 2015
	No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Real estate
Commercial	1	$	406	$	406	-	$	-	$	-
Consumer closed end first mortgage	1		11		12	1		11		11
Consumer open end and junior liens	1		39		39	3		51		51

	Nine Months Ended
	September 30, 2016					September 30, 2015
	No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Real estate
Commercial	1	$	406	$	406	3	$	1,992	$	1,990
Construction and development	-		-		-	1		155		134
Consumer closed end first mortgage	10		565		581	6		254		251
Consumer open end and junior liens	1		39		39	3		51		51
Other loans
Consumer loans
Auto	1		4		4	-		-		-
Boat/RVs	3		56		56	-		-		-
Commercial and industrial	1		83		83	1		88		83

The impact on the allowance for loan losses was insignificant as a result of these modifications. 

Newly restructured loans by type for the three and nine months ended September 30, 2016 and 2015 are as follows:

	Three Months Ended September 30, 2016
		Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Consumer closed end first mortgage		-		-		12		12
Consumer open end and junior liens		-		-		39		39

	Three Months Ended September 30, 2015
		Rate		Term		Combination		Total Modification
Real Estate
Consumer closed end first mortgage	$	-	$	11	$	-	$	11
Consumer open end and junior liens		-		51		-		51

	Nine Months Ended September 30, 2016
		Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Construction and development		-		-		-		-
Consumer closed end first mortgage		-		47		534		581
Consumer open end and junior liens		-		-		39		39
Other loans
Consumer loans
Auto		-		-		4		4
Boat/RVs		-		48		8		56
Commercial and industrial		-		83		-		83

	Nine Months Ended September 30, 2015
		Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	1,990	$	-	$	1,990
Construction and development		-		-		134		134
Consumer closed end first mortgage		-		11		240		251
Consumer open end and junior liens		-		51		-		51
Commercial and industrial		-		83		-		83

The following tablesdescribe troubled debts restructured that defaulted during the three and nine month periods ended September 30, 2016.  There were no defaults on loans modified as troubled debt restructurings made in the three and nine months ended September 30, 2015.  Defaults are defined as any loans that become 90 days past due.

	Three Months Ended September 30, 2016
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	4	$	133

	Nine Months Ended September 30, 2016
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	4	$	133

At September 30, 2016, the Company had residential real estate held for sale as a result of foreclosure totaling $547,000 and real estate in the process of foreclosure of $1.4 million.

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended September 30,
	2016					2015
		Net Income	Weighted- Average Shares		Per-Share Amount		Net Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	3,482	7,324,233	$	0.48	$	3,225	7,394,061	$	0.44
Effect of Dilutive Securities
Stock options		-	146,344				-	168,438
Diluted Earnings Per Share
Net income available and assumed conversions	$	3,482	7,470,577	$	0.47	$	3,225	7,562,499	$	0.43

	Nine Months Ended September 30,
	2016					2015
		Net Income	Weighted- Average Shares		Per-Share Amount		Net Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	10,004	7,414,328	$	1.35	$	8,923	7,364,035	$	1.21
Effect of Dilutive Securities
Stock options		-	146,255				-	175,900
Diluted Earnings Per Share
Net income available and assumed conversions	$	10,004	7,560,583	$	1.32	$	8,923	7,539,935	$	1.18

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2016

Investment Securities [Abstract]

Amortized Cost and Fair Values of Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below.  All mortgage-backed securities and collateralized mortgage obligations held as of September 30, 2016 and December 31, 2015 were guaranteed by government sponsored entities, government corporations or federal agencies.

	September 30, 2016
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	95,834	$	2,400	$	(9)	$	98,225
Collateralized mortgage obligations		70,838		869		(60)		71,647
Municipal obligations		71,235		4,277		(75)		75,437
Corporate obligations		12,808		35		(1,287)		11,556
Total investment securities	$	250,715	$	7,581	$	(1,431)	$	256,865

	December 31, 2015
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	106,524	$	1,562	$	(248)	$	107,838
Collateralized mortgage obligations		84,976		537		(861)		84,652
Municipal obligations		54,427		2,781		(20)		57,188
Corporate obligations		12,805		1		(1,346)		11,460
Total investment securities	$	258,732	$	4,881	$	(2,475)	$	261,138

Amortized Cost and Fair Value of Available for Sale Securities by Contractual Maturity

	Available for Sale
Description Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	-	$	-
One to five years		9,846		9,894
Five to ten years		8,073		8,758
After ten years		66,124		68,341
		84,043		86,993
Mortgage-backed securities		95,834		98,225
Collateralized mortgage obligations		70,838		71,647
Totals	$	250,715	$	256,865

Investments Gross Unrealized Losses and Fair Value in Continuous Unrealized Loss Position

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2016 and December 31, 2015:

	September 30, 2016
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	1,138	$	(9)	$	-	$	-	$	1,138	$	(9)
Collateralized mortgage obligations		6,229		(13)		5,014		(47)		11,243		(60)
Municipal obligations		6,198		(74)		338		(1)		6,536		(75)
Corporate obligations		-		-		7,021		(1,287)		7,021		(1,287)
Total temporarily impaired securities	$	13,565	$	(96)	$	12,373	$	(1,335)	$	25,938	$	(1,431)

	December 31, 2015
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	38,649	$	(248)	$	-	$	-	$	38,649	$	(248)
Collateralized mortgage obligations		27,457		(281)		21,271		(580)	$	48,728	$	(861)
Municipal obligations		2,739		(17)		491		(3)		3,230		(20)
Corporate obligations		4,425		(75)		2,534		(1,271)		6,959		(1,346)
Total temporarily impaired securities	$	73,270	$	(621)	$	24,296	$	(1,854)	$	97,566	$	(2,475)

Debt Securities for which Credit Loss was Recognized in Income and Other Losses Recorded in Other Comprehensive Income

The following tables provide information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Credit losses on debt securities held
Beginning of period	$	109	$	109	$	109	$	109
Reductions related to actual losses incurred		-		-		-		-
As of September 30,	$	109	$	109	$	109	$	109

Pooled Trust Preferred Collateralized Debt Obligations

The following table provides additional information related to the Company’s investment in pooled trust preferred securities as of September 30, 2016:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized loss		Realized Losses YTD		Lowest Current Rating	Number of Banks / Insurance Cos. Currently Performing	Total Number of Banks and Insurance Cos. In Issuance (Unique)	Actual Deferrals/ Defaults (as a % of original collateral)		Total Projected Defaults (as a % of performing collateral) (1)		Excess subordination (after taking into account best estimate of future deferrals/ defaults) (2)
	(Dollars in Thousands)
Alesco Preferred Funding IX	A1	$	1,000	$	917	$	548	$	(369)	$	-	CCC-	43	50	6.75	%	10.68	%	54.87	%
U.S. Capital Funding I	B3		3,000		2,891		1,986		(905)		-	C	29	33	7.95	%	6.45	%	11.81	%
		$	4,000	$	3,808	$	2,534	$	(1,274)	$	-

(1)  A  10% recovery is applied to all projected defaults by depository institutions. A 15% recovery is applied to all projected defaults by insurance companies.  No recovery is applied to current defaults.

(2)  Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2016

Accumulated Other Comprehensive Income [Abstract]

Components of Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	September 30,		December 31,
	2016		2015
Net unrealized gain on securities available-for-sale	$	7,055	$	3,311
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		(905)		(905)
Net unrealized loss on derivative used for cash flow hedges		(10)		(1)
Net unrealized loss relating to defined benefit plan liability		(32)		(32)
		6,108		2,373
Tax expense		2,131		883
Net of tax amount	$	3,977	$	1,490

Reclassification out of Accumulated Other Comprehensive Income (Loss)

The following table presents the reclassification adjustments out of accumulated other comprehensive income that were included in net income in the Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	September 30,
Details about Accumulated Other Comprehensive Income Components	2016		2015		Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	92	$	57	Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(31)		(19)	Income tax expense
Total reclassifications for the period, net of tax	$	61	$	38

	Amount Reclassified from Accumulated Other Comprehensive Income For the Nine Months Ended
	September 30,
Details about Accumulated Other Comprehensive Income Components	2016		2015		Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	862	$	423	Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(293)		(144)	Income tax expense
Total reclassifications for the period, net of tax	$	569	$	279

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Fair Values of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Fair Values of Financial Instruments [Abstract]

Fair Value Measurements of Assets Measured at Fair Value on Recurring Basis

The following table presents the fair value measurements of assets measured on a recurring basis and level within the ASC 820 fair value hierarchy.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2016
Mortgage-backed securities	$	98,225	$	-	$	98,225	$	-
Collateralized mortgage obligations		71,647		-		71,647		-
Municipal obligations		75,437		-		75,437		-
Corporate obligations		11,556		-		9,022		2,534
Available-for-sale securities	$	256,865	$	-	$	254,331	$	2,534

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2015
Mortgage-backed securities	$	107,838	$	-	$	107,838	$	-
Collateralized mortgage obligations		84,652		-		84,652		-
Municipal obligations		57,188		-		57,188		-
Corporate obligations		11,460		-		8,926		2,534
Available-for-sale securities	$	261,138	$	-	$	258,604	$	2,534

Reconciliation of Recurring Fair Value Measurements Recognized in Balance Sheet using Significant Unobservable (Level Three) Inputs

The following is a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2016 and 2015 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2016		2015		2016		2015
Beginning balance	$	2,534	$	2,522	$	2,534	$	2,522
Total realized and unrealized gains (losses)
Included in net income		-		-		-		-
Included in other comprehensive income (loss)		-		-		-		-
Purchases, issuances and settlements		-		-		-		-
Ending balance	$	2,534	$	2,522	$	2,534	$	2,522
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-	$	-	$	-

Fair Value Measurement of Assets Measured at Fair Value on Nonrecurring Basis

The following table presents the fair value measurement of assets measured on a nonrecurring basis and the level within the ASC 820 fair value hierarchy. 

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Bank will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2016
Impaired loans	$	23	$	-	$	-	$	23

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2015
Impaired loans	$	676	$	-	$	-	$	676

Quantitative Information about Unobservable Inputs used in Recurring and Nonrecurring Level Three Fair Value Measurements

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements:

September 30, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,534	Discounted cash flow	Discount rate	7.0 - 8.0	%
				Constant prepayment rate	2.0	%
				Cumulative projected prepayments	40.0	%
				Probability of default	1.7 - 1.8	%
				Projected cures given deferral	0 - 15.0	%
				Loss severity	33.8 - 40.2	%
Impaired loans (collateral dependent)	$	23	Third party valuations	Discount to reflect realizable value	20.0 - 50.0	%

December 31, 2015	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,534	Discounted cash flow	Discount rate	7.0 - 8.0	%
				Constant prepayment rate	2.0	%
				Cumulative projected prepayments	40.0	%
				Probability of default	1.7 - 1.8	%
				Projected cures given deferral	0 - 15.0	%
				Loss severity	33.8 - 40.2	%
Impaired loans (collateral dependent)	$	676	Third party valuations	Discount to reflect realizable value	20.0 - 50.0	%

Estimated Fair Values of Financial Instruments

The estimated fair values of the Company’s financial instruments not carried at fair value in the consolidated balance sheets as of the dates noted below are as follows: 

					Fair Value Measurements Using
September 30, 2016		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	25,143	$	25,143	$	25,143	$	-	$	-
Interest-bearing time deposits		980		980		980		-		-
Loans held for sale		8,311		8,428		-		8,428		-
Loans, net		1,122,289		1,123,837		-		-		1,123,837
FHLB stock		10,751		10,751		-		10,751		-
Interest receivable		4,173		4,173		-		4,173		-
Liabilities
Deposits		1,125,760		1,128,807		767,076		-		361,731
FHLB advances		239,091		241,612		-		241,612		-
Other borrowings		8,921		8,931		-		8,931		-
Interest payable		291		291		-		291		-

					Fair Value Measurements Using
December 31, 2015		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	20,915	$	20,915	$	20,915	$	-	$	-
Loans held for sale		5,991		6,058		-		6,058		-
Loans, net		1,068,204		1,056,357		-		-		1,056,357
FHLB stock		10,482		10,482		-		10,482		-
Interest receivable		4,201		4,201		-		4,201		-
Liabilities
Deposits		1,091,382		1,090,975		740,759		-		350,216
FHLB advances		225,617		224,621		-		224,621		-
Other borrowings		9,458		9,459		-		9,459		-
Interest payable		199		199		-		199		-

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Loans and Allowance (Tables)

9 Months Ended

Sep. 30, 2016

Loans and Allowance [Abstract]

Schedule of Classes of Loans

Classes of loans at September 30, 2016 and December 31, 2015include:

	September 30,		December 31,
	2016		2015
Real estate
Commercial	$	271,797	$	236,895
Commercial construction and development		20,415		15,744
Consumer closed end first mortgage		477,386		491,451
Consumer open end and junior liens		70,411		70,990
		840,009		815,080
Other loans
Consumer loans
Auto		18,560		15,480
Boat/RVs		142,045		123,621
Other		5,943		6,171
Commercial and industrial		133,390		123,043
		299,938		268,315
Total loans		1,139,947		1,083,395
Undisbursed loans in process		(10,607)		(7,432)
Unamortized deferred loan costs, net		5,536		4,882
Allowance for loan losses		(12,587)		(12,641)
Net loans	$	1,122,289	$	1,068,204

Non-Accrual Loans Segregated by Class of Loans

Nonaccrual loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 are as follows:

	September 30,		December 31,
	2016		2015
Real estate
Commercial	$	1,230	$	2,356
Commercial construction and development		-		-
Consumer closed end first mortgage		3,704		3,592
Consumer open end and junior liens		231		783
Consumer loans
Auto		3		-
Boat/RVs		113		81
Other		62		67
Commercial and industrial		13		25
Total nonaccrual loans	$	5,356	$	6,904

Age Analysis of Past Due Loans Segregated by Class of Loans

An age analysis of the Company’s past due loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	96	$	-	$	1,098	$	1,194	$	270,603	$	271,797	$	-
Commercial construction and development		-		-		-		-		20,415		20,415		-
Consumer closed end first mortgage		9,147		1,200		3,920		14,267		463,119		477,386		444
Consumer open end and junior liens		758		120		174		1,052		69,359		70,411		-
Consumer loans
Auto		95		35		16		146		18,414		18,560		13
Boat/RVs		1,170		361		98		1,629		140,416		142,045		21
Other		104		17		26		147		5,796		5,943		-
Commercial and industrial		74		462		24		560		132,830		133,390		-
Total	$	11,444	$	2,195	$	5,356	$	18,995	$	1,120,952	$	1,139,947	$	478

	December 31, 2015
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	922	$	20	$	2,212	$	3,154	$	233,741	$	236,895	$	-
Commercial construction and development		-		-		-		-		15,744		15,744		-
Consumer closed end first mortgage		7,272		1,328		3,091		11,691		479,760		491,451		267
Consumer open end and junior liens		296		187		765		1,248		69,742		70,990		-
Consumer loans
Auto		89		-		-		89		15,391		15,480		-
Boat/RVs		1,135		102		71		1,308		122,313		123,621		-
Other		89		14		62		165		6,006		6,171		-
Commercial and industrial		192		383		5		580		122,463		123,043		-
Total	$	9,995	$	2,034	$	6,206	$	18,235	$	1,065,160	$	1,083,395	$	267

Impaired Loans

The following tables present impaired loans as of and for the three and nine month periods ended September 30, 2016 and 2015 and the year ended December 31, 2015. 

	September 30, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - QTR		Average Investment in Impaired Loans - YTD		Interest Income Recognized - QTR		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Real estate
Commercial	$	1,143	$	1,143	$	-	$	2,018	$	2,596	$	19	$	67
Commercial construction and development		827		827		-		841		887		9		30
Consumer closed end first mortgage		1,396		1,396		-		1,262		1,194		-		-
Consumer open end and junior liens		-		-		-		-		241		-		-
Commercial and industrial		194		194		-		197		204		-		-
Loans with a specific valuation allowance
Real estate
Commercial		284		284		123		359		491		-		1
Total
Real estate
Commercial	$	1,427	$	1,427	$	123	$	2,377	$	3,087	$	19	$	68
Commercial construction and development	$	827	$	827	$	-	$	841	$	887	$	9	$	30
Consumer closed end first mortgage	$	1,396	$	1,396	$	-	$	1,262	$	1,194	$	-	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	-	$	241	$	-	$	-
Commercial and industrial	$	194	$	194	$	-	$	197	$	204	$	-	$	-
Total	$	3,844	$	3,844	$	123	$	4,677	$	5,613	$	28	$	98

	December 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	3,608	$	3,608	$	-	$	4,115	$	172
Commercial construction and development		595		595		-		735		31
Consumer closed end first mortgage		1,126		1,126		-		1,131		-
Consumer open end and junior liens		481		481		-		381		-
Commercial and industrial		214		214		-		423		2
Loans with a specific valuation allowance
Real estate
Commercial		676		676		100		793		20
Total
Real estate
Commercial	$	4,284	$	4,284	$	100	$	4,908	$	192
Commercial construction and development	$	595	$	595	$	-	$	735	$	31
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,131	$	-
Consumer open end and junior liens	$	481	$	481	$	-	$	381	$	-
Commercial and industrial	$	214	$	214	$	-	$	423	$	2
Total	$	6,700	$	6,700	$	100	$	7,578	$	225

	September 30, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - QTR		Average Investment in Impaired Loans - YTD		Interest Income Recognized - QTR		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Real estate
Commercial	$	4,105	$	4,105	$	-	$	4,228	$	4,241	$	40	$	135
Commercial construction and development		649		1,155		-		648		770		8		23
Consumer closed end first mortgage		1,126		1,126		-		1,127		1,133		-		-
Consumer open end and junior liens		476		476		-		476		357		-		-
Commercial and industrial		219		219		-		221		475		-		2
Loans with a specific valuation allowance
Real estate
Commercial		820		820		100		820		822		-		20
Total
Real estate
Commercial	$	4,925	$	4,925	$	100	$	5,048	$	5,063	$	40	$	155
Commercial construction and development	$	649	$	1,155	$	-	$	648	$	770	$	8	$	23
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,127	$	1,133	$	-	$	-
Consumer open end and junior liens	$	476	$	476	$	-	$	476	$	357	$	-	$	-
Commercial and industrial	$	219	$	219	$	-	$	221	$	475	$	-	$	2
Total	$	7,395	$	7,901	$	100	$	7,520	$	7,798	$	48	$	180

Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating

	September 30, 2016
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	263,502	$	4,416	$	3,850	$	29							$	271,797
Commercial construction and development			19,696		298		421		-								20,415
Consumer closed end first mortgage										$	471,773	$	-	$	5,613		477,386
Consumer open end and junior liens											70,065		-		346		70,411
Other loans
Consumer loans
Auto											18,553		-		7		18,560
Boat/RVs											141,847		-		198		142,045
Other											5,887		-		56		5,943
Commercial and industrial			130,751		2,477		162		-								133,390
		$	413,949	$	7,191	$	4,433	$	29	$	708,125	$	-	$	6,220	$	1,139,947

	December 31, 2015
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	226,439	$	4,137	$	6,319	$	-							$	236,895
Commercial construction and development			13,986		1,309		449		-								15,744
Consumer closed end first mortgage										$	484,658	$	-	$	6,793		491,451
Consumer open end and junior liens											70,086		-		904		70,990
Other loans
Consumer loans
Auto											15,480		-		-		15,480
Boat/RVs											123,490		-		131		123,621
Other											6,097		-		74		6,171
Commercial and industrial			119,540		3,300		203		-								123,043
		$	359,965	$	8,746	$	6,971	$	-	$	699,811	$	-	$	7,902	$	1,083,395

Activity in Allowance for Loan Losses by Portfolio Segment

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine month periods ended September 30, 2016 and 2015, respectively.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

	Three Months Ended September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,132	$	2,589	$	2,883	$	12,604
Provision charged (credited) to expense		97		(47)		200		250
Losses charged off		(55)		(125)		(225)		(405)
Recoveries		75		4		59		138
Balance, end of period	$	7,249	$	2,421	$	2,917	$	12,587

	Nine Months Ended September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	7,090	$	2,683	$	2,868	$	12,641
Provision charged to expense		168		38		394		600
Losses charged off		(88)		(309)		(563)		(960)
Recoveries		79		9		218		306
Balance, end of period	$	7,249	$	2,421	$	2,917	$	12,587

	Three Months Ended September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	6,825	$	3,318	$	2,763	$	12,906
Provision charged (credited) to expense		(248)		83		165		-
Losses charged off		(4)		(154)		(140)		(298)
Recoveries		76		33		40		149
Balance, end of period	$	6,649	$	3,280	$	2,828	$	12,757

	Nine Months Ended September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	7,085	$	3,471	$	2,612	$	13,168
Provision charged (credited) to expense		(846)		321		525		-
Losses charged off		(4)		(545)		(461)		(1,010)
Recoveries		414		33		152		599
Balance, end of period	$	6,649	$	3,280	$	2,828	$	12,757

The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of September 30, 2016 and 2015, and December 31, 2015.

	September 30, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	123	$	-	$	-	$	123
Collectively evaluated for impairment		7,126		2,421		2,917		12,464
Total allowance for loan losses	$	7,249	$	2,421	$	2,917	$	12,587
Loan balances
Individually evaluated for impairment	$	2,448	$	1,396	$	-	$	3,844
Collectively evaluated for impairment		423,154		475,990		236,959		1,136,103
Gross loans	$	425,602	$	477,386	$	236,959	$	1,139,947

	September 30, 2015
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		6,549		3,280		2,828		12,657
Total allowance for loan losses	$	6,649	$	3,280	$	2,828	$	12,757
Loan balances
Individually evaluated for impairment	$	5,793	$	1,126	$	476	$	7,395
Collectively evaluated for impairment		341,122		498,697		214,242		1,054,061
Gross loans	$	346,915	$	499,823	$	214,718	$	1,061,456

	December 31, 2015
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		6,990		2,683		2,868		12,541
Total allowance for loan losses	$	7,090	$	2,683	$	2,868	$	12,641
Loan balances
Individually evaluated for impairment	$	5,093	$	1,126	$	481	$	6,700
Collectively evaluated for impairment		370,589		490,325		215,781		1,076,695
Gross loans	$	375,682	$	491,451	$	216,262	$	1,083,395

Troubled Debts Restructured

The following tables describe troubled debts restructured during the three and nine month periods ended September 30, 2016 and 2015:

	Three Months Ended
	September 30, 2016					September 30, 2015
	No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Real estate
Commercial	1	$	406	$	406	-	$	-	$	-
Consumer closed end first mortgage	1		11		12	1		11		11
Consumer open end and junior liens	1		39		39	3		51		51

	Nine Months Ended
	September 30, 2016					September 30, 2015
	No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Real estate
Commercial	1	$	406	$	406	3	$	1,992	$	1,990
Construction and development	-		-		-	1		155		134
Consumer closed end first mortgage	10		565		581	6		254		251
Consumer open end and junior liens	1		39		39	3		51		51
Other loans
Consumer loans
Auto	1		4		4	-		-		-
Boat/RVs	3		56		56	-		-		-
Commercial and industrial	1		83		83	1		88		83

Newly Restructured Loans by Types

Newly restructured loans by type for the three and nine months ended September 30, 2016 and 2015 are as follows:

	Three Months Ended September 30, 2016
		Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Consumer closed end first mortgage		-		-		12		12
Consumer open end and junior liens		-		-		39		39

	Three Months Ended September 30, 2015
		Rate		Term		Combination		Total Modification
Real Estate
Consumer closed end first mortgage	$	-	$	11	$	-	$	11
Consumer open end and junior liens		-		51		-		51

	Nine Months Ended September 30, 2016
		Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Construction and development		-		-		-		-
Consumer closed end first mortgage		-		47		534		581
Consumer open end and junior liens		-		-		39		39
Other loans
Consumer loans
Auto		-		-		4		4
Boat/RVs		-		48		8		56
Commercial and industrial		-		83		-		83

	Nine Months Ended September 30, 2015
		Rate		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	1,990	$	-	$	1,990
Construction and development		-		-		134		134
Consumer closed end first mortgage		-		11		240		251
Consumer open end and junior liens		-		51		-		51
Commercial and industrial		-		83		-		83

Troubled Debts Restructured Defaulted

The following tablesdescribe troubled debts restructured that defaulted during the three and nine month periods ended September 30, 2016.  There were no defaults on loans modified as troubled debt restructurings made in the three and nine months ended September 30, 2015.  Defaults are defined as any loans that become 90 days past due.

	Three Months Ended September 30, 2016
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	4	$	133

	Nine Months Ended September 30, 2016
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	4	$	133

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Earnings Per Share (Narrative) (Details)	9 Months Ended
	Sep. 30, 2015 shares
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from earnings per share computation	37,161

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Earnings Per Share (Schedule of Earnings per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Basic Earnings Per Share
Net income	$ 3,482	$ 3,225	$ 10,004	$ 8,923
Weighted-Average Shares number of common shares, basic	7,324,233	7,394,061	7,414,328	7,364,035
Earnings per share, basic	$ 0.48	$ 0.44	$ 1.35	$ 1.21
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$ 3,482	$ 3,225	$ 10,004	$ 8,923
Weighted-Average Shares, effect of dilutive securities stock option	146,344	168,438	146,255	175,900
Weighted-Average Shares income available to common stockholders and assumed conversions, diluted	7,470,577	7,562,499	7,560,583	7,539,935
Earnings per share, diluted	$ 0.47	$ 0.43	$ 1.32	$ 1.18

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Investment Securities (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2011
Investment [Line Items]
Fair value of investments reported at less than historical cost	$ 25,938,000		$ 25,938,000		$ 97,566,000
Percentage of Bank portfolio	10.10%		10.10%		37.40%
Proceeds from sales of securities, available for sale	$ 8,300,000	$ 730,000	$ 38,167,000	$ 14,112,000
Gross realized gain on sale of securities	92,000	57,000	911,000	423,000
Gross realized losses on sale of securities	0	$ 0	$ 49,000	$ 0
Percentage of recovery estimate depository institutions			10.00%
Percentage of recovery estimate insurance companies			15.00%
Pooled Trust Preferred Securities [Member]
Investment [Line Items]
Current par balance	3,800,000		$ 3,800,000
Original Par	$ 4,000,000		$ 4,000,000			$ 4,000,000

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Investment Securities (Amortized Cost and Fair Values of Securities ) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 250,715	$ 258,732
Gross Unrealized Gains	7,581	4,881
Gross Unrealized Losses	(1,431)	(2,475)
Fair Value	256,865	261,138
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	95,834	106,524
Gross Unrealized Gains	2,400	1,562
Gross Unrealized Losses	(9)	(248)
Fair Value	98,225	107,838
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	70,838	84,976
Gross Unrealized Gains	869	537
Gross Unrealized Losses	(60)	(861)
Fair Value	71,647	84,652
Municipals
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	71,235	54,427
Gross Unrealized Gains	4,277	2,781
Gross Unrealized Losses	(75)	(20)
Fair Value	75,437	57,188
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	12,808	12,805
Gross Unrealized Gains	35	1
Gross Unrealized Losses	(1,287)	(1,346)
Fair Value	$ 11,556	$ 11,460

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Investment Securities (Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturity) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Security obligations due, amortized cost, One to five years	$ 9,846
Security obligations due, amortized cost, Five to ten years	8,073
Security obligations due, amortized cost, After ten years	66,124
Total security obligations due, amortized cost	84,043
Available for sale, amortized cost	250,715	$ 258,732
Security obligations due, Fair value, One to five years	9,894
Security obligations due, Fair value, Five to ten years	8,758
Security obligations due, Fair value, After ten years	68,341
Total Security obligations due, Fair value	86,993
Investment securities available for sale (carried at fair value)	256,865	261,138
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Available for sale, amortized cost	95,834	106,524
Investment securities available for sale (carried at fair value)	98,225	107,838
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Available for sale, amortized cost	70,838	84,976
Investment securities available for sale (carried at fair value)	$ 71,647	$ 84,652

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Investment Securities (Investments Gross Unrealized Losses and Fair Value in Continuous Unrealized Loss Position) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	$ 13,565	$ 73,270
Less than 12 months, Unrealized Losses	(96)	(621)
12 months or more, Fair Value	12,373	24,296
12 months or more, Unrealized Losses	(1,335)	(1,854)
Total, Fair Value	25,938	97,566
Total, Unrealized Losses	(1,431)	(2,475)
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	1,138	38,649
Less than 12 months, Unrealized Losses	(9)	(248)
Total, Fair Value	1,138	38,649
Total, Unrealized Losses	(9)	(248)
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	6,229	27,457
Less than 12 months, Unrealized Losses	(13)	(281)
12 months or more, Fair Value	5,014	21,271
12 months or more, Unrealized Losses	(47)	(580)
Total, Fair Value	11,243	48,728
Total, Unrealized Losses	(60)	(861)
Municipals
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	6,198	2,739
Less than 12 months, Unrealized Losses	(74)	(17)
12 months or more, Fair Value	338	491
12 months or more, Unrealized Losses	(1)	(3)
Total, Fair Value	6,536	3,230
Total, Unrealized Losses	(75)	(20)
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value		4,425
Less than 12 months, Unrealized Losses		(75)
12 months or more, Fair Value	7,021	2,534
12 months or more, Unrealized Losses	(1,287)	(1,271)
Total, Fair Value	7,021	6,959
Total, Unrealized Losses	$ (1,287)	$ (1,346)

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Investment Securities (Debt Securities for which Credit Loss was Recognized in Income and Other Losses Recorded in Other Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Investment Securities [Abstract]
Credit losses on debt securities held, beginning of period	$ 109	$ 109	$ 109	$ 109
Reductions related to actual losses incurred
Credit losses on debt securities held, end of period	$ 109	$ 109	$ 109	$ 109

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Investment Securities (Pooled Trust Preferred Collateralized Debt Obligations) (Details) $ in Thousands		9 Months Ended
		Sep. 30, 2016 USD ($) item	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2011 USD ($)
Fair Value		$ 256,865		$ 261,138
Unrealized loss		(1,431)		$ (2,475)
Realized losses YTD		862	$ 423
Pooled Trust Preferred Securities [Member]
Original Par		4,000			$ 4,000
Book Value		3,808
Fair Value		2,534
Unrealized loss		$ (1,274)
Pooled Trust Preferred Securities [Member] | Alesco Preferred Funding IX [Member]
Class		A1
Original Par		$ 1,000
Book Value		917
Fair Value		548
Unrealized loss		$ (369)
Number of Banks / Insurance Cos. Currently Performing | item		43
Total Number of Banks and Insurance Cos. In Issuance (Unique) | item		50
Actual Deferrals/Defaults (as a % of original collateral)		6.75%
Total Projected Defaults (as a % of performing collateral)	[1]	10.68%
Excess subordination (after taking into account best estimate of future deferrals/defaults)	[2]	54.87%
Pooled Trust Preferred Securities [Member] | U.S. Capital Funding I [Member]
Class		B3
Original Par		$ 3,000
Book Value		2,891
Fair Value		1,986
Unrealized loss		$ (905)
Number of Banks / Insurance Cos. Currently Performing | item		29
Total Number of Banks and Insurance Cos. In Issuance (Unique) | item		33
Actual Deferrals/Defaults (as a % of original collateral)		7.95%
Total Projected Defaults (as a % of performing collateral)	[1]	6.45%
Excess subordination (after taking into account best estimate of future deferrals/defaults)	[2]	11.81%
Minimum | Pooled Trust Preferred Securities [Member] | Alesco Preferred Funding IX [Member]
Class		CCC-
Minimum | Pooled Trust Preferred Securities [Member] | U.S. Capital Funding I [Member]
Class		C

[1] A 10% recovery is applied to all projected defaults by depository institutions. A 15% recovery is applied to all projected defaults by insurance companies. No recovery is applied to current defaults.

[2] Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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Accumulated Other Comprehensive Income (Components of Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Income [Abstract]
Net unrealized gain on securities available-for-sale	$ 7,055	$ 3,311
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income	(905)	(905)
Net unrealized loss on derivative used for cash flow hedges	(10)	(1)
Net unrealized loss relating to defined benefit plan liability	(32)	(32)
Accumulated other comprehensive income before tax	6,108	2,373
Tax expense	2,131	883
Net of tax amount	$ 3,977	$ 1,490

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Accumulated Other Comprehensive Income (Reclassification out of Accumulated Other Comprehensive Income (Loss) Alternate) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Related income tax expense	$ (1,208)	$ (1,330)	$ (3,319)	$ (3,681)
Reclassification out of AOCI [Member] | Accumulated Net Unrealized Investment Gain (Loss) [Member]
Total Non-interest income	92	57	862	423
Related income tax expense	(31)	(19)	(293)	(144)
Net Income	$ 61	$ 38	$ 569	$ 279

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Fair Values of Financial Instruments (Fair Value Measurement of Assets Measured at Fair Value on Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 256,865	$ 261,138
Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	98,225	107,838
Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	71,647	84,652
Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	75,437	57,188
Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	11,556	11,460
Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 1 | Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 1 | Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 1 | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 1 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	254,331	258,604
Fair Value, Inputs, Level 2 | Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	98,225	107,838
Fair Value, Inputs, Level 2 | Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	71,647	84,652
Fair Value, Inputs, Level 2 | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	75,437	57,188
Fair Value, Inputs, Level 2 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	9,022	8,926
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	2,534	2,534
Fair Value, Inputs, Level 3 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,534	$ 2,534

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Fair Values of Financial Instruments (Reconciliation of Recurring Fair Value Measurements Recognized in Balance Sheet using Significant Unobservable (Level Three) Inputs) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Fair Values of Financial Instruments [Abstract]
Beginning balance	$ 2,534	$ 2,522	$ 2,534	$ 2,522
Total realized and unrealized gains (losses)
Included in net income
Included in other comprehensive income (loss)
Purchases, sales, issuances and settlements
Ending balance	$ 2,534	$ 2,522	$ 2,534	$ 2,522

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Fair Values of Financial Instruments (Fair Value Measurement of Assets Measured at Fair Value on Nonrecurring Basis) (Details) - Impaired loans - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on nonrecurring basis	$ 23	$ 676
Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on nonrecurring basis
Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on nonrecurring basis
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on nonrecurring basis	$ 23	$ 676

XML

Fair Values of Financial Instruments (Quantitative Information about Unobservable Inputs used in Recurring and Nonrecurring Level Three Fair Value Measurements) (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Pooled Trust Preferred Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,534	$ 2,534
Valuation Technique	Discounted cash flow	Discounted cash flow
Constant prepayment rate	2.00%	2.00%
Cumulative projected prepayments	40.00%	40.00%
Pooled Trust Preferred Securities | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	7.00%	7.00%
Probability of default	1.70%	1.70%
Projected cures given deferral	0.00%	0.00%
Loss severity	33.80%	33.80%
Pooled Trust Preferred Securities | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	8.00%	8.00%
Probability of default	1.80%	1.80%
Projected cures given deferral	15.00%	15.00%
Loss severity	40.20%	40.20%
Impaired loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 23	$ 676
Valuation Technique		Third party valuations
Impaired loans | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount to reflect realizable value	20.00%	20.00%
Impaired loans | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount to reflect realizable value	50.00%	50.00%

XML

Fair Values of Financial Instruments (Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Carrying Amount [Member]
Assets
Cash and cash equivalents	$ 25,143	$ 20,915
Interest-bearing deposits	980
Loans held for sale	8,311	5,991
Loans	1,122,289	1,068,204
FHLB stock	10,751	10,482
Interest receivable	4,173	4,201
Liabilities
Deposits	1,125,760	1,091,382
FHLB advances	239,091	225,617
Other borrowings	8,921	9,458
Interest payable	291	199
Portion at Fair Value Measurement [Member]
Assets
Cash and cash equivalents	25,143	20,915
Interest-bearing deposits	980
Loans held for sale	8,428	6,058
Loans	1,123,837	1,056,357
FHLB stock	10,751	10,482
Interest receivable	4,173	4,201
Liabilities
Deposits	1,128,807	1,090,975
FHLB advances	241,612	224,621
Other borrowings	8,931	9,459
Interest payable	291	199
Fair Value, Inputs, Level 1 | Portion at Fair Value Measurement [Member]
Assets
Cash and cash equivalents	25,143	20,915
Interest-bearing deposits	980
Liabilities
Deposits	767,076	740,759
Fair Value, Inputs, Level 2 | Portion at Fair Value Measurement [Member]
Assets
Loans held for sale	8,428	6,058
FHLB stock	10,751	10,482
Interest receivable	4,173	4,201
Liabilities
FHLB advances	241,612	224,621
Other borrowings	8,931	9,459
Interest payable	291	199
Fair Value, Inputs, Level 3 | Portion at Fair Value Measurement [Member]
Assets
Loans	1,123,837	1,056,357
Liabilities
Deposits	$ 361,731	$ 350,216

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Loans (Narrative) (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2015	Sep. 30, 2016
Loans [Abstract]
Financing receivable, modifications, subsequent default, recorded investment	$ 0	$ 0
Real estate held-for-sale			$ 547,000
Mortgage loans in process of foreclosure, amount			$ 1,400,000

XML

Loans (Categories of Loans) (Details) - USD ($)	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,139,947,000		$ 1,083,395,000	$ 1,061,456,000
Undisbursed loans in process	(10,607,000)		(7,432,000)
Unamortized deferred loan costs, net	5,536,000		4,882,000
Allowance for loan losses	(12,587,000)	$ (12,604,000)	(12,641,000)	$ (12,757,000)	$ (12,906,000)	$ (13,168,000)
Net loans	1,122,289,000		1,068,204,000
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	271,797,000		236,895,000
Construction Loans [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	20,415,000		15,744,000
First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	477,386,000		491,451,000
Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	70,411,000		70,990,000
Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,560,000		15,480,000
Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	142,045,000		123,621,000
Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,943,000		6,171,000
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans			123,043,000
Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	133,390,000		123,043,000
Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	840,009,000		815,080,000
Real Estate [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	271,797,000		236,895,000
Real Estate [Member] | Construction Loans [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	20,415,000		15,744,000
Real Estate [Member] | First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	477,386,000		491,451,000
Real Estate [Member] | Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	70,411,000		70,990,000
Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	299,938,000		268,315,000
Other [Member] | Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,560,000		15,480,000
Other [Member] | Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	142,045,000		123,621,000
Other [Member] | Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,943,000		6,171,000
Other [Member] | Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 133,390,000		$ 123,043,000

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Loans (Non-Accrual Loan, Segregated by Class of Loans) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 5,356	$ 6,904
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	1,230	2,356
First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	3,704	3,592
Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	231	783
Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	3
Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	113	81
Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	62	67
Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 13	$ 25

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Loans (Age Analysis of Past Due Loans Segregated by Class of Loans) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 18,995	$ 18,235
Current	1,120,952	1,065,160
Total loans receivable	1,139,947	1,083,395	$ 1,061,456
Total Loans > 90 Days or More and Accruing	478	267
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	11,444	9,995
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,195	2,034
90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,356	6,206
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans receivable		123,043
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,194	3,154
Current	270,603	233,741
Total loans receivable	271,797	236,895
Commercial Real Estate [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	96	922
Commercial Real Estate [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		20
Commercial Real Estate [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,098	2,212
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	20,415	15,744
Total loans receivable	20,415	15,744
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	560	580
Current	132,830	122,463
Total loans receivable	133,390	123,043
Commercial Segment [Member] | Commercial and Industrial [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	74	192
Commercial Segment [Member] | Commercial and Industrial [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	462	383
Commercial Segment [Member] | Commercial and Industrial [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	24	5
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	14,267	11,691
Current	463,119	479,760
Total loans receivable	477,386	491,451
Total Loans > 90 Days or More and Accruing	444	267
Consumer [Member] | First Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	9,147	7,272
Consumer [Member] | First Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,200	1,328
Consumer [Member] | First Mortgage [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,920	3,091
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,052	1,248
Current	69,359	69,742
Total loans receivable	70,411	70,990
Consumer [Member] | Second Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	758	296
Consumer [Member] | Second Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	120	187
Consumer [Member] | Second Mortgage [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	174	765
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	146	89
Current	18,414	15,391
Total loans receivable	18,560	15,480
Total Loans > 90 Days or More and Accruing	13
Consumer [Member] | Automobile Loan [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	95	89
Consumer [Member] | Automobile Loan [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	35
Consumer [Member] | Automobile Loan [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	16
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,629	1,308
Current	140,416	122,313
Total loans receivable	142,045	123,621
Total Loans > 90 Days or More and Accruing	21
Consumer [Member] | Boat/RVs [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,170	1,135
Consumer [Member] | Boat/RVs [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	361	102
Consumer [Member] | Boat/RVs [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	98	71
Consumer [Member] | Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	147	165
Current	5,796	6,006
Total loans receivable	5,943	6,171
Consumer [Member] | Other [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	104	89
Consumer [Member] | Other [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	17	14
Consumer [Member] | Other [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 26	$ 62

XML

Loans (Impaired Loans) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Impaired Financing Receivable With Related Allowance [Abstract]
Specific Allowance	$ 123	$ 100	$ 123	$ 100	$ 100
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	3,844	7,395	3,844	7,395	6,700
Unpaid principal balance, total	3,844	7,901	3,844	7,901	6,700
Average investment in impaired loans, total	4,677	7,520	5,613	7,798	7,578
Interest income recognized, total	28	48	98	180	225
Commercial Real Estate [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	1,143	4,105	1,143	4,105	3,608
Unpaid principal balance	1,143	4,105	1,143	4,105	3,608
Average investment in impaired loans	2,018	4,228	2,596	4,241	4,115
Interest income recognized	19	40	67	135	172
Impaired Financing Receivable With Related Allowance [Abstract]
Recorded balance	284	820	284	820	676
Unpaid principal balance	284	820	284	820	676
Specific Allowance	123	100	123	100	100
Average investment in impaired loans	359	820	491	822	793
Interest income recognized			1	20	20
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	1,427	4,925	1,427	4,925	4,284
Unpaid principal balance, total	1,427	4,925	1,427	4,925	4,284
Average investment in impaired loans, total	2,377	5,048	3,087	5,063	4,908
Interest income recognized, total	19	40	68	155	192
Commercial Segment [Member] | Construction Loans [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	827	649	827	649	595
Unpaid principal balance	827	1,155	827	1,155	595
Average investment in impaired loans	841	648	887	770	735
Interest income recognized	9	8	30	23	31
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	827	649	827	649	595
Unpaid principal balance, total	827	1,155	827	1,155	595
Average investment in impaired loans, total	841	648	887	770	735
Interest income recognized, total	9	8	30	23	31
Commercial Segment [Member] | Commercial and Industrial [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	194	219	194	219	214
Unpaid principal balance	194	219	194	219	214
Average investment in impaired loans	197	221	204	475	423
Interest income recognized				2	2
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	194	219	194	219	214
Unpaid principal balance, total	194	219	194	219	214
Average investment in impaired loans, total	197	221	204	475	423
Interest income recognized, total				2	2
Consumer [Member] | First Mortgage [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	1,396	1,126	1,396	1,126	1,126
Unpaid principal balance	1,396	1,126	1,396	1,126	1,126
Average investment in impaired loans	1,262	1,127	1,194	1,133	1,131
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	1,396	1,126	1,396	1,126	1,126
Unpaid principal balance, total	1,396	1,126	1,396	1,126	1,126
Average investment in impaired loans, total	$ 1,262	1,127	1,194	1,133	1,131
Consumer [Member] | Second Mortgage [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance		476		476	481
Unpaid principal balance		476		476	481
Average investment in impaired loans		476	241	357	381
Impaired Financing Receivables Total [Abstract]
Recorded balance, total		476		476	481
Unpaid principal balance, total		476		476	481
Average investment in impaired loans, total		$ 476	$ 241	$ 357	$ 381

XML

Loans (Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 1,139,947	$ 1,083,395	$ 1,061,456
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans		123,043
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	271,797	236,895
Commercial Real Estate [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	263,502	226,439
Commercial Real Estate [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	4,416	4,137
Commercial Real Estate [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	3,850	6,319
Commercial Real Estate [Member] | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	29
Commercial Segment [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	413,949	359,965
Commercial Segment [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	7,191	8,746
Commercial Segment [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	4,433	6,971
Commercial Segment [Member] | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	29
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	20,415	15,744
Commercial Segment [Member] | Construction Loans [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	19,696	13,986
Commercial Segment [Member] | Construction Loans [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	298	1,309
Commercial Segment [Member] | Construction Loans [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	421	449
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	133,390	123,043
Commercial Segment [Member] | Commercial and Industrial [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	130,751	119,540
Commercial Segment [Member] | Commercial and Industrial [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	2,477	3,300
Commercial Segment [Member] | Commercial and Industrial [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	162	203
Consumer [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	708,125	699,811
Consumer [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	6,220	7,902
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	477,386	491,451
Consumer [Member] | First Mortgage [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	471,773	484,658
Consumer [Member] | First Mortgage [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	5,613	6,793
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	70,411	70,990
Consumer [Member] | Second Mortgage [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	70,065	70,086
Consumer [Member] | Second Mortgage [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	346	904
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	18,560	15,480
Consumer [Member] | Automobile Loan [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	18,553	15,480
Consumer [Member] | Automobile Loan [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	7
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	142,045	123,621
Consumer [Member] | Boat/RVs [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	141,847	123,490
Consumer [Member] | Boat/RVs [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	198	131
Consumer [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,943	6,171
Consumer [Member] | Other [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	5,887	6,097
Consumer [Member] | Other [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 56	$ 74

XML

Loans (Activity in Allowance for Loan Losses by Portfolio Segment) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	$ 12,604,000	$ 12,906,000	$ 12,641,000	$ 13,168,000
Provision charged (credited) to expense	250,000		600,000
Losses charged off	(405,000)	(298,000)	(960,000)	(1,010,000)
Recoveries	138,000	149,000	306,000	599,000
Allowance for loan losses, End of period	12,587,000	12,757,000	12,587,000	12,757,000
Allowance for loan losses, individually evaluated for impairment, Ending balance					$ 123,000	$ 100,000	$ 100,000
Allowance for loan losses, collectively evaluated for impairment, Ending balance					12,464,000	12,541,000	12,657,000
Total allowance for loan losses	12,604,000	12,906,000	12,641,000	13,168,000	12,587,000	12,641,000	12,757,000
Loans, individually evaluated for impairment, Ending balance					3,844,000	6,700,000	7,395,000
Loans, collectively evaluated for impairment, Ending balance					1,136,103,000	1,076,695,000	1,054,061,000
Total loans receivable					1,139,947,000	1,083,395,000	1,061,456,000
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	7,132,000	6,825,000	7,090,000	7,085,000
Provision charged (credited) to expense	97,000	(248,000)	168,000	(846,000)
Losses charged off	(55,000)	(4,000)	(88,000)	(4,000)
Recoveries	75,000	76,000	79,000	414,000
Allowance for loan losses, End of period	7,249,000	6,649,000	7,249,000	6,649,000
Allowance for loan losses, individually evaluated for impairment, Ending balance					123,000	100,000	100,000
Allowance for loan losses, collectively evaluated for impairment, Ending balance					7,126,000	6,990,000	6,549,000
Total allowance for loan losses	7,132,000	6,825,000	7,090,000	7,085,000	7,249,000	7,090,000	6,649,000
Loans, individually evaluated for impairment, Ending balance					2,448,000	5,093,000	5,793,000
Loans, collectively evaluated for impairment, Ending balance					423,154,000	370,589,000	341,122,000
Total loans receivable					425,602,000	375,682,000	346,915,000
Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	2,589,000	3,318,000	2,683,000	3,471,000
Provision charged (credited) to expense	(47,000)	83,000	38,000	321,000
Losses charged off	(125,000)	(154,000)	(309,000)	(545,000)
Recoveries	4,000	33,000	9,000	33,000
Allowance for loan losses, End of period	2,421,000	3,280,000	2,421,000	3,280,000
Allowance for loan losses, individually evaluated for impairment, Ending balance
Allowance for loan losses, collectively evaluated for impairment, Ending balance					2,421,000	2,683,000	3,280,000
Total allowance for loan losses	2,589,000	3,318,000	2,683,000	3,471,000	2,421,000	2,683,000	3,280,000
Loans, individually evaluated for impairment, Ending balance					1,396,000	1,126,000	1,126,000
Loans, collectively evaluated for impairment, Ending balance					475,990,000	490,325,000	498,697,000
Total loans receivable					477,386,000	491,451,000	499,823,000
Consumer Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	2,883,000	2,763,000	2,868,000	2,612,000
Provision charged (credited) to expense	200,000	165,000	394,000	525,000
Losses charged off	(225,000)	(140,000)	(563,000)	(461,000)
Recoveries	59,000	40,000	218,000	152,000
Allowance for loan losses, End of period	2,917,000	2,828,000	2,917,000	2,828,000
Allowance for loan losses, individually evaluated for impairment, Ending balance
Allowance for loan losses, collectively evaluated for impairment, Ending balance					2,917,000	2,868,000	2,828,000
Total allowance for loan losses	$ 2,883,000	$ 2,763,000	$ 2,868,000	$ 2,612,000	2,917,000	2,868,000	2,828,000
Loans, individually evaluated for impairment, Ending balance						481,000	476,000
Loans, collectively evaluated for impairment, Ending balance					236,959,000	215,781,000	214,242,000
Total loans receivable					$ 236,959,000	$ 216,262,000	$ 214,718,000

XML

Loans (Troubled Debts Restructured) (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) loan	Sep. 30, 2015 USD ($) loan	Sep. 30, 2016 USD ($) loan	Sep. 30, 2015 USD ($) loan
Construction Loans [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan				1
Pre-Modification Outstanding Recorded Balance				$ 155
Post-Modification Outstanding Recorded Balance				$ 134
Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan			1	1
Pre-Modification Outstanding Recorded Balance			$ 83	$ 88
Post-Modification Outstanding Recorded Balance			$ 83	$ 83
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1		1	3
Pre-Modification Outstanding Recorded Balance	$ 406		$ 406	$ 1,992
Post-Modification Outstanding Recorded Balance	$ 406		$ 406	$ 1,990
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	1	10	6
Pre-Modification Outstanding Recorded Balance	$ 11	$ 11	$ 565	$ 254
Post-Modification Outstanding Recorded Balance	$ 12	$ 11	$ 581	$ 251
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	3	1	3
Pre-Modification Outstanding Recorded Balance	$ 39	$ 51	$ 39	$ 51
Post-Modification Outstanding Recorded Balance	$ 39	$ 51	$ 39	$ 51
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan			1
Pre-Modification Outstanding Recorded Balance			$ 4
Post-Modification Outstanding Recorded Balance			$ 4
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan			3
Pre-Modification Outstanding Recorded Balance			$ 56
Post-Modification Outstanding Recorded Balance			$ 56

XML

Loans (Newly Restructured Loans by Type) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Combination				134
Total modification				134
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Term			83	83
Total modification			83	83
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Term	$ 406		406	1,990
Total modification	406		406	1,990
Commercial Segment [Member] | Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Consumer [Member] | First Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Term		11	47	11
Combination	12		534	240
Total modification	12	11	581	251
Consumer [Member] | Second Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Term		51		51
Combination	39		39
Total modification	$ 39	$ 51	39	$ 51
Consumer [Member] | Automobile Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Combination			4
Total modification			4
Consumer [Member] | Boat/RVs [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Rate
Term			48
Combination			8
Total modification			$ 56

XML

Loans (Troubled Debts Restructured Defaulted) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) loan	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) loan	Sep. 30, 2015 USD ($)
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding Recorded Balance		$ 0		$ 0
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	4,000		4
Post-Modification Outstanding Recorded Balance	$ 133,000		$ 133,000